BIA City and Finance Update August 2018

Normally there is a summer lull for fundraising and deals.  Not this year.  In this edition we discuss a number of interesting deal and fundraising developments. Also, in this edition what the investment community thinks about a ’no-deal’ Brexit scenario for Life Sciences, we explain ETFs, and we meet GHO Capital.

Join us in October for the Bioscience Forum.

Normal fundraising not the norm for August 

The UK summer is usually quiet for the investment community. But, this year funding continued and there were a number of interesting deals. The variety of funding rounds, M&A and other deals, shows the continued attractiveness of UK technology in the wider market.

Oxford BioDynamics received a £9.75m investment and strategic partnership from the Chinese GL Capital Group. Orchard Therapeutics raised US$150m in Series C financing to advance their gene therapy pipeline led by Deerfield Management. Sensyne Health IPOed on AIM and raised £60m valuing the company at £225m.  Novo Nordisk bought a small Bristol University spin out, Ziylo, in a deal worth over US$800m.  Abzena had a private equity sale for £34.4m.  Ligand acquired Vernalis for £32.7m.  And this is just the highlights – there were many more deals. 

What does this mean for UK Biotech?

The remarkable flurry of activity is part of a wider international trend. Silicon Valley Bank released numbers at the beginning of the month showing that life science venture capital investments in the United States had already reached $12.6 billion for the year, on pace to exceed last year’s record $16.6 billion.  In the US, the industry has had more money invested for the first six months than in any full year except 2015 and 2017.

Investor confidence that deals can get done, that companies can raise enough money to deliver on their business plans, and that investors can generate returns is delivering a virtuous circle of investment. The investment community expects the positive funding environment to continue into the last quarter of the year, though investing may start to slow as investors look to manage their portfolios ahead of Brexit (see below).
 

No-Deal Brexit 

The ‘no-deal’ technical guidance on medicines regulation was broadly pragmatic, essentially proposing unilateral recognition with the EU. Read more here. On the same day that the guidelines were published, the government required the UK’s suppliers of medicines to hold an additional six-week supply of medicines in the country ahead of the Brexit date and to be able to air freight into the UK short shelf life medicines. Read the BIA’s review of additional supply requirement here.  

What does this mean for UK Biotech?

It is clear that a ‘no-deal’ Brexit would mean a significant increase in replicative bureaucratic red tape for the industry, bringing higher costs and probably delaying supply of medicines both into the UK and from UK manufacturers to the remaining EU countries. If there is no deal, investors will almost certainly revise forecasts to take into account the costs of the extra six-week supply for 2019, the increase costs of doing businesses with EU countries and, following Brexit, some companies deciding not to release products in the UK. 

There will be some in the investment community who view the life sciences sector performance as too unpredictable during the Brexit process, and decide to focus their investments on sectors with fewer regulatory and bureaucratic hurdles.  

Jargon of the month: ETF
 

An ETF, or Exchange Traded Fund, is a type of fund owning a basket of assets such as shares or foreign currency. An ETF share trades on a stock exchange as usual, and has certain cost and trading advantages over normal funds. 

Normal funds usually have a professional manager of the basket of assets, aiming for better performance through active intervention. ETFs meanwhile, are a form of index fund with the basket of assets that it is designed to track.  ETFs are not normally actively traded.

The most significant advantages of an ETF for an active investor is that it gives diversification, mirroring a wider range of investments, and that, unlike some other types of funds, it can be easily bought and sold throughout the day. However, there are risks such as tracking error against the underlying assets concerns over regulation. What is more, some of the ETFs are not sufficiently diversified to reduce risk substantially.  
 

Introducing the investor 

GHO Capital or Global Healthcare Opportunities was founded in 2014 as a specialist London healthcare investment adviser. GHO Capital aims to build a world-class healthcare specialist private equity firm by focusing on the highly attractive and underpenetrated European market. 
Management have significant experience of investing in the sector across a range of geographies and subsectors. Currently GHO Capital has five companies in its portfolio ranging from outsourced services to diagnostics. 

Join us for our September Brexit Webinar 

This communication should not be regarded as investment research or marketing materials and does not constitute any recommendations to buy or sell shares.