BIA City and Finance Update: August
Patient Capital Review Consultation
In November 2016, the Chancellor announced the Patient Capital review. The aim of the review was to “identify barriers to access to long-term finance for growing firms, supported by an advisory panel led by Sir Damon Buffini”. This is critical to the ongoing success of the UK’s biotech sector. The consultation paper was published in early August and the BIA is keen to get comments to shape its response to the paper.
What does the review’s consultation paper include?
Entitled, “Financing growth in innovative firms”, it takes an in-depth look at the current availability of finance in the UK for knowledge-intensive businesses, examines existing schemes to encourage investment into higher risk areas, and analyses the root-causes of low investment and short-termism for knowledge-intensive companies. It proposes initiatives that could remedy the problem in accessing capital. This review defines patient capital as “long-term investment (acknowledging that in some sectors this can be up to 15 years), in innovative firms that are producing new-to-market products and run by ambitious entrepreneurs who want to build large-scale businesses”. As called for in the BIA’s Industrial Strategy paper, the review addresses scale-up capital as well as long-term investment. The review concurs with BIA’s evidence in its annual finance review, that although the UK has world class research and good support for businesses in early stage, there is a need for greater later-stage funding for life sciences businesses to scale up and grow independently.
Helpfully for the sector, two BIA members are represented on the Industry Panel: Kym Lynn Denny, CEO, hVIVO PLC and Dr Fiona Marshall, FMedSci Chief Scientific Officer & Co-founder, Heptares Therapeutics Ltd. A number of well-respected life sciences investors are also on the panel, including Neil Woodford and, the acting CEO of Oxford Science Innovations, David Norwood.
What does the consultation paper conclude?
The lack of critical mass in parts of the UK’s capital markets is identified as the root cause of inefficient capital allocation. As a result, the government has proposed a series of initiatives that could address this problem.
What does this mean for UK Biotech?
For the UK’s biotech investors and businesses, it is vital that there is long term support. Without support following Brexit, the UK’s knowledge intensive industries could lose access to significant funding which it had traditionally received from the European Investment Fund via Venture Capital firms. We discussed this in more detail in our July blog. If you would like to input to the BIA’s consultation response please contact Martin Turner, BIA Policy and Projects Manager.
UK government funding via the British Business Bank, and possibly through other routes, could help cement the UK’s biotech sector as the 3rdglobal cluster and make it a key destination for bio-investing.
IP Group/Touchstone Innovations – rumbling on.
We covered the IP Group attempt to acquire Touchstone Innovations in our July blog. The news rumbles on. The latest bulletin on 17th August saw the withdrawal of one of the hoped-for investors in IP Group’s latest funding round, Beijing Galaxy World Group Co. Ltd. (after the Chinese government effectively vetoed their plans). That means IP Group will have raised £23.1m less than originally anticipated. In the same announcement, IP Group confirmed that the 2.2178 new IP Group shares per Touchstone share offer is still on the table. Despite Touchstone Innovations forthright response to the offer, published on 1st August: “The Board [of Touchstone Innovations] considers the Offer to be a hostile offer and believes that the terms continue to fundamentally undervalue Touchstone on a stand-alone basis and fail to reflect the key strengths of the business”, Touchstone’s independence remains on shaky ground. The situation in now on a timetable and will be resolved by mid-September.
Jargon of the Month: NOMAD
You may have heard the term NOMAD bandied around by bankers. What does it mean and why is it important to understand what a NOMAD is?
What is a NOMAD?
A NOMAD is a “nominated advisor for the Alternative Investment Market (AIM)”. The London Stock Exchange approves a company as a NOMAD that has: practiced corporate finance for two years; been a financial advisor in three qualified transactions in two years; and must employ at least four “qualified executives”. A NOMAD is there to help a new company in its AIM admission by (see London Stock Exchange):
- Undertaking extensive due diligence to ensure a company is suitable for AIM
- Providing guidance throughout the flotation process
- Preparing the company for being on a public market
- Helping prepare the AIM admission document
- Confirming appropriateness of the company to the Exchange
- Acting as the primary regulator throughout a company’s time on AIM.
Why is this important?
If you are considering a listing on AIM, you must use an investment bank that has qualified as a NOMAD. This will ensure that all the advice you receive is appropriate for your listing, and that, most critically, you have complied by AIM rules. The LSE keeps a list of NOMADs which you can check here.
Deal of the Month: Sphere Medical
While the summer months can be relatively quiet for the UK’s finance community, there have been a few interesting deals. Most have been small, or in preliminary stages such as Clinigen’s potential acquisition of Quanta Pharma while the largest was AstraZeneca’s US$8.5bn mega-deal with Merck & Co for certain oncology assets, announced on the same day as the failure of the MYSTIC trial.
Our focus, though is on Sphere Medical’s decision to go private. On 21stAugust 2017, Sphere Medical announced an £8m investment: £4m from Woodford Investment Management, £1m from the Wales Life Sciences Investment Fund and the rest from other shareholders. Without the fundraising, and despite the £3m loan from Silicon Valley Bank in January 2017, Sphere would have run out of money by late September 2017. At the same time, Sphere will delist its shares and take the company private.
Why is Sphere going private?
Sphere has found it difficult to raise money in the public markets to progress its strategy, and at the same time cannot grow its orders without working capital. This option is likely to be the most reasonable way for the company to be able to progress its business model and raise money from Woodford. At the same time, it will be restructuring its business to reduce cash burn, and so removing the additional costs of an AIM listing will be welcome.
Introducing the Investor – SV Health Investors
This month, we introduce one of the best known and highly-regarded healthcare and life sciences venture capital and growth equity investors, SV Health Investors. SV Health Investors, formerly known as SV Life Sciences, has 20 years’ experience investing in Life Sciences (across all three sub-sectors: Medical Devices, Biotechnology, and Healthcare Services and Digital Health). It has over US$2bn under management across seven private healthcare funds. This includes its famous “Dementia Discovery Fund” for which SV won the mandate in August 2015. US$100m was raised in a partnership between GSK, J&J, Pfizer, Biogen, Lilly and Takeda, the UK’s Department of Health and the charity Alzheimer’s Research UK, with Astex a more recent joiner. The aim is “to deliver new drug approaches for dementia by 2025 to diagnose and intervene early to modify the course of disease while improving symptoms and thereby laying the foundations for effective therapies.”
The most recent fund raised by SV Health Investors closed its raise in April at US$400m. “It will invest in and support early-stage opportunities in biotechnology; early-stage and revenue-stage opportunities in medical devices; and growth equity opportunities with healthcare services and digital health companies.”
SV Health Investors also work closely with companies it invests in, aiming to help support them in the growth of their businesses. One of the ways it does this is through its Venture Partner Program – all the entrepreneurs are highly experienced in building businesses and use their expertise to help SV’s investee companies.
This communication should not be regarded as investment research and does not constitute any recommendations to buy or sell shares.