BIA City and Finance Update | January 2019

2018 saw a record year for UK Bio funding with £2.2bn raised from investors. However, 2019 has started with more of a whimper impacted by both Brexit uncertainty and the Trump shutdown in the USA despite an encouraging JP Morgan conference. This month, too, GSK breaking up, meeting M&G and get a better understanding of call and put options.


BIA Finance Report shows record growth, but the primary market remains lacklustre

New figures published in the report Confident Capital: backing UK biotech at the end of January by the UK BioIndustry Association (BIA) and Informa Pharma Intelligence reveal that the UK biotech sector raised a record £2.2 billion from investors in 2018. The total is the best recorded by the trade association and almost double that raised in 2017. The figures show that global investors continue to see the quality of the science and businesses in the UK as a great investment opportunity. The UK is the leading life sciences cluster in Europe and continues to challenge clusters in California and Massachusetts. Highlights from the report:

  • £2.2bn was raised by UK-based biotech companies in 2018, compared to £1.2bn in 2017
  • Over £1.1bn of venture capital was invested into UK biotech companies
  • Over £1bn was raised on public markets: £432m in Initial Public Offerings (IPOs) and £658m in all other public financings
  • Across Europe, UK companies accounted for 40% of all biotech venture capital raised and 45% of funding raised through IPOs
  • Venture capital deal rounds were larger than previous years, and there were more late-stage post-B rounds, showing companies are choosing to stay private for longer

What does this mean for UK biotech?

Despite significant private fundraising in the UK and for UK companies, the UK’s public capital markets remained challenging for biotech companies. The vast majority of funds raised at IPO were for UK companies raising on NASDAQ, and the secondary markets fundraisings were below last year’s.

The BIA has been working with its investor networks to look at areas that may help to mitigate the low interest in Bio businesses on the UK’s public capital markets. However, good news for the UK remains in M&A where UK based companies continue to be of significant interest to overseas players.

Unfortunately, 2019 started slowly despite an encouraging JP Morgan with both Brexit and the Trump shutdown in the USA impacting fundraisings. However, it didn’t stop M&A being a feature of January following a drop in US prices. GSK acquired Tesaro in £3.8bn deal, Bristol-Myers Squibb acquired Celgene in a record-breaking £70bn deal, and Eli Lilly purchased Loxo Oncology for £6.24bn, with smaller deals too such as Abcam acquisition of Calico BioLabs.  

GSK - Restructuring and refocusing

Discussions around the restructuring of GSK was first reported in July in the Financial Times and then announced in December. The CEO delivered a new consumer joint venture with Pfizer in an all-equity transaction which will result in GSK owning just over 2/3rds of the new entity which is expected to have $9.9bn of sales. This consumer business is expected to spin off into a new entity in a few years. Separating Consumer and Pharma, GSK suggested, would improve margins, allow for better vision for each business and deliver £400m of cost synergies but there has been concern in some quarters that the loss of the cash-based consumer business could reduce the attractiveness of income investors to GSK. While others are excited about the prospects for a standalone more focused pharmaceutical business. The deal is expected to close in H2 2019.

However, it is not the only thing leaving GSK. Philip Hampton, the Chair, announced he was going in late January, and SR One the venture arm of GSK is purported to be in talks to split from its parent.  However, with the loss, comes gain. Two new key senior hires – Dr Hal Barron as CSO and President of R&D, who was previously at Calico, and Luke Miels as President of Global Pharmaceuticals, formerly of AstraZeneca – and GSK announcing pre-JP Morgan the acquisition of Tesaro for £3.8bn. Tesaro brings innovative oncology therapies, and will boost GSK’s pipeline and deliver new sales.

What does this mean for UK biotech?

GSK’s restructuring may impact UK Life Sciences. When other large pharma companies have pulled out of the UK or gone through significant cost reductions, there were some negative economic impacts. However, we have seen entrepreneurial spirit take root in situations like this before, with large sites being successfully repurposed into new science hubs, with new companies launching, and from pharmaceutical management joining smaller biotech companies and bringing expertise to these younger businesses. GSK, however, is not the only large pharma seeing staff move to newer biotech roles: Bahija Jallal from AstraZeneca’s MedImmune was recently announced as the new CEO of Immunocore, and Daniel O’Day head of Pharma at Roche has moved to Gilead Sciences. 

Jargon of the month: Call and Put Options

Call and Put Options are well-known and frequently used financial agreements for traders in public markets and can be used for tax management, income generation, and to mitigate risk. A call option is an agreement that gives the option buyer the right, but not the obligation, to buy a stock, bond or commodity at a specified price (the strike price) within a specific period (the expiration date). This means that the call option buyer will benefit if the price of the underlying asset increases. However, there is a cost to buy the option known as the premium.

A Put Option, meanwhile, works in reverse. It gives the buyer the right, but not the obligation, to sell a stock, bond or a commodity at a specified price (the strike price) within a specific time period (the expiration date). A put option increases in value as the price of the underlying asset decreases relative to the strike price. The put option price decreases as the expiration date approaches.


Option Buyer (OB) buys a call option in company ABC for £2, and this option gives OB the right to buy shares in ABC in 10 days for £100. In 10 days, shares in ABC are trading at £120, so OB exercises the option and makes an £18 profit when the shares are sold.

Option Buyer OP buys a put option in company ABC for £2, and this option gives OB the right to sell shares in ABC in 10 days for £100. In 10 days, shares in ABC are trading at £80, so OB buys shares in the market at £80 and immediately exercises the option and sells the shares for £100. So, making an £18 profit.

Introducing the investor: M&G

M&G has been investing for 85 years and have a global reach, headquartered in London it has offices in 16 countries and distributes funds in 23 territories. It was acquired by Prudential in 1999 for £1.9bn. In mid-July 2018, it announced a change of leadership ahead of its demerger from Prudential with John Foley taking over. Its approach to investment management is long-term, and it currently manages £285.8 billion of customer assets (as of 30 June 2018) in investments including bonds, equities, infrastructure, property, alternatives and cash.

While it is one of the larger investment houses in the UK, it has not completely shied away from investing in the sector. For instance, it has invested in Oxford Biomedica and is overweight healthcare in its UK Select Fund.


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

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