BIA City and Finance Update November 2018
Deals remain the key driver of interest for the life sciences financial sector with a successful Jefferies Conference. Also this month, BTG plc was sold to Boston Scientific for £3.3bn, which looks set to boost cash inflows for investors in H1 2019. Also, in this edition, the Efficient Market Hypothesis – and we meet Bioscience Managers.
Brexit continues to preoccupy investors but could not detract completely from a successful “Jefferies week”. The week was well attended and well organised. The quality of company presentations continues to improve, and the 1 to 1 meeting rota format worked well in bringing investors together with companies for the start of discussions on funding opportunities.
In the meantime, funding and M&A remain buoyant in UK life sciences, though some investors are expecting things to slow in the public markets as Brexit approaches. Positive news in November included Takeda clearing its final regulatory hurdle in Europe for its $62bn acquisition of Shire – though it still needs shareholders to vote. Shire investors each get $30.33 cash per share, so there could be significant levels of cash to re-invest in the sector when the deal closes in January. November also saw the announcement of the agreed £3.3bn acquisition of BTG plc by Boston Scientific. The price of 840p cash per share represented a 36.6% premium to the previous days close and was above the 2014 peak for the company.
There was also M&A activity for Life Science advisors. Silicon Valley Bank, with its well-known Healthcare offering, announced the acquisition of specialist Healthcare investment bank, Leerink Partners, for $280m in cash with an additional $60m pool for retained employees paying out over five years.
What does this mean for UK Biotech?
The BTG acquisition should mean significant cash for reinvestment in the life sciences sector in H1 2019, along with the money coming in from the Shire sale. BTG shareholders, meanwhile, include some well-known UK names such as Invesco Asset Management and Woodford Investment Management. In theory, this gives a the shareholders of both BTG and Shire plenty of cash to reinvest into the sector. However, due to the size and nature of many of these funds, it is likely that the fund managers will need to invest in medium-sized or larger Listed businesses as opposed to smaller companies. Even though the Jefferies Healthcheck survey suggested that investors felt that small and mid-cap biotech would be the best performers in the next 12 months. Unfortunately, the UK Listed markets now offer relatively few options for mid-sized companies to invest in – could a solution be that larger asset managers opt to invest in specialist healthcare investment vehicles instead? Or, will the money end up flowing out of the UK?
Jargon of the Month: The Efficient Market Hypothesis
The Efficient Market Hypothesis (EMH) is an investment theory that claims that share prices reflect “efficiently” all information possible. EMH is based on the assumptions that all information is equally available to all participants in the market and that participants tend to act rationally on that information. In theory, EMH implies that it is impossible to achieve risk-adjusted excess returns; in other words, it is impossible to outperform the overall market.
The EMH is a contentious theory with evidence both supporting and debunking it. Debunking evidence, most notably, comes from investors such as Warren Buffett who have consistently outperformed the overall market while other evidence comes from the impact of market shocks such as stock market crashes. Exponents of EMH, meanwhile, highlight the difficulties that most professional investors have in outperforming the overall market, or even a subset of the market. For more information on this fascinating and contentious hypothesis that has been critical in much investment experience over the last 50 years, read here.
Introducing the Investor: BioScience Managers
BioScience Managers is an international healthcare investment firm that looks to finance and enable innovative science and technology with the potential to transform healthcare. The team has over 60 years of experience in life sciences investing and have consistently delivered annualised net IRR >20% (up to 40%) for the funds that they have managed.
BioScience Managers is highly selective and looks for value-creating investment opportunities with clear technological and market advantages. It invests in public and private healthcare companies which work in therapeutics, medical devices, diagnostics or digital health, which are in or near clinical development or commercialisation. Their strategy is to take a meaningful stake in investee companies and add significantly more value than just “capital invested”. The business is part-owned by Philips Capital which has £30bn of assets under management. The funds under management by BioScience Managers currently include a UK VCT via its relationship with Downing LLP.
This communication should not be regarded as investment research or marketing materials and does not constitute any recommendations to buy or sell shares.