Europe’s biotech industry is more buoyant now than it’s ever been. A combination of eager investors, the high-speed development of COVID-19 vaccines, exciting scientific developments and last year’s acceleration of existing trends is driving the sector to new heights. And as part of one of the world’s largest life science technology clusters in the so-called Golden Triangle with Oxford and Cambridge, London is riding that wave.
“There’s been a lot of investment flowing into healthtech startups from big, UK-based pharmaceutical companies,” explains Toby Bond, an associate at Bird & Bird. “Then the big US tech companies are interested in healthcare and diagnostics, so there’s a lot of investment flowing into the south-east of the UK from them, because of the quality of the research centres here.”
Morris S. Berrie, president of Achiko AG, a healthcare technology innovation company, highlights the recent jump in UK VC investment in the life sciences.
“The VC raise in the UK has increased from around £2bn in 2018 to £2.8bn in 2020,” he says. “To put that in perspective, in 2018 the UK raise was the same as Germany, France, Belgium and Holland combined. In 2020 Germany raised £1bn, France £600m and Switzerland similar.”
Neil Goldsmith, a biotech entrepreneur, sees two factors driving the investment boom.
“COVID-19 made investors pile into the life sciences,” he says. “Interest rates are at zero, which pushes investors into earlier-stage, high-tech opportunities.”
One of these new areas of opportunity for biotech investors and entrepreneurs alike is vaccines and anti-infectives, which used to be seen as difficult for traditional biotech.
“Vaccines are all about giving healthy people something that will protect them, so they’re held to much higher safety standards and that’s always made it a hard area to get into,” Goldsmith says.
“Then the problem with anti-infectives is two-fold. Infections are usually acute, and in general the money comes from conditions that are chronic. Then with anti-microbials, if you have a great new antibiotic drug that works on things that are currently resistant, you hold it back. You only use it when you have to, because you don’t want resistance to start developing to your drug as well. Medically and societally that’s exactly the right thing to do. But it means the guy who’s just developed the drug doesn’t sell very much of it. The industry was always a bit unenthusiastic about these areas.”
But with backing from organisations like The Wellcome Foundation, the situation has changed, and many companies that were reluctant to look at anti-virals two years ago are doing so now.
Big data comes to biotech
The other big area given a dramatic boost by the pandemic is data-based medicine. Mass testing and symptom logging programmes have delivered unprecedented amounts of data, on top of that already being collected by the NHS. The result is that the life sciences industry has recognised that big data means developing a vaccine doesn’t need to take 12 years.
“One of the massive success stories in the UK has been the MHRA and its emergency authorisation procedure which allowed it to collaborate with the pharmaceutical companies in the sharing of access to data. That enabled it to take very rapid decisions. So COVID-19 has really put a spotlight on data and data-driven innovation, and we’ll definitely see a bounce in terms of the amount of interest and investment in that area.”
Toby Bond, Associate at Bird & Bird
That bounce is also being fuelled by investment from US technology giants.
“The tech companies are bringing sophisticated AI tools like image recognition and allying it to the UK’s data-rich research centres,” Bond says. “There are large quantities of data here which are available to train AI systems for patient benefit.”
“In the past we’ve seen ad hoc collaborations – Google with Moorfields Eye Hospital a few years ago for example. What we’ve seen change in the last 12 months has been a real focus at the government level on trying to foster those types of collaborations. In the past, there have been concerns that the US tech companies are taking value out of the NHS, and what value is being returned to patients? Because of those concerns, there’s now much more of a push to have a central office, which can assist with these types of collaborations, understands their value, and sees how that value is retained for UK patients, while still fostering innovation.”
Goldsmith is a little more cautious about the importance of AI.
“AI was always going to come into healthcare, but there may be a tendency to overestimate its impact,” he says. “It has a significant role in the delivery of healthcare allowing you to see patterns that you couldn’t see before in developing a drug. I’m in a company where we’re looking at AI to help better predict which drugs you should give a cancer patient by looking at their gene expression state and using machine learning to understand which patterns predict which sensitivities.
“Then AI has a role in R&D in the very early stages, but once that’s passed, the existing processes will remain. At its core, drug development is a very conservative sector because you’re testing things on people, so you don’t change things very fast.”
While COVID-19 vaccines and artificial intelligence are keeping the sector in the media spotlight, changes are happening behind the headlines. Brexit is having an impact on the life sciences sector in many ways, some of them still hidden by the pandemic. Obvious areas of change include funding and regulation, but recruitment and other aspects of financing will also be affected.
The first big difference post-Brexit is that all UK companies now fall under different EU rules on investment.
“There are a lot of EU funds that primarily invest in EU-based companies, as they’re only allowed to allocate 15% of their funds to companies outside the EU,” says James Baillieu, a Corporate partner at Bird & Bird. “It now has to be something truly exceptional to make them use some of that allowance on a UK company.”
Part of this gap could be filled by the UK government, Baillieu explains. The Office for Investment launched last November, and there’s talk of a new agency to focus on blue sky research across different sectors, which may be relevant for life sciences. Both of these may negate some of the loss of funding for UK life sciences research from European sources.
“Brexit enables the Government to be more agile, to put an environment for investment in place that’s potentially a bit more flexible than you might have in the EU. And that in itself may help to attract activity and investment into the UK,” Baillieu says.
The result, he suggests, is that UK companies in all sectors – including the life sciences – will be looking further afield for funding in the future. That means the US and particularly Asia, which has been an increasing source of investment for biotech in recent years.
Both Baillieu and Sally Shorthose, a partner in the Life Sciences and Healthcare group at Bird & Bird, report that this need for UK life sciences companies to focus beyond the EU is a key area of their work.
“The big picture is that we’re living in a world where there’s increasing tensions between the different trading blocs, there’s increasing regulation and that regulation is getting ever-more complex. Companies and institutions see a greater need for lawyers to help them navigate all of that regulation and to assess where the risks are. And those risks are increasing.” says Baillieu.
“We’ve seen a trend in legislation for criminal sanctions to be used more often and for the level of fines to increase, and that increases the overall risk of doing business. Therefore, it’s really important to get legal advice to make sure you’re doing it right, or at least if you’re not quite compliant, that the risks you are taking are acceptable.”
James Baillieu, Partner at Bird & Bird
On the world stage
The Golden Triangle of London, Oxford and Cambridge has many strengths. It has world-class universities, hospitals and research centres. The science parks in Oxford and Cambridge have seen huge investment and, as Shorthose puts it, there are world-class scientists still turning their hands to the commercial side of their work. Unlike other countries, the south-east also benefits from the NHS’s increasingly centralised approach to data, appealing to big tech companies like Google which are looking to apply their expertise in AI to healthcare applications.
Berrie cites the ease of starting a company in the UK, and the lack of red tape involved; the ready access to Europe – “regardless of Brexit”; the transport links through Heathrow, Gatwick, Stanstead and Birmingham airports; and the huge pool of capital available.
Beyond this are the factors that have already made London a world city: the language; the time-zone halfway between Asia and the US; and a great common law legal system.
In addition, Brexit has given the UK chance to rethink its regulatory environment. While the pharmaceutical industry would prefer the UK and the EU to remain closely aligned on regulation going forward, other players see the opportunity for the UK to develop a regulatory regime that allows it to move faster and provide greater flexibility. For example, Baillieu notes that: “the EU’s precautionary principle means it tends to take a more cautious approach to regulation compared with the outcomes-based approach taken in the UK, especially in the case of emerging technologies like AI”. Certainly, Baillieu reports anxiety in Europe that the UK will be able to be more agile and flexible than the EU in the future.
Shorthose, however, is cautious about regulatory change for its own sake.
“The Government needs to speak to the right people,” she says. “They do not need to tear things up just because there’s an opportunity to do so. Some things have been worked out over decades and they are as fit for purpose as they can be. Our clinical trials regime, for example, needs to be sufficiently close to other regimes, so that companies want to carry out clinical trials here. That way we attract the best doctors, and our hospitals and the universities around them maintain their international reputation.”
A question of talent
This ability to attract the brightest and the best is crucial for the future of any biotech cluster, and competition is fierce. The UK’s new immigration policy is supposed to level the playing field, giving equal treatment to potential arrivals no matter where they come from.
However, there are concerns that the policy hinders the sector as much as it helps. Bond worries that the new, points-based system could increase companies’ administrative overhead, which would have a particular impact on start-ups and scale-ups. And Shorthose is concerned about how visa conditions may affect post-graduate researchers wishing to come to the UK.
“There needs not to be such a harsh red line, because PhD students and post-docs may well not be earning the threshold that you need to be considered for a visa,”
Sally Shorthose, Partner at Bird & Bird
Universities are also worried about overseas students and the revenues they bring in. Both Brexit and COVID-19 have reduced the number of students coming to the UK from abroad, through new rules and a reluctance to travel respectively. This has left the UK’s biggest universities with an estimated £1bn shortfall, which will have an impact on funding for all kinds of research, including in the life sciences.
Another area of concern is the weakness in the capital market that creates a glass ceiling for UK scale-ups. Baillieu points out that, once they reach a certain size, many promising UK biotech firms typically choose to list on the Nasdaq rather than the London Stock Exchange: “because the valuations achieved in the US are significantly higher and there is a deeper pool of investors with specialist sector expertise.” Or they sell up rather than grow into the giants they might otherwise become. He sees this as something government needs to address, which it is currently seeking to do with a number of initiatives, including its review of the UK listing regime.
Berrie too sees the need for change in this area.
“The problem is that as much as CEOs or shareholders would like to see their company grow to billion-dollar status, they cash their chips in when the market’s right for M&A or buyout. And it goes stateside,” Berrie says. “What we lack is an established, mature capital market, but that could change.”
The future is Golden
The trend in the US is towards a smaller number of bigger biotech ‘clusters’. Berrie believes London and the south-east has the opportunity to create a hub that rivals Europe.
“The south-east has the potential to be a ‘super-hub’ and to rival the PE VC raises of San Francisco and Boston, which were around the $8bn mark in 2020,” he says.
“The Golden Triangle is the third-biggest biotech hub in the world, and its reputation is still in the ascendant,” explains Shorthose. “This is a very exciting time. There’s a huge opportunity for London – and the rest of the UK – to drive the life sciences sector forward.”