LONDON - The Brexit factor appears to be holding back fundraising across all sectors in the U.K., and life sciences is no exception. After a small pick-up in the second quarter, the third quarter has disappointed, with £214 million (US$263.2 million) raised by U.K. biotechs across the public and private markets.
That is a 30% drop on the previous quarter. The total of £869 million for the year to Aug. 31 is lower than in each of the past four years.
Companies looking to raise new funds are facing considerable uncertainty at the moment, said Steve Bates, CEO of the U.K. Bioindustry Association (BIA), which compiled the figures.
"Not every year can be a record breaker for U.K. biotech, and in this quarter, Brexit and global uncertainty are the factors at the forefront of investors' minds," Bates said.
He said he does not want to read longer-term trends from one quarter of data, but the figures do raise questions about how the sector in the U.K. will weather Brexit, Bates said.
Whatever the timing of the eventual departure, U.K. companies, venture funds and universities could lose access to capital supplied by the EU through the European Investment Fund. The British Business Bank is supposed to pick up the slack, but Bates questioned whether that is happening speedily enough.
He also raised concerns about investments owned by leading biotech investor Neil Woodford, whose Woodford Fund is on the rocks, and who is under pressure to sell his shares.
At the same time, the U.S.-China trade war is drawing Chinese investors to Europe, and Bates is keen to see how the industry can capitalize on that interest.
"To what extent are new investors that are taking a greater interest in the U.K., such as those from China, able to fund scaling companies to grow as Neil Woodford offloads many of his positions in our sector?" said Bates.
Private fundraising in the third quarter shrank by 30%, to £114 million. It was dominated by a single deal, the £82 million series B round for Juvenescence Therapeutics Ltd., which although based in the U.K., plans to invest the majority of the money in U.S. companies. (See BioWorld, Aug. 20, 2019.)
Seed funding in the third quarter totaled £10.4 million, of which the biggest share went to Astronautx Ltd., a spin-out from Alzheimer's Research UK's drug discovery institute.
Those drops in U.K. VC funding occurred against a backdrop of improving venture funding elsewhere, with a 10% rise over the previous quarter.
U.K. sinks in EU VC rankings
A long-time leader of European VC funding, the U.K. fell to fourth place in the ranking, behind Germany with £280 million, Switzerland with £249 million and the Netherlands on £148 million.
The German figure is flattered by a single deal, the £267 million series B round of Biontech GmbH. (See BioWorld, July 10, 2019.)
Meanwhile, biotechs in China raised £291 million in venture funding, according to the BIA figures.
There were no EU or U.K. IPOs during the quarter. U.K. biotechs have raised £63 million in IPOs in the year to date.
The only U.K. company to raise follow-on financing on the public markets was Oxford Therapeutics plc, which raised $128 million in a secondary offering on Nasdaq.
The BIA concludes that 2019 is now unlikely to exceed the record-breaking years of 2015 and 2018, when £1.9 billion and £2.2 billion was raised, respectively.
Although not in favor of Brexit, the BIA is positive about various moves the U.K. government has made to reduce its impact, by substituting EU policies for promoting research and innovation with national versions with the same objectives.
As one example, at the start of the week, Prime Minister Boris Johnson announced a dedicated life sciences fund to support companies in scaling up. That shows the government understands the difficulties facing the sector, but it remains to be seen if it can fill the Brexit-related investment gap, said Bates.
"This money will leverage in private sector investment, but it must work at both the pace and scale that growing companies in our sector need, if we are to maintain the momentum of previous years," he said.
Bates also said he wants to see a top up for Biomedical Catalyst Fund, which awards grants for industry to work jointly with academic partners in commercializing research. That has been a key scheme in drawing in private sector investment into emerging companies, he said.
BIA members remain concerned that immigration policy post-Brexit will block access to the best talent and stunt their growth. Existing employees from the EU-27 have been unsettled about the process of securing the right to stay in the U.K., and companies are concerned it will be more difficult and lengthy to recruit staff from mainland Europe in future.