LONDON - The number of biotech startups in the U.K. increased by almost 50% between 2014 and 2018, compared to 2012 – 2016, according to the latest data from the consultancy Biocity, which has been tracking the sector since 2005.
But it’s not just about the number of companies; it’s also about whether they have the resources to grow. U.K. startups historically have been underfunded compared to U.S. counterparts, but in the past four years, “money has been flooding into life science startups like never before,” the 2019 U.K. Life Science Start-up report says.
The amount invested in the period was £2.8 billion (US$3.61 billion), a fourfold increase on the 2012 – 2016 period covered in the previous report published in 2017.
The growth in early stage investment is down to the formation of significant new U.K. funds focusing on life sciences. That has enabled syndicates of investors to come together to put in larger sums to get companies off the ground.
Of the £2.8 billion going into the formation of startups, almost half went to 10 companies. Overall, the number of companies raising more than £25 million in the startup phase has increased more than eightfold.
Much of that transformation in the investment environment was driven by star fund manager Neil Woodford, who is credited with fostering a patient capital approach to life sciences investing.
Things are now on a less steady footing since Woodford’s non-specialist funds hit the buffers earlier this year. Control of his life sciences fund is being transferred to new managers.
“It is unlikely the life science sector can escape the fallout from the recent downfall of Neil Woodford,” said Glenn Crocker, CEO of Biocity and author of the report. “Combining this with the political and economic uncertainty caused by the Brexit fiasco, means the high levels of growth seen in this report are unlikely to be repeated soon.”
While that will mean the foot is lifted from the accelerator, it won’t cause the car to stop, Crocker said.
Jon Rees, consultant and long-term observer of the U.K. startup scene agreed. “The Woodford episode generated pessimism,” he said. However, the fact Woodford inspired other funds such as Lifearc, Syncona and Ahren to take a patient capital approach, “generates much more optimism,” Rees told BioWorld.
From 2014 to 2018, the divergence between regions of the U.K. remained as evident as ever, with the golden triangle of London, Oxford and Cambridge continuing to dominate in terms of number of startups formed and the amount invested in them. More than 82% of funding went to startups in that part of the U.K., up from 73% in 2012 - 2016.
Over the past decade, London has risen to be the leading center for startups in the U.K., moving from fourth to first. More than 120 companies were formed in the city in 2014 – 2018, a 50% increase over 2012 – 2016.
The primary factor underlying that is the world class research base in universities and institutes including Imperial College, University College London (UCL), King’s College London, the Francis Crick Institute and associated teaching hospitals.
That pool of expertise has given rise to many cash-hungry drug discovery and development startups that are able to access funding in London’s leading financial center. Across the country as a whole, drug discovery and development startups attracted the lion’s share of early stage funding at £1.7 billion, or 62% of the total.
Scotland, meanwhile, slipped from first to fourth in the startup league.
Cambridge and Oxford in the lead
Startups tend to be concentrated in hubs in each region where they are established. It’s no surprise that in eastern England, 78% of startups are in Cambridge and at the Stevenage science park attached to Glaxosmithkline plc’s research campus.
Similarly, 59% of young biotechs in southeast England are based in Oxford.
The data also reflect underlying technology trends, with nearly 23% of startups applying artificial intelligence to speed up drug discovery and development, or to improve the delivery of health care.
While the number of university spin-outs increased, they still account for the same proportion of total startups, at 38%, since the data were first collected in 2005.
As ever, Cambridge and Oxford stand out. Oxford University previously was considered to be underperforming in terms of spin-outs, but has been boosted by a targeted effort to attract more funding to commercialize its research.
The turning point came in 2015, with the formation of Oxford Sciences Innovation, a university-backed fund that now exceeds £600 million. That has led to a doubling of activity, with 27 companies formed since then.
Meanwhile, spin-out activity from Cambridge University has increased on the back of Cambridge Innovation Capital, a £275 million fund that has a preferred investor relationship with the university.
No other universities have the same financial heft. Imperial College was cut adrift from its dedicated fund, Imperial Innovations plc, after the publicly traded entity was acquired in 2018. Imperial, which has since re-established an in-house fund, spun out 15 biotech startups between 2014 and 2018. UCL research formed the basis of 13 biotechs, Manchester University established 10. Seventeen other universities each formed fewer than 10 startups.
A number of those 17 are U.K. leaders in terms of the scale and quality of their research in the fields of biological sciences and chemistry. That suggests they have more potential to create spin-outs, given a more auspicious funding environment.
“The U.K. has generated a good number of interesting biotech opportunities in recent years, but there are fewer quality biotech spin-outs than you might expect for the size of the research base,” said Rees. “Beyond Oxbridge, there are too few investors willing to build biotechs. For a functioning market, we need to encourage biotech-specific funds.”