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Mark Howard is a partner at Charles Russell LLP.
There has been a notable shift in interest for life-science companies over recent months from institutional investors investing through the public markets, but any plans to release further capital will rely on first-rate R&D.
Good quality research and development (R&D) is crucial to the long-term success of the pharmaceutical industry and more generally, the wider life-sciences sector, but acquiring adequate funding is often viewed as a challenge, particularly at the feasibility or concept stage of R&D. There are, nonetheless, a number of funding sources available for companies and recent trends on the public markets may mean that an initial public offering (IPO) could be an option over the longer term. Given that traditional providers of debt finance remain cautious in their lending approach to companies conducting early-stage R&D, next generation businesses are finding alternatives in government and national development funds, such as the UK’s Biomedical Catalyst programme and the Wales Life Sciences Investment Fund (WLSIF).
Mark Howard is a partner at Charles Russell LLP.
Biomedical Catalyst programme
The UK government’s Biomedical Catalyst programme, a £180 million translational funding programme operated by the Medical Research Council and the Technology Strategy Board, is actively investing in the life-sciences sector. The aim of the Biomedical Catalyst is to provide funding and support for small and medium-sized enterprises (SMEs), academics and universities in the UK to accelerate R&D in innovative healthcare projects. David Willetts, Minister for Universities and Science, stated that this “investment will help keep us at the very forefront of life sciences by supporting some of our most innovative SMEs and universities. It will help take excellent ideas through to market, driving growth and helping patients benefit from the very latest technologies and treatments” (1).
In November 2012, it was announced that in its last round of funding, Biomedical Catalyst had provided grants totalling £39 million to speed up the development of healthcare technologies, of which £29.6 million went to 22 projects led by SMEs (including Cantab Biopharmaceuticals Ltd, Glide Pharmaceutical Technologies Ltd and Kalvista Pharmaceuticals Ltd) and a further £9.5 million to 10 projects led by academic institutions (including the University of Oxford and University College London). The fourth round of funding was launched on 29 July 2013 and it is expected that a further £30 million will be issued to researchers through the scheme in 2013/14. The Chancellor,
George Osbourne, also announced that additional government funds shall be used to top up the programme, demonstrating the government’s commitment to ensuring that the UK remains a world leader in science and research (2).
Funding through such development funds not only assists with the funding of R&D, but recognition from these funds and the positive public relations it generates may be a catalyst for additional investment. An example of this benefit can be seen by the recent successful funding round by Glide Pharma, which is a pharmaceutical development and device company focused on needle-free administration of solid dose formulations. Glide Pharma announced on 26 February 2013 that it had completed a £14 million investment round, with funds managed by Invesco Perpetual investing the majority of such funds (3). In relation to the fundraising, Mark Kirby, chairman of Glide Pharma said that “this fundraising follows recognition of Glide’s novel technology by the UK government-backed Biomedical Catalyst scheme, which awarded the company £2.3 million funding for the development of a novel formulation of teriparatide (parathyroid hormone) for the treatment of osteoporosis.”
Wales Life Sciences Investment Fund
It was announced in May this year that the WLSIF had made its first investment in Simbec Research, a UK-based clinical research organisation providing worldwide services to pharmaceutical and biotechnology companies specialising in early clinical development of new pharmaceuticals. The WLSIF opened in the first quarter of 2013, with the purpose of investing in life sciences and related medical, pharmaceutical and healthcare companies based in Wales. It’s investment strategy is to focus on a small number of companies and provide them with both financial and business support. The WLSIF will invest in businesses at all stages of growth, including those requiring seed capital funding to fund R&D. Howard Jenkins, CEO of Simbec Research said, “This new partnership with the Wales Life Sciences Fund is a major step towards creating an invigorated and more dynamic company and we look forward to a highly stimulating period of growth for Wales and for all involved” (4).
In addition to investment activity, the WLSIF aims to attract companies, entrepreneurs and corporate venture spin-outs to Wales and encourage its investee companies to form international partnerships. To date, more than 160 businesses have applied to the WLSIF, showing a clear need for such funding and business support.
Listing on the public markets
While there are a number of opportunities available to pharmaceutical companies looking for funding in the R&D and commercialisation stage, another option for such companies is to raise funds on public markets. Although this approach has been a challenge since the 2007/08 financial crisis, particularly for the pharmaceutical sector, there has been a notable shift in recent months, with institutional investors showing renewed interest in investing in life-sciences companies through public markets, both in the UK (e.g., Clinigen Group plc, Retroscreen Virology plc and Venn Life Sciences Holdings plc, all three recently floated on AIM) and elsewhere (e.g., Stemline Therapeutics Inc., recently floated on NASDAQ). In addition to providing access to funding, the public markets offer life-sciences companies a range of benefits, including enhanced status and public profile, the ability to incentivise employees through share-option schemes, a transactional currency in the form of their listed shares and a potentially profitable exit option for investors. For example, on admission, the existing shareholders of Clinigen achieved a significant sell-down with an aggregate consideration in excess
of £40 million.
While the market appears to be strong for the pharmaceutical industry in general, for companies involved in drug discovery, the market remains challenging. However, certain institutional investors are showing interest in this sector as well, and the successful float of Retroscreen Virology demonstrates a willingness to invest in businesses carrying out quality R&D. Such admissions show that companies with a strong pathway to profit are investable from an institutional investor perspective. In particular, investors are looking to invest in companies that can demonstrate strong underlying fundamentals, a strong management team (preferably with a proven track record of bringing life-sciences companies to market) and established revenue streams or a clear pathway to profit.
As a further boost to companies in the life-sciences sector, on 27 March 2013, the London Stock Exchange launched a new high-growth segment of the main market, which aims to address the needs of fast-growing European technology companies with a view to providing such companies with a transitional route to the UK listing authority official list. Initiatives such as the Biomedical Catalyst are also proving to be crucial resources in assisting companies to fill the R&D funding gap early on in their lifecycle, and with the Office for Life Sciences firmly focussed on promoting UK life-sciences companies, this position looks set to continue.
Published in the August 2013 issue of Pharmaceutical Technology Europe, pp 8-10.