According to data from the UK BioIndustry Association and Clarivate PLC, investment in UK biotech has accelerated by a record-breaking 1,000% since 2012, with companies within the industry generating a record £2.8 billion in equity finance in 2020.
Although much of this newfound investor enthusiasm is down to the arrival of the COVID-19 pandemic and fresh interest in the industry, there appears to be plenty of opportunities for growth within the UK sector, too – with several large deals in the pipeline for 2021 and beyond. The list includes a Sanofi deal to buy Cambridge-based Kymab for $1.45 billion – the largest acquisition of a privately listed UK biotech company on record.
As we can see from the table above, 2020 has been a largely excellent year for biopharma companies choosing to go public, with the majority of floated stocks appreciating by more than 50%.
This level of investor confidence has helped to accelerate the growth of UK biotech companies and has paved the way towards a prosperous future in the industry domestically. But just how big can biotech become in the United Kingdom, and can it ride this wave of interest long into the future?
New Investor Enthusiasm for Biotechnology
Healthcare investors will understand that their investments in biotech require a more long-term view. It can take a matter of years of research and fundraising for companies to develop new products that deliver meaningful ROIs in this field. The risk involved with picking the right companies to invest in at the right time means that the sector has largely been the domain of specialist investors who understand the science.
However, matters changed with the arrival of the COVID-19 pandemic, when a large number of investors recognised that with so many companies testing whether their products in development had any application to Coronavirus, any optimistic news would be greeted with significant share price boosts – with company share values often doubling off the back of good news. This meant that the prospect of significant returns largely outweighed the risk associated with the sector. This optimism was compounded by widespread uncertainty within other sectors, like retail, hospitality and travel. Relatively speaking, companies focused on life sciences seemed like a safe place to invest.
Maxim Manturov, Head of Investment Research at Freedom Finance Europe, says that: “When the pandemic started, the market was mostly driven by tech stocks, the so-called stay at home stocks. Currently, when the skies are mostly clear and most economies are winning the battle against the pandemic thanks to the vaccines, many sectors that experienced correction or suffered during the COVID lockdown started recovering. Tech companies can still give good trading opportunities, though, so a healthy mix of various industries is the best option for your investment portfolio.”
According to a recent McKinsey study, while biotech companies listed on public markets experienced something of a downturn in early 2020, this trend was short-lived, with average shares growing 39% across Europe, 37% in the US and 106% in China between 1st January 2020 and 19th January 2021. This means that much more recent investment interest in the biotech industry has been from non-specialist investors whose attention has been attracted by the sector’s strength in spite of the COVID-19 pandemic.
Success stories within biotech breakthroughs has helped to raise the profile of the industry also. The recent exposure that German biotech BioNTech received following its partnership with Pfizer and its work in developing a COVID-19 vaccine has shown how it’s possible for companies to gain international recognition as a result of its innovative actions.
The Lure of The UK
Here, it’s important to note that UK biotech has been outperforming the broader market since before the COVID-19 pandemic struck. However, since then its performance has become even stronger with many more investors entering the sector on the London Stock Exchange. As a 30-year old industry, there are now mature revenue-generating companies alongside highly innovative and advanced startups creating new technologies. There are also brand new business models arriving in the industry.
Over 10 years, biotech has outperformed other sectors like pharmaceuticals and tech in both venture capital and public markets. The combined share price of the UK biotech sector is up by 133% compared to the FTSE-100 over the past year and 124% across the past five years. Quoted companies involved in developing technology related to the COVID-19 pandemic are up as much as 545% over the past year.
As we can see from the chart above, biotech IPOs have been involved in the recent IPO boom of 2020, with the number of industry public offerings approaching their previous all-time highs.
The performance of biotech IPOs once they go public has been generally strong too. Freedom24, a Nasdaq-listed broker that offers IPO participation to individual investors, highlights that the share price for VOR Biopharma has risen by 133.44% from an initial public offering price of $18 to $42.04 at the time of writing.
Bright Futures for UK Biotech
The key trends that are set to drive UK biotech growth long after the end of the COVID-19 pandemic have the potential to place the sector as an investment haven as various industries come to terms with the era of the ‘new normal.’
The UK biotech sector holds lots of solutions to the most urgent global challenges today, from combating pandemics to working to mitigate climate change and develop sustainable energy and food sources – matters that are set to become increasingly pressing concerns even as COVID-19 dissipates.
The sector also enjoys lots of governmental support across the world with record levels of private and public investment placed into the industry over the past 10 years. The large international pharmaceutical firms that distribute medicines around the world are working on developing fewer new drugs in-house. This makes them eager buyers of biotech assets, which accounts for an increasing amount of the overall drug development pipeline.
With more developments on the horizon and investor optimism in biotech companies helping to combat other emerging areas of global concern, we may see biotech investments continue to outperform other markets throughout the decade.