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Can the UK’s life sciences sector secure the funding it needs?
1 October 2024 | Applicable law: England and Wales | 4 minute read
Life sciences are a vital growth sector for the UK. The sector contributed £12 billion to the economy in 2023, while in a sign of the country’s international reputation for research, Merck recently announced it will invest £1 billion to build a new research facility in London. However, at the recent Cambridge Tech Week (September 2024) our life sciences team heard concerns that innovators need support to help the UK maintain its leading position in the sector.
“Raising capital in the UK – particularly very early – is still difficult, in particular for ‘thesis’ (i.e. great ideas, little data) based businesses within life sciences and healthcare,” said Daniel Rooke, co-founder and COO of Start Codon, a Cambridge-based venture capital investor and venture builder.
“UK investors can often be more conservative on these types of opportunities than investors in other jurisdictions, so getting off the ground can at times be more difficult,” Daniel added. The problem has been particularly severe in the last 18 months as a slowdown in venture capital activity across the board created a challenging environment for early-stage and scale-up companies.
While markets will always ebb and flow, there is a risk that without more consistent support, the UK could see its historically strong position in life sciences and healthcare start to slip. University-affiliated investors such as Cambridge Enterprise Ventures (also present at Tech Week) are part of the solution, but private capital will be essential to secure long-term growth.
Withers are proud to have offices in Cambridge, UK and Cambridge, MA, with a dedicated life sciences and healthcare team working with some fantastic life sciences companies that stand to make a real difference in the world,” said partner Susanna Stanfield. “But there’s no doubt attitudes to risk in the sector are different on either side of the Atlantic . It’s something we have to be sensitive to when we’re working with UK-based investors.
UK investors can often be more conservative on these types of opportunities than investors in other jurisdictions, so getting off the ground can at times be more difficult.
To reassure investors, Daniel Rooke advised mission-driven founders to take a more commercial approach to planning: “The key challenges tend to be around the robustness of the underlying business (i.e., how you will make money) and people (who will you recruit, when and why). Founders need to think carefully about these issues, plan appropriately and be aware that it will likely take time to raise capital.”
Investors themselves, meanwhile, can have more confidence if they develop a robust research process of their own. “At Start Codon we’ll generally look at, assess and pressure test the potential market size and growth potential of a new product or technology, often in conjunction with founders,” Daniel explained. “We undertake a detailed competitive analysis, assess technical feasibility (using at least three outside experts), get comfortable with the regulatory pathways, and have a deep look at the business model and the team, to ensure that they can execute on the plans.”
There’s no doubt attitudes to risk in the sector are different on either side of the Atlantic.
This rigorous process is time-intensive but has helped Start Codon make a number of successful bets on innovative startups. It was, for example, the lead investor in Coding Bio, which helps clients to make bespoke Car-T therapies (which help a patient’s T cells to fight cancer) cost-effectively and at speed. “This was a ‘thesis’-based business with an excellent technical and non-technical founding team who had a plan, executed on it and raised the right amount of capital over a small number of investment rounds. They are now revenue generative, have nailed their commercialisation plan and have recruited the right people to drive the business forward super-efficiently,” said Daniel.
Another way UK investors can shake their reputation for risk aversion in life sciences is by spreading their bets across different technologies and sub-sectors and getting involved at different stages of product development. “You can actually find some very exciting opportunities in the tools and products space that are well defined – sometimes already with a MVP – but are still considered ‘seed’,” Daniel noted.
From our perspective, we’re most excited about opportunities in neuro, immunology and research tools.
One major boost for the sector arrived at the start of 2024, when the UK rejoined the EU’s €95.5bn Horizon Europe science initiative. As the year has progressed, both Start Codon and Withers have seen green shoots of activity in life sciences and healthcare that indicate momentum is returning.
“From our perspective, we’re most excited about opportunities in neuro, immunology and research tools,” said Daniel. “We’re seeing some exciting developments emerge in the diagnosis and management of and potential treatments for neurological and immune conditions. In the case of research tools, investors are seeing opportunities to invest comparatively lower amounts of capital into technologies that can get to market more efficiently, and therefore sell, quicker.”
If the momentum continues, the resulting growth should be a triple win: for patients and their families, for founders and investors, and for the future of this vital UK sector.
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