VC hits a high for U.K. biotech, but 'dark spots' remain

London

Although not as traditionally as strong as the U.S. market, the U.K. venture capital funding rounds for biotechs hit record levels last year as $489 million ($692million) was raised.

This is according to a new report, compiled by the U.K. biotech trade group the BIA along with consultants at Evaluate and the London Stock Exchange, which details the boon for the industry--an industry that has been hit hard by the 2007 recession and has struggled for many years to gain consistent investment.

But the BIA warned that a shared focus from government, industry and investors “is vital to ensure momentum is maintained.” There are also lingering fears over what the U.K. investment landscape will look like if the U.K. votes next week to leave the European Union (which would happen by the end of decade), with the BIA telling FierceBiotech earlier this year that a vote to leave could jeopardize the flow of VC money into the U.K.

The report: Money, momentum and maturity: UK biotech financing and deals in 2015/16 also details trends in follow-on funding, venture capital activity, the strength of the R&D pipeline and rate of regulatory approvals.

Overall, 2015 saw an impressive level of follow-on funding raised by biotech companies on the LSE, according to the report. The junior AIM-listed companies in particular raised almost £600 million in further capital, representing over 60% of the total £900 million LSE money raised by biotech companies.

The £489 million raised by VC also accounted for over a third of the European total. The trend towards fewer but larger financing rounds continued, as investors moved away from the historical "drip-feed" approach. In 2014, VC activity saw £323 million raised, showing how much of a jump was achieved in 2015.

And M&A was not just dominated by the industry’s big players, with relatively newly-listed companies such as Circassia and Clinigen recording £100 million-plus deals.

But the report’s authors warn: “Despite these signs of continued momentum and maturity in the funding of the sector, there is no room for complacency. For example, the lack of reported seed capital for UK companies in 2015 underlines the importance of effective support for early-stage companies through fit for purpose innovation policy from the government.”

BIA CEO Steve Bates said: “The UK biotech sector is in great shape. The title of the BIA’s new report, Money, momentum and maturity, says it all. Firstly, more venture capital money went into UK biotech than ever before, cementing the UK’s lead in Europe. Secondly, impressive levels of follow-on funding demonstrate that not only can companies raise money, they can continue to build momentum through accessing further funds as they grow. Finally, 2015 showed continued maturity through both larger financing rounds and the fact that M&A in the sector is no longer dominated by the large players alone.”

Lisa Urquhart, editor of EP Vantage, the editorial arm of Evaluate, added: “The mood in UK biotech definitely shifted in 2015, creating one of the best environments for companies in decades. We saw this in the number and size of IPOs and very healthy follow on financing, which made the UK the stand-out region in Europe.

“Looking to the future, the record amount of venture financing should give encouragement that the sector is funding itself beyond the old hand-to-mouth model and finally creating sustainable businesses. The only dark spot, beyond the uncertainty of the EU Referendum vote, is the lack of seed funding, which needs to be addressed if innovation is to continue.”

-check out the report

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