Life Sciences represents a field of crucial research and development that is permanently hungry for capital but frequently starved of it. Both short term and long term investment are extremely hard to secure, even though life sciences has the potential to be one of the most powerful drivers of growth in the 21st century. It is widely recognised that advances in areas including genetics, immunology, virology, biochemistry, agriculture and ecology are of universal benefit not only to individuals but also to businesses, economies, academia, public bodies and international NGOs. Ultimately, the future health of the population and the planet lie in its disciplines.
Why then does every biotech startup and scaleup face a constant Sisyphean struggle to raise funding?
The obvious answer is that today’s capital markets are hampered by caution and a focus on achieving faster returns than life science innovations are expected to deliver. In such a conservative environment, businesses that are perceived as being lower risk and requiring smaller investment attract the support of venture capital and investment funds far more readily than an enterprise which, despite its transformative objectives, remains difficult to measure in terms of future performance and profit.
Anyone involved in the life sciences understands that theirs is a long game
Not only is research and design in such pioneering disciplines complex and slow, but it faces the additional burdens of satisfying lengthy regulatory approval regimes, both domestic and international. By contrast, a dynamic tech startup based on the Silicon Valley model can promise and often deliver astonishing results, leading to market-pleasing IPOs and a solid, consistent return. There’s nothing wrong with picking the low-hanging fruit, but science and industry are capable of far more significant achievements if given the chance.
Research and development costs are undoubtedly high
Life sciences companies frequently find themselves compelled to raise funds more than once a year. That causes levels of uncertainty that are not helpful to any industry, least of all one in which the promise of revenue may be deferred for many years. It is precisely that gap that needs to be bridged urgently.
Inevitably, the industry must look to governments and supranational organisations to alter the investment culture and improve its funding opportunities. This is not to suggest that governments themselves can or should supply the resources: still recovering from the crash of 2007 and now landed with the pandemic bill, few economies are sufficiently solvent to embark on a programme of direct investment.
What they can do is to implement incentivisation schemes which can simultaneously minimise tax-payer exposure and encourage investors to assume risk at a lower level of exposure. Tax reliefs have historically been highly effective in persuading the capital markets to move in one direction or another, whether it’s green energy or the film industry. In the UK, the government has gone on record as wishing to see the furtherance of what it calls ‘an already world-renowned life sciences industry’.
We need only look at the example of the University of Oxford/AstraZeneca Covid-19 vaccine to see how agile and effective the industry can be when its paths are cleared by government co-operation. With its practised dexterity, the treasury could immediately redress the balance between risk and return in the life sciences.
Tax incentives themselves may not be sufficient to level the playing field, but it is easy to imagine other measures
The cost of borrowing remains unprecedentedly low, both for the government and businesses, which means this is a good time to take out capital loans. Even with the growing expectation of an imminent interest rate rise, borrowing will still be cheap, and it is entirely possible for government-backed loans and hedging to guard against the effects of rate increases.
An even more interventionist measure is for the government to put its money where its rhetoric is and issue grants. These would have to be given as part of an agreement in which companies in receipt would give binding assurances of fiscal responsibility and due diligence in all their practices but the knowledge that the funding thus acquired is not repayable could significantly increase their confidence and ambition.
Across Europe, the picture is encouraging, partly thanks to the European Investment Fund’s commitment to the industry which includes a partnership with BGV, a major financial supporter of early stage European biotech companies. The Nordic countries have seen some of Europe’s largest biotech funding rounds and across Europe, venture capital is turning its attention to life sciences companies such as those in the medtech, agricultural and biotech areas. The biggest biotech IPO so far has been in Switzerland, although significant successes have also been seen on London’s alternative stock exchange, the AIM.
Despite these signs of improvement, Europe still lags some distance behind the United States and China.
Despite these signs of improvement, Europe still lags some distance behind the United States and China. At 13 per cent CAGR, early-stage funding for European biotechs is significantly below the US at 17 and China at 18. The European market is fragmented across 15 different stock exchanges and institutional investors lag far beyond their US counterparts. Greater integration and collaboration between European companies and their investors could go a long way towards correcting the deficit but first, the markets need to be not only convinced of the value of investing but also of its security.
Just as in the past life sciences eliminated small pox and polio in large parts of the world and have recently given hope to millions in the developing world with a malaria vaccine, so they can deliver remarkable benefits in the struggles against dementia, cancer, cardiovascular disease, fuel poverty, world hunger and climate change. Innovation does not come cheap, nor does it come quickly. But the solutions to the funding gap are not complex: with sufficient will and imagination, the impediments can be cleared and investment allowed to flow into this most vital of industries.