“Back in 2001, at a previous employer, I remember being asked by GW Pharmaceuticals’ management if we would raise £15m for the company,” recalls Mark Brewer, Research Director, Life Sciences. “It did not get sign off from all sides of the firm.”
GW Pharmaceuticals – which has developed the first cannabis-based prescription drug for epilepsy – was recently acquired for $7.2bn ($220 per share) or $6.7bn (net of cash) by Jazz Pharmaceuticals.
Founded in the UK in the 1990s, it moved to NASDAQ in 2012 because the UK was not prepared to fund clinical development programme when the company was valued at c.£50m.
“It’s a great British biotech success,” Mark continues. “It was founded in the UK but funded in the US. Part of our goal at finnCap must be to see that this changes.”
Indeed, on 5 February, Immunocore raised $258m in a NASDAQ IPO, valuing the company at c.£1.3bn. Once again, this company was founded on science emanating from the UK, at the University of Oxford.
Such stories of course indicate that significant value can be created from UK-based science, as our Life Sciences team demonstrated last year and continue to do now. We hope the current funding cycle for pharma and biotech can be sustained that will lead to future success stories, but funded on this side of the Atlantic.
Not only this, moreover it demonstrates that there is a fundamental need to ensure that we recognise and retain our budding superstar businesses. Perhaps it was difficult not be reticent about funding a cannabis-based biotech in 2001; perhaps it could be considered short-sighted.
And it’s not only NASDAQ that’s picking up our pieces. This sentiment feels especially pertinent at a time when the FT reports that Amsterdam has just overtaken London as Europe’s largest share trading centre, the Netherlands taking on business lost by the UK since Brexit.
Nevertheless, we have an opportunity now to lead on the global stage.
IPOs are coming into their own
That all said, London is still the main engine of a European IPO market resurgence, accounting for nine out of the 22 European listings announced in 2021 and providing three of its top five largest offerings so far, according to Bloomberg data.
finnCap had a busy 2020 on the float front. With that in mind we could confidently predict that 2021 looked like there would be a bit of a renaissance for IPOs. For private growth companies it is not just an exit route, it is a resilient means to raise capital without needing to approach private equity, and many businesses seemed to be looking towards that route. Throw into this mix services like Dual Track – where we run the sale exit and IPO exit preparatory strategies in tandem, allowing entrepreneurs to keep their exit options open – and that flexibility gives founders the headspace to explore their IPO options fully and comprehensively.
We’re entering a buoyant new era for the UK’s public markets, riding on the crest of a wave that has swelled with the promise of speedy vaccination programmes, eased lockdown restrictions, and some sort of resolution to Brexit, however popular or unpopular that outcome may be.
In any case, the timing is fortuitous. We as an ambitious economic power have the opportunity here to create the conditions for growth. The need for short termisim is waning; we need to be thinking 10-20 years into the future. What sort of country do we want to be in that timeline? What are the companies that will dominate the public market space? How do we ensure that opportunities like GW or Immunocore do not slip through the cracks again?
It is incumbent upon us as a nation to create those conditions. Bright and brilliant future British IPOs should be the sparkling results of a UK business culture that nurtures, enables, sustains and promotes.
So, how do we do this?
Uphold our rule of law
One of our principle assets to growth companies, and has been for some time, is our legislative framework. A reason why international investors continue to be attracted to our shores is the unique UK legal system and the relative certainty that pervades it.
We may be about to lose that key advantage. Commenting on the importance of reinforcing this reputation, Senior Partner of Cavendish Corporate Finance LLP Lord Leigh of Hurley has said:
"Foreign Direct Investment in UK businesses has been a tremendous success, and it will likely prove to be all the more crucial over the coming period. We are consistently 2nd or 3rd in the world, and for a long time the first in Europe, in terms of the volume of investment flowing into the country from abroad. Along with other pools of capital, this high level of FDI will prove very useful as many UK businesses, particularly the country's SMEs, a sector which accounts for over 95% of enterprises and some two thirds of national employment, will struggle to stay afloat once emergency coronavirus support falls away.
"Consequently, we should seek to reinforce the UK's high standing in the World Bank index of ease of doing business, not just to retain high volumes of foreign investment, but also to increase the UK's attractiveness as a place in which to start and maintain a business. It is through supporting our SMEs, the backbone of our economy, that we will encourage a quick and full recovery.”
Stoke the scale-up engine
According to a 2020 study of Office for National Statistics data by the ScaleUp Institute, and recently reported by the FT, high-growth companies in the UK turn over £1tn – representing half the country’s total SME annual turnover. But while we as a country have historically supported ambitious startups well, the ScaleUp Institute recommends a strategic policy shift to offer government support to companies that can show a sustained period of trading, that are ready to change their business model to one that focuses on scale and growth.
Facilitate the seismic shift to ESG
Impact investing while ‘good’ by its very nature, presents another hurdle to climb in the funding landscape for growth companies. While life sciences and of course the technology sector are most certainly taking centre stage over the course of the pandemic, the seismic shifts to better ESG-consciousness accelerated by COVID is also remarkable. We expect ESG-orientated sustainability based businesses to consider listing this year, and we expect investor sentiment to dramatically favour companies that can put a number on their sustainability efforts. Reporting one’s ESG credentials is of paramount importance to securing the investment that aligns with wider growth plans. We are currently developing a solution for sustainability reporting in partnership with World Wide Generation (WWG).
And it’s perhaps through the pressures of COVID that we’ve seen in technicolour how creating these conditions for great companies to thrive yields results. To bring things back to our original point, one need only take a look at the current UK Life Sciences sector for evidence.
Mark Brewer continues: “The UK is one of the leading global centres for life science research and is home to over 6,000 companies. As it was when I started this job, I expect the UK to remain at the forefront of innovation helping to bring new medicines, vaccines and diagnostics to the market.
“One needs look no closer than the coronavirus pandemic to see what brilliant science has emanated from these shores leading the way with novel vaccines (Oxford/AstraZeneca), diagnostics (Novacyt) and potential therapies (Synairgen). Investors have once again been reminded of the capabilities and quality of the UK life sciences sector and the substantial returns that are possible. The outlook for the sector looks very promising.”
The UK has a proud reputation as an excellent place to invest and do business and a rightful claim to the European centre of IPOs. The phenomenal growth of fintech in the UK did not happen by chance. Look at the people running these businesses, look at where the money to back them has come from. They have chosen the UK as they believe in the UK as a country with a mindset for standing back and letting business get on with generating wealth for our citizens. Let’s not disappoint them.
Our goal in finnCap is to see the changes ahead and be one foot ahead of the game. We need to continue to create, sustain and refine those conditions that allow us to support burgeoning super-companies 10, even 20 years in advance, to ensure that the world’s brightest and best are funded here. We see that there are obstacles for growth companies in this country, but we also have an opportunity to help our most ambitious firms reach IPO stage and list on the British markets.