The UK biotech sector: The path to global leadership

The global biotech sector is flourishing. COVID-19 vaccine success stories like the Pfizer and BioNTech partnership helped highlight the biotech industry’s significant impact in advancing healthcare. Private and public biotech funding, including global venture capital (VC) investments, deals, and IPOs, reached all-time highs in 2020. The surge in financing helped the global biotech sector outperform its sister industry, pharmaceuticals, and the consumer goods and technology sectors. And despite a brief downturn at the start of 2020, the average growth in UK biotechs’ share price was 32 percent, surpassing European biotechs (22 percent) and US biotechs (2 percent), and only trailing China’s 99 percent.¹Based on findings from Corporate Performance Analytics by McKinsey and S&P Global.

The United Kingdom leads Europe in discovery research and life-science start-up funding

Our Biotech Innovation Index assesses the biotech sector on four indicators:

1. Discovery: scientific publications and issued patents
2. Translation: formation of new biotech companies and early-stage capital raised
3. Growth capital: average amount of late-stage and public-equity rounds
4. Impact: product approvals

The Biotech Innovation Index reveals some interesting trends for the UK biotech sector. We supplemented the analysis by interviewing top UK biotech CEOs for additional insights into market drivers.

Among the four measures, UK biotech companies have outperformed their global peers in the Discovery index (Exhibit 1). Growth capital has also been impressive when considering the dual challenges of the COVID-19 pandemic and Brexit (see sidebar, “The UK biotech sector survived Brexit (so far) and thrived during the COVID-19 pandemic”). Overall, the United Kingdom is one of the most active biotech hubs globally, lagging behind only the United States. However, our Biotech Innovation Index analysis and CEO discussions indicate that, despite producing world-leading science, the United Kingdom struggles in Translation and Impact, that is, converting research into intellectual property and commercial products.

1

In our interviews with UK biotech CEOs, they shared that US market entry is critical to success in the current environment. They face an uphill battle for talent because the United Kingdom lacks the close-knit community that US biotech CEOs rely on to grow their companies.

To better understand the complexity of the UK biotech sector, whether its current trajectory is sustainable, and how it could raise its global standing, we provide an in-depth look at each of the Biotech Innovation Indexes.

Discovery index

The United Kingdom has always had a reputation for scientific excellence. The country produces 29 percent of European scientific journal publications. It ranks fourth on the Global Innovation Index with 116,815 jobs created and R&D spending projected to rise to 2.4 percent by 2027.²Life sciences industrial strategy: A report to the government from the life sciences sector, UK Office for Life Sciences, August 30, 2017, gov.uk. It boasts world-class universities, 28 Nobel Prize laureates in physiology and medicine, and a tradition of sustained academic excellence in the life sciences. The Times Higher Education World University Rankings 2022 ranks Oxford first, Cambridge fifth, and Imperial College London 12th. The United Kingdom leads its European peers in total life-sciences publications and leads the world in publications per billion dollars of GDP (Exhibit 2).

2

A critical first step to maintaining a strong UK biotech pipeline is ensuring that discoveries are patented. The United Kingdom has made significant progress on this front by enabling technology transfer from leading universities. From 2015 to 2019, there was a 5 percent growth in UK patents granted compared with European peers. But the United Kingdom falls behind the United States, China, and several of its European counterparts in the number of patents granted per scientific publication; eight per 1,000 versus 54 in the United States, 70 in Switzerland, and 72 in China. Published research suggests that British universities often demand an equity share of 25 to 50 percent on founding, compared with 10 percent at leading academic institutions in the United States and other countries.

Translation index

The number of new UK-based biotech start-ups decreased by 72 percent, from 79 to 22, between 2015 to 2017 and 2018 to 2020. However, the United Kingdom still led Europe in launching the most companies, 22 of 70, from 2018 to 2020. And today, 387 of the 1,382 biotechs in Europe—more than 30 percent—originated in the United Kingdom (Exhibit 3).

3

The United Kingdom is either the outright leader or among the top three in Europe in the total number of companies pursuing novel modalities—such as advanced therapy medicinal products and immuno­therapies—and focusing on challenging therapeutic areas, such as oncology and the central nervous system. The UK government has invested heavily in programs to maintain the United Kingdom as the largest biotech hub in Europe; the Catapult Network, a collection of independent not-for-profit centers that bridge the gap between research and business in cell and gene therapy, is one such program.

Although the United Kingdom is on par with Europe with regard to average early-stage funding ($21 million per UK biotech versus $20 million per European biotech), both still lag significantly behind the United States ($36 million) and China ($46 million). UK biotech CEOs say that it is challenging to access VC funding because specialized biotech investors who can accurately assess investment opportunities are scarce in the United Kingdom compared with the United States. Also, several high-profile UK biotech start-ups that failed “put people off” the space. There is a relatively higher level of comfort investing in US biotech. With the lower level of industry experience at the average UK biotech company, UK biotech executives are often less effective at communicating value and winning over savvy biotech-focused investors.

Growth capital index

Biotech companies in the United Kingdom outperform their European peers in securing early-stage funding but raise fewer rounds at a smaller average size than start-ups in the United States and China. Compared with European firms, UK biotechs raise less late-stage financing that would enable them to scale operations without going public on a US exchange. Since 2018, only two drugs developed by UK biotech companies have been approved by the European Medicines Agency (EMA) or US Food and Drug Administration (FDA). But as more therapies reach the market, UK start-ups may attract more mezzanine financing.

From 2018 to 2020, UK start-ups raised $3.6 billion, 20 percent more venture and public-equity financing than they did from 2015 to 2017 (Exhibit 4). Some UK biotech IPOs raised more than $100 million, breaking previous records. Kymab, an immunology company valued at $1.1 billion, was recently acquired by Sanofi. Immunocore launched on Nasdaq at a value of more than $250 million, Freeline Therapeutics and Allergy Therapeutics over $150 million, and Compass Pathways and Vaccitech at more than $100 million.

4

Despite leading Europe on total financing raised and the average size of early- and late-stage VC rounds and IPOs, the UK biotech sector struggled to fund later-stage development. There were significantly fewer late-stage deals, with no UK biotechs completing series D financing, and only one a series E for $12 million, between 2018 and 2020 (Exhibit 5). Biotech CEOs explained that this is because more UK start-ups choose to go public with an IPO on US exchanges, where the average IPO size is significantly higher than in the United Kingdom or Europe. European firms more often prefer to scale their operations and pursue acquisition by a large pharmaceutical company than go to public-equity markets.

UK biotechs have seen a 160 percent increase in average IPO size. However, they still raise less total capital from IPOs than in other countries: $0.9 billion from 2018 to 2020 versus $2 billion in Europe, $29.2 billion in the United States, and $15.3 billion in China. The total number of IPOs for UK biotechs declined 40 percent between 2018 and 2020, indicating that this exit strategy is becoming more difficult. CEOs explained that early-stage investors are wary of IPOs and UK CFOs often lack the expertise to navigate the complexities of a Nasdaq launch.

Impact index

UK CEOs report that the relative size of the US market compels most companies to launch there first. As a result, UK biotechs often require US-based leadership and operations. While the United Kingdom has deep scientific expertise, it lacks a pool of experienced managers, such as CMOs, CFOs, market-access experts, and regulatory professionals, who can commercialize biotech products. UK biotech CEOs told us they increasingly fill gaps by recruiting the best talent where they find it. If that means opening a small, local office outside the United Kingdom to accommodate critical personnel, they adapt their business accordingly. Executives with launch experience tend to be based in the United States and are in high demand.

Although the EMA or FDA have approved only two products from UK biotechs since 2018, CEOs explained that’s because UK companies often out-license their assets to large pharma. Globally, there is a trend in biotech toward launches being the companies’ first; 27 percent between 2016 and 2018. Of the 39 new therapies expected to launch by 2026 globally, more than half will be their company’s first.

The UK biotech CEOs we spoke to called for a global perspective on success. While local factors primarily influence the discovery, translation, and growth capital indexes, impact is global. It flows from recognized science, a global investor base, and delivering products to the patients who need them.

How the UK biotech sector can become a global leader

The CEOs we spoke to offered a remarkably consistent blueprint for how the UK biotech sector can sustain its dominance in Europe and potentially grow into a global leader. They called on UK biotechs to change their behavior, leverage their uniquely data-rich environment, and increase collaboration and collective growth. And they advised companies to broaden their vision from successful UK biotech to successful global biotech based in the United Kingdom. Here are four ways to do that:

1. Build relationships with US investors

   UK biotech CEOs are increasingly turning to the US IPO market to scale their businesses.

   There, they compete directly with US-based, and increasingly, China-based, biotechs for investment capital. The intense competition may require UK biotechs to be more strategic in choosing which revenue opportunities to pursue and accelerating the development timeline. There is no one way to secure investors, but the following tactics can help:

   • Invest time building relationships with a US-based investor network in relevant therapeutic areas and technologies, and consider recruiting US-based talent for the CFO, CMO, and COO roles.
   • Demonstrate a deep understanding of the US market opportunity and what it takes to bring a profitable, reimbursable product to market.
   • Set ambitious goals for the company and request sufficient funding to deliver on these ambitions at speed.
2. Adapt to win the global race for life-sciences talent

   As the global footprint of larger UK biotechs expands and the ongoing war for talent intensifies, companies might benefit from the following:

   • Attract and retain UK discovery and development talent to support maturing portfolios.
   • Establish a US base to house certain key executives, such as CFOs.
   • Change the traditional UK perception of success and failure; a CEO from a failed biotech has valuable experience to bring to the next start-up.
   • Consider siting clinical or regulatory operations in the European Union, close to senior talent and potentially in lower-cost markets.
3. Tap into UK life-sciences resources

   In recent years, there have been significant efforts across the UK life-sciences sector to help biotechs bridge the “valley of death” between academic innovation and commercialization. The United Kingdom’s Digital Innovation Hub has transformed local data from the UK Biobank, Genomics England, and NHS Data into a “research-ready” format. These resources could support target identification, indication finding, in silico drug discovery for early-stage companies, and indication expansion or safety expansion for products in development. Companies could also analyze this real-world data to produce real-world evidence that characterizes disease burden and supports reimbursement. Many valuable and unique UK resources remain underutilized, creating the opportunity for UK biotechs to do the following:

   • Invest in advanced analytics to utilize local data resources because access via third parties may be prohibitively expensive.
   • Leverage “omic” data sets (such as UK Biobank, Genomics England, and NIHR BioResource) to accelerate the development of precision medicines.
   • Partner with players such as NHSx to conduct digitized or virtualized trials.
   • Utilize the talent-finding resources at the Advanced Therapies Apprenticeship Community program or seek advice from the 200 cell and gene therapy experts at the Cell and Gene Therapy Catapult.
4. Strengthen the UK biotech community

   As the UK biotech sector matures, there is potential to create the same “virtuous innovation circle” seen in other hubs such as Boston and Silicon Valley. Emulating these more established business clusters, UK biotech CEOs and senior executives can seek opportunities to do the following:

   • Share experiences and learnings on how to bring UK biotechs to scale on a global stage.
   • Coach CEOs earlier in the innovation funnel on how to shape their fundraising strategy, refine their investment cases, and work with investors and partners.
   • Cooperate with industry associations to convey the vibrancy of the UK biotech sector to foreign-based investors and to advocate within the United Kingdom for the policies and legislation needed to boost the sector’s growth.