The Monthly: July 2024

03 Jul 2024 / Corporate research

Feature article:

UK life sciences needs more local institutional support to survive

For clarification, the term “Life Sciences” encompasses Pharmaceuticals, Biotech, MedTech, Diagnostics and Healthcare.

Companies mentioned in this report:

Advanced Oncotherapy (AVO); Allergy Therapeutics (AGY); AstraZeneca (AZN); C4X Discovery (C4XD); Convatec (CTEC); e-Therapeutics (ETX); Genedrive (GDR); GSK (GSK); Immunocore (IMCR); Indivior (INDV); Novacyt/Yourgene (NCYT); Oxford Nanopore Technologies (ONT); Polarean Imaging (POLX); Redx Pharma (REDX); ReNeuron (RENE); Silence Therapeutics (SLN); Smith & Nephew (SN.); and Tissue Regenix (TRX).

  • For two years running, the Hardman & Co Healthcare index has declined, underperforming both the FTSE 100 and the FTSE All-Share indices. This is quite unusual for healthcare stocks. Apart from the general economic influences, which have made institutions more risk-averse, there was a common knowledge that several companies were in need of additional working capital; so, share prices were marked down in anticipation of equity raises.
  • However, there is nothing new in small- and mid-cap life sciences companies being capital intensive. What has changed is within investing institutions and pension funds. Consolidation has created a much smaller number of groups with enormous funds under management that are much less interested in small, capital-intensive companies. Consequently, the pool of institutions interested in such investments has diminished significantly, which has also had a significant effect on valuations.
  • This, in turn, has made a number of companies reconsider where their primary listing should be. Several companies have already left the London market. Since we wrote our initial report, they have been joined by Indivior (INDV), which has just moved its primary listing to NASDAQ, citing that it would be relocating to where it does most of its business and where it plays an important role in the market for addiction treatment. Among the small caps, three have already delisted from London this year over poor valuations, with at least one of them expecting to relist in the US when the time is right.
  • We conclude that things need to change. Institutional investors operating in the London market must be more supportive of the UK life sciences industry, which, historically, has offered them very good returns, otherwise, we fear that the sector could disappear within a few years. This, too, is a topical issue, with an article: “UK start-ups turn to Silicon Valley to fill the void left by risk-averse pension funds” published in the Financial Times (2 July 2024), and supported by a quote from GSK’s chair, Sir Jonathan Symonds, that “…lifting investment in high-growth companies is a prize worth fighting for…we have a wonderful [UK] life sciences industry…we’ve got to support UK innovation with UK capital…”.
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