Seven key takeaways from the London Stock Exchange Group’s (LSEG) Future of Healthcare Investment Forum – are we witnessing the “dawn of the biological century”?

This is a pivotal year for the UK life sciences and healthcare industry, with a new Labour government placing the sector at the centre of its industrial strategy. Following the 4th of July general election, Chancellor Rachel Reeves has confirmed that plans devised under the previous Tory government to harness private capital to fill the historic funding gap will go ahead. 
In addition, the new UK Listing Rules that come into effect on 29 July 2024 promise to create a listings regime that will make it easier for UK life sciences and healthcare companies to come to market on the London Stock Exchange. 

As a leading firm in the life sciences and healthcare sector, A&O Shearman is committed to supporting high-growth companies through their early- and mid-term funding stages to IPO, as well as on a range of M&A, licensing, collaborations, and high stakes patent litigation work. We work across the industry, including with biotech, pharma, consumer healthcare, data and MedTech companies.

Improving market conditions and adjustments to financial realities

Across the event, participants spoke positively about global market conditions, while acknowledging that the era of "free money" is over. This adjustment has led to a more cautious yet optimistic approach to investments, particularly in the healthcare sector. In addition to the challenge of addressing the funding gap facing many growth companies in the sector, there is also a need to focus both on the number of spin-outs from universities and on their potential to become viable commercial companies, ensuring that funding and ownership considerations are not a barrier to effective innovation. While the perceived lack of life sciences specialists in the UK investment community still poses a challenge, tax-advantaged funds are seen as a real positive strength in the UK – and if interest rates start to come down later in the year, investors will take more of a ‘risk on’ approach.

Capital raising and IPO activity

The forum highlighted encouraging signs of capital raising and IPO activity in the UK, especially in life sciences and healthcare. Notably, the sector has raised GBP18.4 billion and seen eight listings so far this year (Source: London Stock Exchange, Dealogic, as of June 13, 2024). This momentum is anticipated to continue, but more needs to be done to support companies with viable commercial propositions, including through the opportunities provided by private capital as a stepping stone to public ownership. This needs to be a central strategic focus for the incoming government, making sure the ones that meet the UK’s needs get the funding they require.

Despite negative headlines about its status as a listing venue, London remains one of the most active capital markets globally. A US-based panellist highlighted this by mentioning the recent opening of their company’s London office, underscoring the city’s importance as a vibrant market and ecosystem for the life sciences sector. This year has seen three AIM listings of US businesses, the most recent of which was wound care specialist AOTI – countering the prevailing narrative around European businesses opting to list in the U.S. 

Speakers emphasised that there is indeed money to invest in the sector: the UK has GBP6trn of long-term capital held in pension funds, insurance companies, savings, and ISAs. A panellist said that much of this capital has been misallocated due to structural risk aversion. There is GBP300bn in cash ISAs that should be invested, along with billions in unused capital in private equity. Government policy – much of it an overhang from the previous Labour administration – remains the key to unlocking this investment.

Pension fund reform and investment 

A significant focus of the discussions was on pension fund reforms in the UK, particularly the Mansion House Reforms and the associated Long-term Investment for Technology and Science (LIFTS) initiative. Advocates stressed the need for a “home bias” with greater allocation of pension funds to UK equity, as well as the creation of a UK wealth fund initiative for investment in key UK sectors such as life sciences and healthcare. These reforms are expected to stimulate investment in the life sciences sector and address the liquidity issues faced by pension funds.

Socioeconomic factors and health

Speakers also addressed the broader socioeconomic factors affecting health. The fall in living standards in the UK was highlighted as a critical issue, with a call for the private sector to take a more proactive role in preventative health measures. Improving housing and reducing energy costs were identified as crucial steps towards enhancing public health outcomes.
Drawing upon the themes of preventative medicine and personalised therapies for conditions such as dementia and obesity, keynote speaker Professor Nadeem Sarwar highlighting the critical role of data - and of artificial intelligence in interrogating that data. This theme was characterised by other panellists as representing a “dawn of the biological century”, in which data and AI provide opportunities for advances in life sciences and healthcare that we could only previously dream of.

Trends in private companies and investment strategies

Another key takeaway was the trend of companies staying private for longer, with many UK companies showing significant scale-up potential. Life sciences companies are highly cash-intensive and the sector is volatile, so investment should come from specialist sector-focused funds. Venture capitalists were noted to be particularly active and profitable in this space. Noting the excitement around new industries including data and AI, questions arise around how to structure partnerships (for example with the NHS) to ensure privacy and maintain trust in an ethical way, noting that investors would also want to monetise that data.

International comparisons and underinvestment

A panellist remarked on the relative inefficiencies of the US investment landscape, describing it as being only marginally better than other systems. The forum highlighted a concerning underinvestment in the UK life sciences sector, with one panellist estimating the scale of the shortfall at USD10bn annually. Improving clinical trials in the UK was cited as a key opportunity to bolster the sector, ensuring that the UK's scientific advancements benefit local patients.

Science, research, and patient impact

The UK’s strong foundation in science and research was acknowledged, yet there was a call to bridge the gap between scientific discoveries and patient access. For instance, the Alzheimer’s drug lecanemab, developed in the UK, is not yet accessible to UK patients. Ensuring that UK innovations directly benefit the UK population was seen as a crucial goal.
A lack of capital is just one way in which a failure to provide the right ecosystem creates barriers to innovation. Finding ways to support research and development and harnessing available data are also critical to the success of the UK life sciences and healthcare industry, alongside skills development and incentivising skilled people to return to the UK who have gone abroad in search of better opportunities. 

Conclusion

The forum highlighted significant opportunities and challenges within the life sciences and healthcare sector. From improving market conditions and robust sector performance to critical policy reforms and investment strategies, the discussions revealed many reasons for optimism. However, ambition is essential. We can expect an uptick in investment in the sector with capital being unlocked and a focus on UK innovation. 

A&O Shearman is excited to accompany our clients on their journey to commercial success in this next chapter and beyond.