UK Life Sciences: The Funding Gap

The UK’s life sciences sector, once hailed as a beacon of innovation and growth, is now grappling with a stark reality: venture capital funding is lagging behind other sectors and regions. Despite the sector’s potential to drive economic growth and create high-quality jobs, it faces significant challenges that threaten its future prosperity. The question is, why is this happening, and what can be done to reverse this trend?

The UK’s life sciences sector has long been a global leader, with world-class universities, a robust scientific research base, and a centralised healthcare system that provides a wealth of data. The success of the Covid vaccines demonstrated the strength of this sector, built on these foundations. However, the sector’s transition from the discovery phase to commercial products has been fraught with challenges, and the funding landscape has become increasingly competitive.

One of the key factors contributing to the lag in venture capital funding is the limited pool of specialised investors. The UK has fewer biotech investors with the expertise to accurately assess opportunities compared to the US. This scarcity can make it challenging for biotechs to secure the necessary funding. To address this, initiatives like the Science and Technology Venture Capital Fellowship, launched by Imperial and the Royal Academy of Engineering, aim to upskill investors' knowledge and experience in deep tech and life sciences sectors. This fellowship will help make more investors aware of the potential in the UK’s deep tech and life science sectors, thereby unlocking more capital for these critical areas.



Another challenge is the mixed fundraising picture in 2023, with no IPOs launched in Q2 and only £44m raised in follow-on financing. This indicates challenging conditions on public markets, which can deter potential investors who rely on public market performance as an indicator of a company's viability. To mitigate this, biotechs need to focus on delivering compelling stories that resonate with investors and communicate their value proposition effectively. This includes clear messaging that balances complex science with easily digestible information for different audience groups, all within regulatory guidelines.

The competition for capital is intense, with thousands of innovative biotechs in the UK all vying for a limited pool of capital. This intense competition can make it difficult for individual companies to stand out. To address this, biotechs need to have a clearly defined and compelling mission, purpose, and values. Proper presentation training for senior leadership to effectively communicate value can also make a significant difference in securing funding.

The regulatory and market challenges facing UK biotechs are significant. The transition from the discovery phase to IP and commercial products requires substantial funding, which can be challenging to secure. The government's Life Sciences Innovative Manufacturing Fund (LSIMF), with a long-term commitment of up to £520 million, aims to unlock up to £1.8 billion in private investment. This fund will support thousands of high-skilled jobs and drive economic growth nationwide, while preparing the UK for future health emergencies and enhancing NHS resilience.

Foreign investors, particularly from the US, continue to play a significant role in supporting UK startups, accounting for over 70% of VC investment in UK companies in 2024. However, accessing funding across the Atlantic brings its own set of challenges. Strategic engagement with industry associations to communicate the strength of the UK biotech sector to foreign investors is crucial. This can help attract more foreign investment and support the growth of the UK's life sciences sector.

The current regulatory environment in the UK has a significant impact on venture capital funding in the life sciences sector. The UK government has made substantial investments and commitments to support the life sciences sector, which has helped to foster a more supportive ecosystem for venture capital funding. For instance, the Chancellor announced £20.4 billion in investment for UK R&D to drive economic growth, including fully funding association to Horizon Europe research programme. Additionally, a £520 million Life Sciences Fund has been committed to unlock £1.8 billion in private investment, advance health resilience, and create high-quality jobs across the country. These investments underscore the government's commitment to backing the UK’s R&D ecosystem to drive economic growth and achieve its five national missions.

However, there are still challenges that need to be addressed to foster a more supportive ecosystem. One of the key challenges is the need for more venture capital expertise in deep tech to boost domestic investment. The Royal Academy of Engineering has highlighted this need in a report, which shows that the UK needs more venture capital expertise in deep tech to boost domestic investment. To address this, the government has launched a new Venture Capital Fellowship, delivered by Professor Ramana Nanda, Academic Lead at Imperial’s Institute for Deep Tech Entrepreneurship, via Imperial Projects, in partnership with the Royal Academy of Engineering, and is funded by the Department for Science, Innovation and Technology. This fellowship aims to upskill investors’ knowledge and experience in the deep tech and life science sectors and unlock capital in this critical space.

Another challenge is the need for a strategic approach to communications strategy to support fundraising efforts. A carefully calibrated media strategy can lend additional weight to the picture biotechs want to paint for potential investors. Strategic engagement with the right industry associations to communicate the strength of the UK biotech sector to foreign investors is an area worth attention too, particularly with biotech FDI falling 47% from 2021 to 2022. And with the war for talent in the sector continuing apace, comms can play a major role in attracting and retaining the discovery and development talent that’s key to supporting maturing portfolios in the longer term.

In conclusion, the current regulatory environment in the UK has a positive impact on venture capital funding in the life sciences sector, but there are still challenges that need to be addressed. The government's investments and commitments to support the life sciences sector are a step in the right direction, but more needs to be done to foster a more supportive ecosystem. The launch of the Venture Capital Fellowship and the need for a strategic approach to communications strategy are two areas that could be improved to foster a more supportive ecosystem for venture capital funding in the life sciences sector. By addressing these factors through targeted initiatives, improved communication strategies, and increased government support, the UK can attract more investment in its life sciences sector and foster its growth.