Investors in the healthcare sector are predicting an increased focus on scale-up funding in the coming year following a spate of start-up activity triggered by the Covid pandemic.
Interest in areas from therapeutics to medical devices ramped up during 2021 as the market came into huge favour amid the global health crisis. This generated some new funding inflows as overseas investors turned their attention to Scotland, though Par Equity co-founder Robert Higginson said even greater access to international capital is required in the future.
“Yes, you see cherry-picking in individual deals [with new international] investors coming in, but in terms of giving you that bedrock of institutional capital to support growth on a cluster basis, where all the boats float up, you just don’t see it,” he said.
A member of the committee that published the Campbell Report in early December – which laid out 18 recommendations to increase private investment in Scotland’s health and life sciences sector – Mr Higginson said digital healthcare technology has received a huge boost from the pandemic. Whereas most investors only paid it “lip service” prior to Covid, the stifling of access to primary care during lockdown sharply highlighted the value of remote technologies such as that created by Current Health, a Scottish platform backed by Par Equity which was sold to US consumer giant Best Buy in a $400 million (£296.4m) deal announced in October.
“What happened in our case was that our portfolio in terms of its value shot up and then the big investors started waking up to [digital health] and they all kind of jumped on to that, and so that created a huge spike in terms of interest and a rush towards starting new companies,” he said.
Meanwhile, Jackie Waring of Investing Women said new business models are making the funding of traditionally longer-term plays in therapeutics more attractive. For example, firms that sign development contracts with large pharmaceutical partners can generate revenues while working towards their ultimate clinical and financial goals.
“There are some very cleverly structured business models out there that are seeing companies getting into revenue earlier,” she said. “These companies are so intellectual property-based that in the past you had to have really patient capital – 15 to 20 years would not be unusual.”
Members of the Investing Women syndicate have provided backing to Motherwell-based immunotherapy specialist TC BioPharm, which is developing T-cell treatments to combat cancer, as well as several other young Scottish firms in the life sciences sector.
Transatlantic scientific investor Epidarex Capital in a specialist in the field, financing both therapeutics and medical device firms from its UK headquarters in Edinburgh. Its portfolio includes Scottish drug discovery spin-out Macomics, Edinburgh-based cancer specialist AdoRX and Glasgow’s Clyde Biosciences, among others.
Epidarex partner Liz Roper serves on the board of Macomics, which is preparing to launch a Series A funding round in the first quarter of 2022 to raise between £20m and £30m. This could involve bringing in new investors based overseas.
“The scale of capital that has gone into the global market means that the UK and Scotland need to do the same,” she said.
At Par Equity, Mr Higginson is looking to move ahead on the creation of a mental health cluster that could possibly be based in Glasgow.
“We have got quite a big [healthcare technology] portfolio already so we probably only want to do another couple of companies in the next year, but they will be bigger sums of money because we really want to be scaling up some of our investments,” he said. “I for sure hope that one of those if not more than one of them will be in mental health.”