Woodford’s Woes Cast a Pall Over British Early Biotech Industry
(Bloomberg) -- The collapse of star investor Neil Woodford’s business empire reverberated beyond his own stockholdings, dealing a blow to the fundraising environment for early-stage British biotechnology that’s just starting to heal.
Budding biotech companies, which counted Woodford as a champion, saw money from global investors drop after the mogul froze withdrawals in his flagship fund in June. Five months later, his empire is moribund and early biotech investing is working to recover.
Fledgling life-sciences firms, often born from university laboratory discoveries, are part of the lifeblood of pharma and biotechnology companies, keeping pipelines stocked with innovations. The amount of venture capital raised by these small U.K. companies declined almost 70% in July from a year earlier, according to an industry analysis.
Woodford “was like a linchpin,” said Cengiz Tarhan, a consultant who formerly ran the technology commercialization arm of University College London. “Now there’s clearly a funding gap that needs to be filled.”
Woodford developed a cult following by correctly calling swings in tobacco, technology and other stocks over decades. An investor in big and medium-sized health companies, he was also seen as willing to write checks for smaller biotech businesses when they were still in the risky, uncertain period of testing out new ideas. Woodford declined to comment through an external spokesman.
His equity stakes in a variety of companies are still looking for homes. WG Partners, an advisory firm that specializes in life science companies, is looking at buying a portfolio worth about half a billion pounds ($646 million) that includes holdings in firms such as Oxford Nanopore Technologies Ltd. and Rutherford Health Plc, a person familiar with the matter told Bloomberg.
The bulk of the 25.2 million pounds in venture capital that U.K. small biotechnology companies raised in July came from one deal for a protein-analysis firm. Without that, the amount would have been the lowest since 2014. August venture capital fundraising fell 62% from a year earlier, according to a BioIndustry Association review of figures from PitchBook, a database for investors.
The sector appeared to regain some of its footing in September, although the bulk of the money raised came from two large deals. Overall it’s been a choppy year after the industry attracted a record 1.1 billion pounds in 2018 venture capital.
Woodford was a “cheerleader” who helped build out the sector when investment was otherwise low, said Martin Turner, head of policy and public affairs at the BioIndustry Association. Now, there are plenty from the U.S. and China that view European companies as attractive, he said.
The investor’s woes “dented a few share prices in companies he’s associated with,” Turner said. “But I don’t think it will have a long-term detrimental impact.”
Yet smaller U.K. firms say they’ve felt the sting. Cannaray, a London-based company developing drugs and consumer products from cannabis derivatives, saw flagging interest from British institutional investors over the summer, and went to the U.S. for most of the 7.8 million pounds it raised.
“The two institutions I’ve raised money from in the past, I would have expected them to come in this summer but they didn’t,” Chief Executive Officer Scott Maguire said. “Their judgment may well have been affected by Woodford.”
U.K. companies on the fringes of biotech have also seen a difference. Chris Olds, chief financial officer of closely held Ultraleap, a Bristol-based technology company that designs sensory interfaces, said the Woodford effect and Brexit uncertainty have hurt investors’ appetite for risk.
“People are more considered in their allocations now,” he said.
IP Group, a London-based intellectual property incubator that develops new businesses in biotech and other sectors, noted in its half-year results that Woodford’s “well-publicized difficulties” hurt investor sentiment and contributed to a 3% drop in the value of its portfolio.
“In some cases, this has adversely impacted valuations and constrained funding availability,” the group said in its latest earnings statement.
Woodford had been a backer of IP Group since 2011, beginning when he was at Invesco Perpetual before striking off on his own. He also invested in a number of businesses under the IP Group umbrella, such as Oxford Nanopore, which makes gene-sequencing equipment.
Even when Woodford was in the mix, fundraising in the U.K. was relatively difficult for small biotech companies, said Gergely Toth, founder of Cantabio Pharmaceuticals Inc. Toth, who was a research fellow at the University of Cambridge, has raised $3 million mainly from U.S. and Asian investors for his Palo Alto, California-based company.
“It’s very localized in the U.K., so for major local investors, there will be an impact,” Toth said, referring to Woodford.
Venture capital firms that fund small and mid-sized companies were already hurting after the European Investment Fund, a key source of capital from the European Union, cut back its investment in U.K. funds following Britain’s 2016 vote to leave the EU. In October, the U.K. government announced it would give 200 million pounds to the British Business Bank to invest in the health and life sciences industries.
“Woodford supported the early-stage sector and stayed with a company throughout its lifecycle,” Tarhan, the consultant, said. “Spin-outs from universities and startups relied on that.”
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