Europe Is Gearing Up For A “Fourth Wave” Of Life Science & Tech VC

While Covid-19 and the related global regulatory changes have accelerated the potential of life science innovation globally, the boom that Europe is seeing now has actually been bubbling up in the market for years. The U.K. (particularly the Loxbridge “Golden Triangle”) and Europe have always scored high in innovation and in founding companies, but they have traditionally faced challenges in scaling and developing executive talent locally.

The combination of life science & biotechnology innovation, paired with heavy computation and machine learning, has experienced a tremendous technological and capital inflection point. This overlap between sectors has brought in new investors that have been historically tech focused but now increasingly see opportunity in this blend of tech and life science. That, combined with an increasing number of founders seeking to commercialize university research has created the perfect environment for life science investing. This creates a very interesting opportunity especially in the U.K. and Europe where the density and volume of research is at levels only comparable to the U.S.

The U.K.’s life science sector received a massive financial boost last year, with investment levels doubling to £2.8 billion and 2021 has already smashed last year’s record. The U.K. government alone committed £1 billion to life sciences investments this year, and this summer’s madness in VC saw investors deploy £1.9bn between June and August alone, having already nearly doubled last year’s total cumulative investments. 

“[The momentum is] finally coming together,” said Ian Connatty, British Patient Capital’s (B.P.C.) Managing Director of Funds. “It’s taken a long time to get to this point, but we’re making significant advancements in scaling,” 

Founders are pitching investments that look and sound like traditional therapeutics companies but are deeply integrated to deep learning techniques like advanced machine learning techniques, big data and AI, but in a way that both enhances and accelerates their potential to take systems and computational biology in new directions. 

“We are seeing the coalescence of deep tech alongside traditional life science prospects,” said Tej Panesar who is B.P.C.’s Investment Director, Life Sciences. “Healthcare and life science is a compelling use case for a lot of advanced technologies, and that story has unfolded over the decade, culminating in innovations like Deep Mind’s AlphaFold.” 

A Fourth Wave 

Biotechnology areas like oncology have been traditionally favored by investors for the pathway to commercial outcomes and value creation. But today more capital is being deployed into other complex clinical research domains like dementia and Alzheimer’s and also into diagnostics for everything from Covid-19 to cancer. This “fourth wave” goes beyond traditional small molecule approaches and biologics like cell and gene therapies and has curative potential in what have been otherwise incurable and rare diseases that were before only treated symptomatically. With this groundbreaking work comes new challenges, such as how to manufacture something that has never been manufactured before and how to deliver totally new products from an operational perspective. These are groundbreaking technologies but new territory in terms of business models particularly in the early days of commercialization when the company is in the true start-up phase.

Returns on European life science investments stand up handsomely to pure technology investing but the investment profile and time horizon is different; investors need to be both bullish and patient. “It’s a combination of limited capacity and newness,” added Panesar. “The U.K. is trying to become a specialist in the sector and many of these manufacturing processes are new and the operational depth isn’t quite there yet. But the infrastructure is being built and the government is intervening to help develop this new ecosystem. This will happen over time.” 

The pace at which these innovations are delivered to the patient is compressing too. During Covid-19, we saw governments speed up some of these deliberately slow historical mechanisms both at the European and U.S. F.D.A. level, accelerating the regulatory environment to drastically shorter timelines than previously thought possible. Assuming many of these regulatory changes become more usual, this will greatly help the trajectory of startups to show financial opportunity sooner than ever in the normal lifecycle of a newly commercialized idea.

The U.K. and Europe are well positioned for a bright and innovative future: we possess an abundance of raw materials in terms of talent from universities, capital from the government and private institutions, and executives from life science companies that have experience in commercialization. The computation-oriented biotech and life science sectors are in growth mode now, and the VC community must adapt to these opportunities and timelines to capture the value in these lucrative areas.