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Well-funded life sciences firms are making long-term progress – and their investors are too

This is an exciting time for British biotech and pharma, as the intense efforts to find a solution to COVID-19 offer a way out of the pandemic

As the intense efforts to find a solution to COVID-19 finally start to bear fruit – with, for example, Synairgen showing promising results with SNG001 – how we’ve got here through countless rounds of fundraising has been a fascinating journey.

But it has also shown how one of the positives from this terrible pandemic is the development of a stronger small cap UK life sciences sector going forward, backed by a large retail investment presence.

The investors in life sciences over recent months have, in return, effectively shielded themselves in the short term from volatility and historic drops in the wider market and helped nurture a firm platform from which their capital can continue to grow.

It is, in short, an exciting time for British biotech and pharma. So what have the highlights of the last few months been?

Synairgen rewards its backers with COVID breakthrough

One of the early signs that UK-based small cap life science companies would play a role in the fight against the pandemic came in late March, when AIM-listed and Southampton-based Synairgen raised an additional £14 million to help test their then-promising SNG001 drug’s effectiveness in COVID-19 patients.

Up to that point, the drug was being developed to treat respiratory viral infections in patients with COPD who are at risk of experiencing exacerbations, which can be deadly and typically require hospitalisation.

As of 20 July, Synairgen revealed positive phase 2 trial results. Moreover, the 101 hospitalised COVID-19 patients who had used the drug were shown to have a 79% lower risk of developing severe disease andwere at least twice as likely to recover to the point where their everyday activities were not compromised through having been infected by SARS-CoV-2. Such a development could have huge positive ramifications for the ongoing battle against the pandemic.

Backers of the company at the time of the fundraise (where Synairgen’s shares were valued around 65GBX) were rewarded with a steadily rising asset and a 420% spike in the share price on the day of the trial. The share has now stabilised at around 250GBX.

Without the initial and fast raising of capital, it would likely have not been developed at such speed. In the past, small cap life science firms may have struggled to attract this level of investment.

However, the potential solutions they offer to the current pandemic, coupled with the ease with which retail investors can purchase such shares on release, has changed the outlook for the sector.

PrimaryBid, which has democratised investment, helps explain the latter point. The platform offers retail investors the same level of access to new issues of shares that existing (often institutional) investors have, rather than being squeezed out and having to pay a premium (sometimes as much as 20-30%) on the secondary market for the shares.

Such a platform is vital considering retail investors own a quarter of shares listed on AIM. Opening up investment to a wider audience has consequently eased, to an extent, liquidity worries that have persisted in the AIM index over the wider FTSE All-share.

And it’s not just innovation in response to the immediate COVID threat that is being realised through quick and efficient funding – the same results are being seen with companies who have longer-term aims within the life sciences and biotech industries.

Avacta can have transformative effects in the fight against cancer research

For example, by raising £48m in an oversubscribed placing via PrimaryBid in June, Avacta were able to accelerate not only plans to develop a potential point-of-care saliva-based COVID antigen test for population screening using Affimer reagents that bind to the SARS-CoV-2 spike protein, but also accelerate and expand work on their pre|CISION pipeline of cancer therapeutics.

Avacta’s Affimer technology is a novel class of non-antibody binding protein with a range of applications in diagnostics and therapeutics – essentially an alternative to antibodies with extreme versatility. It owes this versatility to the fact that Affimers are quick to develop (just 12 weeks) and are, in relative terms, easy to manufacture. All of this means that Affimers are likely to have long-term value to both consumers and investors.

The therapeutic product at the centre of Avacta’s near-term development plans is pre|CISION™.

It is a targeted chemotherapy that is activated by an enzyme found predominantly in the tumour microenvironment. By doing so, the chemotherapy is released at the site of the tumour, thereby reducing the toxicity of traditional chemotherapies, which are not targeted to the tumour and cause significant toxicities to healthy tissue. This in turn means greater patient safety as well as an overall improved patient outcome.

A versatile future

Both Avacta’s projects show that across the life sciences, the energy put into solving COVID-19 will have further reaching effects than simply tackling the immediate problem of the pandemic.

We will be more prepared for future diseases, and are already more equipped to address existing problems as a result of the increase in urgency and capital we’ve seen over the past months. Without the catalyst that COVID-19 has turned out to be, alongside easier access to investment, this arguably would not otherwise have been the case.

Collaboration is key

The recent funding rounds, initially led with optimism over COVID-19 solutions, have not only allowed companies to develop internally but have heightened their reputations significantly enough to collaborate with global heavyweights of the pharmaceutical industry and therefore establish themselves for the long term.

For example, Open Orphan swiftly raised a vital £12m in May, which helped them ramp up their existing antiviral testing capabilities, which historically were used on in-house viral challenge studies, to offer to external third parties.

Open Orphan’s unique approach to vaccine testing – conducted through a human challenge study in which subjects are exposed to the virus in question – will, they claim, help speed up the development of a vaccine by two to three years. Certainly, in the months since the fundraise, Open Orphan has been busy: on 10 August it signed a contract worth £4m with an unnamed ‘top three’ pharma firm for a viral challenge study, in this case respiratory syncytial virus (RSV).

This came a week after announcing that it expects “significant revenue” over the course of the year by providing pharmacokonetics and pharmacodynamics in collaboration with Japan-based Carna Therapeutics.

The company is also developing a SARS-CoV-2 human challenge model, which it hopes to have completed by year-end. Thereafter, Open Orphan should be in a position to offer it to prospective COVID vaccine manufacturers to demonstrate early signs of efficacy.

Both parties prosper

The advances that these small cap firms have made as a result of successful fundraises has meant that they have been able to attract the attention of larger pharmaceutical firms with whom they can collaborate and pool resources; a further step in their developments towards finding solutions to COVID and further diseases, meaning a firm establishment in the life sciences industry.

In turn, for the investors behind the fundraising (many of them retail as well as institutional), the last months have not only represented the opportunity to invest in a potential solution to the pandemic and other diseases, as well as enjoy surging returns, but it has also provided them with a different life sciences investment strategy.

For too long, investment in life sciences has been swallowed up by the less versatile big pharmaceutical gatekeepers.

As one of the few areas in which small cap firms have flourished during this difficult COVID period – evidenced by their promising solutions and quickly rising share prices – the life sciences sector could be set for a permanent shake-up as innovative small firms with the financial clout to sustain progress establish themselves as permanent fixtures in the industry.

Mark Brewer is Research Director, Life Sciences at finnCap

1st February 2021

Mark Brewer is Research Director, Life Sciences at finnCap

1st February 2021

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