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What New Investments Mean for the Growth of the Life Sciences Sector

07 May 2021

By Jay Freeman

What New Investments Mean for the Growth of the Life Sciences Sector

In 2020, despite unprecedented business challenges, investment in life sciences reached record-high levels across almost every category and subsector.

The third quarter of 2020 was the largest quarter on record in terms of dollars for venture investment in life sciences, and alternative sources of capital rose as well, including corporate venture capital (CVC) and corporate partnerships, and non-traditional investors.

In the UK alone, 2020 saw £20 billion of corporate investment – the fourth highest globally. Additionally, venture capital funding (VCF) over the first quarter has seen £1 billion raised, with over a third of the money raised from venture capital over the first quarter of 2021 being for biotech firms specifically.

There’s a lot of growth across sectors globally in life sciences, but what do these new investments mean for the sector at large?

A shift to meet demand

Life sciences are a major component of many global economies, as a result of creating opportunities for real estate developers and investors.

The life sciences sector contributes £74 billion to the UK economy, and across the rest of Europe, a record of €3.7 billion of VCF into life sciences was raised for companies headquartered in Europe in 2019, which was 23% above the previous record in 2018.

Since 2008, Germany, France and Switzerland have received the highest proportion of life sciences VC investment activity across Europe, which pinpoints the key hotspots for future demand of office space for VC funded start-ups.

According to Deloitte, ‘digital health innovation’ looks to be a new trend that is continuing throughout 2021 and into 2021. This means that health systems are expected to be at the forefront of investment, as healthcare and life sciences organisations look towards a ‘hybrid model’ of virtual and in-person visits or solutions in a post-pandemic landscape.

The pandemic has also brought about the need for more life sciences professionals to combat future illnesses and world events such as COVID-19 outbreaks. For example, epidemiologists have been key in investigating patterns and causes of disease and injury in humans, ultimately reducing the risk and occurrence of negative health outcomes. 

Furthermore, biomedical engineers have been key in aiding the fight against coronavirus, from assisting with screening and analysing data to understanding how the virus operates and what can be done to support organisations creating the necessary responses to the pandemic.

To summarise, demand across Europe has been consistently high, and continually increasing, which means that demand will also rise, particularly when it comes to attracting new talent.

The war for talent

In a review of what makes workers within the life sciences sector happy and satisfied, Savills found life sciences employees to be more transient than the average office employee, with 47% expecting to be with their current employer for two years or less.

There is also the influence of growth to consider in the war for talent. Small biotechs that are growing into mid-sized pharmaceutical companies can often struggle to meet the challenges that come with growth, and the resulting cultural shifts.

A period of accelerated growth can often attract talent due to the excitement around the potential of the sector at large, yet as the growth steadily continues, it can cause shifts in company culture due to changed processes and structure.

To drive growth, however, companies require these highly talented and in-demand candidates, hence the ‘war for talent’.

Therefore, this period of new investments could see the war for talent become a larger factor in the sector, and as a result, see many companies re-evaluating their organisational structure, hiring processes, and retention strategies.

European real estate boom

Investment into European and UK life sciences real estate is anticipated to grow over the next half a decade, with a prediction of investment in European life sciences real estate hitting £800 million in 2021.

This is a significant increase in comparison to the average annual investment into European life sciences real estate between 2016-2020, which was £685 million.

Traditional commercial real estate sectors suffered in the pandemic, with offices and retail being hit hard by their long leases, which may be an issue of the past as the pandemic continues to shape the way sectors evolve.

The life sciences sector, however, had the advantage of companies taking out longer leases on space in order to realise a return on investment.

There is also a rise in the number of institutional investors and landlords looking towards life sciences as a solution to empty commercial space, as the demand for new office space rises within the sector.

Increased digitalisation and collaboration 

The digital transformation that rapidly accelerated during the pandemic saw the life sciences sector adapt through strong collaboration.

An industry poll in early 2021 showed that more than one-third of participants believe Covid-19 accelerated digital transformation of the pharma industry by five or more years.

The rapid development of vaccines in under a year, compared to the industry mean of 8.2 years for a new drug development and review, prove the value of the increased collaboration involved in development and testing.

New investments mean that a precedent will be set for these collaborations on a wide scale, focusing less on large, expensive launches and tedious procedures, and instead, on more collaborative and streamlined approaches that are less dated.

A long-term approach

Whilst the life sciences sector was one of the few sectors fortunate enough to continually grow during the pandemic, that’s not to say that it’s all fast-moving.

One of the notable investment hurdles is the drug development process, which traditionally takes 10 to 15 years to take a drug from discovery through to market approval.

This means that, though new investment is on the rise, there will also be an increase and a necessity for a long-term outlook and approach to investment, rather than a ‘quick profit’ one.

According to Deloitte, companies are currently looking to sustain the agile ways of working found throughout the pandemic, to bring their products and services to market, so life sciences functions and organisations will be at the forefront of driving ‘client innovation’ for the remainder of the year and throughout 2022.

The pandemic has highlighted the necessity and appeal of life sciences, in terms of the impact the sector has on society, the environment, and the global agenda. This appeal is a definite motivator for investors, which can only fuel innovation.

To summarise

The last year has seen the life sciences sector under a spotlight, as it continues to innovate and grow, benefitting from new investments and interest globally. 

As the sector continues to grow, the need for adaptability grows as well, which means the search for candidates, the need for new office/lab space, and the increased digitalisation and collaboration are all key areas set to be brought to the forefront due to new investment.

Additionally, as digitalisation continues to affect the route of life sciences, so too does its relationship with the tech sector, which can assist the sector in growing on a global basis as remote working continues to be adapted into hybrid working models.

If you’re looking to secure top talent in the life sciences sector to help bring your products and services to market, get in touch with the Panda team.

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