Latest / BioSpace / The Golden Triangle and the gaps: Rethinking UK biotech
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- BioSpace Marketing: Hi, my name is Jennifer Smith Parker, Director of Insights at Biospace, and you're listening to De Nature. In this episode, you'll hear from Hakan Goker, Managing Director at ⁓ Ventures, and Mena Bauman, partner at Sophie Nova Partners. We explore the UK biotech ecosystem from the Golden Triangle's evolving role to the challenges of scaling companies, unlocking pension capital, and staying globally competitive. Hi, Maina. Thank you so much for joining this episode of Denatured, where we're going to be talking about the European life science and investing environment, and this time focusing on the UK. So let's go ahead and kick off. If you can introduce yourselves, that would be great. Heikan, let's start with you. Thank you. Jennifer, thank you for the opportunity to join. I'm Hakan Gokler. I head the biotechnology team at ⁓ Venches. I'm the managing director. ⁓ Vencheurs is the corporate. strategic venture arm of Merc Group. We invest along the business lines of the group, therapeutics, life science tools, and electronics. We are a 600 million fund in euros that invests across these sectors and we have been operating since 2009 as a middle-aged corporate venture group. Perfect. Maina? Yeah. ⁓ thanks for having me. I'm Maina Bahman. I'm a partner at Sophie Nova Partners. Within the capital fund strategies. So we have seven strategies. The capital fund strategy is the oldest strategy. It's been going for over 30 years. We're now on our 11th fund. ⁓ it's a $750 million fund. We invest in companies from Seed and Series A and continue working with them all the way through. We're part of the build strategy. We have a number of other strategies on the acceleration and growth stage as well. Perfect. Well, on those great introductions, let's go ahead and kick this off. So the Golden Triangle has long been the UK's biotech anchor. So for those in the audience not aware, the Golden Triangle is Oxford, Cambridge, and London. How do you see its role evolving? And what would it be like to better integrate emerging hubs like Manchester, Sheffield, or Dundee into a unified national ecosystem? I've been working in what we call the golden triangle for quite a long time. I started with Imperial Innovations, which was solely focused on that on that geography. Look, it's a very important part of the geography in the UK. It is the core hub of where ⁓ biotech happens and there there are several reasons for that. It's it's not just because I mean there is great science of course across those three geographies, but it's also because the money is here. ⁓ it's also because the talent we have is concentrated here in biotech. It's a risky business, so you need talent to be able to move from from company to company as as if things go go wrong, or even if things go right. ⁓ and so you do need a bit of an ecosystem. That's why you have you have hubs. I that's not to say that there isn't great science in Manchester, Sheffield. ⁓ Dundee, ⁓ Scotland. ⁓ we have companies in in many of those jurisdictions. It's just harder to recruit and and retain ⁓ people. And so the way we seem to look at it, ⁓ or at least the way ⁓ you know we we have we have a big hub and a a couple of companies in in Scotland. and ⁓ the way we try and look at it is we bring the the money that the teams to those opportunities and and potentially build out elsewhere, either in their Golden Triangle or or elsewhere ⁓ globally, ⁓ because you need to be able to recruit some talent that you may not get in the local environment. I mean in and total agreement there and And even before the Golden Triangle terminology was coined, ⁓ it was ⁓ not necessarily that these three these three ⁓ let's say cities were really working well together, right? I mean it took a while and it took a while to build that critical mass into into the region. And and the critical mass usually when you look across across the globe, falls out of pharma that exists in those locations, right? G SK, AstraZeneca, etc. And kind of Trying to reflect that from a broader European angle and maybe from the global outlook, you see the same things. It's not a UK specific, it's not a UK specific aspect. I mean, if you look at continental Europe, very few hubs exist that are true hubs. There are a lot of other academic institutions that put out stellar science. ⁓ but then you struggle how to build that into a well functioning company. And and and maybe we get to talk about it later on, but quite a Number of times what you do notice is that there is a bit of an aversion in Europe, ⁓ including the UK, for experienced managers to relocate or or find their let's call it an optimized ⁓ way of remote working to really to really help these companies. So what you do end up with is that is that you have those companies in the hubs and quite a lot more of a hassle to identify and build companies outside. You will eventually have to bring them into a hub in the lack of the two things that I mentioned earlier. Yeah, that is interesting. I I mean when I know when we first talked that you mentioned about the mobility aspect being a particular issue. And is is that something in a sense of building companies at scale is really one of the bigger issues? Is there limited talent and if you look in the UK, let's say versus other European countries, or that's not the case. There's a ton of senior level talent here as well. No, I I think it's not about necessarily that senior level talent doesn't exist. It's It's there's certain skill sets that don't that are not easy to find. And and some of that is business development skill set, some of that is medical skill set, ⁓ which does exist. It's just ⁓ if you have a growing biotech ecosystem that people who haven't had the experience of working in a biotech, which is a little unusual compared to working in a pharma. And so you need people with a certain sort of mindset. ⁓ people do need a bit of stability. which which is not often ⁓ a given in in the biotech environment. And therefore when you when there's a hub, you there's a confidence that, hey, if this one doesn't work out, the next one will and and I just have to go around the corner. Which is why Cambridge, even within that golden triangle, is an area where it's it's a lot easier to build companies there because there is more of an ecosystem. It exists in London and it exists in Oxford. But it's much stronger ⁓ in Cambridge because there is that very strong ecosystem already. And, you know, it's the same. It is the same in in all of Europe. It's the same in the US. I mean Boston and San Francisco. There really isn't very much in between. And so you've got to think that it's this i the issues are are identical, which is building teams of quality and being able to and yes, we're We're more used to remote, so you can have team members in different places, but of course the ability the ease of being there, the ease of travel, the ease of working with your team. And therefore there's there's a bit of it 'cause it's not just senior management that you have to hire. You also have to hire scientists. ⁓ and they need that stability even more so than the senior management. Correct, I agree. I think on the on the scientist side you do need local people. On the management side, I I think we as Europeans could actually show a little more flexibility on that. I mean, when we talk about the US, we may not mention Boston and San Francisco, those are big hubs, but there's such big catchment areas of what we call, you know, what we call Boston. And and some of those distances are easily further away than Amsterdam to London, for example. ⁓ but the mental kind of separation we have we have in Europe, which is I mean comparatively quite a small geography actually ⁓ if you put continental Europe with the UK together. So so that that flexibility of moving is still not yet set very well in in the in the minds of some of ⁓ some of the the senior management teams that we see from time to time. So let me ask you about now the science because you've both mentioned the very strong science that the UK does have. But I'm curious when it comes to translating science to companies, Where does our process still break down, particularly in tech transfer and spin out creation? Spin out creation used to be, I think, much more of a challenge than it is today. I think we all love to blame ⁓ tech transfer officers, but actually that's that's not really ⁓ I I think ⁓ in the past that was more of an issue. I think today the processes, at least in the UK, particularly within the Golden Triangle, no, th there's been there's been an attempt and to try and ⁓ make the process better. And I think, yes, it still takes a while because, you know, the the understanding of value ⁓ on both sides of the table. There's also complexity of who's funded the who's funded the academics. And also there's there's who are the investors investing in that early science. So all of those things have to come together. I think ⁓ places like Cambridge and Oxford you know, they have an ecosystem, they have also institutional money that comes that is there to fund ⁓ opportunities coming out of those organizations. So that happens much more easily now than it used to. But it's still it's it's still a challenge. I think the the biggest issue is still not so much the funding the company, but it's getting ⁓ or or not so much the getting the science out of the company anymore. ⁓ o out of the institution anymore, but it's more around can you then get the right people around it and accelerate that early science, get the right money ⁓ into those opportunities to do that acceleration and attract further money into those opportunities to build real high quality companies. 'Cause that early science has been less easy to fund in ⁓ in the last few years anyways. Yeah, that's ⁓ speaking of the funding aspect, I am curious here. I know Mina when we first talked, we had you had talked a bit about pensions actually in the UK and pension reform. And I just wanted to hear more about that, about as a major unlock for UK biotech funding. So what practical changes are needed to get more domestic pension capital into UK venture and where where's the the roadblocks now? Yeah, so let let's just clarify that. So the pension fund is never going to go into that very early stage. The pension funds are more about ⁓ scale capital. ⁓ and ⁓ and and and sort of more gross capital, I would say, for for later stage investing, because you know, you're never gonna be able to attract pension fund money into that very, very early stage company formation piece in my view. I I think the there's been an attempt a very big attempt by the last couple of governments to try and unlock this money because there is there is a lack of that growth capital. I think there are there are some structural issues ⁓ around the pension funds have to convince their own investors that they're not wasting or they're not they're gonna get ⁓ as good returns or longer term returns with this type of investment, they are not necessarily structurally ⁓ set up to invest in alternatives. And there's an attempt to have the BBB as a consolidator and bring some of that money together. ⁓ I think the biggest issue if I think about it is has been how pension funds report and how ⁓ we as venture investors report. So that's one aspect. There's the aspect of fees, because the pension funds are set up in a certain way to ⁓ only accept certain fees and that's a it's a mismatch ⁓ with venture ⁓ fees. ⁓ and so the some of these things are being attempted to be fixed, but they're not they're not easy fixes. And I think You know, the BBB are definitely trying BBB along with the government are definitely trying to ⁓ try and do things, but it's gonna take a bit of time. ⁓ it's already taken quite a bit of time. I think the date that they need to get the money in is by twenty thirty. And I think I've seen maybe two deals been done so far. One or two deals being done so far with the pension money. ⁓ I don't know if you agree with that, okay. I mean we we are corporate venture fund with single LP, but nonetheless we work with ⁓ we work with a lot of other VCs and we do hear and feel some of the those struggles, especially when it comes to growth of companies. And I guess the important thing that I could comment on is that a solution has to be found because we are seeing a lot more of the early stage venture capital firms folding and or not being able to invest any longer, which is the significant threat. to innovation, actually seeing any day of light outside of labs. And this is not necessarily just a UK problem, but we do see that also in other geographies in in Europe, certainly. And there is a threat for the ecosystem. Some money needs to come in to make sure that that smaller venture funds are able to do what they do at the earlier stages of of the cycle. And venture funds actually do have to support that as part of maintaining a a longer outlook in how to build value in AET geography. speaking about early seeds funding, I know we talked a bit about that in our initial conversations, ⁓ Hakan. And I'm just curious with when it comes to VCs, I know we talked a bit about them behaving more like crossover investors and there's also the rise in corporate venture and evergreen models. So for both of you, how do you expect the investor landscape in the UK to evolve over the next five to ten years? Crystal balltime. Well, hopefully positively. I mean, I'm still hoping that the last two years, especially the last two, three years is a is the kind of downward blip that that we will get out of. And we're seeing some improvement. The venture funds they're under their own set of pressures that they need to make meet. And quite a lot of cash has been locked up in companies that need to be progressed further before they they can be exited, which then returns the cash back to the fund and then they can raise their next fund. So it's been it's been ⁓ kind of miserable for mid-stage companies to get financed ⁓ for the last couple of years. and I mean the on the positive side, we are seeing a lot more money deployed by corporate venture funds, a lot more of the corporate venture funds being created or or upped in their allocations. And and we're also seeing that ⁓ through our activities is in life science tools, for example, and electronics. We're also seeing that happening in other sectors, not just therapeutics. I think therapeutics is probably one of the allest ones. But that is on the positive side. So hoping that the UK ecosystem will ⁓ reflourish once people have had their exits and had the time to rethink on how to how to continue building value also at the early stages, not just investing in the Series B or whatever the classification is to actually turn the clinical clinical proof of concept hard. And and we are very happy that we still have have firms like Sofinova that we work with, even at the early stages. It would be otherwise quite tough. Yeah, look I I think I think it we we've had all all of this goes in cycles. ⁓ we've had a pretty difficult couple of years. as Sakan said, I think things are on the the positive move now. The public market's a bit more open. There's been a reasonable amount of MA. And so you're seeing people come back into venture investing. Funds like ours never stopped, but but I think it is it is a challenging time for some of the smaller funds to raise capital bec until they until they start to ⁓ show some returns. And we all have our masters and LPs also have to get returns in order to continue to fund the the system. So ⁓ I think you will see a bit more consolidation in my view, ⁓ in smaller funds becoming part of bigger organizations and organizations like ours having the breadth to be able to do seed stage companies and then and then ⁓ Series A companies and then later stage companies so that you can keep that ecosystem. That ecosystem is super important. We need early stage deals in order to then be able to fund those later stage deals. And I think you ended up funding more later stage deals because the ability to go from early to late requires a lot of capital. And if you don't have access to later stage capital, you're stuck. Or you're you're sitting there and if you don't have MA, you're also stuck having to fund those. And you don't want to give I mean, if if the companies are doing well, you're not going to stop funding those. So you've but you've had to retrench and fund your own companies rather than create new companies. So I think it is cyclical. It does require we do require open public markets. We also require larger funds to be able to continue funding. And we need those early stage funds that can continue to build new and interesting companies. And that's kind of how we've set up our firm to be able to do all of those so that we're not solely dependent on the external environment. Well thank you so much, Hakan, and thank you so much, Maina, for talking about this topic. It's Interesting to hear the challenges that the UK has, but I'm still hearing optimism going forward and that there is a lot of good science potential. So thank you so much again for your time. And if you'd like to listen to more episodes of Denatured, please turn into biospace.com.