AstraZeneca vaccine co-inventors' float on US market is a blow to the UK - but it's not all bad news

Thursday 8th April 2021 15:15 BST

Instead, in what will be seen as a blow to the government's ambitions to make the UK stock market a hub for fast-growing technology and life sciences companies, Vaccitech is to float in the United States.

The company was valued at around $425m (£308m) at its most recent funding round, only last month, in which it raised $168m (£122m) from investors including the fund management giant M&G.

However, the Wall Street Journal reported last month that the company would be seeking a valuation of $700m (£508m) on flotation, while there has even been speculation that it could be worth as much as $1bn (£730m) by the end of the year.

The flotation will crystallise multi-million shareholdings for the company's two co-founders.

Professor Sarah Gilbert, the professor of vaccinology who led Oxford's vaccine project and Professor Adrian Hill, who is director of Oxford University's Jenner Institute, each own just under 3% of the company, according to regulatory filings. The pair have been working together at the institute for more than a decade on potential vaccines for conditions including tuberculosis, influenza and malaria.

They founded Vaccitech in May 2016 with £10m worth of seed capital from Oxford Sciences Innovation (OSI), an investment company, with a view to developing a universal flu vaccine. OSI's own backers include GV, the former Google Ventures and Sequoia Capital, the Silicon Valley-based venture capital firm whose partners include the billionaire Welsh investor Sir Michael Moritz, as well as an investment arm of the controversial Chinese telecoms equipment maker Huawei. They had also included Neil Woodford, the fallen fund management star, although he was forced to sell his stake in the run-up to the suspension of his fund in June 2019.

The University of Oxford itself owns a 5% stake in OSI although its biggest single investor is Braavos Capital, an investment firm founded by Andre Crawford-Brunt, the South African-born former global head of cash equities trading at Deutsche Bank.

Both GV and Sequoia joined OSI in putting up more capital when, in January 2018, Vaccitech raised £20m in a second funding round. Other new investors coming on board at the time included Neptune Ventures. That funding round was aimed at financing work on six products, including the company's flu vaccine, a therapy for prostate cancer and a vaccine for Middle East Respiratory Syndrome (MERS), a virus transferred to humans from infected dromedary camels and which, like COVID-19, is a coronavirus.

The knowledge gained developing that latter product was crucial when, at the outset of the pandemic, Professor Gilbert and her team began working on a COVID-19 vaccine candidate.

At the end of April 2020, Vaccitech sealed a landmark agreement with AstraZeneca to develop and distribute the vaccine, even though it had yet to undertake meaningful clinical trials.

The latest funding round, last month, saw M&G come on board with an investment of $50m (£36m). Other investors during the round included Tencent, the Chinese technology group and Gilead, the California-based biotech company.

Vaccitech's decision to float in the US, following the lukewarm response by London investors to the flotation of Deliveroo, is inevitably being seen as a blow to the UK.

But the success of the company still highlights a couple of important and reassuring long-term developments. One is that it shows the growing success of British universities in monetising their intellectual property.

This was seen as a long-term failing of the sector - Oxford famously did not make a penny from the development in its laboratories of penicillin 80 years ago - but began to improve when, just over 30 years ago, it set up a subsidiary to find ways of commercialising its research.

Other establishments, most notably Imperial College London, University College London, Glasgow University, Southampton University and Manchester University, were quick follow to suit. Oxford also started to take a more rigorous approach to work being done in its laboratories. Since 1995, it has asserted all rights over intellectual property generated by its employees.

The second is that the success of Vaccitech and other companies coming to market, such as Immunocore, another Oxfordshire-based company, is that they highlight the strength of the UK's life sciences sector. Britain is frequently accused of not investing enough in research and development but, in life sciences, that is emphatically not the case.

Overall spending on health R&D in the UK is second only to that of the US and, according to the government, the UK spends roughly twice as much on health R&D as international peers including Germany, Japan, France and Italy.

British taxpayers may also emerge as beneficiaries in a very small way from the Vaccitech IPO. The government, through its Future Fund, invested £5m in the company last year through a loan note that converts into equity. So the IPO may even crystallise a valuable stake for the Treasury.

It is also possible that public markets investors in the US may take a more optimistic view of Vaccitech's prospects than their counterparts here given the current questions being raised over the AstraZeneca vaccine.

But the IPO also raises questions. It is certainly eyebrow-raising to see this company heading to the stock market barely a month after its most recent funding round. The IPO may represent a very quick profit for investors such as M&G - but the timing rather suggests an element of opportunism on the part of some of Vaccitech's earliest investors.

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