2023 is a pivotal year for UK life sciences as the Government renewed its commitment to increasing funding for research and development, and signed a new deal to re-join the European Union’s €95.5 billion research funding programme known as Horizon Europe.

Author: Andrei Nedelea


In January, George Freeman, Minister for Science, Research and Innovation, set out his vision of making Britain a ‘science superpower and innovation nation’1, reiterating the Government’s commitment to increasing funding for research and development.

Public spending will likely stimulate innovation, drive economic growth, attract talent, and ultimately improve healthcare outcomes for patients.

The pioneering companies that operate in the emerging scientific technologies space need to manage their risks more proactively to improve their chances of success. But what does the threat landscape look like for these companies as we head into the final quarter of the year?

1. Macroeconomic risks

As inflation continues to increase the cost of capital, investors have become more cautious. They have been known to withdraw from deals or seek less complex opportunities. In some cases, investors are avoiding biotech and instead turning towards medtech or digital health, which can offer a faster return on capital. When backing biotech, investors tend to favour late-stage R&D programmes that can demonstrate good clinical trial data, well-defined regulatory pathways, and a large target market capitalisation.

For medical devices and digital health companies focused on the UK market, investors are likely to prioritise those with established revenue streams, strong partnerships, and access to the National Health Service (NHS).

Deal flow has slowed down and capital deployment is more conservative in 2023, with greater emphasis on ESG.

Risk under the microscope: Five challenges facing the life science sector

2. Supply chain disruption

88% of industry respondents to a recent Fortune/Deloitte survey cited production issues and reduced logistics capacity, as key challenges for the sector this year2. Geopolitical threats such as the Russia-Ukraine conflict, US-China trade war, global cyber risks and inflationary pressures have led to a greater interdependence of supply chains. This has the potential to affect R&D and clinical trials, particularly in the event of a significant breakdown of supply and distribution channels. These issues are forcing many companies to rethink their supply chain strategies.

3. Lack of purpose-built real estate

There is a strong demand for purpose-built lab stock and this demand is unmatched by supply. According to real estate company Knight Frank, demand for active lab space in the golden triangle of London, Oxford and Cambridge is 2.2 million square feet but only 385,000 square feet is available3.

There are several large development projects around the UK, but these will not be ready until 2024/2025. In the meantime, this shortage has led to rising rental costs and is forcing some life sciences companies to reconsider the UK as a suitable incubator for science business success.

That said, the Government’s focus on science is giving struggling real estate investors a boost following the post-pandemic downturn and the shift of work culture to ‘working from home’. So, there are winners and losers.

Risk under the microscope: Five challenges facing the life science sector

4. Competition for talent

Life sciences companies are competing to recruit and retain brain capital, particularly in high-priority skill areas such as biomedical imaging, bioinformatics and computational chemistry/science4. Skills gaps are also emerging in robotics and data pathology as the industry increases its use of technologies such as AI.

Enhancing diversity within the benefits structure makes it easier to address employees’ needs as individuals and creates a greater Employee Value Proposition. Through this approach, firms are transforming benefit plans, using data to leverage communication tools more effectively, adopting best practices to compete for and retain talent, whilst strengthening their culture.

5. Regulatory changes

Significant regulatory updates are expected for medical devices, clinical trials, pharmaceutical legislation, pharma class action and artificial intelligence (AI)5. The use of AI is one particular challenge in this space, and the EU AI Act—the world’s first comprehensive AI law—could become a global standard. Life sciences companies harnessing the power of AI must ensure that their AI models meet certain requirements, including robustness, accuracy, and transparency.

Post-Brexit regulatory uncertainty continues to impact the life sciences sector. By 31 December 2023, the Retained EU Law (Revocation and Reform) Bill 2022 aims to provide a basis for amending or revoking more than 2,400 well-established retained EU laws that operate across 21 sectors of the UK economy6.

Looking ahead

The UK Government is under pressure to pull the correct policy levers at the right time to avoid stifling innovation and discouraging capital deployment in the sector.

Whilst 2024 may see a general election in the UK and potentially a change of government, the BioIndustry Association welcomes “Labour’s recognition of the importance of R&D to economic growth” and commented that Labour “will aim to invest at least 3% of GDP in R&D, beating the current Government’s target of 2.4%”7.

There are also signs that IPOs are back on the agenda in biotech boardrooms after a considerable downturn in 2022/23 and investors appear increasingly interested in later-stage biotech companies with stand-out trial data. Unfortunately for the UK, most biotechs still swerve the London markets in favour of NASDAQ’s investor pool but we hope this trend might change over time.

So, despite clear risks and challenges, the long-term outlook for life sciences companies in the UK is optimistic. Unmet medical demand is presenting opportunities, CROs are thriving, the sector is working hard to make the UK more attractive for clinical trials, companies are developing strong product pipelines, and investors are generally prepared to stay the course.

As life sciences risk management and insurance specialists, it is our responsibility to ensure our clients receive the best tools and advice available to mitigate risk. We are constantly reviewing and improving our proposition for the life sciences sector, making insurance cover and risk management expertise more affordable and more accessible for ambitious start-up companies, helping founders execute their scale-up vision in a tough economic environment.

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