The most accomplished and recognised fund manager in the UK, Neil Woodford, talks to us about the value of investing in emerging start-up and biotech companies.
After graduating in 1981 with a degree in Economics, Neil Woodford joined a small fund management company in London, thereafter working in several larger firms until moving to Perpetual in 1989. He remained with the fund management business Perpetual, later acquired by Invesco, for 26 years, noting their unconstrained and active management style. As Head of Investment he was a driving force for the company’s success and profitability. In April 2014 Neil left Invesco in order to set up his own fund management company, where he is now able to implement his own vision and style of investment.
Around 30% of the total funds Neil invests are within the pharmaceutical industry, from small spinouts to larger companies like AstraZeneca and Roche. However, Neil explains that all investments in his portfolio have to pass the same filter: “everything that is in the fund is there because I believe it to be an undervalued asset.” When building the best investment portfolio for a client, the pharmaceutical and biotechnology industries offer opportunity to adopt a patient long term approach, a style that Neil favours, with capital supply to companies which are not only successful, but also likely to deliver better results than market expectations, thus making them good investments. Neil believes this sector will offer opportunity for investment going forward, as research and development productivity continues to improve despite a fall in recent years.
Part of this R&D recovery can be attributed to the industry recognising what it does well, and what it does not do well. Whilst the pharmaceutical industry is effective at later stage development and can utilise a global infrastructure to deliver, they have under-performed in early stage development. Collaboration with academia has afforded a valuable opportunity to make improvements in this area, exemplified by the calls for innovative ideas by Roche with their extended innovation approach and GSK’s One Start competition. As Neil mentions, “collaboration is really important in the early stage of scientific development, it’s about bringing brilliant individuals together, and when scientists get together, typically you get better outcomes.”
Of course Neil also has a reputation of investing in smaller biotechnology and start-up companies; an area that has been under-exploited by his competitors. He affirms that the UK has an excellent track record of outstanding scientific innovation, yet a poor record of converting these ideas into commercial successes. Often this commercialisation has fallen to the United States, where there is a greater supply of accessible capital. However, Neil believes there is an obligation to take the great innovations fostered in the UK’s further education system and convert them into domestically based commercial successes. In addition to the altruistic appeal of this attitude, investments in this area have the potential to deliver substantial returns to potential investors. Neil says, “We are seeing in this portfolio some unbelievably exciting opportunities and some are not far from IPOs (Initial Public Offerings).”
A combination of recent biotech company successes, and an increasing drug approval rate – the FDA approved 41 in 2014 – has started to get the attention of other investors, creating a more supportive environment for biotechnology firms, with an accordingly increased supply of funds to the sector. Public figureheads in the wider technology world are also pushing for more investment into biotech, epitomised by the new Breakthrough Prize with several being awarded every year since its inception in 2013.
In performing the necessary due diligence when choosing the right investment for a portfolio, Neil points out that judgments are made about the people running the business, with regard to both heir competencies and their leadership. Additionally, assessments are made in conjunction with a team of collaborators about the technology and market opportunity to help inform the investment. With that in mind, we asked Neil about what advice he would give to young entrepreneurs and students seeking to establish their own company. He stresses that putting the right team together is essential: “At the start of a project students must realise it’s a tough road converting a great idea into a successful business, it’s a tough road, but it’s not impossible.” It is therefore crucial to bring the right people and different skills together, and to develop a useful network of contacts. Neil emphasises that in order to achieve this budding entrepreneurs must be willing to part with equity in order to ensure the right team is brought on board; to have a little of something that is very successful is better than to have a lot of something that is unsuccessful.
Neil Woodford’s success is recognised the world over and the faith he places in the future of the UK pharmaceutical industry, reflected in his investments, is a source of hope of and incentive for young and ambitious scientists.
Interview run by: Mina Bekheet
Written by: Fatemeh Ghari
Edited by: Oliver Coleman