Past performance is not a guide to future performance. Tax benefits depend on the individual circumstances of each investor and may be subject to change in the future.

Interview with Deep Dive editor Eloise McLennan

In the ever-evolving realm of healthcare and pharmaceuticals, the intricate dance between innovation and investment shapes the trajectory of ground-breaking discoveries and patient-centric advancements. Of course, navigating the complex landscape of financial ventures within the pharma and healthcare sectors requires a keen understanding of trends, challenges, and transformative opportunities. To learn more, Deep Dive editor Eloise McLennan sat down with Calculus Capital’s investment director, Liz Klein, to discuss the dynamic world where capital meets compassion.

Can you tell us a little bit about Calculus’s work and the investment landscape in the UK?

Calculus pioneered tax efficient investing through the launch of its first Enterprise Investment Scheme (EIS) Fund in 1999 and, subsequently, its Venture Capital Trust (VCT). In simple terms, we’re in the business of helping promising innovative companies in the UK to scale up. These companies often face challenges in raising capital, especially when they are in their early stages and not yet profitable. That’s where EIS and VCT come in. The schemes provide a pathway for these higher-risk businesses to access the capital they need, while offering incentives for UK investors to support them.

The government is keen on supporting the growth of such businesses, which is why they offer attractive tax reliefs to EIS and VCT investors. The primary aim of these schemes is to foster the growth of small UK businesses by providing them with access to capital that might otherwise be difficult to obtain, achieved by encouraging people in the UK to invest in them.

In a nutshell, Calculus Capital is all about backing innovative UK businesses across the fastest growing sectors of the economy, and VCT and EIS schemes provide a tax-efficient means for investors to be a part of this exciting journey. (Tax benefits depend on the individual circumstances of each investor and may be subject to change in the future)

What trends are currently shaping the life sciences industry, and how do you see these trends impacting investment opportunities?

People are living much longer and healthier lives nowadays, and this is becoming the expectation, rather than an exception. We are very much seeing this change reflected in the work underway at firms in the healthcare sector.

There’s a ticking demographic time bomb, and it’s pushing us to invest in solutions that can help us adapt to this changing landscape. Consider the concept of positive ageing, for instance. It’s about finding ways to treat diseases or make it easier to monitor and manage health in an ageing population.

Digital technology remains a strong trend, but this time it’s all about supporting diagnostics and healthcare management for everyone. Think about it: how can we streamline healthcare procedures and diagnostics? For instance, imagine managing cancer without having to visit the hospital every few weeks for a scan.

These major trends are converging and, in my view, creating significant opportunities in the healthcare sector. However, there’s still a bit of a lag between the exciting technologies we see emerging and the ability to invest in them through public markets. This means that there is a significant opportunity to invest in private companies working in these innovative spaces.

We have seen a growing shift from tech to life sciences when it comes to investment; what is driving this change?

It’s interesting; we often witness these cycles of investment, swinging from tech to healthcare and back again. The reason behind this shift lies in the fact that investors who are comfortable with tech also understand the concept of risk. Healthcare investments inherently involve some level of risk, and tech investors are drawn to the idea that healthcare is a long-lasting field with fundamental positives around spending requirements in large populations. It’s not solving a problem that will just vanish one day: it’s an enduring need.

What particularly appeals to me about this kind of investing is that, while I may not be the one at the lab bench discovering the next cancer cure, I can play a part in helping companies achieve that. As investors, we collaborate with these businesses to make a difference. I believe many tech investors are similarly driven by a sense of responsibility towards improving global health.

What challenges do you anticipate in the life sciences space, and how do you evaluate a company’s ability to overcome these challenges?

The challenges are pretty apparent in this field. Statistics show that only around 10% of projects that kick off Phase I clinical trials actually make it to market. However, I prefer not to frame it as ‘failure’. Instead, I see it as a matter of safety and efficacy. The things that don’t make it through this rigorous process typically fall short of meeting the necessary criteria.

That’s why it’s valuable to consider investing through funds or venture capital firms. They not only provide portfolio diversification to help mitigate some of that risk, but also bring to the table a wealth of experience and expertise. They can discern what opportunities look like amidst the reality that, yes, some ventures may not succeed.

Can you discuss the importance of strategic partnerships and collaborations in the life sciences sector? What criteria do you use to identify promising partnerships?

There are different ways to look at strategic partnerships. In some cases, we’ve invested in companies that seek early engagement with major pharmaceutical players. The allure of partnering with big pharma lies in their deep technical expertise, something that even the most seasoned venture capital investors would highly value.

That being said, at Calculus, we have a preference for investing alongside others, especially in healthcare. We believe in the power of diverse perspectives. We want individuals with varying experiences around the table — those who’ve succeeded and those who’ve faced setbacks, as the latter can bring valuable lessons to that table. After all, experiencing challenges and obstacles are exceptional learning experiences that can be incredibly valuable for advising businesses.

Given the extended timelines for research and development, how do you balance short-term returns with long-term potential when considering life sciences investments?

Well, it’s all about diversification. We make multiple investments, some with the potential for nearer term returns, like those involved in diagnostics or tools and reagents – these tend to have quicker pay-offs than pure biotech plays. At Calculus, our primary focus is on the technology itself. We support businesses through multiple rounds of fundraising and development as they fine-tune their strategies. We embrace this iterative process because we recognise that hitting various technical milestones not only benefits our investors, but also adds value to the businesses we back.

A key aspect is investing in management teams. Having a brilliant idea is one thing, but without the right skills within the team to drive it forwards, success can be elusive. Having an experienced, adaptable management team is fundamental. At Calculus we also work to add additional skills to the Board through our wide network of contacts. A great example of an impressive management team is our latest investment, Laverock. The CEO, David Venables, was previously the CEO of Synpromics, a company we backed through our EIS Fund. We exited Synpromics for an impressive return multiple in 2019. (Past performance is not a guide to future performance.)

We have seen a massive boost of interest in AI recently, how do you see such technologies evolving in the sector?

Tech AI, tech bio, and digital health are generating quite a buzz, and it’s for a good reason. These buzzworthy terms are likely to revolutionise the way people receive quicker and more efficient treatment.

As these algorithms continue to advance and become more sophisticated, their potential to make a positive impact on healthcare will grow even more substantial. I don’t envision a future where clinicians solely rely on algorithms, but as tools to support clinical decision-making, they could prove immensely valuable. In fact, we’ve observed many businesses we’re closely involved with exploring ways to enhance clinician support.

There’s also exciting hard-tech innovation in areas like improved surgical training and advancements in surgical procedures themselves. Personally, I’m looking forward to embracing all of these developments, and I believe there are some incredibly enticing opportunities within this space.

Lastly, can you provide examples of lessons learned in life sciences investments, either successes or challenges, and how these experiences are impacting current investment trends?

First and foremost, it’s vital to invest in strong management teams. Regardless of how groundbreaking the technology or idea may be, if the management doesn’t understand how to bring a product to market, the road ahead can be challenging. Bringing a product to market is the only way that the patient can benefit from the healthcare innovation.

The second lesson revolves around understanding market needs and the associated risks in meeting those needs. It’s crucial to have a clear picture of what the market demands and the obstacles that come with it.

Lastly, and perhaps most importantly, don’t shy away from embracing truly innovative and game-changing technologies. Over the years, we’ve seen technologies that were initially met with scepticism, but have since transformed into drugs or therapies that are making a significant impact. Biologics and CAR-T therapies are excellent examples. At the time, they may have seemed almost fantastical, but they’ve become vital tools in improving people’s lives. So, the lesson here is not to fear change, but to wholeheartedly embrace it.