Andrew Aldridge

The past twelve months have showcased the importance of medical developments like never before. Innovation in the life sciences sector has been headline news around the globe and all aspects of the healthcare system have been under the microscope. Not only the direct response to the global pandemic, with vaccinations and treatments, but also the importance of mental health, the care home profession, screening programmes and telemedicine, have had the spotlight shone on them.

Like never before, the superheroes in the medical profession have been applauded and profiled. In the UK, we have taken great pride in the development of treatments and vaccines, which have highlighted how the UK continues to be a great home for innovation across the life sciences spectrum.

So, how does that impact the world of financial services? The short answer lies in the investment opportunities. Investors are more interested in holding Big Pharma stocks than they were perhaps a decade ago, making the likes of AstraZeneca and Pfizer the new BP and Shell in being the backbone of a portfolio.

However, the real long-term opportunities for appropriate investors are in the early-stage opportunities, particularly when they qualify for the Enterprise Investment Scheme and the generous potential tax reliefs those investments afford. Such early-stage companies are inspiring healthcare efficiency savings and focus on solving real issues, which may directly or indirectly be exaggerated during a global pandemic.

With world leading academia and clinicians, great ideas are abundant across all regions of the UK. It is, therefore, important that advisers and investors work with managers that are experts in the sector and to ensure innovators have practical and financial support from those that truly understand the unique field. Specific expertise is critically important in this sector which is diverse and potentially unique in the way it behaves.

For example, a drug-discovery company may well never earn commercial revenues, but could be amassing value through its research. Understanding this process and the stages involved is important, in order to understand value, strategy and lifecycle to achieve the best outcomes for investors. Equally, an investment manager with focused sector experience, whether that be drug discovery, medtech, or digital healthcare will likely be able to provide investee companies with distribution contacts and support with the empirical trials process.

Investments in life sciences can be appealing to many investors. They might be experienced in the medical sector themselves and have a personal interest. They may wish to invest in life sciences from a moral perspective and wish to support such projects. Or, there may be the simple recognition of the opportunities available in the sector – particularly in the current climate.

Early-stage investments are by their very nature illiquid and high risk, but for those clients with the appropriate attitude for risk and capacity for loss, then such investments should be considered as part of a diversified portfolio in order to target the potentially significant growth that, ultimately, investors crave.

The UK life sciences sector has never been more appealing to investors, but utilising sector specialist investment managers is a must. Meanwhile, the all-important question is, if investors are considering this arena then why would advisers and managers not use the Enterprise Investment Scheme and the generous tax reliefs on offer?

By utilising the UK Government’s Enterprise Investment Scheme (EIS), investors could benefit from 30% income tax relief, capital gains tax deferral, capital gain tax free growth, inheritance tax exemption and loss relief. EIS, which is now over a quarter of century in existence, is designed to encourage UK taxpaying investors to support early-stage UK companies, via the provision of patient capital, and, to a degree, mitigate the risk via the aforementioned tax reliefs.

However, financial advisers and investors should not solely be using the EIS for tax planning purposes, they should understand the types of growth orientated companies they could be investing in and consider such investments as part of a diversified portfolio. The Enterprise Investment Scheme is more than just a tax tool.