Life at the top

Scotlands life sciences firms can be global players by 2020, insists John Swinney.

JOHN Swinney, the Scottish finance minister, had good reason to afford a smile and a little swagger as he stepped forward to address a black-tie dinner in Edinburgh last week.
Brimming with confidence after guiding the Scottish National Party's first ever Budget through Parliament, he has quickly earned a reputation as a safe pair of hands and a minister in full control of his brief.

The local authorities have bought into the Swinney model and he has won support from businesses over his reforms of Scottish Enterprise and the concessions on business rates.

Last week, as he prepared to unveil the Government's latest strategy, the question turned to whether he can transform the Scottish economy by exploiting its science base, or whether it will prove to be another false dawn.

Ever since scientists at Edinburgh's Roslin Institute paraded Dolly the sheep, the world's first cloned mammal, in front of TV cameras in 1997, ideas have been brewing in politicians' minds about Scotland's potential to tap into the multi-billion-pound life sciences market.

Covering everything from stem cell research to pharmacology, life sciences embrace some of the world's largest companies. In America, firms such as Pfizer and Monsanto are household names, while in the UK, London-based GlaxoSmithKline last year achieved annual operating profits of £7.6bn.

Swinney and his colleagues are keen to get the most from the research going on in Scotland's universities and turn life sciences into a major money-spinning contributor to the economy.

In his latest initiative, Swinney has set the Scottish sector the ambitious goal of becoming one of the world's top locations for life sciences by 2020.

Perhaps it was the effects of the champagne reception, or perhaps he was still bathing in the glory of his Budget victory, but Swinney was perfectly relaxed about the enormity of this task. "Life sciences is an industry that can boost investment in Scotland and, with Scottish expertise, develop revolutionary and potentially life-saving technologies," he said.

According to the Government, life sciences already contribute more than £2.8bn a year to Scotland's wealth and are growing at four times the rate of the rest of the economy. This, Swinney believes, is proof that over the next dozen or so years Scotland will be able to take on the giants of the industry, such as America and Germany, and build a multi-billion-pound sector.

As a video set to the upbeat lyrics of Take That's 'Shine' listed many of the Scottish companies that have begun to make their mark in life sciences, the 750 diners who had turned out to hear Swinney speak were given good reason to believe his enthusiasm.

Companies such as ProStrakan, a pharmaceutical group based in the Borders, and Optos, the Aim-listed firm that develops technology to detect eye defects, have emerged as some of Scotland's most exciting prospects.

This emerging biotech sector has also captured international attention. Last year Alexandria Real Estate, a well-known name in the US, chose Scotland to launch its first life sciences venture outside of North America, investing "hundreds of millions" in the Edinburgh BioQuarter, a cluster of life sciences companies situated next to the new Royal Infirmary and Edinburgh University's medical school. It is hoped the quarter will help increase the number of ideas that make it out of the classroom and into the commercial world, boosting the number of Scottish life sciences companies that make it on to the London Stock Exchange.

"We think Scotland can emerge as the dominant cluster in Europe," Joel Marcus, chief executive of Alexandria Real Estate, enthusiastically told this paper earlier this month.

But with Scotland still only accounting for 15% of the UK's life sciences firms, and no names yet that can even begin to rival the likes of GlaxoSmithKline, AstraZeneca and Pfizer, has Swinney's penchant for hyperbole gone a step too far? With every country from Singapore to Finland trying to make inroads in life sciences, can Scotland ever realistically hope to make it to the top spot?

Previous government-backed life sciences projects haven't always inspired confidence. Stirling Medical, the £60m joint venture between Scottish Enterprise's ITI Life Sciences research agency and US firm Inverness Medical Innovations, was shrouded by controversy as questions were raised about the sums of public money involved.

The news last week that IDMoS, the Dundee-based dental technology firm, lost almost three-quarters of its market value also doesn't bode well. Shares in the company, which received an award in March 2006 for a "leading contribution" to Scottish life sciences, tumbled by 72.6% after it revealed take-up of its revolutionary tooth decay detection advice had fallen far short of expectation, and directors were now considering a sale of the company.

Had Swinney joined the numerous start-up biotech companies that were huddled around tables at Edinburgh's Roxburghe Hotel on Thursday, he might have thought twice about his generous language. The mood was subdued at the BioIndustry Association's annual conference as financial analysts examined the sector's chances in the foreseeable future.

"Unless something material changes over the next five years, there'll be no meaningful UK quoted biosector," said Ronald Openshaw, a director of investment banking at Jeffries International, a major funder of healthcare and biotechnology companies.

Life sciences, like many other sectors of the global economy, entered a downturn last year as banks and other financial institutions shied away from risk in the wake of the US sub-prime crisis.

This risk-averse attitude which prevails in the markets spells particularly bad news for biotech companies, analysts argue, especially for start-ups, which involve a considerable gamble in the early years.

As David Porter, managing partner at private equity group Apposite Capital, says: "Risk is not welcomed any more. Nobody wants risk now. Everyone is looking more clearly at the investments they make."

According to Porter, this doesn't bode well for Scotland. If Scottish life sciences want to achieve the SNP Government's task, they will have to attract a huge amount of investment to grow their small and medium-sized companies into serious global players.

Porter says: "Scotland is not going to be immune from that. When you get behind the rhetoric, the UK as a whole hasn't really produced many winners in this sector, which is why half of our (health and life sciences] portfolio of investments is in the US. Here in Scotland there have been a few companies that have done a bit but there's nothing on the landscape. It's going to be a long time before you overtake California as a life sciences place. We start talking about our San Diego companies and people get excited; we talk about our UK companies and they lose interest.

The latest research from Ipeex, which produces research on life sciences investments, supports Porter's view. The UK currently lies bottom of the league table in Europe in terms of attracting scientific investment.

Despite positive developments such as the Alexandria Real Estate cash injection, life sciences companies in Scandinavia, Germany and France are still attracting the lion's share of investment in Europe, which in itself pales in significance compared with North America.

Although Scotland and the rest of the UK offer a good environment to start up biotech companies, there is little investment around to help those companies grow.

Gordon Duncan of Ipeex says: "The UK is one of the easier markets to get going in, but one of the most difficult to get serious funding in.

But Wilson Totten, chief executive of ProStrakan, argues that although the goal for Scotland may be ambitious, the SNP Government is right to push life sciences in the way that it is.

Having recently signed a deal with Novaquest, a US firm, to push three of its drugs in the US, he says there is no reason why Scottish companies can't succeed.

"Being based in Scotland is a huge advantage as opposed to a disadvantage. If nothing else, we're different. Because we're different we get press and publicity we wouldn't usually get.

Totten admits it is unlikely that Scotland will ever be able to take on the likes of America in the life sciences stakes, but he argues that individual Scottish companies can still generate a lot of wealth and jobs for Scotland.

"Why would you want to rival the US?" he says. "It's massive in comparison. That doesn't mean that the individual (Scottish] companies cannot be successful.

Rhona Allison, director of life sciences at Scottish Enterprise, is equally upbeat about Scotland's chances.

Although she is less bold in her objectives than Swinney, admitting that Scotland will never reach the stage where the likes of Monsanto will want to base its headquarters here, she still thinks Scotland is likely to churn out some very profitable companies in the coming years.

"It's unlikely we'll be attracting global pharmaceuticals to locate their headquarters here. That is not going to happen. But we are growing companies of true global competitiveness that are sustainable. Ardana, for example. From its creation and inception, Ardana has grown from strength to strength into a real niche pharmaceutical company.

She argues that initiatives such as the £250m Edinburgh BioQuarter will allow Scotland to ensure that every opportunity is taken to commercialise research going on in Scotland's universities and hospitals a collaborative approach that not many other countries have taken.

"The BioQuarter is an exceedingly exciting development for Scotland," Allison says.

However, with countries such as Singapore, China and Germany pumping billions into their own sectors in order to achieve exactly the same goal, the Scottish Government will have to offer a lot more than just strategies and words if it wants to turn its target into reality.