Economy and Fair Work Committee

Meeting date: Wednesday, September 20, 2023

Official Report 702KB pdf

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“The economic contribution of the Pharmaceuticals Sector in Scotland”

Our next item of business is an evidence session on the report by the Fraser of Allander Institute, “The economic contribution of the Pharmaceuticals Sector in Scotland”. I welcome Adam McGeoch, economist fellow of the Fraser of Allander Institute. He is joined by George Davidson, the chair of the access and value group of the Association of the British Pharmaceutical Industry Scotland and Professor Sir Michael Ferguson, regius professor of life sciences at the University of Dundee.

I understand that Adam McGeoch is going to give us a short presentation before we move to questions.

Thank you, convener, and thank you to the committee for having us along today to discuss our fourth report for ABPI Scotland on the contribution of the pharmaceuticals sector to Scotland’s economy.

The report includes a traditional economic impact assessment of the sector’s support for gross value added and jobs. However, given the Scottish Government’s national strategy for economic transformation, which was published last year, we wanted to widen the impact assessment to include how the sector contributes to things such as tackling inequalities and improving the productive capacity of the Scottish economy.

Our analysis includes the pharmaceuticals sector as defined by the Office for National Statistics’ narrow definition of the manufacturing of pharmaceuticals, but it also includes a wider sector definition as, when we engaged with the ABPI, we realised that the pharmaceuticals sector encompasses not just the manufacturing of pharmaceuticals, but also includes pharmaceutical research and development, medical sales and so on. Given its importance to the Scottish Government’s economic strategy, we felt that it was important to include life sciences in our modelling and analysis.

As I mentioned, we reflected on NSET but we also looked at the delivery plans within NSET that were published last October and the underlying economic indicators of each programme of action. One of the key indicators under entrepreneurial people and culture, for example, is business survival rates. We compared our pharmaceutical sectors with the Scottish average, and we found that life sciences has a business survival rate of 67 per cent over three years, which exceeds the Scottish average and the Scottish growth sector average. We did that for a number of indicators under each programme of action to track progress against NSET to see how the pharmaceutical sectors contribute to Scotland’s 10-year economic strategy. We found that, overall, the sector contributes significantly to the Scottish economy. The wider pharmaceutical sector contributes £1.7 billion to the Scottish economy in gross value added, and it supports more than 15,000 Scottish jobs.

Thank you very much. We will now move to questions. If people could keep their answers and questions concise, that would be helpful.

Mr McGeoch, you referred to NSET, which is the Government’s 10-year economic strategy. Coming now to George Davidson, does your organisation see the impact of NSET? I know that we are just in year 2, but have there been any changes? How do you engage with the Scottish Government?

In general, the Fraser of Allander report has been very positive in highlighting the sector. However, the industry is at something of a tipping point if we really want life sciences to move on to the next level. It has been quite well publicised that there has been a decline in clinical trials, and that has an impact on onward investment by industry. There is obviously a need for the regulatory side to speed up approval of new medicines, which is difficult, given all the new treatments and different requirements. How do we deploy those innovative medicines quickly?

Running alongside that, the pharmaceutical industry is in a negotiation period for the new voluntary pricing and access scheme, which is at a critical stage. We have capped the medicines bill at 2 per cent to allow medicines to be used in an innovative manner, but the repayment rate has recently gone up to 26.5 per cent, which is not sustainable. I cannot see how that is going to map out, but there are lots of discussions at the moment about how we can create the right environment for investment. Some companies are making decisions to invest outwith Scotland and the United Kingdom at the moment. As I said, I would describe the industry as being at a tipping point.

I asked about engagement with the Scottish Government. Is there a forum where you are able to speak to Government?

Yes—we are very content with that, for want of a better word. The Scottish Parliament cross-party group on life sciences meets regularly. Representing the industry, the ABPI has good support. We have been campaigning on a number of areas, primarily to get the Scottish data infrastructure set up to attract a foundation for inward investment. I would say that we have very good support.

You have outlined some issues around clinical trials and pricing. Are there barriers to growth in the sector, particularly in Scotland? You have indicated that the sector has potential for greater growth in Scotland, so why are we not seeing that?

Those are, without doubt, the main barriers. Clinical trials get companies to invest, and they help patients to get access to medicines and innovation that they would not otherwise have. There is also a question about health inequalities as a whole, and whether they could be better mapped with better clinical trials infrastructure.

Returning to your question about support, we have engaged very well with the chief scientific officer. Dame Anna Dominiczak has also been a fantastic supporter. She talks at length about the need for a triple-helix approach, as she puts it, which very much involves having industry as part of the solution. I do not see the problems as being unique to Scotland, versus the rest of the UK.

I will now bring in Sir Michael Ferguson. In 2015—now eight years ago—the Scottish Government’s economic strategy identified life sciences as a growth sector. Have we seen the growth, since 2015, that we had hoped to see? Obviously, we have had a pandemic, which has had an impact on everything, but what do you think the barriers are to increasing the role of pharmaceuticals in Scotland?

11:00  

Thank you, convener. George Davidson is speaking on behalf of the existing industries in life sciences and pharmaceuticals, whereas my concern is really with future companies—creating new companies to get economic growth. In that context, I think that Scotland could do so much more to help itself. We have a university sector that is very strong in life sciences. Scotland’s universities win about 14 per cent of the UK R and D budget competitively, and yet we produce only 6 per cent of UK spin-out companies in life sciences. There is a big divide there.

Several things make the landscape of Scotland not fertile enough to create those spin-out companies in the first place and, even more tragically, to keep them when we do create them. I offer my experience at the University of Dundee. Exscientia, which was a University of Dundee spin-out, was the biggest biotechnology initial public offering in Europe ever—not this year or last year, but ever—at $510 million on the Nasdaq, and it is now mostly based in Oxford, with a little bit left in Dundee. Another spin-out, Amphista Therapeutics, which did one of the largest series B rounds in biotechnology in 2021, is now 100 per cent in Cambridge. I call that levelling down. We are able to create highly invested spin-out companies and yet we lose them from Scotland because we do not have the infrastructure to keep them here.

There are two problems. One is that we do not create enough spin-out companies at scale because we do not attract enough venture capital. That is partly not our fault; it is partly because the venture capital community tends to fish in the golden triangle of Oxford, Cambridge and London. What it really means is that we have to jump through a few more hoops to get their attention, so we should just do that. However, we need some public sector investment to help us to jump through those hoops and create more high-growth companies. Then, we need to be properly invested with serious venture capital money, because, to be frank, angel investment alone tends to lead to small zombie companies.

We need to get major investment in and then we need to make sure that that investment does not just bounce off Scotland and go someplace else. If we can fix those two things, I believe that we can create a huge amount of economic growth in Scotland.

You have both raised areas where other members will ask questions, but before we move on to that I have a question for Adam McGeoch about the Fraser of Allander Institute’s report. On page 25 you talk about the gender pay gap within the sector. I think that it is a bigger gap in Scotland than it is across the UK. Is that right? The report says:

“women earned 22% less than men working in the sector, compared to just 6% less at UK level”,

although we have a narrower pay gap across all sectors. You suggest that it depends where women tend to be focused within the pharmaceutical sector, which is more in the supply chain. Can you just talk us through why there is such a gap in Scotland?

When we were looking at the pay data for pharmaceuticals, we found it quite difficult to get a picture of Scotland for the industry and to get data at the regional level. We had to look at 2021 because the data was suppressed for 2022, but when we looked at that we found that the gender pay gap was 22 per cent in the manufacture of pharmaceuticals in Scotland. If we compare that to the UK manufacturing of pharmaceuticals, which is 6 per cent, and to an industry average for Scotland, which is 12 per cent, there is clearly work that needs to be done.

In terms of the supply chain impacts, we looked at the economic impact of the pharmaceutical sector and then looked at the industries that it trades with to determine the gender split of that impact. We found that not as much employment is directly supported within pharmaceuticals; it tends to be in the industries that pharma trades with such as retail, sales and medical liaison.

Could George Davidson say something from ABPI about what needs to be done to tackle the gender pay gap. Is it recognised as an issue that needs to be addressed, and what is being done to address it?

Absolutely. The report clearly highlights that it is an issue and it needs to be addressed.

ABPI did a survey of members—an Accenture report—which indicated that 62 per cent or 68 per cent of members have that issue as a priority. The Roche pharmaceuticals group highlighted in the report what it is doing. However, as Adam McGeoch said, it is difficult when you get down to the subsets. I can talk about large pharma. The organisation that I work for has a mean gender pay gap of minus 1.36 per cent. However, we put our hands up—ABPI has to keep pushing members to address the issue, because it is not acceptable.

We will move on to other areas that have been highlighted. Brian Whittle has a question on clinical trials.

Good morning. I have an interest in how clinical trials are conducted. Treatments of rare conditions in particular require clinical trials to be drawn from beyond our borders. It is to the benefit of any new drug that we draw from as diverse a population as we possibly can, surely. Are we aligned with the rest of the world on that, and can we pool clinical trials to determine the efficacy of new medicine?

That is the real problem. Since 2017, there has been a 44 per cent decline in patients entering clinical trials and a 41 per cent drop in the number of clinical trials that are sited in the UK. You are right to point out that Scotland has fantastic potential with its population size and community health index number, but global organisations that want to site trials in Scotland have to do it for more specialised medicines, as the population is very small, so we need to broaden it out. Lord O’Shaughnessy did a review that looked at clinical trials, which Dame Anna Dominiczak is very much all over. Some good recommendations to try to reverse what is happening came out of that review.

From a Scottish point of view, as I mentioned, we are pushing on data. We want the data infrastructure to be in place so that, if companies that want to come to do their clinical trials here, we have the databases and so on. However, we need to create that infrastructure. There is an aim to quadruple the number of people who take part in clinical trials by 2027, and a lot of funding is going into that. Dame Anna is absolutely clear about working with industry to make sure that Scotland plays its part in that.

To follow on from that, is there a global data network that we can tap into to pull people into clinical trials?

There are networks, but I do not know how joined up they are. They do not seem to be as cohesive as they could be. Even in Scotland, the network is not as cohesive as it could be in relation to how companies can access that data. We are looking at that issue.

Does anyone else want to jump in before I move on to my next question?

I will pick up what George Davidson said. In “A Trading Nation—a plan for growing Scotland’s exports”, the Scottish Government highlighted clinical trials as a subsector of pharmaceutics that has the potential to drive export growth in the sector. We picked up from the report that addressing some of the issues around clinical trial wait times could support the sector in its export performance. It already performs well in international export, but addressing those issues would ensure that it performs better.

Stratification is the name of the game in clinical trials, going forward. You mentioned rare diseases and so on. The point is to give the right medicines to the right people. Using genetic information will therefore become more and more important in clinical trials. Testing the medicine for the people who are likely to benefit from it and not be poisoned by it is very important.

The whole landscape of clinical trials is changing enormously. We need to be testing medicines in the appropriate population. For example, my institution has an anti-malarial compound single-dose cure in clinical trials in sub-Saharan Africa; there is no point testing it in Scotland, because we do not have malaria. It is a question of the clinical trials being done with the right populations.

Scotland has such a fantastic opportunity to do clinical trials, especially in the area of chronic diseases, where—unfortunately—we score rather well. We have an incredibly appropriate population for running clinical trials in medicines for morbidities, and we have a very well-joined-up informatics system—which is the envy of England, by the way—but we could do so much more.

There is slight frustration that we have many of the tools that we need to be a go-to place for clinical trials, yet we are not managing to achieve that. That is partly because the NHS is reeling from the Covid crisis and finds it difficult to find the time to concentrate on bringing in those trials.

There has been quite a dramatic drop in the number of trials: a fall of 41 per cent, I think, since 2017-18.

Yes.

We have had the pandemic and Brexit, and we have the war in Ukraine. Is it down to those factors, or is it something more structural? You talked about capacity in the NHS. Is it something more mundane like that?

I wonder whether it is down to all those factors. As Adam McGeoch said—Dame Anna Dominiczak also speaks well to this—one aspect concerns commercial clinical trials as opposed to other types of research that are going on. That is the bit that has drifted off.

We might look to Spain and Australia, for example. Spain has a fantastic infrastructure network for clinical trials—those have really taken off with what they are doing there. We need to ensure that we hit the reset button a little on this one. As we have mentioned, trials have a lot of spin-off effects around health inequalities and, indeed, around helping the NHS to recover. There is research in the report on how, when we have centres that are doing clinical research, that has knock-on effects for staff morale and so on.

Do you have any other questions, Mr Whittle, before we move on?

In relation to the gathering of data, it sounds like there is an opportunity for an entrepreneur.

I have a question for Sir Michael Ferguson, who raised the issue of spin-off companies from new businesses—that sort of growth in small and medium-sized enterprises.

Sorry, Mr Whittle—I think that Gordon MacDonald intends to come in on that area.

I apologise.

We will move over to Gordon, if that is okay. We have dealt with clinical trials.

Good morning. We have already touched on spin-offs; I want to understand the position a bit better. Adam McGeoch, as you are the author of the report, I come to you first.

In the report, you say that

“scale-up is a barrier to success and Scotland loses spin-outs and talent to England.”

However, in the same report, you say that such businesses

“supported by knowledge exchange from world renowned universities and extensive government support ... have made Scotland one of the largest life sciences clusters in Europe, made up of over 770 enterprises.”

You then go on to say that

“The number of businesses manufacturing pharmaceuticals has increased by 40% since 2010.”

I had a look back at your report on “The economic contribution of the pharmaceutical sector in Scotland” from 2017, which has a helpful table showing employment from 2009. In 2009, total pharmaceutical employment in Scotland was 2,200. In your current report, the figure for the wider pharmaceuticals sector is 5,900.

I am trying to understand, therefore, where the difficulty with spin-offs that has been referred to lies.

Thank you for that question. With regard to the mention of clusters in the report, we were reflecting on some analysis that has been done by Scottish Development International. That is where that came from.

On life sciences spin-outs, the number of spin-outs relative to population size is strong, and Scotland has some of the best universities in the world—we always perform well on higher education measures in comparison with the rest of the UK and internationally. The issue is less about the numbers and more about scaling up and ensuring that we have the infrastructure for when those businesses want to get bigger. We need to ensure—as Sir Mike Ferguson noted in the case study—that we have the lab space and infrastructure for those life sciences spin-outs to scale up in Scotland. Otherwise, they could be lost to the golden triangle of Oxford, Cambridge and London.

In your report, chart 3 is entitled “Top Universities for Life Sciences Spinouts”. What is that chart trying to tell us? What does it say? The figures for the Scottish universities are in red: the University of Edinburgh has 18 spin-outs, and two that have been exiled. Is that to the golden triangle that you talked about?

Those two have exited.

Sir Mike may want to come in here. The point in relation to the life sciences spin-outs is that there is the talent and knowledge here in Scotland. The issue is about when it comes to scaling up. Mike would probably be best placed to talk about the challenges in the life sciences sector.

11:15  

Before Sir Michael comes in, I am trying to understand this table a wee bit better.

I accept that it contains only a proportion of the universities, because the University of Dundee is not included. If I read across the various universities that are listed, there were 51 spin-outs, of which four in Scotland have exited. In the UK, there were 248 spin-outs, which suggests that the number of spin-offs in Scotland is higher relative to population size; 48 exited south of the border, which, again, is a higher proportion of the total number that you have presented.

I am trying to understand the point about our creating spin-outs but not retaining them. Your figures do not highlight that we are not retaining them.

We have found that we create them but do not retain them.

Mike and I have spoken about how, depending on the underlying indicators of the different types of spin-outs, when it comes to spin-outs, Dundee comes out on top in many rankings in relation to other data sources, which is not reflected here.

The exited companies are those that are bought over and leave that market. The point is that we have that capability in our Scottish universities, but it is about the scaling up. I cannot speak to what is happening with other universities in the rest of the UK because we did not consider that in the report; we were focused only on the Scottish universities.

I have lifted the numbers off your graph; that is all.

Sir Michael, you have a case study and you mention two companies: Amphista Therapeutics and Exscientia, if I pronounced those correctly. Amphista started in 2017 and Exscientia in 2012, if I have got that right. Amphista’s latest accounts suggest that it made a substantial loss in 2020 and 2021. Its total number of employees is 20 and it has a net worth of minus £5 million.

It, in fact, has 100 employees.

I lifted that off its accounts on Companies House. That was all the information that I had.

Okay. The point is that it is in the series B investment phase at the moment. It is an R and D based platform company.

I am a bit surprised by those numbers. I do not know where they came from because, for example, it has £2.3 billion-worth of business on its books from Bristol-Myers Squibb and Merck KGaA, and it has passed the first milestones in both of those big contracts. It is trading very well at the moment. Those numbers also considerably lag the current realities. That is what I would say about Amphista Therapeutics. Everybody is looking at it as being very successful and expects that, at some point, it will exit through an intellectual property offering—IPO—and probably do extremely well, as did Exscientia when it IPOed in 2021.

The figures that I lifted were from its latest published accounts on Companies House. I realise that there is a lag, but they suggest that, similarly to Exscientia, the improvement in its financial position has been recent. Back in 2020, if I am reading it correctly—again, this is from Companies House—Exscientia had only 65 employees. It was only in 2021-22 that we saw substantial growth, which it did not have when it was created back in 2012.

The natural history of biotechnology companies—in fact, of all technology companies—is that they get invested in through seed investment series A and series B. During that time, they are making a loss, because they are growing their company base and creating their products, if you like. Then, when they get to a successful position, they will go to the market to exit and get a huge IPO, and that is when they will go into the megagrowth phase. Exscientia now has more than 500 employees; 50 are still in Dundee, I am happy to say, but 450 are elsewhere.

On your case study, which you mentioned earlier, you said that there is a need for a public-private fund that backs life sciences and innovation ideas. Can you say more about that?

Yes. I would be very keen on that. I have spoken to around 30 venture capital companies in the past two and a half years, and it is always the same conversation: you put in front of them your bright young ideas for innovation and spin-out opportunities, and they will pick and choose. Different companies will like different things, but they nearly all come back and say the same thing: “We really like this opportunity, but come back when you’ve done A, B and C.” That might be a bit of market research, but more often than not it is killer experiments—proof-of-concept experiments.

The private sector expects the public sector to pick up that bill and vice versa, but nobody is picking up that bill. Usually, for the sake of £250,000, you will not be able to get an innovation opportunity—which has probably cost the charitable and public purse £20 million to £30 million in research costs to get it to that innovation position—to the point of being an investable asset. There is a gap between innovation and investable assets.

If you are in the golden triangle, the venture capital companies will say, “Ah well, we’ll give you some money anyway.” We do not have that luxury in Scotland. We need to close that little gap. That is why I talk about a 1 per cent fund. Scottish universities win about £500 million—it is a little bit more now—of competitively won research funds in bioscience and medicine every year, yet we have half the productivity of our colleagues in the golden triangle in terms of spin-outs and job and wealth creation. We can close that gap with that fund to enable Scotland’s universities to get their innovation through to being an investable asset. Basically, you have to tee up the opportunities a little bit higher in Scotland than you do elsewhere.

Either we can complain about that or we can just do it. I think that we should just do it. In that way, we will bring a huge amount of inward investment into Scotland, and, if we have the right infrastructure, we will make it stick in Scotland. We will have high-quality jobs for our graduates and postgraduates, but, importantly, for our school leavers. The workforce in the R and D component of biotechnology is about 50 per cent technicians—folk who can leave school, get a higher national certificate qualification and move into that industry. Those are the kinds of jobs that we need for our young people in Scotland.

How do we ensure that, once we get out of the research and development phase, manufacturing jobs are retained in Scotland? Until fairly recently, my son worked in life sciences. An American investor was involved in that company, but despite the fact that all the R and D was done in Scotland, the manufacturing plant of that American investor was in Europe.

That is a really difficult issue, and there is no magic answer. If we can anchor companies in Scotland during the R and D phase, there is a chance of the manufacturing staying in Scotland. If we do not anchor the R and D in Scotland, there is no chance of a company manufacturing in Scotland—that is all that I can say. It is a probabilities game, and the complexities of investment and investment decisions—commercial decisions by investors—are something that you can try to sway.

In Dundee, we have a company that is in R and D mode at the moment, and by remonstrating with the chair of its board, I have managed to keep it in Dundee for a bit longer. How long we can manage that for, I do not know. We can all do what we can to make Scotland an attractive and fertile ground for companies to stay in. Even if we can keep them for only the R and D phase and keep the R and D arm, that will still be a substantial net benefit to GVA for Scotland. If we can also get them to put the manufacturing here, if it is that kind of business, that will be a massive bonus. It is a complex issue. George Davidson might want to comment.

That is absolutely right. I work for an organisation that has two manufacturing sites in Scotland. We have been through rocky spells during which one of those sites was going to shut. Thankfully, we kept it open, and now that we are out of the recession, things are looking good—touch wood.

I totally agree with what Mike Ferguson said. The ABPI is focused on getting the investment at the R and D stage and getting the clinical trials. Once a company is bought in, it is easier for it to say what it wants to do.

The medicines manufacturing innovation centre at Renfrew should be held up as a beacon of what can be achieved. We should try to get funding from companies to accelerate that as much as we can.

Has Brexit made that harder? Europe is a market of 550 million people. Is it harder for us to trade with it because of what has happened over recent years?

To be honest, I do not think that you can point to just one thing.

No—there are a number of factors.

There are challenges but, equally, there are other issues. As I said, if we really think about research now, it will not all be sited just in Scotland—we have to think more broadly. Everyone can talk about and know what the solutions are, but the key thing is that we must get on and do them.

I have another couple of questions. We talked about the golden triangle of Oxford, Cambridge and London, but Scotland has the highest proportion of higher education students enrolled in science, technology, engineering and mathematics subjects, and a higher proportion of the Scottish population have completed higher education or have a degree. When we have a highly educated population and a lot of students in STEM subjects, what is the difficulty in retaining jobs here?

I agree about the point; the challenge is probably in setting up. Sometimes, people do what they have always done, in all honesty.

My organisation always encourages people to come up to Scotland and see the art of the possible. As we mentioned at the start, we get very good support and there is great infrastructure. There is talk of the triple helix, and the ABPI always tries to run innovative workshops to get the people who make such investments to come to Scotland and see what is possible.

Whether we like it or not, the golden triangle is a tipping point. Mike Ferguson and I were talking about how the Tay cities deal is a good thing for Dundee because the hope is that it will give us a bit more infrastructure. We have all the statistics, but the issue is with getting people to see for themselves what is possible.

This is my final question, and then I will pass back to the convener. I have noticed that, although pharmaceutical exports were up by 9 per cent, the value of exports to the rest of the UK was down from £155 million to £50 million. Was there a reason for that?

It is funny that you raise that—I was chatting to Adam McGeoch about it, because I did not know the reason for the difference between the UK position and the international position. There could be a number of things.

In the period that is referred to, my company was under quite a lot of pressure from different suppliers and was sourcing some chemicals from India and China. Thankfully, the situation has now reverted. Our site in Irvine cannot manufacture enough at the moment, which is fantastic.

Adam McGeoch and I were saying that it will be interesting to see the next batch of figures that come through with the revenue going up; the hope is that the decline will reverse itself. To be straight with you, I do not know the exact reason.

The magic ingredient is serious venture capital investment—national and international. Such companies need to have seed funding of £2 million to £5 million, series A funding of £5 million to £15 million and series B funding of £15 million to £60 million. If a company is not in that area, it will not be a high-growth company. We have bright people with great ideas, but they are underinvested in.

I was going to pass back to the convener, but I have just thought of another question. In January, Deloitte produced a report that said that the

“average expected return on investment for research and development fell from 6.8 per cent ... to ... 1.2 per cent in 2022.”

That was the lowest return on investment on record. Is that making it more difficult to attract the funding that you are talking about?

Yes, of course. Everybody says that it is difficult to raise funding for spin-outs, but the graphs show that there was a massive spike of investment in 2021. During the pandemic, people had all this money and equities were overvalued, so they put money into venture. The figure has now come back down, but it is still on an upward trajectory—there was just a spike on top of that.

Venture capital money is still around. The returns are not looking so clever because the overinvestment spike has diluted returns, but my view is that we are seeing an adjustment in the economics.

11:30  

Adam McGeoch, do you want to respond to the question about exports to the UK?

I have a quick follow-up comment about what George Davidson said. Our assumption was that there might have been some restructuring and that things that had previously been produced in Scotland had been produced elsewhere in the UK that year. That is what George and I were talking about. The latest data that we have is for 2019, because Scottish export statistics have been delayed in recent years, but we should get figures for 2020 and 2021 in November this year, which will allow us to dig a bit deeper and to understand whether that is a long-term trend or a one-off.

I will follow up on a couple of issues based on Gordon MacDonald’s line of questioning.

I would like to get something clear in my head. Adam McGeoch, your report says that

“Scotland lags behind other parts of the UK in generating life science spinouts”

but the number that Gordon MacDonald alluded to suggests that we perform well. Is that because the overall level of investment is lower?

In our engagement with Sir Mike Ferguson, we found that the overall investment was lower and that there was a challenge with scaling up. The report shows that the number of spin-outs is strong but the challenge lies in scaling up.

Is it all right to call you Sir Mike?

That is fine.

You identified two key barriers, one of which was infrastructure while the second was access to venture capital.

I will take infrastructure first, by which I assume that you mean access to facilities, building space and so on. What do we have to do to fill that gap? What is the role of local authorities and of agencies such as Scottish Enterprise? What role might the public sector have in addressing those issues?

The situation is getting much better, because of the city deals. For example, by this time next year my city of Dundee will have an innovation hub that has been ideally designed for biotechnology and biopharma spin-out companies. The lack of such things caused us to lose Exscientia and Amphista, and I hope that that will stop happening. As we speak, we are in discussion with Scottish Enterprise about the level of investment in that building. Aberdeen has also just opened a biohub through its city deal and the Edinburgh BioQuarter is well invested.

We are gradually producing the infrastructure that Scotland needs to retain its spin-outs. We probably do not have enough infrastructure, but the situation is not as chronic as it was a few years ago, which is good. As I keep saying, we then need to ensure that, when we have the innovation to create spin-outs, we give it a little boost so that, when it goes to the market for initial venture capital investment, it gets serious investment, rather than a dribble. We get a large number of spin-out companies, but they are all small, one-person-and-their-dog companies, and that does not push the needle on the economy.

The second thing that you talked about was access to venture capital, which is a perennial issue. I remember sitting on the predecessor to this committee two decades ago. We were talking about that issue then and we are still talking about it. What role, if any, do you think the Scottish National Investment Bank has in attracting more venture capital into the sector?

I hope that I am not going to say anything too controversial, but it seems to me—

Please do.

It seems to me that the Scottish National Investment Bank should absolutely be investing in exactly that. I do not know, but it might be too small beer for the bank. For instance, a pan-Scottish investment fund—and I am talking about a fund just for life sciences—to take innovation and tee it up as a highly investable asset bringing in serious venture capital could be done for £5 million a year.

Studies state that the return on that would be enormous—well in excess of £250 million of inward VC investment and more than £50 million a year of GVA. The returns would be extraordinarily good, but we do not seem to get any traction from SNIB on that. We have spoken to it, but nobody seems to want to step in to fill that gap.

I would prefer if it was a public-private fund, by which I mean that if there was sufficient public sector investment in the area, it would bring in venture capital partners who would want a seat at the table to see the opportunities that are coming from Scotland. That is why I think that we would end up with a public-private fund. If the public sector put £5 million per year into it, pretty soon that will be a £10 million per year fund because four or five major venture capital partners might then come to sit at the table and co-invest at a very early stage.

I am interested to find out more about the discussions with the SNIB; maybe Mike Ferguson and others can forward the details to us.

In relation to the joint public-private investment that Mike spoke about, has there been any discussion with any organisation—SNIB, Scottish Enterprise or maybe even some of the regional economic bodies, such as Opportunity North East, because you hinted at the work that it was doing—about establishing an evergreen fund, whereby investment is made, possibly by public investors and also by private ones, that would eventually get a return that can be recycled so that we have a constant recycling process and constant growth of investment? If there has been a discussion about that, could you give us an indication of how it went?

Scottish Enterprise has been in discussion with me and my colleagues about that for some time now, and it commissioned EKOS during the summer to do some data collection. Next Monday, I have a follow-up discussion on the EKOS report with Scottish Enterprise, so that is all good. It has been looking closely at the idea of a pan-Scotland life sciences innovation-to-investable-asset proof of concept fund, and it is coming to a view on that, but I think that it sees the opportunity in that area.

I agree with the idea of evergreening. If the public sector put in £5 million for six years, by the end of that time it could be self-sustaining and public intervention would no longer be necessary, because the fund could take a small amount of the equity of the things that it is invested in and eventually that will pay back. One major intellectual property offering—like the Exscientia one, which was $510 million—will pay back the whole fund.

We can all be a bit negative when we discuss these issues, but the report talks about Scottish Enterprise and the role that it has played in start-ups in Scotland since 2016 and 2020. That role is not insubstantial, nor is the investment by Opportunity North East in building infrastructure. Should there be more co-operation between all of the players to get that right and to open up discussions about matters such as my proposal for an evergreen fund, which I think could make the odds here, as it has done in other areas?

Absolutely; the more joined up we are the better. The article I wrote says that we need to be more joined up.

How do we do that?

The Scottish Funding Council, which looks after the universities’ day-to-day business, and Scottish Enterprise probably need to talk to each other more often than they do. Both of those agencies also need to be plugged into the Scottish National Investment Bank.

The cross-party group on life sciences gives us a good avenue into the Scottish Government, and I have always had productive discussions with members of the Scottish Parliament whenever I have asked for them. The connectivity to Government is good, but Government agencies need to be cross referencing. They have a lot of different things to think about and to worry about, so I do not underestimate the pressure on everybody’s time. However, in the life sciences industries, Scotland has a fantastic opportunity to harvest and capitalise on its university sector, which is very strong in life sciences, and to make sure that it works for the benefit of our key stakeholder, which is the Scottish taxpayer.

Thank you.

We are experiencing some pressure on our time now, so I ask members to be concise, if possible.

Scottish Parliament committees are always interested in what is working well elsewhere, even if it is far afield. Are there lessons to be learned from elsewhere in how we could better support life sciences and the industry?

I am happy to kick off. At the moment, the Achilles’ heel is the deal with the Government on medicines. That applies to larger pharma companies, but it brings in a lot of investment. We can look at lessons from elsewhere. The rebate rates in markets such as Germany, Spain and Ireland are between 8.25 per cent and 12 per cent. Our rate is 26.5 per cent. Whether we like it or not, that is not sustainable. We have capped medicines growth at 2 per cent, but those in the industry will vote with their feet if we do not get the issue sorted out, so we need to consider that. It would not be so bad if we were at the forefront of getting innovative medicines to patients as the end result, but we are not. We do not sit well in the rankings.

I mentioned clinical trials. We have dropped to 10th in the world in relation to phase 3 clinical trials. That is not a good position to be in. Why is Spain better at doing clinical trials than we are? That should not be the case. On Mike Ferguson’s point, we have the best academic centres that you could wish for, and we have a really cohesive network. It just goes back to Mr Stewart’s point about collaborating and getting the right people in the room to make things happen. Through the cross-party group, we try to get people to come together.

We can look south of the border. For example, in Oxford, there is Oxford Sciences Enterprises, which is a commercial fund into which major investors have put money in order to commercialise Oxford’s scientific outputs. Similarly, there is UCL Partners in London, and Northern Gritstone involves movement in the same general area, with pre-investment before people look to invest in university innovation. We do not have a comparable entity in Scotland, but we probably need one.

Obviously, for the industry and for the Government, the Covid-19 pandemic led to changes to the way in which we worked and to the level of support that was provided. Are there things that we can learn from that? Should we continue some things and not leave them in the past?

That is a key point that we should never forget. As a cross-party group, we were saying that it is funny how quickly people forget. There were a lot of bad things with Covid, but a lot of good things came out of it in relation to collaborative working, breaking down barriers and not working in silos. We can think about how quickly vaccines were brought to the market; there is lots of learning for us to take from that model. I do not want to paint a negative picture. I hope that a lot of the things that I have talked about show that this is about the art of the possible—what we can do if we keep the momentum going.

Dame Anna Dominiczak is a fantastic supporter from a Scottish perspective. As I keep saying, she talks about the triple helix. Anyone who has met her will know that she is a force to be reckoned with. It is great for Scotland that she is going down to find out what is happening with the life sciences vision and to ensure that Scotland has a place at the table. That has to be a good thing.

Thank you.

I will ask a fairly obvious question. With a unified health service such as the NHS, you would think that there might be an opportunity for the industry in Scotland to collaborate. From what I have read, I am not sure what level of collaboration there is, if any. What would be the benefits of such collaboration?

Are you talking about pharmaceutical industries collaborating?

I am talking about them collaborating with the NHS.

Absolutely. To go back to what I said, a lot of that goes on behind the scenes and is not publicised enough. The ABPI and the Scottish Government are rewriting the memorandum of understanding so that partnership working can take place openly and publicly. It has always been done.

We are working with Professor Alison Strath. I mentioned some of the more innovative medicines, and she is horizon scanning. It is not just about the medicine; it is about having the infrastructure in place and what industry can do to support that before a medicine comes to market so that you get fast uptake. Industry has a fantastic role to play in helping the NHS out of the situation that it is in post pandemic.

11:45  

I am not clear on the scale of that, though. You would think that the NHS would be an obvious partner that you deal with.

I am with you but, to put it bluntly, there is probably still a lot of scepticism between industry and the NHS. I am not saying which side it is on, but industries are often willing to go out and get involved. It takes a while. You think that it sounds like an easy thing to do, but it is sometimes difficult to get it going.

A lot of stuff is happening through the national centre for sustainable delivery and we are beginning to see a once-for-Scotland approach, which I hope will bring in industry to do more. We probably all need to take ownership and ask how we accelerate that.

What are the barriers to escalating the collaboration to a better level? Is there recalcitrance on the part of one party or another?

Perhaps I was putting it across poorly. I think that there has sometimes been a bit of hesitancy about what industry is in the collaboration for and whether it will invest and then pull out its money. Despite that, there are lots of great examples and case studies of how, when industry has got involved, it has made a difference. We just have to accelerate it.

Is it hesitancy on the part of the NHS or on the part of industry?

If you are in industry, you want the NHS to go and get stuff done. It is difficult, because the NHS is under the cosh a bit. It has waiting lists and everything else to deal with, and then industry comes along wanting to do some innovation. People probably want to do it, but where is the head space for that? There is a bit of that involved.

Pre Covid, which arrived a couple of years ago, was there more collaboration than there is post Covid?

No, I would say that there was less.

Less?

Yes. As I mentioned, Covid demonstrated what can happen when you take down some of the barriers. You shorten timeframes and get people wanting to work together. It showed what was possible, and we need to take some of the learnings out of it. The danger is that, sometimes, we move on too quickly and do not do, for want of a better term, an after-action review to see what the learnings were and how we replicate rather than lose them.

How do you approach collaborating with the NHS? There are many NHS boards. Do you have to approach them one by one?

It would vary from company to company.

How do you do it typically?

It varies hugely. The ABPI has quarterly meetings with Healthcare Improvement Scotland. Through that meeting, there is a lot of information exchange about what is happening with industry and at board level, but it tends to be a case of an industry collaborating with the board. The beauty now is that, with the centre for sustainable delivery, there is a desire to do pilot projects and scale them up quickly, which Dame Anna Dominiczak is keen to promote.

You said that, post Covid, there has been an increase in collaboration, but it is still difficult to get a feel for how significant that collaboration is. Is it just one or two odd projects here and there?

There is collaboration going on at different levels. The ABPI engaged with Dame Anna Dominiczak from the outset, because a lot of the members of the ABPI in Scotland represent our industries from a Scottish perspective. We are keen on things such as the Lord O’Shaughnessy report and ensuring that we collaborate to bring research into Scotland. There is cross-pharma work going on at that level but, if companies want to collaborate on specific work in certain therapy areas, it is down to them to drive that through engagement and discussion with the NHS board.

It seems to be hard to get your head around what the total scope of this is.

It is not easy, that is for sure.

I thank the panel members for their contributions so far. The discussion has been interesting. I will explore the notion of the infrastructure that we need in Scotland that the golden triangle has and we do not. George Davidson spoke about that specifically in relation to clinical trials, but I want to think about it more broadly. The Tayside regional deal and its equivalents elsewhere have been referred to.

Adam, your report talks about the good geographic dispersal of the industry and that there is a network across Scotland. Does that apply across the different elements of what we are talking about, or is it specific to certain aspects of the industry? For example, I know that there is good research capacity in some places but not elsewhere, and that there is good innovation in some places but not elsewhere. I am trying to understand the stratification within that statement about good dispersal.

We touched on the geographical split of pharmaceutical jobs in our report. Is that what you are referring to?

Yes.

The pharmaceutical industry predominantly employs people in North Ayrshire, which is widely recognised as being a deprived area in Scotland that faces many challenges. The second highest location for employment in the industry is in the Highlands, where GSK’s manufacturing facility is the main employer. As we outlined in our report, those roles are highly skilled and highly paid. Across all deciles of pay, the manufacturing of pharmaceuticals in the UK pays above the living wage and well above average. That point is more to do with jobs in manufacturing of pharmaceuticals, which are in North Ayrshire and the Highlands, although some of the pharmaceutical R and D counts within that definition.

There is maybe not a disconnect, but there is a distinction between that dispersal and what we have been talking about with the focus in institutions in Edinburgh, Dundee and Aberdeen.

The split is focused predominantly on pharmaceutical jobs related to manufacturing.

The report mentions the value of skilled jobs, which is highlighted in the summary at the start. Many of us will try to see a connection between investment in R and D and sustaining skilled jobs. How do we ensure that we have the infrastructure so that those jobs are not sucked into an equivalent of the golden triangle in Scotland, which is the central belt? It would not be a triangle; more of a line.

That is a great point. Although split across the whole of Scotland, it is important that those jobs are in places such as North Ayrshire and in rural communities. It is important that places such as GSK’s manufacturing plant in Irvine stay open and that they continue to employ people in local areas, because it is not just about jobs, or about the economic impact. Those facilities have a wider impact in areas that have experienced issues, as described in the Scottish index of multiple deprivation, such as income deprivation and employment deprivation, and that have some of the highest child poverty rates in Scotland. Keeping those jobs in places such as North Ayrshire, rather than in Glasgow or Edinburgh, for example, is really important for the economic impact as well as the wider impact.

Mike, do you want to comment on that, given what you have said about the lack, or mismatch, of investment at certain stages and times in the process?

It is really important that every region and area of a city that has the intellectual capital to create spin-out companies has the infrastructure to absorb them. If those companies are kept close to the founding scientists and the technology platforms that created them, the companies themselves will get the fastest opportunity to grow. Therefore, it is important that we do not just have, for example, the Edinburgh BioQuarter—I am not picking on it—and say that everything should go there, because that does not really work. Dundee spin-outs need to be next to the University of Dundee, Aberdeen spin-outs need to be next to the University of Aberdeen and so on.

The excellence in the fundamental research and the opportunities to create spin-outs are distributed across the whole of Scotland. The big three are Dundee, Glasgow and Edinburgh, but Aberdeen is absolutely spectacular in biologics—it has a real specialist niche. Then there is the University of St Andrews, Heriot-Watt University and the University of Strathclyde, as well as the University of Stirling in relation to aquaculture. They all have zones of excellence and expertise. They all need the opportunity to keep their fledgling and spin-out companies close to give them the best opportunity of success by being close to the founding scientists and technology platforms that created them.

That is what is necessary, and we are now starting to get that infrastructure with the Aberdeen biohub; the Dundee innovation hub, which will be open next year; the Edinburgh BioQuarter, which has been there for some time; and Glasgow, which also has some significant capabilities for spin-outs. We are beginning to level the playing field. It is probably not enough, but there is some sufficiency. That will keep the distribution of the R and D base wide, which is important. I agree that we do not want to see that collapse into one place.

I will build on that. We have heard a lot about scaling up and the importance of different types of investment VC as well as public investment to bridge gaps. Do we also need to think about scaling deep and scaling out? We have heard that in the committee before, in other contexts and with regard to other sectors.

George Davidson talked about how we stop people doing the things that they have always done. What is it about the culture that we need to change that is not just about money? What else do we need to do to ensure that we get those roots? In essence, we are talking about the setting down of deep roots around the spin-outs, so that they stick. That is not always about scaling up, but we do not talk about scaling out and scaling deep, so how do you help us to change the conversation and what do you need from us to help to change that conversation?

We need to make Scotland a really attractive place for investors to invest in. This is a 10-year project, but we need to accrete a talent base that we do not currently have. We have the talent on the science and ingenuity side, but we do not have the C-suite talent—the chief executive officers, chief scientific officers and chief financial officers, for example; they all live in the south-east of England. However, one thing that the pandemic has taught us—it has been a fantastic revelation—is that you can leave them there. You can keep your R and D team, which is the majority of the jobs, in Scotland, and the C-suite folk can carry on living in the—in my opinion, ghastly—south-east of England and come up and down to their Scottish assets. In that way, over time, they will accrete to Scotland, because it is a much nicer place to live.

As I said, that is a 10-year project, but that situation used to be seen as a barrier. People would say that we would never get investors to do anything in Scotland because all the C-suite people are in the south-east, but it turns out that they can work virtually. As the pandemic has taught us, everybody can work virtually, and that works very well from that point of view. That is much less of an impediment now but, over a 10-year project, we need to accrete a critical mass of that talent set as well as the fundamental scientific R and D talent.

In addition to the innovation hubs, the size of Scotland is quite an advantage. The once-for-Scotland approach that is being pushed is really positive, because if you get the data infrastructure right, we will get to the place where we want to be—I go back to there being a tipping point. We are not far away from that. We have a duty to bring people from my organisation and others up to Scotland and to put on showcases to show people what Scotland can bring to them.

The Scottish Government is considering the creation of a national pharmaceutical agency to improve links between life sciences and the NHS. It has described it as a possible “front door” to health from the life sciences community. Is that agency necessary and, if so, what should it do?

12:00  

We have heard a lot of conversations about it. We invite Alison Strath to our access and value meetings. We have not yet debated that in any great detail, because we are still waiting to see some of the detail on what the agency’s purpose would be, what it would do and what the opportunities and threats would be. The short answer to your question is that we have not had a big debate on it.

Therefore, is it something that appears to be coming from the Government rather than the industry?

I am sorry, but could you say that again?

Does that initiative appear to be coming from the Government? It does not sound as though it is coming from the industry.

That is right. It is not something that we are proposing at the moment.

Sir Mike, do you have a comment on that?

That is really the other end of the business chain. My expertise, such as it is, is in the early innovation and creation of spin-outs. George’s expertise is at the other end, in how you get final products engaged in the national health service.

I am not saying anything negative about it; it is just that we have not yet had a debate about it. I am sure that we will when the time is right. We have a great relationship with Alison Strath and the health minister and so on, so I think that we will be brought in to have discussions. We have never had an issue with that. To go back to the point that I made earlier, in Scotland, we are fortunate that we are very much round the table and can have these discussions.

The Government describes the initiative as being in an “early scoping stage”, so you have confirmed that for us.

Yes, that is correct.

Okay. I thank the witnesses very much—

Convener, could I just ask a brief final question?

We are running over time, Mr Stewart, so please be very brief.

It is an important question.

I am sure that it is.

Thank you, convener.

George Davidson and others have mentioned Spain’s ability to carry out clinical trials more efficiently. If my memory of the pandemic serves me well, Spain also had a very high vaccine take-up rate. Have Covid and some of the conspiracy theories about it—and some of the conspiracy theories that there were before—caused difficulties in certain places in recruiting people for clinical trials? Is Spain at an advantage because there seems to be trust in the Government and the infrastructure with regard to managing those clinical trials?

We have heard that trials are doing well in America, so I am not sure about that correlation.

It is a good observation, although I could not draw that correlation. However, what I can say about Spain is that I have spoken about that to Gary White, who is the deputy chair of the Life Sciences Scotland industry leadership group and who works for IQVIA, which has a base in Scotland. I asked him why Spain is doing so well, and his only answer was that they are really cohesive in how they do that across the regions, so they all talk to each other. That goes back to the points that we made earlier about the fact that Scotland is small enough to do this. If we can get our data structure, our universities and everyone working together, we hope that there is a great landscape in which we can move that forward.

Spain has also invested hugely in its public health services, so it now has the capacity to bring in clinical trials, whereas, previously, it did not.

That brings us to the end of this morning’s evidence session. I thank the witnesses for an interesting discussion.

The committee will now move into private session.

12:03 Meeting continued in private until 12:20.