Ivor Campbell of Snedden Campbell explores the scale, activities and pulling power of UK companies compared with those of similar size and scale elsewhere, including in the US and Asia Pacific region.
Because our prime minister is not given to bouts of incontinent boosterism, his recent boast that the UK will be a science and technology ‘superpower’ by the end of the decade was met with some measure of seriousness.
It helped that, rather than engaging in the kind of groundless sloganeering redolent of his predecessor but one, Rishi Sunak’s proposal appeared to have some detailed thought behind it.
There was the promise of cash, in the form of £360million of investment; a new science and technology framework that will embrace developing technologies, including artificial intelligence and supercomputing; and 10-point plan to exploit post-Brexit freedoms, to craft ‘pro-innovation regulations’ and develop a ‘pro-innovation culture’ in the public sector.
Of course, it didn’t take long for reality to bite and for those who actually work in the sector to point out a few home truths.
Marie-Andrée Gamache, the newly appointed president of Novartis UK – Europe’s biggest drugs company – rubbished Mr Sunak’s claim and warned the Government that her company could start pulling investment in a row over pricing.
Criticising Britain’s ‘commercial environment,’ she said Novartis UK had reached ‘a tipping point’ in its ‘prioritisation of investment in the UK’.
Pascal Soriot, chief executive of AstraZeneca, meanwhile said his company will now build a new £300million manufacturing plant in Ireland instead of Britain, because of its ‘discouraging’ tax regime.
AstraZeneca spends more than £2billion-a-year on research and development alone in this country, more than any other British-based company. It is one of our world-beaters.
And last month, AbbVie and Lilly left the UK’s voluntary scheme for branded medicines, pricing, and access (VPAS). Laura Steele, Lilly’s president, and general manager, said the scheme – designed to limit the overall cost of treatments to the NHS, with firms returning a set percentage of sales revenue – had ‘harmed innovation’.
Clearly, there’s still a lot to be done before the UK can claim to be a science and technology ‘superpower’ and to (continue to) genuinely compete with existing superpowers like the US, China and Germany.
Life sciences could and should be a driver of UK growth, but to achieve more private investment and scale, to employ many more people and generate substantial tax revenues, significant changes are still needed.
The toughest challenge, perhaps, is to reset the entrepreneurial mindset of UK scientists, business owners and investors to facilitate expansion and move-on from the sector being dominated by a handful of large, foreign-owned companies.
If the Prime Minister was to look in closer detail at the diagnostics sector, he would see that only around 10% of UK diagnostic companies currently make any money and most of its revenue is generated by super-corporates such as Abbot, Roche and Siemens Healthineers.
Then there’s a larger group, representing around 60% of the market, whose members make some money, but don’t necessarily turn a profit – unfortunately for them, EBITDA doesn’t count.
These companies generally attract investment, sell products and are just about washing their faces. In some cases, they are not profitable and don’t intend to be profitable – their exit strategy is to be sold as a going concern to one of the big players.
Progress has already been made in attracting the kind of skilled talent that will be needed to turn the UK into a superpower. Companies moving from research and development (R&D) to production and commercialisation of a product will need experts at every stage in the process.
The Government has rationalised the immigration process to ensure businesses can recruit the best people globally, but the next challenge will be for them to match, or even to come close to, the stellar salaries earned by equivalent scientists and business leaders in the US and Asia Pacific region.
It’s interesting to see how much more people in the US get paid, working for companies of a similar scale and with the same objectives as those in the UK. You can almost add a zero to their salaries.
It’s not unknown for employees to be paid more than $1million-a-year because they have some particular technical skill or ability. They also have share options worth hundreds of thousands of dollars.
It ultimately comes down to money. The more money you have, the more you can do and the more you will make. The US has the advantage of having some very good universities but so too does the UK. We are only second to the US in the number of Nobel prize winners we can boast.
Do we want to compete seriously with existing superpowers? Well, we could start with making sure that at least a handful of indigenous companies, probably based around Oxford, Cambridge, or London, in the fields of medical technology, diagnostics or related life sciences, are encouraged with hard cash and soft wooing to remain in the UK as they scale.
These are the companies that will be capable of paying millions of pounds a year in salaries, along with the benefits of their associated novel technologies.
Companies in the US certainly benefit from bigger tax breaks than their UK counterparts. For every dollar they invest in life sciences, they get a certain percentage of tax relief. But in the UK, we are catching up and there are certain circumstances in which UK companies can claim all of their tax back on research and development.
It’s noticeable that UK companies spend considerably less on R&D than their nearest competitors. There is a bigger specialist investment community in the US and you also see evidence of it in Israel, which appears to follow a US model and attracts US investors in a way that UK companies currently don’t.
Investments by institutions such as Blackrock backed by funds from wealthy individuals, currently place the US at a higher level than everyone else. Huge pools of investment worth hundreds of billions of dollars make all the difference.
The effect of this is noticeable in daily life sciences press releases that contain announcements of £1m, £2m and £3m investments in the UK compared with investments one to two orders of magnitude higher in the in the US.
There’s no issue with forming innovative businesses in the UK med tech sector, the issue is attracting the funding to play in the premier league.
Of course, you have to start somewhere and the UK life sciences sector is undoubtedly on a path to growth. The sophistication of the average UK med tech or life science firm in raising funds today is far higher than it was even 10 years ago.
In their quest to achieve superpower status the UK science and technology communities don’t quite need the power of kryptonite, just a measure of realism and a determination to succeed.
Ivor Campbell is Chief Executive of Callander-based Snedden Campbell, a specialist recruitment consultant for the medical technology industry.