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Last Updated: Friday, 5 January 2007, 00:11 GMT
The appliance of science into profit
By Gavin Stamp
Business reporter, BBC News, in Scotland

Dolly the sheep
Dolly's name is still a draw for investors

Despite being dead for nearly four years, Dolly the sheep still puts Scottish companies on the map.

Dolly's creation by scientists at the Roslin Institute near Edinburgh, and her six-year life, created such global interest that her name is still a calling card for biotechnology firms hoping to raise money.

At a recent conference in Edinburgh, a US banker said Dolly - the first mammal to be cloned from an adult cell - had done wonders for Scotland's image as a centre of scientific research.

Less dwelt upon now is the perception that Scotland failed to capitalise commercially on the scientific advances which made Dolly possible.

Proof of concept

The firm which helped clone Dolly only outlived its creation by about a year.

PPL Therapeutics, which sought to use transgenic animal techniques to develop human proteins for medical use, was sold to intellectual property firm Innovation Development in 2004 after heavy losses and strategic indecision.

It is no use having fantastic science but not bringing it to product stage and not starting to generate revenues for the company
Paul Garvey, Axis-Shield finance director

The bulk of PPL's product and technology patents have since left Scotland, being bought by Dutch drug firm Pharming.

PPL bosses were criticised for focusing research on a small number of high-cost, high-risk treatments and failing to balance this out with a supply of proven, sellable products.

The life sciences business, by its very nature, is all about risk and reward.

But the sorry state of PPL's finances - it made losses of nearly 40m in its final two years against revenues of less than 300,000 - would seem to have borne out the criticism.

"PPL's collapse had both negative and positive effects for Scotland's biotech sector; the big negative being that it severely dented the confidence of the biotech sector," says Dr Alexander Lewis, principal consultant with leading industry researchers Wood MacKenzie.

But he says there was also a positive legacy in terms of the infrastructure created and the experience gained.

"It also provided experienced management, who had been through the ups and downs of biotech, who went on to establish other new biotech companies in Scotland."

Financial lessons

Speaking to emerging Scottish life sciences firms, it is clear PPL's financial travails were a stark warning of what can go wrong.

"We want to be financially self-sufficient as soon as possible," says Dr Maureen Lindsay, chief executive of Ardana Biosciences.

The Edinburgh firm, focused on reproductive health treatments, has set itself a goal of launching a product each year for the next five years.

A laboratory at Dundee diagnostics firm Axis-Shield
Success in the US is crucial to Scottish biotech firms

Generating regular income this way and keeping its balance sheet healthy is essential for a business to which investors have committed 60m in the past seven years.

"Cash is king for a company like us," explains Graham Lee, Ardana's chief financial officer who oversaw its flotation last year.

"You do want to have a number of products in your portfolio but you don't want to be so thinly spread that you can never get a product to market."

Success in an industry which is dominated by US businesses is hard to come by but Scotland continues to punch above its weight.

The life sciences sector has doubled in size in the past five years and now contributes more than 800m a year to the economy.

Pros and cons

Underpinning this growth is Scotland's long academic tradition in the fields of science and medicine.

Professor Ian Wilmut, who led the team which created Dolly, is now heading a stem cell research centre at Edinburgh University, a field in which much hope is being placed.

Ardana's growth has been fuelled by an agreement with the Human Reproductive Sciences Unit of the Medical Research Council, giving it exclusive rights to commercialise its research.

Nurse testing patient using Axis-Shield's new Afinion system
Research costs have soared but are Scottish firms spending enough?

According to the Bioindustry Association, Scotland can boast nearly 600 academic institutions or companies working in the field.

But these advantages are offset by other less promising realities.

Most firms lack the scale to be globally competitive and have limited access to capital for overseas growth, while many cannot spend enough on research & development.

Most worryingly, few of them make money.

"We are fairly unique in terms of life science companies in Scotland in that we are profitable," notes Paul Garvey, finance director of Dundee-based medical diagnostics firm Axis-Shield.

"It is no use having fantastic science but not bringing it to product stage and not starting to generate revenues for the company."

Scottish ministers want the sector to become truly "globally facing and sustainable" by 2020.

This, they insist, can only happen if firms focus more on their core strengths and are realistic about their commercial ambitions.

Transatlantic drift

In reality, achieving this kind of scale can only be done by beating a path to the US, the world's largest healthcare market.

Axis-Shield hopes to crack the US with its new medical testing system.

Currently being marketed to the industry for use in doctors' surgeries, clinics and hospitals, the Afinion system can take diabetes tests through blood samples in just three minutes.

Dr Maureen Lindsay and Graham Lee, chief executive and chief financial officer of Ardana
Ardana's bosses have invested heavily to fill their product pipeline

The firm believes Afinion, which costs up to $3,000, will become the instrument of choice for on-the-spot testing in several clinical areas.

Axis-Shield has made life easier for itself by establishing a successful long-term partnership with US drug giant Abbott Laboratories, which will distribute the system in the US.

Ardana is considering similar US relationships and potential acquisitions, ahead of the launch of two drugs there in 2008.

It is ambitious, buoyed by the fact that few of the biggest US drug firms specialise in reproductive health.

"We want to build a globally networked company and commercialise our products globally," Maureen Lindsay says.

The reality, though, is that many will be bought before achieving the kind of growth that policymakers aspire to.

"At any time, we could be acquired," Ardana's Graham Lee acknowledges. "Big pharma are hungry at the moment.

"But we have a great platform, a great pipeline and there is no reason why we can't continue to grow."

Dolly outcome disappoints Wilmut
05 Jul 06 |  Science/Nature
China is 'land of hope' for Scots
24 Jan 05 |  Scotland
End near for Dolly the Sheep firm
09 Mar 04 |  Business
Dolly the sheep clone dies young
14 Feb 03 |  Science/Nature

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