Life science firms cash in on investment slump

Published on Saturday 18 October 2008 15:01

LIFE science firms are likely to attract millions of pounds of investment now that funds are ruling out the beleaguered financial services and property sectors, say analysts.

Industry experts say biotech, pharmaceutical and life science companies are currently outperforming the rest of the FTSE 100, and funds which remain under pressure to deliver high returns for their investors are eyeing opportunities in the sector.

They argue the burgeoning Scottish industry, which has been highlighted as a key growth area by Alex Salmond's Government, should "make the case" for funds to invest in Scotland.

Neil McInnes, head of technology at advisory firm Grant Thornton in Scotland, said the life sciences industry is an attractive prospect for funds used to investing in high risk but high return companies as healthcare is less affected by economic downturns than other sectors.

Speaking at the Scottish BioIndustry Association's leadership forum in Edinburgh on Thursday, he said the industry doesn't typically rely on debt financing and has a growing customer base as developing economies such as China, India and South America demand increasingly sophisticated healthcare.

"There's clear water between pharma, biotech and life sciences and the rest of the FTSE 100," he said. "The credit crunch may create some opportunities for life sciences. Two huge areas that received a lot equity before (financial services and property] are no longer open for business. Investment funds raised a lot of money pre-credit crunch.

"The money is there. It's for Scotland and Scottish life science companies to make the case by demonstrating to these funds there are good investment opportunities."

McInnes pointed out that pharmaceutical giants also have huge cash chests to invest in smaller drug development firms. US firm Pfizer, for example, currently holds $25bn (14.4bn) in cash and short-term investments.

But he warned the life sciences sector will have to compete for funds' attention with other emerging industries such as "clean technology", which strategists suggest is likely to be another boom area in future.

He said Scottish life science firms should look to make strategic alliances within the industry to remove some of the risk for potential investors.

Barbara Blaney, director for the BioIndustry Association in Scotland, said the industry is weathering the economic storm reasonably well. "You always need healthcare," she said.

But one industry insider pointed out that some funds are currently risk adverse and may find the sector too precarious to commit large sums.

He also pointed out that Scotland has always struggled to attract large biotech deals.