Seldom have the opportunities lying ahead of Scotland’s life sciences sector looked more exciting.
From precision medicine and digital health, through to industrial biotechnology and sustainable aquaculture, the prospects for innovative companies are bright.
With the Scottish Government and the Scottish Funding Council investing in the Digital Health and Care Institute, the Biorefinery Roadmap for Scotland being unveiled in the US, and Harry Potter author JK Rowling donating millions of pounds for medical research, Scottish businesses have chances for growth both at home and overseas.
Yet finding the right funding to fuel that growth can still be a challenge. While some life science companies can tap into equity funding from business angels or the Scottish Investment Bank, this option is not available for everyone and many cannot access traditional sources of funding, such as bank loans and invoice financing.
Instead, more and more companies are harnessing tax incentives for innovation, including research and development (R&D) tax credits and the patent box.
R&D tax credits (RDTCs) allow UK companies to reduce their tax bill or receive a payable cash credit based on a portion of their R&D expenditure.
The patent box allows companies to apply an effective 10 per cent rate of corporation tax to the profits on patented products or items.
More than 52,000 RDTC claims were made in 2016-17, the last full year for which data is available, a 20 per cent increase on the previous 12 months. Together, those claims were worth £4.4 billion, up 14 per cent year-on-year, giving firms the firepower that they needed for expansion.
Small businesses were at the forefront of claiming R&D relief, accounting for 45,000 claims. For the 2,450 companies already claiming in Scotland, experts recommend that they “sense check” their process every 18 months to ensure they are “leveraging the full scope of their qualifying costs and activity”.
Investing in innovation will also bring wider economic benefits too. The UK lags behind its European neighbours when it comes to investing in R&D – at 1.69 per cent of gross domestic product compared to 2.07 per cent – and so boosting research spending will help to increase productivity and create well-paid jobs.
“Innovative companies need to look at innovative ways to finance their businesses so that they don’t fall behind their competitors,” says James Marden a partner in the Glasgow office of Leyton, a consultancy firm that helps its clients to claim R&D tax relief and harness the patent box.
“Most businesses will know that they’re doing R&D, but many won’t be aware about what qualifies for the associated reliefs or how to go about applying.
“Scotland is already clearly a fantastic place to run a life sciences business – we’ve got 750 companies employing 39,000 people and turning over in excess of £4.2 billion a year. That figure is predicted to rise to £8bn by 2025.
“But it’s getting harder and harder for companies to gain a commercial advantage these days, so it’s more and more important for businesses to explore every source of funding that’s available to them.
“Sources of innovation funding like R&D tax relief and the patent box scheme are often overlooked, and that’s why we’re working hard to make it as easy as possible for our clients to access these funding sources.”
In 2018, the consultancy firm’s offices in Edinburgh and Glasgow helped more than 1,200 Scottish businesses to claim benefits worth £30 million, as part of a UK total of £250m. The company has grown from six members of staff when it opened in Scotland in 2015 to almost 80 people today. This year, the firm is on course to generate £66m of benefits for its clients north of the Border.
“One of the reasons for our success is that we talk our clients’ language,” explains Dr Alison McLintock, who leads Leyton’s work in the life sciences sector. “When HMRC needs further information about a particular piece of R&D, we can explain it to them clearly because our consultants have worked in industry and so they understand what they’re talking about.”
McLintock is a case in point. She gained her chemistry doctorate in nanotechnology from the University of Strathclyde before joining chemicals company Johnson Matthey as a research chemist and then being promoted to become a principal scientist.
She joined Leyton in 2017 and cut her teeth by assessing clients claims under the R&D tax relief scheme. By understanding what R&D work their customers have undertaken, McLintock and her colleagues can act as translators between industry and HMRC.
“Innovation doesn’t just take place in a laboratory with scientists wearing white coats,” insists McLintock. “We have a wide range of clients, from software companies developing the programs that are needed to underpin precision medicine through to engineering firms that are creating the next generation of medical devices.
“One of the most rewarding parts of my job is hearing what my clients have spent the money on that we’ve been able to reclaim for them from their tax bill. For some of them, the cash has meant that they’ve not had to lay off staff and have been able to keep their doors open.
“For others, it’s given them the money that they’ve needed to fuel their growth. They’ve spent the money on hiring new staff, or buying new equipment, or expanding their premises.”
Scientists aren’t the only members of the team at Leyton. Its staff also includes engineers, software specialists and qualified tax advisors.
Outside the life sciences sector, Leyton’s Scottish offices have worked with a wide range of businesses, from those in the oil and gas industry through to those in the farming sector. Since 2015, the company has secured £50m through innovation and tax credits for oil and gas businesses alone.
Founded more than 20 years ago, Leyton has grown to have 22 offices in ten countries, from European bases in Belgium, France, Italy, the Netherlands, Poland and Spain, through to premises further afield in Canada, Morocco and the US.
Launched in 2010, DestiNA Genomics is an early-stage research and development (R&D) company that was spun out from research originating at the University of Edinburgh School of Chemistry.
The firm is developing technology to detect nucleic acid biomarkers – which are important in determining how toxic a drug might be, and in diagnosing cancer and other diseases – found in bodily fluids such as blood, saliva and urine.
During the company’s early stages, when the business is dependent on grants and investor seed capital, every pound is really important, and can make a huge difference to financing its research.
DestiNA Genomics was aware of the R&D tax relief scheme but was unsure how much of its work would qualify, given that the company had established a subsidiary in Spain.
After speaking to Leyton’s specialists, the company discovered its Spanish research could also qualify for a tax relief claim, because the R&D had been funded by the UK parent company.
With the rebate, the business has been able to allocate funds in a more efficient way in terms of cash ﬂow, as well as making better R&D project funding decisions.
Hugh Ilyine, chief executive of DestiNA Genomics, says: “There is a feeling of support that comes not only from the British government providing this funding, but also from working with Leyton.
“Leyton’s work has been very rewarding for us, not just financially but also in terms of the motivation, headspace and management of the company.”
For more information, visit www.leyton.com.