Scotland’s life sciences and care sectors could see increased dealmaking Activity

Because of its traditional strength in life sciences and medicine, Scotland is well placed to attract investment, reports Rosemary Gallagher.

The healthcare sector is of growing importance to Scotland’s economy.

The healthcare sector is of growing importance to Scotland’s economy and covers a vast range of areas, from innovation in life sciences to investment in care home provision.

The country has a long tradition of research and development in life sciences, from Dolly the Sheep developed at the Roslin Institute in the mid-1990s, to TC Biopharm raising millions in private equity investment and making advances in cancer treatment today.

Figures released by Life Sciences Scotland in February revealed that companies in the industry had raised a record £85 million in equity investment in the past year, including a large increase in international venture capital.

On the healthcare delivery side, there has been a lot of recent activity and dealmaking, according to Shuna Stirling, head of corporate and commercial at law firm Brodies. She refers to investment in care homes to accommodate the country’s ageing population.

In August, for example, Scottish care home operator Renaissance Care secured an additional £600,000 in funding from Barclays to accelerate its long-term growth plans and finance further improvements to its portfolio of 14 homes.

There is clearly room for consolidation in the care home market, with research showing that more than 90 per cent of homes in the UK are owned by private operators, many of which are small-scale operations.

Brodies has experience of advising on deals across the healthcare sector, with Stirling focusing on the ‘bricks and mortar side’ to corporate partner Will McIntosh concentrating more on life science aspects.

McIntosh believes that the combination of an ageing demographic, the growth of the healthcare market as a whole and digital transformation – such as big data and the expansion of artificial intelligence (AI) – has led to new models of delivery of care.

“There is more emphasis on personalised, or precision, medicine, targeting individuals,” he explains. “Digital transformation, along with new delivery models, has created a huge amount of opportunity and reshaping of the landscape.

“It’s really those opportunities that have led to a high level of deal activity and new companies coming through.

“We now have remote access to healthcare and no longer have to follow the traditional routine of booking an appointment with your doctor and coming out with a list of prescribed medications.”

Some of the developments are focused on the treatment of serious diseases, while others are more lifestyle-oriented, such as wearable fitness and health tech. Businesses have been springing up in digital patient support, including Glasgow-based Talking Medicines which has developed technology to encourage the optimal use of medicines, working with the NHS and pharmaceutical companies. Its Medsmart app is designed to help patients manage their medicines better at home.

In May this year Talking Medicines secured its first institutional investment as part of a new funding round worth £622,000 to support the next stage of its growth.

McIntosh says: “Talking Medicines was one of the companies that recently raised money, providing real-world digital insight into the use of medicine.”

He believes Scotland is in a prime position to attract investment, partly because of its traditional strength in life sciences and healthcare in particular.

“Scotland has, of course, a great academic base and we have AI hubs, such as the one at Edinburgh University. Another strength is its joined up ecosystem, where open communication and sharing knowledge is fundamental to its success,” he explains.

He says that while Scotland does not have deep pockets of capital, a lot of companies have been ‘bootstrapped’ through collaboration with the NHS which acts as an early adopter or test bed, and a supportive Scottish Government.

The Scottish Investment Bank has also helped with funding and has a large quantity of medical technology and life sciences in its portfolio. “They have been hugely supportive of this sector,” says McIntosh.

“It’s all to do with playing to your strengths. As a country we have certain stand-out industries and life sciences is definitely one.”

Turning back to the service delivery side of the industry, Stirling says bricks and mortar are attracting investment and deals are being done.

“You have purchases and consolidation across care homes,” explains Stirling. “In the dentistry sector, there are now some investors putting together dental conglomerates, with the ultimate intention of a sale following the buy and build stage.

“With opticians, there are investment opportunities too from the new models that are being created. A lot of people now walk into a Scottish optician where they are obliged to test your eyes for free and the NHS gives them money. The optician hands over your prescription and then you can go online and buy glasses from another provider.

“This must, at some point, lead to disruption and change in that marketplace.”

Stirling is positive in her outlook for the delivery side of the industry, referring to a lot of care home sales and purchases continuing to happen, with substantial interest and investment from real estate funds as well as trade deals.

She does not see Brexit having a major impact on funding of the sector, although it could have some effect on employment.

“Sufficient supply of quality homes for sale to meet investor demand will continue to be a challenge,” she concludes. “Brexit or not, the population will continue to age and on that basis, I believe the healthcare sector will continue to be attractive to investors.”

This article appeared in The Scotsman’s Deals supplement. To find out more about the work of Brodies, visit their website.