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Building a Better Healthcare Cluster

The following article was published in International Biopharmaceutical Industry, Volume 3, Issue 1, July 2020.

Science and technology has always been a powerful dynamic in regeneration, and the fourth industrial revolution has many parallels with the first in the way that it continues to shape our thinking about towns, cities and places.

In an era of unprecedented turmoil caused by the UK’s decision to leave the EU, followed by the global COVID-19 pandemic, it’s striking that science and technology is more or less unchallenged at the vanguard of how economists think the country should approach the future. In the UK this means a vision of creating a highly skilled, high value economy, with life sciences to the fore.

The sector is one of the areas where the UK excels, aided by its base of world-class, research-intensive universities.

The UK government has recognised this as a priority. Life science was the first industry to get a sector deal under the 2017 Industrial Strategy, with a second following soon afterwards. These deals are partnerships between government and industry on sector-specific issues with a view to creating significant opportunities to boost productivity, employment, innovation and skills.

The UK regions are a key element in this story, but outside of the Golden Triangle of Oxford, Cambridge and London, to date it is only the North West that has been able to achieve a cluster of major significance. It is built around research intensive universities in Manchester and Liverpool, together with a deep pool of cancer research expertise in Manchester, and infectious disease knowledge in Liverpool.

Other regions are seeking to develop along the same lines and for any emerging cluster, the buzzword ‘ecosystem’ is widely used. It reflects the notion of a series of spin-outs and businesses scaling up trading with each other within a cluster. A key feature making a science and technology-based ecosystem function is there needs to be strong links between industry, funders, universities, government, and the third sector.

Location matters and proximity to talent, in particular, is one of the major reasons why sector clusters work well, whatever the industry. All of the evidence demonstrates that you are far more likely to make a success if you are engaged with like-minded people in a reasonably close environment – a reality that’s sat behind very different clusters on America’s West Coast for example; software in Silicon Valley, bioscience in San Diego, and, for that matter, the film industry in Hollywood.

In a US context, England would be regarded as one single cluster because of the geographic proximity of the population. But the UK is a complicated place and we operate in more narrowly defined geographies than elsewhere in the world.

In areas both with and without devolution deals the story is much the same. The West Midlands Combined Authority, for example, has a strategy focused on developing its digital tech, med tech and life science research assets. In West Yorkshire, fintech leads the way, whilst Bristol-Bath has a broad innovation focused cluster, which includes health technology.

Whatever the perspective on the boundaries of clusters, the reality is that economic development of this model requires certain fundamentals to be in place.

There are four principal issues. Clearly, people are critical as knowledge underpins successful clusters. Company numbers come down to ensuring a strong flow of prosperous spin-outs as well as the presence of established companies providing anchors for any given region. Finally, funding is the lifeblood of any cluster with the flow of both grant and equity funding being key to success.

At IDM, we’ve looked at these fundamental principles with the goal of identifying insights that can inform activity around the UK. To bring these issues to life, we produced a scorecard which contrasts the growing cluster in the North West, with those in Oxford and Cambridge. We didn’t look at London because its very size tends to skew the data, making an objective assessment more difficult

Our simple ranking system awarded five points for being first in a category, three points for second, and one for third. Cambridge led the way in terms of access to talent, followed by Oxford and then the North West. We assessed several factors when making this assessment – including job vacancies, existing sector employment and cost of living. We looked at advertised job vacancies for scientific staff over a period from October 2017 to January 2019. Cambridge consistently had the highest number of job vacancies with the North West next, followed by Oxford.

We also looked at the cost of living in these regions and the relatively low cost of living in the North West compared to the South and East of England gave it an advantage. Cambridge is comparatively expensive and an area that was already demand-constrained has been further skewed by the pharmaceutical major AstraZeneca moving several thousand people to its new R&D HQ there.

However, the flipside is the contextual point that Oxford and Cambridge are attractive because they are mature clusters. By and large, employees will favour an established cluster – particularly within the perceived high-risk environment of Life Science businesses.

Turning to capability, we investigated the research landscape. Charting the number of research publications within peer-reviewed life science journals for academic institutions, Oxford and Cambridge again scored very highly and the North West, less so.

Digging further into these numbers, we conducted a network analysis to identify how well-connected academic institutions were. Looking at a sample of more than 100,000 relevant publications, we discovered that 82% of research was carried out solely within North West institutions whereas Oxford and Cambridge recorded 76% and 74% respectively. All successful clusters attract network partners from outside the cluster and this cross-fertilisation of knowledge contributes to perpetuation of that success.

Another key set of metrics involves company numbers and in particular spin-out creation and established, anchor businesses. The ability to create new businesses is essential for sustained cluster growth – these businesses will hopefully produce the mid-sized and large companies of the future.

Reviewing the number of spin outs from higher education institutions over the last 15 years, Cambridge (2nd) and Oxford (1st) have the best track record within the UK. In the North West, the picture is dominated by Manchester and Leeds, although both are some way behind their southern competitors.

The story is different, though, if you examine established companies. We looked at large companies that are engaged in life science activities and the North West scores well with significantly more than in Oxford or Cambridge, due predominantly to its strength in pharma manufacturing.

Given the rankings outlined above around academic research activity and spin-out creation, there was a surprise when we assessed grant funding activity. We looked at research funding awarded since 2010 by the five main scientific funding councils who provide funding into the life sciences - Innovate UK; the Biotechnology and Biological Sciences Research Council; the Engineering and Physical Sciences Research Council; the Medical Research Council; and the Science and Technology Facilities Council.

Here, the North West wins – £18.5 billion of grant funding has been invested into research from these five bodies since 2010. In comparison, the Oxford cluster attracted £18.2 billion and Cambridge £14.6 billion.

So the North West has the most research funding but it’s far and away the worst at company creation. It’s not producing anything like the number of academic publications or creating as many companies as Cambridge or Oxford. Comparing the cost of spin-outs on a per capita grant basis, our analysis indicates that every spin-out created in Oxford is comes at only 66% of the cost of a North West spin out, whereas in Cambridge that number is as low as 43%. This begs the critical question as to why grant funding in the North West is not being translated into output? One reason may be related to the availability of equity finance. Looking at equity investments in terms of the number of deals and deal value, Cambridge scores highest by volume, Oxford second and the North West third. By deal value however, Oxford scores highest, with Cambridge second and the North West third. From detailed breakdowns of the funding, it is clear that Oxford and Cambridge are streets ahead of the rest of the UK (excluding London). Cambridge leads on early-stage venture capital - £343m raised in 2018, followed by Oxford with £188m whilst the North West secured only £19m. For late-stage VC investments, Oxford led the way with a colossal £635m – the highest UK figure, with Cambridge on £398m and London, for context, attracting £385m. The North West drew in £88m.

There’s no doubting the greater breadth and scale of the investable propositions that exist in Oxford and Cambridge. For a challenger region such as the North West, one of the many hurdles is that investors are creatures of habit and will tend to focus on the businesses and entrepreneurs operating in an established cluster.

The data around angel investors is much the same. The North West generated £2.7m of investment in 2018 whilst both Oxford and Cambridge secured circa £18.5 million.

So, perhaps not surprisingly, on our simple scoring system, the North West comes third behind the relative behemoths of Oxford and Cambridge across the four fundamentals of people, knowledge, businesses and funding.

The North West is getting more than its share of research funding. In contrast to Oxford and Cambridge, what it’s not doing however, is generating the research outputs that it should be. Nor is it effective enough at creating the number of start-up companies that it should be, relative to what Oxford and Cambridge are doing. And, given the circular nature of some of these fundamentals, it is that translation activity that is key to establishing a successful cluster. For the cluster to thrive, you need a supply of young companies, founded on high-quality science from leading academics. With the right companies, early stage investment will flow more readily attracting the pool of talent necessary to support growth. That growth, in turn, feeds a virtuous circle of activity attracting support businesses and inward investment.


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