Pharma’s pioneer of ‘white space’

For 25 years chemical engineer Ian Shott built a career in big-name businesses, holding senior executive roles in ICI, Zeneca, Lonza, ChiRex and Rhodia. Then in 2003, aged 46, he turned his back on life in large corporates to pursue the opportunities of what he calls “white space” – areas in the market that he perceives are served poorly or not at all.

Moving from big pharma to entrepreneurship has meant a cultural shift from what he perceives as a defensive, risk-averse mindset – “a recipe for sustained mediocrity”. Yet his corporate years have also given him powerful personal advantages: confidence, strategic vision, a great business grounding and contacts, which allow him to occupy a bigger stage than most business founders.

“We are trying to focus on the battlefield of change,” says Mr Shott, who is foun­der, majority owner and chief executive of Excelsyn, the Newcastle-headquartered provider of process technology services to pharmaceutical and biotechnology companies. “When markets are under pressure there is a lot of change and a lot of opportunity to do things differently.”

Big pharma, he says, is facing turmoil as it struggles to select, from hundreds of thousands of molecules, the handful that can become blockbuster drugs.

Some in the sector might balk at his view that this industry is “old and slow” but there is no disputing that productivity issues and the huge costs of pharmaceutical R&D are big preoccupations. And commercial pressure is not confined to the pharma giants: only recently, the broker Seymour Pierce noted plunging share prices, slow drug development and investor scepticism, in a report on the UK’s 47 quoted biotechnology stocks.

Mr Shott believes he has spotted op­portunities in drug developmentto provide services that are quick and flexible and cost far less than big pharma would pay in-house. Excelsyn, for example, has its own SAS – a Synthesis at Speed team of laboratory technicians who work round-the-clock shifts to speed up the cycle of process development. “Who dares wins,” he laughs.

Excelsyn’s offering is wide-ranging, including lab services, pilot and scale-up facilities, small-volume active pharmaceutical ingredient production and a patented intellectual property port­folio that embraces biotechnology and catalysis systems. “We get a real bonus if we can use our own technology,” says Mr Schott.

Opportunities, he says, inc­lude the “sweet spot” of “orphan” drugs – products whose total global demand is too small to justify the huge cost base of big pharma. For instance, Excelsyn makes 20kg a year of a pain treatment that is a synthetic equivalent of cannabis for a Californian company, for sale in North America and Europe.

Personal and commercial reasons prompted Mr Shott’s trans­ition from corporate executive to entrepreneur. After several international relocations he wanted his family to settle in one place. Also, having made serious money for corporations – including taking ChiRex from struggling financially to becoming a $550m (£282m, €379m) divestment – he liked the idea of making money for himself.

He jokes that he is not too proud to serve big pharma customers – “as long as they pay me, we’ll do what they want”. But nor is he one for false modesty, remarking that while the big corporates are populated by many very clever people, “a lot of their people don’t have business common sense”.

To be an entrepreneur in this sector means having a “controlled split personality”, he says. “You can’t ignore the regulatory and good business practice prerequisites for safe and responsible operation. On the other hand, you have to be prepared to do it with less than the full set of data, and have a risk management approach appropriate to doing that.”

An example is his acquisition in 2004 of Great Lakes Fine Chemicals’ Holywell site in Wales, a deal crucial to Excelsyn’s fast growth. Excelsyn has gone from start-up in 2003 to expected sales in excess of £15m in the current year, on which it will return a 7 per cent operating profit margin. Sales are projected to exceed £22m in 2010, with a 16 per cent operating profit margin.

The Holywell purchase included intellectual property far beyond the financial reach of most small companies. The deal was completed for a nominal sum but required that Mr Shott took on the environmental liabilities and the 57-strong workforce. It has since grown to 84. The rest of Excelsyn’s 90 employees are at its headquarters in Newcastle upon Tyne, where he and his family live.

Among current external roles, he is founder chairman of Newcastle University’s Industrial Advisory Board, a member of Imperial College’s IAB, and chairman of Cels, the Centre of Excellence for Life Sciences, a body charged with expanding a sector vital to the north-east region’s economy and future. He was named by the Royal Society of Chemistry magazine as its 2006 “ent­repreneur of the year”. And he was recently appointed chair of the government’s Industrial Biotechnology Innovation and Growth Team.

Excelsyn also punches above its weight: a Chinese partner, OSD, manufactures to its requirements larger volumes of advanced intermediates than in the UK, in a dedicated plant near Shanghai. In 2008 Excelsyn expects to open its own office, laboratories and trading house in Nanjing. A base in Mumbai, India, is under consideration.

Helped by the knowledge ac­quired by senior directors from their big-business days with Great Lakes, Excelsyn has navigated the bureaucracy of applying for grants to support collaboration with universities on developing its IP portfolio. It has obtained grants totalling £880,000 from the UK and Welsh governments to support biotechnology and organic chemistry research at Bangor, Edinburgh and Manchester universities.

Not everything has gone to plan. Mr Shott describes his 2004 acquisition of an engineering design and build company supplying the pharmaceutical and biotechnology industry as a mistake: “For a company of our size it was a step too far.” The marketplace timing proved wrong too: the acquisition lost money and 40 jobs went. This contributed to his decision that Excelsyn needed equity to boost working capital for growth. Endless, a private equity fund, and NorthStar Equity Investors last year invested £4m in total. Mr Shott now has a 53 per cent share of Excelsyn, with outside investors and management holding the rest.

But he is candid about not having got everything right. “I’m not too proud to admit mistakes. Mistakes are how you learn.”

Perhaps that perception is part of what entrepreneurship is about. As Mr Shott says: “Self-awareness is a big issue for individuals and companies in this industry.”

Personal networks can be a great asset

Ian Shott, chief executive of Excelsyn, moved from a role as pharmaceutical corporate executive to entrepreneur. These are his experiences from the front line:

●Recognise that even as a senior employee in a change-averse big business, you may have been an entrepreneur by instinct all along, operating as an agent for change.

●While in a big company, build personal networks with change-friendly kindred spirits. Even if these radicals are a small minority, there will probably be more than you will readily encounter after leaving. “My network has been my biggest asset,” says Mr Shot.

●Just because small companies were originally created by entrepreneurs does not mean they have an entrepreneurial culture: they can be very set in their ways.

●If you buy a struggling company, quickly draft in your own, trusted management. Mr Shott made a mistake in not doing this with one acquisition: “If you are buying damaged goods, recognise you may need to get rid of some of the people associated with them quickly.”

●Acknowledge that employees in smaller companies you acquire may well not have your global perspectives and experience: the culture shock can be mutual. “I spent my life running businesses with thousands of people. I underestimated the challenge of running tens of people,” he says.

● Use relevant business-related activities to keep connected to trends and top people.