Low investment in R&D worries international investors

In August last year Teva announced the acquisition of Actavis Generics in a bid to improve its international commercial opportunities and significantly enhance the global scale of its sales.

In 2014, the Actavis Malta plant employed around 850 workers – having dismissed some 100 workers the year before when it closed down some of its manufacturing units and mothballed its R&D department. Without its R&D in Malta, the generics producer was out on a limb as any future development of certified medical products depended exclusively on innovation created at its overseas headquarters.

In its heyday, Actavis ran two manufacturing facilities in Bulebel and Hal Far but it had a history of redundancies and in 2014 some 110 employees at Arrow Pharm in Hal Far were also at risk of redundancy following the acquisition of Actavis by Watson Pharmaceuticals.

Teva completed its ambitious purchase of Actavis Generics for a cool $40.5 billion and piled up additional debt of $35 billion. A few months following the acquisition of Actavis, the Malta plant laid off 200 workers including qualified lab technicians.

Teva is a well-known Israeli high-tech company and it is generally regarded by the government as the champion of the research and development for which it received many accolades when it succeeded to obtain FDA licensing for new products which made headlines in international markets. Regrettably, it was only recently that Teva’s fortunes took a nosedive as it reported its second-quarter earnings had fallen by a tenth. In a shock announcement, it said it will cut 7,000 jobs and pull out of 45 countries by the end of 2017. Its plight has revived a hot debate in Israel whether it is making efficient use of the heavy expenditure on research and development - part of which is funded by the Israeli government in a drive to promote the country as a test bed for innovation.

The Economist magazine has reported that owing to the smart creation of innovative clusters in Tel Aviv, this has resulted in hundreds of technology start-ups being snapped up by global US firms. Due to its heavy investment and support for innovation especially in biotech and digital sectors, one finds many start-ups in Israel fully funded by venture capital and other business angels. It is part of Israel’s booming “Startup-nation” economy; it manages the most dynamic innovation ecosystem outside America. Direct flights now connect San Francisco to Tel Aviv. Can Malta ever dream of copying the success of Tel Aviv and have its own innovation success story?

The good news is that both political parties promised in their manifesto of the last general election to substantially increase investment in innovation. PKF thinks that any effort to attract a world-class organization in this field does not come a moment too soon. In its last budget, the government allocated over €75 million to build a new campus in SmartCity and this might be an ideal venue to host an innovation centre. Only thus can we attract international business to exploit a top-end R&D status and with government support attract talent, which is a particularly shy bird.

It is not an easy journey and many countries want to emulate the commercial success which rewarded Boston, Silicon Valley, Singapore and Israel over the past 50 years. Even China is investing massively in the Pearl River Delta town of Shenzhen to emulate the success of Silicon Valley. Can our country, albeit small and lacking indigenous materials rise to the occasion to surf gloriously over the tide to seize this opportunity? Having an international innovation and business accelerator centre of calibre may prove to be a true catalyst to attract and retain such investment. This roadmap is an ambitious one as European governments are all in competition to attract international companies and start-ups particularly in fintech, Artificial Intelligence, blockchain and biotech technologies.

Last year a delegation from PKF visited Massachusetts In- stitute of Technology (MIT) and CIC, an accelerator in Boston, USA to explore links to promote Malta as a potential business accelerator and/or Life Sciences hub. This was a private initiative undertaken with the blessing and patronage of Chris Cardona, the Minister responsible for the economy and start-ups. He offered the services of a technical representative from Malta Enterprise based in New York to join in the discussions – although each party catered for its own expenses. A number of high-profile companies know their baptism at CIC, including HubSpot, which now employs over 1,100 people, and raised $125 million through its IPO last October, and Greatpoint Energy, which several years ago announced a $1.25 billion deal to build reactors in China.

Additionally, Android cofounder Rich Miner built his unique Google Android software and Rich established Google’s New England headquarters there. CIC also has a non-profit sister, the Venture Cafe Foundation (this provides a Forum for venture capitalists to scout and help fund new talent). Having toured its offices and laboratories, staff from PKF were impressed by the number of dedicated entrepreneurs who work hard to seek the proverbial Alchemist Stone. The founder of CIC last year finalised a deal to open another start-up hub in Rotterdam, The Netherlands • the first of its kind outside the US. Talks are in progress to inaugurate another centre in Warsaw. Rotterdam was chosen as an ideal location since like Malta, the Dutch population are fluent in English and prides itself on be a melting pot of different cultures.

It goes without saying that our economy needs to diversify away from the traditional bucket and spade tourism, the volatile iGaming hub and heavy manufacturing with its high carbon footprint. Granted, it is not an easy journey and many countries want to emulate the commercial success of Silicon Valley. Can Malta, albeit small and lacking indigenous materials, rise to the occasion and surf gloriously over this tide of opportunity? No doubt it will cement the collective faculties of our two universities, technical institutes and medical schools to produce cuttingedge research particularly in Oncology, Nanotechnology and bioscience products. Embarking on this ambitious roadmap will shine a light to guide us on a dark journey at the end of which we can be able to secure GDP growth and improve our competitiveness level. The harsh lesson suffered by Actavis and Teva due to lack of ongoing R&D may open our eyes to change our mindset and double our investment which we pledged to do with the Commission – now a mere 0.7% it is planned to increase to 2 % of GDP by 2020. As can be expected, Prime Minister Joseph Muscat, now responsible for innovation and digital economy will smell the coffee and consolidate a strategy for a golden legacy by funding a research centre based on a true ecosystem of excellence. Fortune favours the bold.