A Welsh Government flagship equity fund to support the growth of life sciences firms is being wound up after £27m of its investments were written off, with its performance being labelled a “national embarrassment” by the Tories.
The £50m Wales Life Sciences Investment Fund (SWLSIF), championed by Port Talbot-born life sciences investor and serial entrepreneur Sir Chris Evans and then Economy Minister Edwina Hart, went live in 2013 .
In a procurement process overseen by Finance Wales (now the Development Bank of Wales), the contract to manage the fund was awarded to a company called Arthurian Life Sciences which was chaired Sir Chris. Although there was no requirement for the fund manager to match fund the £50m, the 11 investments into nine firms made by the WSLIF leveraged a further £200m of private sector investment which help to bring a number of life sciences firms to Wales, including ReNeuron.
Like ReNeuron some of the firms investing in by the fund, like many in the UK life sciences sector, were pre-revenue and in need of significant further funding to get through clinical trials and towards commercialisation.
The now fully invested fund, which comes under the Development Bank of Wales - which is wholly-owned by the Welsh Government- has been managed since 2017 by Arix Capital Management following the acquisition of Arthurian by Arix Biosciences.
The biggest hit to the fund came with the collapse last year of proton beam cancer treating centre business Rutherford Health in which it has invested £10m in equity as part of a £100m investment round in 2015.
There was one notable success for the fund with its equity investment into Merthyr-based drug trail specialist Simbec Orion. Having invested more than £8.75m into Simbec, its subsequent acquisition through a private equity financed management buyout in 2019, generated a £20m capital return to the Welsh Government - after the proceeds from the exit where passed back to it by Development Bank of Wales. The fund created and safeguarded more than 300 jobs in Wales.
The Development Bank of Wales in its latest audited accounts for its 2022-23 financial year shows an accumulated write-off position of £27.1m for the fund.
After the liquidation of four other firms, the remaining four live investments have a current fair valuation, based on external assessments, of just £2.5m - although this could rise.
The management of the remaining investments are being transferred to the development bank from Arix. The fund was financed via the use of Treasury backed so called financial transaction capital, which the Welsh Government has to repay over the long-term and is used to fund lending and equity activities of the development bank.
In a statement Economy Minister Vaughan Gething said: “The fund was an ambitious part of developing a vibrant life sciences ecosystem in Wales. Investment into early-stage life sciences businesses is inherently high risk, with successful ventures often hinging on the verdicts of regulators or regulated entities whose conclusions or choices come only after several rounds of investment.
“While this fund has ultimately resulted in a financial loss, it has delivered on many of its stated objectives. It was a pilot investment, unique in terms of being managed by an external fund manager – an approach not replicated since. The losses sustained are mitigated by this investment sitting within a larger portfolio of Welsh Government investments within the Development Bank of Wales, using financial transaction capital.”
He said that the development bank will now look to exit the remaining four investments made by the fund when appropriate.
His statement adds: “The current value of the transferred assets is in the region of £2.5m. Reflecting this, the board of the Development Bank of Wales has realised previous accounting impairments to write-off £27.1m in its 2022-23 accounts and notified this to the Welsh Government. Anticipating a significant loss of value, in 2020-21 the Welsh Government recognised a provision in its accounts against the fund of £10.5m.”
Shadow Economy Minister Paul Davies said: “The Labour Government’s own admission, they have presided over significant loss in value of taxpayers’ money invested in the life sciences sector. This is a national embarrassment.
"The written statement was released on the final day of plenary, this smacks of the Welsh Government dodging questions and avoiding scrutiny.
This announcement boasts that the Labour Economy Minister’s £50m investment helped safeguard or create 310 jobs, but this has come at a cost of over £160,000 per job and taken 10 years. A testament to Labour’s lack of financial prudency.
“The UK Conservative Government is touting record investment in the science sector. While the Welsh Conservatives want to see this kind of ambition here in Wales, Labour have proven time and time again that they can’t be trusted with Welsh taxpayers’ money.”
