Profile - Alastair Smith: Technological tie-up opens up a whole new world for Avacta boss

ALASTAIR Smith is buzzing. It’s a day after his biotech company, Avacta Group, sealed a deal for a US technology giant to market its products and services in North America, a tie-up which hits the “bullseye” according to Avacta’s broker.

Pall Corporation, a $6.3bn market cap company with technology ranging from water purifiers to chemical warfare protection, will distribute Avacta’s analytic equipment and work with the York-based company to develop new products and services for the life sciences industry.

Smith, a 44-year-old molecular physicist-turned-chief executive, is brimming with enthusiasm about the “transformational” deal.

“They’re huge,” said Smith. “It’s an independent, third-party validation.”

But what exactly does Pall want with stock market minnow Avacta, spun out of the University of Leeds’s physics department?

Pall, which tends to focus more on “downstream” technology in the biotech sector, is moving closer to early-stage technology with the tie-up.

The six months it spent preparing for the deal gives Smith confidence Avacta will not “get lost in a massive organisation”.

“All the way through, Pall have talked about wanting to build a much bigger relationship in terms of developing products together,” he said.

Pall will also support Avacta’s flagship Optim device in North America, providing support for the machine which claims to speed up and cut the cost of drug development.

While he’s not putting a value on the deal, this could be one of the biggest developments for Avacta since floating on the Alternative Investment Market in 2006, believes Smith.

“Getting into North America is key, and I don’t think we could have done it better than this.”

For Smith – or Professor Smith, depending on the audience – luck is finally starting to turn. The company had a tough recession as sales of Optim failed to take off as it hoped. Since launching the device, in April 2009, it has sold just a handful of the high-tech boxes.

Optim claims to be able to do tests simultaneously – the work of three or four instruments – in just 75 to 90 minutes. Avacta hopes this will prove a big draw for pharmaceutical groups, especially as rival processes can take about 18 days.

But despite having the capacity to turn out one of the flashy boxes a week, converting interest into firm orders has been an uphill struggle for Avacta. Smith admits his timing could have been better.

“The markets have been dreadful in the last couple of years. It was hard to sell £90,000 pieces of kit in 2009/10.

“It’s definitely not been easy by any stretch. But we’ve got a good team of people who really work hard. It has been enormously challenging. That’s what you want at the end of the day.”

At last the tide is starting to turn. As well as the Pall tie-up, Avacta has agreed to put Optim units into Kansas and Colorado universities, both of which work closely with the biopharmaceutical sector and are highly influential in the US biotech market.

“We’ve got a strong balance sheet,” said Smith. “We’ve got commercial traction right across the board. We’ve got some very very clear commercial goals to achieve.”

Part of Smith’s strategy has been shaking off the boffin image. Born in Sheffield, he studied for a BSc in Physics before doing a PhD at the University of Manchester.

In 1992, he went to the US for post-doctoral research at the University of Pennsylvania, before returning to the UK and joining the University of Leeds, in 1995, where he gained a lectureship.

Judging by his PhD title, he’s an expert in the non-linear optical properties of liquid crystals, but despite becoming a professor of molecular biophysics, in 2006, the father of four prefers not to throw about his professor title in business dealings.

“I don’t think it has the right commercial connotations,” he said. “Professor is more elbow patches and grey, straggly hair.”

In fact, Smith doesn’t disguise the fact that he’s had more than his fill of academia, and has no intention of returning.

“In my experience in Leeds, there are some very good hard-working people who are world-class,” he said. “But certainly there’s a good proportion of people who do not really put a shift in.

“When there are people around you being paid a lot more for doing a lot less – that was probably the biggest negative.”

Smith founded Avacta, along with two fellow Leeds scientists, Simon Webster and Kurt Baldwin, in 2005. At the time, it did not have a particular piece of unique intellectual property or “fancy widget”, and was set up as a services business with the specific intention of “getting into pharma companies and working with them to find areas to develop technology”.

They soon latched onto the need for analytical technology that could work with every small samples of material, which, in turn, led to Optim.

“We didn’t have an aspiration to float,” said Smith. “That was definitely an aspiration of IP Group, who have the franchise with Leeds University.

“We floated what normally would be considered as very early as a very high-risk opportunity for people.”

And while luck was perhaps not on its side with its Optim product launch, Smith recognises that with the new climate of austerity and stretched university budgets, it could have been even harder.

“A short time after float, the markets took a real nose-dive,” he said. Achieving a flotation as an early stage university spin-out would be a tough ask in today’s climate, he admits.

“It’s tough to get funding for anything at the moment. I’m not sure that producing lots of small companies, each with their own management and corporate functions, is an efficient way to get value out of British universities.”

However, despite the funding constraints for early-stage businesses, Avacta appears to have a clutch of supportive shareholders who have backed its repeated fund-raisings, including a placing to raise £1.95m in January.

One of these is IP Group, the listed commercialisation vehicle which drove its flotation and has stakes in other Yorkshire spin-outs including Getech, Syntopix, Tissue Regenix and Tracsis.

Smith recognises achieving commercial success will increase the likelihood of Avacta being taken over.

“It’s very likely. That’s usually the way these things tend to work for UK-based high-tech businesses, but we don’t have that as a focus.

“I could see me working in an acquiring company, but I like the challenge of starting something from scratch and building it.”

There’s also the possibility of splitting the company in two, dividing analytical arm from the health business, which could earn a crust for its shareholders.

“Apart from the manufacturing and administration, there’s no real overlap,” said Smith. “At some point it would make sense to probably separate them into two entirely separate businesses.

“You could end up with two listed businesses, or you could sell one to generate a large amount of funds.”

This, however, is not Smith’s immediate focus. For the time being, he is concentrating on paying back the faith shown in its strategy by shareholders.

“All I’m looking at is making Avacta a success. That’s all I want to do. We’re going to make it a success.”

With the Pall deal under his belt, you sense that may be closer than ever.

Alastair Smith

Title: Avacta chief executive

Date of birth: October 7, 1966

Education: BSc in Physics with Electronic Engineering and PhD in Physics from University of Manchester

Favourite holiday: Anything with family, usually somewhere coastal in the UK

Favourite song: Deeply Dippy, Right Said Fred

Car driven: Honda Accord

Out of work: Playing football, sailing and plenty of walking

Most proud of: Getting Avacta to where we have today on the resources we’ve had