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What the world can learn from the UK’s pharmaceutical industry

Posted: 23 October 2020 | | No comments yet

Through the recent coronavirus crisis, the UK’s pharmaceutical sector has performed strongly and delivered innovation at a time when it was most needed. In this article, Dr Cheryl Teoh discusses how the industry has been set up for success.

UK pharma

AS THE YEAR progresses, 2020 continues to bring rapid and unexpected changes to our way of life. The way we work has potentially been transformed and fundamental questions are being raised relating to how economies should function. However, this upheaval has not deterred the UK’s pharmaceutical industry; instead, it has delivered in the most challenging of circumstances. Even amid the chaos of COVID-19, pharma has shown great innovation and collaboration at a time when it is most needed.

The crisis has seen the sector come together on a huge scale. Trade secrets and intellectual property have been more widely shared in recent months than ever before, with the development of a successful vaccine for COVID-19 becoming the industry’s new holy grail. Under immense pressure, many companies have also accelerated digitalisation processes, allowing for clinical trial data to be processed and shared faster than ever.1

However, the UK’s pharmaceutical sector has a long-running track record of delivering powerful innovation that overwhelmingly predates the pandemic. This progress is a testament to the way the sector has been developed and nurtured in the UK, providing a blueprint for how to create a truly cutting-edge industry. In my view, there are three major factors driving this long-running phenomenon in UK pharma: a dynamic supply chain, government support and value chains.

A dynamic supply chain

The first factor driving innovation in the sector is the UK’s dynamic supply chain, connecting institutions from all parts of society. The country is home to many of the world’s best universities and therefore a natural hub for talented graduates. Having access to highly talented PhD and master’s students is a significant boost for the pharmaceutical sector, especially compared to countries that are more reliant on immigration to supply the workforce for pharmaceutical firms. Recent boosts to apprenticeship training in vaccine manufacturing also represent a welcome move as vaccine development becomes a key focus across the sector.

The UK’s National Health Service (NHS) plays an important role in the broader pharmaceutical supply chain”

However, universities also play another key role – many of the most successful firms began as start-ups spun out of university research faculties. One prominent example is Abcam, which has become one of the leading players in the sector due to its work on antibodies. The company was initially spun out of a genetics research institute in Cambridge. These firms can also benefit from the local wealth of knowledge around mergers and acquisitions (M&As) and intellectual property, driving further growth.

The UK’s National Health Service (NHS) plays an important role in the broader pharmaceutical supply chain, providing the ideal infrastructure for the commercialisation of drugs. Working with pharmaceutical companies, the NHS contributes significantly to UK pharma’s strong international competitiveness. It also plays a critical role in supporting clinical trials. For example, hospitals in Birmingham are home to many of the UK’s leading clinical research institutions and have supported work on ground-breaking medicines.2

Government support

The second key factor driving the UK’s pharmaceutical innovation is a system of government support that incentivises risk taking. Government incentives have continued to drive business activity and productivity, with the Future Fund, Sustainable Innovation Fund and many others forming part of a broader strategy aimed at cementing the UK as a global science superpower.

One area that particularly supports the pharmaceutical sector is the system of R&D tax credits, whereby tax relief can be claimed on activities throughout the drug development process, from drug discovery through to post-launch trials. It can be claimed on expenditure on a wide range of areas, including employee costs, with the salaries of the Chief Scientific Officer and other R&D personnel eligible for claims. It also applies to materials directly used to carry out R&D and the utilities and software costs needed to support these activities.

Given the importance of R&D for the pharmaceutical industry, this form of tax relief represents a major boost. The relief pays out generously, with the qualifying costs multiplied by 230 percent to provide a reduction in businesses’ corporation tax bill. In other words, for every £100 spent on qualifying R&D costs, the company can lower its corporation tax bill by a further £130 in addition to the £100 spent.3 For these companies, who face the reality that most drug prospects will not make it to market, the tax relief makes a significant difference and encourages inventiveness and risk taking.

Furthermore, in line with the UK’s ambition to raise R&D investment and earmark the UK as a continued global life science hub, organisations such as the Bio Industry Association support their members through efforts that encourage Foreign Direct Investment and streamlining of regulatory, legal and financial incentives for domestic and international companies. These efforts span public and private industry ecosystems and impact both large and small players in the market. For example, smaller biotech firms in a significant loss position, which would previously have been disqualified from receiving state funding due to state aid rules, can now benefit. The government has also increased its support, ensuring that R&D tax relief payments are processed and paid within rapid timeframes in order to assist firms seeking to accelerate growth during the crisis.

UK pharma

Value chains

Thirdly, the industry is set up in a way that creates and protects value and the financial outlook for the sector is therefore strong, even against the backdrop of COVID-19. Indeed, even at the peak of the pandemic, global investment in biotech continued to soar, reaching new heights in Q2. This was driven by a string of deep-pocketed US initial public offerings (IPOs) in biopharma and cell and gene therapy. In the UK, financing has also remained positive in recent months, driven by later-stage private fundraising deals and follow-on public market financing rounds.4

Broadly speaking, the UK’s pharmaceutical and life sciences sector has held up well in the face of the crisis, with robust capitalisation providing a structure for continued momentum despite the downturn. Driving this relatively strong performance is a backdrop of innovation, aided by a complex and wide-ranging network of government support, financial incentives and collaboration with research institutions and the NHS.

Despite huge uncertainty across global economies in 2020, the UK’s innovative pharmaceutical industry has sustained its strength”

For example, one well-publicised exit included Mercia portfolio company The Native Antigen Company, now a world-leading supplier of antigen reagents required for antibody testing kits. The company has been a key player in previous efforts against emerging viruses like Zika. Now acquired by LGC, a leader in genomics analysis, the deal highlights how competitive marketplaces and firm technology-investor foundations can support steady long-term valuations and drive continued deal flow despite wider headwinds.

Conclusion

Despite huge uncertainty across global economies in 2020, the UK’s innovative pharmaceutical industry has sustained its strength, driven by a flexible investment landscape and dynamic support networks. The wide-ranging web of support from the government has created an industry landscape that links the NHS with research institutions, private companies and universities, fostering a virtuous cycle of innovation that boosts the whole sector.

Even during the current crisis, this approach has proven its worth. The COVID-19 pandemic acted as a catalyst for new ways of working in the sector, which may ultimately result in the vaccine the world needs during this time. While all countries have their own unique circumstances, aspects of the UK’s model may offer valuable lessons about how the pharmaceutical sector – and innovative industries in general – can be supported to boost economic growth and encourage the development of cutting-edge solutions to address the challenges of tomorrow. 

About the author

Dr Cheryl Teoh is a Senior Technical Consultant at global innovation funding consultancy, Leyton UK. She holds a PhD in Biomaterials, with a professional background in scientific innovation. She joined Leyton UK’s team of sector experts in August 2018 and has helped numerous businesses benefit from valuable innovation tax schemes, including R&D.

References

  1. Mather N. How we accelerated clinical trials in the age of coronavirus [Internet]. Nature.com. 2020 [cited 16 September 2020]. Available from: https://www.nature.com/articles/d41586-020-02416-z
  2. University Hospitals Birmingham. Research [Internet]. Uhb.nhs.uk. 2020 [cited 16 September 2020]. Available from: https://www.uhb.nhs.uk/international-research.htm
  3. UK Government. Claiming Research and Development tax reliefs [Internet]. GOV.UK. 2020 [cited 16 September 2020]. Available from: https://www.gov.uk/guidance/corporation-taxresearch-and-development-rd-relief
  4. UK BioIndustry Association. Biotech Financing Update [Internet]. 2020. Available from:
    https://www.bioindustry.org/uploads/assets/uploaded/ce1cedbd7e25-40e1-8ebbcd9dffb8e83d.pdf
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