Celebrating Great British Pharma

In my view, the UK’s pharmaceutical industry has performed strongly during the pandemic. But even before then, the sector was a powerful driver of innovation. This foundation of innovative activity has positioned the sector to succeed as we now begin to distribute a vaccine for COVID-19.

Firstly, the sector is set up to create and protect value. Indeed, the financial outlook for the UK’s pharma industry is strong, even against the backdrop of COVID-19. Even at the peak of the pandemic, global venture capital investment in biotech continued to soar and perform strongly in Q2, according to PwC (1). This was driven by a string of deep-pocketed US IPOs in biopharma and cell and gene therapy, including listings worth over $400m for both Legend Biotech and Relay Therapeutics. 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. However, the sector has not escaped unscathed – smaller and mid-sized biotech firms experienced a noted hit to funding, with investors pressing pause on capital injections until the full impact of the crisis could be established, according to the BioIndustry Association (2).

The UK’s R&D tax credits system is particularly beneficial to pharma innovation. Companies can benefit from R&D tax credits when they incur costs in developing new products, processes or services. This injection of free cash applies irrespective of whether the business is profitable or loss-making. R&D tax relief can be claimed on activities throughout the drug development process, from drug discovery, all the way through to post-launch trials. It can be claimed on expenditure on a wide range of areas, including employee costs, with the salary costs of the chief scientific officer and other R&D personnel being eligible for claims.

The tax relief also applies to materials used directly in carrying out R&D and software costs that support such activity. Given the importance of R&D for the pharmaceutical industry, this form of tax relief represents a major boost. Essentially any company that pays UK corporation tax is eligible to claim the relief if it carries out qualifying activities. The R&D work does not even need to take place in the UK as long as it is subject to UK corporation tax.

The relief pays out generously, with the qualifying costs multiplied by 230 percent to provide a reduction in a business’s corporation tax bill. In other words, for every £100 spent on qualifying R&D costs, the company is able to lower its corporation tax bill by a further £130, in addition to the £100 spent. For pharmaceutical companies facing the reality that most drug prospects will not ultimately make it to market, the tax relief makes a significant difference and encourages inventiveness and risk-taking.

I believe that the array of funding initiatives in the UK has provided a valuable framework to support the sector through its recent challenges. In line with the UK’s ambition to raise R&D investment and earmark the UK as a continued global life science hub, associations, such as the Bio Industry Association, continue to support their members through efforts that encourage foreign direct investment, and the 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. The government has also stepped up its support, ensuring that R&D tax relief payments are processed and paid within rapid timeframes to support firms seeking to accelerate growth during the crisis.

I am also passionate about the power of the UK’s talent pool. The UK is fortunate to be home to some of the world’s best universities, and is a natural hub for talented graduates. For the pharmaceutical sector, having access to highly talented PhD and Masters students is a significant boost, especially compared to countries that are more reliant on immigration to supply the workforce for pharmaceutical firms. This has allowed the UK’s pharmaceutical firms to pivot effectively as vaccine development became a key focus of the sector in 2020.

However, universities also play another key role – many of the most successful firms began as startups spun out of university research faculties. One prominent example is Abcam, initially spun out of a genetics research institute in Cambridge, which has become one of the leading players in the sector thanks to its work on antibodies. These firms can also benefit from the local wealth of knowledge around M&A and intellectual property, driving further growth. Oxford University alone has several notable examples, including Oxford Biodynamics and Adaptimmune.

This year has seen unprecedented levels of uncertainty across global economies. While all countries have their own unique circumstances, aspects of the UK’s model may offer valuable insight into how the pharmaceutical sector – and innovative industries in general – can be supported to generate cutting-edge outcomes and power economic growth for years to come. The wide-ranging web of support from the government builds on an industry landscape that links universities, research institutions, private companies and the National Health Service, fostering a cycle of innovation that boosts the whole sector. This approach is proving its worth in times of need, with the crisis sparking new ways of working and new levels of collaboration that are now helping to bring about the vaccines that the world needs.