UK life sciences sector hopes for new government ‘turning point’

In its pre-election ‘plan for life sciences’ (40-page / 678KB PDF), Labour highlighted the need to incentivise life sciences companies to carry out R&D in the UK and proposed to create 100,000 new jobs in the life sciences industry by 2030. Detailed plans for implementation are now needed: with concrete plans and designated funding and other support, the sector can start to gather the momentum it needs to re-establish itself on the world stage.

The UK’s share of global pharmaceutical R&D has been in sharp decline over the past decade. According to the Association of the British Pharmaceutical Industry (ABPI) (5-page / 195KB PDF), the UK’s share fell from 7.7% in 2012 to 4.2% in 2020. Despite a handful of promising investments, levels of manufacturing, export and clinical research in the UK have all slowed. Meanwhile European countries, like Germany and France, are growing their life sciences capabilities and attracting increased investment.  Many feel that to regain momentum in this sector, the UK needs to do more to support life sciences companies.

Enhancing R&D infrastructure and innovation

R&D and innovation

R&D in UK life sciences saw a significant slowdown in clinical research between 2015 and 2019. Between these years, phase I clinical trials dropped by 14% and phase II and III clinical trials also dropped by 3% and 2%, respectively. Some of the reasons for this are the delays and bureaucracy associated with obtaining clinical trial approval, together with the lack of resource to enable effective participation by the NHS in clinical trials.

This slowdown in clinical trials has also stifled innovation, demonstrated by the fact that, according to the ABPI, between 2017 and 2018 there were 24 clinical trial ‘firsts’, falling to only eight between 2020 and 2021. Whilst this is largely due to the Covid-19 pandemic, as Richard Torbett of the ABPI points out, such a decline in late-stage industry clinical research is more significant than the declines experienced by global peers, with the UK falling from 4^th to 10^th in the global rankings for Phase III trials between 2017 and 2021.

However, more recently there are some positive statistics. For example, the number of clinical trials carried out in the UK annually rose by 4.3% in 2022, with the ABPI reporting that, as of 2023, the time taken to set up clinical trials had reduced by 36%. This is due to the introduction in 2022 of a standardised, national approach to costing for commercial contract research – the National Contract Value Review (NCVR). However, as overall numbers for clinical trials are still significantly lower than pre-2015 levels, this may only be the beginning of what will be a long journey to regain and exceed previous levels of R&D and innovation in the UK.

To boost innovation, the new Labour government proposes to reform incentive structures and “give the NHS the freedom to embrace new partnerships, new ways of working, new treatments and prevention”. To ensure accountability in this respect, it plans to transform the Industrial Strategy Council (ISC) into a statutory body with responsibility for monitoring progress in the life sciences sector. It has also indicated that it will reform the Office for Life Sciences (OLS) so that it is empowered to drive delivery across government, and give the health secretary responsibility for innovation.

The new government also recognises the need to invest more money into R&D. During an interview in May 2024, the then Shadow Sciences Minister Chi Onwurah claimed a Labour government would increase annual R&D expenditure by £10 billion.

Spinouts

Labour has also voiced its support for university spinouts. According to its life sciences plan, the new government will seek to increase the number of successful spinouts and to assist these businesses with scaling and funding. Labour has also said it would work with universities to examine the equity stake universities take in spinouts, hoping to encourage more founders to choose this route.

Rather than focusing on the percentage of equity stakes, however it may be that other strategies could be undertaken to encourage investment in this area, including those set out in the 2023 Independent Review of University Spin-Out Companies. Long term funding for technology transfer activities and increased funding for proof-of-concept funds – to develop confidence in concepts before spinning out – as well as shared technology transfer offices (TTOs) to help build scale and critical mass for smaller research universities are just some of the practical recommendations identified in this review.

It is hoped that the new government will unlock the UK’s true potential in this area, with key players already poised to seize the opportunity. Writing to the Times recently, Dr Anne Lane of UCL Business said: “Leading universities have developed a blueprint for faster, fairer deals between founders, universities and investors. We now need the next government to expand proof-of-concept funding and accelerate plans to enable public sector pension funds to invest in spin-outs. A spin-out boom would create not only wealth and jobs but the solutions to some of our biggest challenges, such as improving public health and achieving net zero.”

Lack of skilled workers

The skills shortage is another challenge. Recruiting skilled workers is difficult in an increasingly competitive and multinational environment. In January 2024, Cancer Research UK reported that over 75% of survey respondents faced challenges in recruitment as a result of Brexit. Yet to reach optimal levels of activity, the UK would need to recruit almost 400,000 researchers in the next four years, something which will not be possible with domestic recruitment alone.

There is hope that Labour’s plans to reform the UK’s current immigration system may offer some relief in respect of the skills shortage, with new science minister – and previous head of R&D at GSK – Sir Patrick Vallance calling for a relaxation of certain visa rules in order to attract more talent to the UK. The new government intends to reform the points-based immigration system so that it is “fair and properly managed” and linked to the skills policy.

Establishing a good business environment for life sciences companies

Improving the regulatory landscape

Beyond resolving deficiencies relating to R&D and innovation, the new government will also need to take steps to improve what has sometimes been described as a “hostile” business environment for life sciences companies. The UK can be a challenging market for uptake of new medicines due to its stringent regulatory approval process. These difficulties are compounded by significant delays. In 2023, for example, the MHRA had a backlog of 966 clinical trial applications.

In October 2023, Labour proposed that it would create a Regulatory Innovation Office (RIO) to “improve accountability and promote innovation”. One of the key functions of the RIO would be to set and monitor targets for regulatory approval for innovative products and services. The RIO would monitor performance against international comparators with results being collated and published for accountability of regulators. The hope is that this will create a more certain environment for businesses, turbocharge output and drive economic growth.

Reforming planning policy

Whilst Germany, Italy, Switzerland, Belgium, the Netherlands, France and the US have all increased pharmaceutical production and exports since 2015, the UK has seen sharp decline, with pharmaceutical production volumes falling by 29% since 2009 and 7,000 jobs being lost. One contributing factor is the UK’s complex planning policies which can make it difficult for life sciences companies to build new infrastructure in the UK.

Labour proposed in its manifesto to reform the national planning system in order to make it easier for companies to build laboratories and gigafactories, and recently began consulting on its proposals.

Offering economic stability

There will also be increased focus on achieving economic stability. Labour’s strategy of “securonomics” focuses on predictability, economic resilience and partnerships with industry. This will involve scrapping short funding cycles and setting ten-year public spending budgets for key R&D institutions like UK Research and Innovation, the UK’s main public science funder, and the National Institute for Health and Research. The goal is to “allow meaningful partnerships with industry to keep the UK at the forefront of global innovation”, allowing for increased stability which will in turn drive international investment into the UK.

The new Labour government also intends to maintain and improve the current structure for R&D tax credits and preserve the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT), which again aims to provide confidence and continuity to businesses and investors.

Significant changes have been made to R&D tax reliefs over the past few years, culminating in a new tax regime being introduced for accounting periods beginning on or after 1 April 2024. Businesses have been critical of the pace of change across the R&D tax system, contending that regular legislative changes have created uncertainty and instability and impacted on decisions to invest in UK R&D, notably life sciences. On this basis, in the short-term, the emphasis for the new government is likely to be on maintaining the current structure for R&D tax credits, rather than introducing change.

Under the new regime, life sciences companies can claim a 20% tax credit for qualifying R&D costs. Additional tax relief is available for certain loss-making research-intensive SMEs, which can claim a repayable cash credit at a rate of 14.5% of losses available for surrender. Broadly, an SME will be research intensive where 30% of its total expenditure is on qualifying R&D. The cash credit will be particularly important to research intensive start-ups in the life sciences sector, which often rely on R&D tax credits as a source of financing.

Co-written by Kiah York of Pinsent Masons.