BIS ECONOMICS PAPER NO. 2 Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010: Delivering the Blueprint’
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First published January 2010. © Crown copyright. BIS/1k/01/10/NP. URN 10/541
BIS ECONOMICS PAPER NO. 2
Life Sciences in the UK –
Economic analysis and
evidence for ‘Life Sciences
2010: Delivering the Blueprint’
JANUARY 2010
BIS ECONOMICS PAPER NO. 2
Life Sciences in the UK –
Economic analysis and
evidence for ‘Life Sciences
2010: Delivering the Blueprint’
JANUARY 2010
The views expressed within BIS Economics Papers are those of the
authors and should not be treated as Government policy.
Contents
List of tables, figures and boxes
ii
Acknowledgements
v
Foreword
Executive summary
vi
vii
1:
Introduction
1
2:
Structure and features of UK Life Sciences
2.1 Structure of the Life Sciences market
2.2 Features of the Life Sciences market
5
5
17
3:
Impact of Life Sciences on the UK economy and society
3.1 Size and economic trends in the UK Life Sciences industry
3.2 International comparisons
3.3 Economic and social benefits of innovation in Life Sciences
3.4 Economic importance of the NHS
29
29
33
40
45
4:
UK strengths and weaknesses in the Life Sciences
4.1 UK comparative advantage in Life Sciences
4.2 Sources of UK comparative advantage
47
47
50
5:
UK challenges and opportunities in the Life Sciences
75
6:
The role of Government in the Life Sciences
6.1 Market failures in Life Sciences
6.2 Government policy
91
91
96
Annex
110
References
112
i
List of tables, figures and
boxes
Tables
Table 2.1:
Leading Pharmaceutical Companies Located in the UK in 2007
Table 2.2:
Largest Five Sectors in Medical Technology by Measure, UK
Table 2.3:
Illustrative Funding Cycle in Drug Development
Table 2.4:
Key Differences between Medicines, Medical Devices and In Vitro
Diagnostics
Table 4.1:
Factors Influencing the Location of Clinical Trials
Figures
Figure 2.1:
Structure of the Life Sciences Market in the UK
Figure 2.2:
UK Medical Biotechnology Companies by Primary Activity
Figure 2.3:
UK Medical Technology Companies by Primary Activity
Figure 2.4:
Structure of UK Healthcare Provision and Expenditure in 2006/07
Figure 2.5:
Drug Development Timeline
Figure 2.6:
Cash Flow for a Successful Drug
Figure 2.7:
European Biotechnology Alliances, 1997–2006
Figure 3.1:
Gross Value Added in Life Sciences (in Nominal Terms), UK
Figure 3.2:
GVA per Employee in Life Sciences and All Manufacturing (in
Nominal Terms), UK
Figure 3.3:
Employment in Life Sciences, 1998–2007, UK
Figure 3.4:
Total Gross Wages and Wages per Employee in Life Sciences (in
Nominal Terms), UK
Figure 3.5:
Gross Value Added in Pharmaceutical Sector in Selected
Countries, 2006
Figure 3.6:
National Origin of Leading 75 Global Medicines in 2007
Figure 3.7:
European Medical Biotechnology Market Share (Sales in
European Markets) in 2002
Figure 3.8:
European Product Pipeline by Country, 2007
Figure 3.9:
The Pipeline of Medical Biotechnology Products for UK
Companies in 2008
Figure 3.10: Capital Raised in Medical Biotechnology in 2007 by Country
ii
List of tables, figures and boxes
Figure 3.11: European Medical Technology Market Share (Sales in European
Markets) in 2007
Figure 3.12: Capital Raised in Medical Technology in 2008 and First Half of
2009 by Country
Figure 4.1:
UK and Emerging Markets Revealed Comparative Advantage by
Sector
Figure 4.2:
UK Trade in Pharmaceuticals, 1998–2008
Figure 4.3:
Foreign Direct Investment – The Number of New Projects in
Pharmaceuticals
Figure 4.4:
Business Expenditure on R&D in Manufacturing Sectors in the
UK (in Nominal Terms)
Figure 4.5:
Spillovers from Private R&D Investment by Life Sciences
Companies
Figure 4.6:
Employment in R&D and Other Activities Performed in the UK
Pharmaceutical Sector, 2000–2007
Figure 4.7:
Share of World Citations by Discipline, 2008
Figure 4.8:
Share of UK Internationally Co-authored Papers
Figure 4.9:
First Degree Qualifiers by STEM Subject in 2002/03 and 2008/09
Figure 4.10: First Degree Qualifiers in Biological Sciences in 2002/03 and
2008/09
Figure 4.11: International Comparisons of Science Graduates per 100,000
Employed 25–34 Year Olds
Figure 4.12: Life Sciences Disciplines with Reported Hard-to-fill Vacancies
Figure 4.13: Examples of Collaboration in Life Sciences
Figure 4.14: Business Executive Perceptions of Labour Market Regulations
Figure 4.15: Proportion of Studies Completed within Planned Timelines
Figure 4.16: Cost per Patient Comparison, 1995–2002, UK=100 Base
Figure 4.17: Generic Medicines Share of Market Value and Volume in 2007
Figure 4.18: Generic Prescribing, 1998–2008
Figure 4.19: Time Elapsed between First World Application and Launch in a
Particular Market, 1999–2003
Figure 4.20: Percentage (by Value) of National Pharmaceutical Market in 2004
Accounted for by New Products Launched within the Last Five
Years
Figure 5.1:
Predicted Proportion of Population Aged Over 60+ in England,
2006 to 2081
iii
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 5.2:
Prevalence of Obesity, Males and Females in Selected OECD and
EU Countries, 2005
Figure 5.3:
Number of Deaths by Main Cause in the UK, 2006
Figure 5.4:
Age Standardised Mortality Rates by Disease, 2005
Figure 5.5:
Number of Blockbuster Drugs by Type
Boxes
Box 2.1:
Role of NICE
Box 2.2:
Structure of the NHS
Box 3.1:
Importance of GDP and Productivity to Economic Growth
Box 3.2:
The Grossman Health Capital Model
Box 3.3:
Benefits of Innovative Medicines and Medical Diagnostics in the
Treatment of Diabetes
Box 3.4:
Benefits of Innovative Medical Technology in the Treatment of
Heart Failure
Box 4.1:
Revealed Comparative Advantage
Box 4.2:
MATCH – Co-ordinated Approach to Medical Device Development
Box 4.3:
Collaboration between Public Sector Research Establishments
and Commercial Organisations
Box 4.4:
Collaborative R&D between Medical Research Council (MRC) and
the Life Sciences Industry
Box 4.5:
Role of Clinical Trials
Box 5.1:
International Health
Box 5.2:
Biopharmaceutical Research in the UK – GlaxoSmithKline
Box 5.3:
Stratified Medicine in the UK – AstraZeneca
Box 5.4:
The Role of Technology in the Treatment of Cancer
Box 5.5:
Changing Business Model – Pharmaceuticals
Box 5.6:
Changing Business Model – Medical Technology
Box 6.1:
Publically Funded Biomedical Research in the UK
Box 6.2:
Roche Diagnostics Limited
Box 6.3:
Bioscience Park in Stevenage
iv
Acknowledgements
This paper is the result of a joint project led by the Department for Business,
Innovation and Skills (BIS) together with the Department of Health (DH).
The analysis was led by Magdalena Barawas with invaluable support from Gavin
Roberts and Tim Hogan. We are also grateful for the contributions from the
following economists and analysts:
Hannah Chaplin
Charles Dwyer
Sue Ellison
Fernando Galindo-Rueda
Clare Hensman
Christina Lees
Benjamin Mitra-Kahn
Brian Stockdale
We are also grateful for the helpful comments received on earlier drafts from
many colleagues across Government, including the Office for Life Sciences, HM
Treasury, BIS, UK Trade & Investment (UKTI), DH and the Intellectual Property
Office.
We would also like to acknowledge the assistance and co-operation of the trade
associations, including the Association of the British Pharmaceutical Industry
(ABPI), the BioIndustry Association (BIA), the Association of British Healthcare
Industries (ABHI), the British In Vitro Diagnostics Association (BIVDA) and the
Office of Health Economics (OHE).
The views expressed within BIS Economics Papers are those of the authors and
should not be treated as Government policy.
v
Foreword
Life Sciences – pharmaceuticals, medical biotechnology and medical technology –
are of vital importance to the UK economy and the health and wellbeing of its
citizens. They are at the heart of the Government’s Going for Growth strategy
aimed at helping the economy emerge swiftly from the current global downturn
and have a major role to play in ensuring that the UK healthcare system can
successfully deal with current social trends such as an ageing population and
obesity.
On 26th January 2010, the UK Government published Life Sciences 2010:
Delivering the Blueprint. The report sets out the progress made on the actions
announced in Life Sciences Blueprint which was published in July 2009.
This evidence paper, which is being published alongside the progress report,
provides policy makers and analysts with an insight into the economic
characteristics and importance of Life Sciences and the key features which
distinguish them from other highly innovative industries.
It also sets out the reasons for the UK’s significant strength in Life Sciences
and discusses in detail the challenges and opportunities that the industry will
face in the foreseeable future. These include ongoing social and demographical
change, further technological progress and advances in medical science, as well
as increasing globalisation and the emergence of new markets abroad.
Finally, this paper explores the economic rationale for government intervention
in different parts of Life Sciences and the various steps which have been taken
to help firms in the industry realise their significant potential and ensure that
everyone is able to access high quality healthcare services.
I am grateful for the input and help from other government departments, trade
associations and other organisations in developing this paper.
Vicky Pryce
Director-General, Economics, Department for Business, Innovation and Skills
and Joint Head, Government Economic Service
vi
Executive summary
Life Sciences have been identified by the UK Government as of key economic
importance, with the potential to make a significant contribution not only to
future economic growth in the UK as it emerges from recession but also to
improved healthcare for UK citizens.
On 26th January 2010, the UK Government published Life Sciences 2010:
Delivering the Blueprint which sets out the progress made on the actions
announced in Life Sciences Blueprint which was published in July 2009.
This evidence paper provides policy makers and analysts with an insight into
the economic characteristics and importance of Life Sciences, their strengths
and weaknesses, and the role that Government plays in helping Life Sciences
respond to the key challenges and opportunities that they currently face.
Structure and features of UK Life Sciences
There is as yet no widely agreed definition of the Life Sciences industry. Broadly
speaking, the industry comprises three sectors – pharmaceuticals, medical
technology and medical biotechnology – which together develop new innovative
products and technologies with commercial applications in a wide-ranging
number of end-user markets. These include healthcare, food and agriculture,
environmental goods and services, and chemicals.
The process of bringing new Life Sciences products and technologies to the
end-user requires close co-operation between the industry and a diverse range
of stakeholders. These include science and research institutes, regulatory bodies
and other assessment bodies with responsibility for ensuring the efficacy,
safety and cost-effectiveness of new products, and various public and private
healthcare providers, most notably the National Health Service (NHS).
The Life Sciences market is characterised by a number of specific features which
distinguishes it from many other markets. These features include: long product
development timescales for medicines and complexity in the development of
medical devices; high levels of technological uncertainty; high research and
development (R&D) intensity; high development costs and up-front investment;
unique intellectual property rights; and a distinct funding cycle in product
development.
vii
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Impact of Life Sciences on the UK economy and society
Life Sciences are of vital importance to the UK economy, making a significant
contribution in terms of the value of goods and services the industry produces,
employment and productivity.
In 2007, the pharmaceutical and medical technology sectors alone generated
around £10 billion in value added and employed over 120,000 people in the UK.
This represents around 6.5% of total manufacturing value added and 3.6% of
total UK manufacturing employment. Productivity – measured in terms of gross
value added per employee – in these two sectors has also increased significantly
in recent years, rising by some 77% and 39% respectively in nominal terms
between 1998 and 2007.
The UK is also a major player in the global Life Sciences market. The UK
pharmaceutical sector was the fourth largest in the world in terms of gross value
added in 2006 while in 2007 it had the second largest share of the European
market for medical technology. The UK is also one of the key European markets
for medical biotechnology.
Innovation in Life Sciences can have wider impact on the economy and society.
The development of new medicines and devices, if applied into routine clinical
practice by healthcare providers, can serve to improve the the quality and
delivery of healthcare services, improve health, well-being and the quality of life
for patients and citizens more widely and increase patient convenience.
UK strengths and weaknesses
The UK is a major exporter of Life Sciences products and technologies. In 2008,
UK exports of pharmaceuticals totalled around £18 billion while UK exports of
medical technologies amounted to around £5.4 billion.
The UK’s significant comparative advantage in Life Sciences stems from a
number of sources. First, the industry is characterised by high levels of innovation
including R&D with the pharmaceutical and biotechnology sector accounting for
some 25.2% of total business R&D expenditure in the UK in 2007. Approximately
60% of total R&D investment in the UK pharmaceutical sector was carried out by
UK-owned companies in 2008.
UK Life Sciences industry is also able to rely on a high quality science base.
Global rankings suggest that the UK is second only to the US in terms of the
strength of its universities. The UK undertakes some 5% of the world’s science,
producing 9–11% of academic papers.
viii
Executive summary
The UK also compares favourably with other OECD countries in terms of the
number of science graduates relative to employment. However, in common with
many other specialist skills subjects, the UK continues to experience a shortage
of people with the relevant knowledge and expertise for a career in Life Sciences.
Further important sources of the UK’s strength in Life Sciences include a wellestablished intellectual property rights system and a growing reputation for
strong networking and collaboration between firms in the industry and with
public research institutes both nationally and internationally.
UK challenges and opportunities
A number of trends will present the Life Sciences industry with significant
challenges and opportunities in the foreseeable future. First, the UK is undergoing
significant social and demographic change. For example, the population is
steadily ageing and there is evidence to suggest that it is also becoming less
healthy. These changes in population structure and lifestyle are likely to affect
future demand for health related products and services.
Second, there are likely to be further technological changes and advances in
medical science which have the potential to meet future healthcare needs and
improve the quality, delivery and cost-efficiency of healthcare provision.
Thirdly, as the process of globalisation continues Life Sciences in the UK face
increasing competitive pressure from emerging countries such as China and
India where R&D activities can be carried out at a relatively lower cost. This is
leading to some Life Sciences companies in the UK outsourcing an increasing
part of their research and manufacturing activities in an attempt to reduce costs
and become more competitive.
The role of Government
The UK Government has a key role to play in ensuring markets work properly. In
the case of Life Sciences, there are a number of areas where Government action
has been required. These relate to the public delivery of healthcare services; R&D
in Life Sciences; the up-take of innovative products by the NHS; encouraging the
use of intellectual property rights; the provision of skills; access to finance; and
inward investment and access to global markets.
The UK Government uses a wide-range of financial and non-financial policies
and measures to support Life Sciences. These include economy-wide initiatives
aimed at encouraging greater innovation activity and improved access to finance
in important sectors characterised by high levels of technological change, and
increasing investment in specialist skills and expertise.
ix
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Alongside these, the UK Government has introduced a number of more targeted
actions to support either directly or indirectly Life Sciences in the UK. These
include the establishment of the Office for Life Sciences in January 2009, the
setting-up of the HealthTech and Medicines Knowledge Transfer Network, and
the launch of other measures such as the NHS Innovation Centre and the National
Institute for Health Research Invention for Innovation (i4i) funding programme.
x
1. Introduction
Life Sciences are a vital part of everyone’s life as they contribute to the better
health and well-being of society. Through the application of natural science and
technological advances, Life Sciences enable the development of products and
technologies for use in human healthcare.
The contribution of better health and well-being to economic growth is well
established1. Since human capital matters for economic outcomes, and health
is an important component of human capital, health has a significant impact on
economic outcomes. Health gains may contribute to economic growth through
a number of channels, including higher productivity, higher labour supply and
acquisition of higher level skills as a result of improved access to education and
training due to reduced absenteeism and early drop-out rates2. Health gains also
result in wider social benefits and greater social cohesion.
Policy environment
The UK Government’s strategy statement Building Britain’s Future: New Industry,
New Jobs, published in April 2009, outlined how industrial policy could be better
used to help the UK economy emerge from the recent downturn and ensure that
UK businesses are well placed to compete effectively in an increasing global
economy.
Since then, the UK Government has published a number of strategies aimed at
providing support to a number of sectors which have been identified as having
the potential for high growth in the future. These strategies are set out in the UK
Government’s follow up strategy paper Going for Growth: Our Future Prosperity
published in January 2010, and include:
●●
●●
●●
●●
●●
1
2
The Digital Britain Report, published in June 2009, which set out the
importance of the digital economy to the nation’s economic future, and how
it will drive future industrial capability and competitiveness;
The Advanced Manufacturing Strategy, published in July 2009, which
outlined a package of measures to help UK manufacturers seize the
opportunities provided by emerging technologies;
The Low Carbon Industrial Strategy, published in July 2009, which set out
opportunities for growth in the UK, arising from the global shift towards low
carbon goods and services;
The Composites strategy, published in November 2009, announced further
support to advance the development of composite materials; and
The Plastic Electronics strategy, published in December 2009, which set out
the ways in which the industry can realise its significant potential.
See for example Grossman (1972)
See for example a report by European Commission The contribution of health to the economy in the European
Union (2005)
1
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
UK Government and the Life Sciences industry
Life Sciences have also been identified in Building Britain’s Future: New Industry,
New Jobs as one of the UK’s key industries for growth and lie at the heart of the
Government’s Going for Growth strategy published in January 2010.
Since the start of 2009, the UK Government has introduced a number of
initiatives aimed at providing more effective support for the industry to help it
realise its significant potential and ensure that everyone is able to access high
quality healthcare services.
In January 2009, the UK Government established the Office for Life Sciences and
in July 2009 it announced a package of measures aimed at transforming the UK
environment for Life Sciences companies3. These actions fell into four key policy
areas:
●●
The NHS as an innovation champion;
●●
Building a more integrated Life Sciences industry;
●●
Access to finance and stimulating investment; and
●●
Marketing the UK Life Sciences industry overseas.
On 26th January 2010, the UK Government published Life Sciences 2010:
Delivering the Blueprint. This report sets out the progress made on the actions
announced in Life Sciences Blueprint which was published in July 2009.
Purpose of paper
This evidence paper, which is being published alongside the progress report,
provides policy makers and analysts with an insight into the economic
characteristics and importance of Life Sciences in the UK and the main issues
affecting the industry. In particular, the paper will consider:
●●
●●
●●
●●
3
2
how the Life Sciences market in the UK is structured and what are the unique
economic features of Life Sciences which make them distinctive from many
other markets;
recent market trends and how UK performance in Life Sciences compares to
other major economies;
how Life Sciences contribute to the wider UK economy, including their
impact on delivery of healthcare services and treatment of patients;
the strengths and weaknesses of Life Sciences in the UK and what the main
future opportunities and challenges are that they are likely to be facing in
the years ahead;
More details can be found in the Life Sciences Blueprint (2009) http://www.dius.gov.uk/innovation/business_
support/~/media/publications/O/ols-blueprint
Introduction
●●
●●
the existing barriers and market failures that might hinder further development
of Life Sciences in the UK; and
the framework and mechanisms that Government uses to encourage
continuous development of Life Sciences in the UK.
However, it should be noted that it is outside of the remit of this paper to provide
detailed analysis of the existing and new policy measures that are targeted at
the Life Sciences industry.
Structure of paper
This paper is structured as follows:
Chapter 2 sets out the structure and features of the Life Sciences market in
the UK. It identifies the key players involved in the process of developing new
products and technologies and discusses in detail the specific features which
distinguish Life Sciences from other markets.
Chapter 3 focuses on the impact of Life Sciences on the UK economy. It outlines
the size and recent economic trends in the Life Sciences industry and compares
the economic importance of the UK Life Sciences industry to that of other
countries.
Chapter 4 explores the reasons for the UK’s comparative advantage in Life
Sciences concentrating in particular on factors such as the level of innovation
activity, including R&D, the quality of the science and skills base, the strength
of networking and collaboration within the industry and with research institutes
and the robustness of the intellectual property regime.
Chapter 5 examines the challenges and opportunities for Life Sciences created
by trends including social and demographic changes, technological progress
and advances in medical science and increasing globalisation and competition
from emerging economies.
Chapter 6 analyses the different reasons why Government intervention in Life
Sciences has been required and sets out the various steps which have been
taken to help firms in the industry realise their significant potential and ensure
that everyone is able to access high quality healthcare services.
3
2. S
tructure and features of
UK Life Sciences
2.1 Structure of the Life Sciences market
The Life Sciences market is highly complex. The industry itself comprises a
number of sub-sectors which develop new innovative Life Sciences products
and technologies with commercial applications in a large number of end-user
markets. The many interactions which industry has with a diverse range of
stakeholders and institutions as part of this process add to the considerable
complexity of the markets in which Life Sciences operate. Figure 2.1 shows a
simplified picture of key players and stakeholders present in the UK Life Sciences
market in healthcare applications. The arrows indicate the direction of flow of
activities, products and services within a market. Although not illustrated on the
diagram, it should be noted that overseas stakeholders (companies, investors,
regulators and patients) will also have an impact on the developments in the UK
Life Sciences market.
Figure 2.1: Structure of the Life Sciences Market in the UK
National Institute for Health and
Clinical Excellence (NICE)
in England and Wales
or
Scottish Medicines Consortium
(SMC) Scotland
NHS &
PRIVATE HEALTHCARE
PROVIDERS
Medicines and Healthcare
products Regulatory Agency
(MHRA)
LIFE SCIENCES INDUSTRY
● Pharmaceuticals
● Medical Biotechnology
● Medical Technology
PATIENTS
SCIENCE & RESEARCH BASE
For example:
Universities
National Institute for Health Research
● Research Councils (i.e. MRC; BBSRC)
● Third sector (e.g. Wellcome Trust; Cancer Research UK)
●
●
The process of bringing newly developed products or technologies to the enduser requires close co-operation between (i) the Life Sciences industry, (ii)
research and science base, (iii) regulatory bodies and other assessment agencies;
and (iv) healthcare providers. These are discussed in greater detail overleaf.
4
Structure and features of UK Life Sciences
(i) THE LIFE SCIENCES INDUSTRY
There is as yet no widely accepted definition of the Life Sciences industry4. In
broad terms, Life Sciences can be defined as any of the branches of natural
science dealing with the structure and behaviour of living organisms which
have commercial applications in a wide-ranging number of sectors, including
healthcare, food and agriculture, environmental goods and services and
chemicals.
A fuller understanding of the UK Life Sciences market is further hampered by
measurement issues, as Life Sciences have not been fully and systematically
included in official statistics as a separate entity. This imposes substantial
difficulties in understanding impacts and contributions of Life Sciences to the
economy and society more widely in the UK.
For the purpose of this paper – and in line with the work undertaken by the
Office for Life Sciences – the Life Sciences industry is defined here as comprising
the following three sub-sectors: pharmaceuticals, medical biotechnology and
medical technology.
Pharmaceuticals
The pharmaceutical sector covers the design, development and manufacture of
pharmaceuticals, medical chemicals and botanical products. The sector includes
the following5:
●●
●●
basic pharmaceutical products: e.g. medically active substances for use in
the manufacture of medicaments; processed blood; chemically pure sugars
and processing of glands; glands extracts; and
medicaments as defined under Community law: e.g. anti-sera and other
blood fractions; vaccines; diverse medicaments; and chemical and hormonal
contraceptive products and medicaments.
The pharmaceutical sector in the UK consists of around 600 companies with
combined annual sales of around £15.6 billion6. This represents an estimated
4% of global sales and 14% of total European sales7. The sector employs some
67,0008 people representing an estimated 11% of total for European employment
in the sector9.
The UK’s two largest pharmaceutical companies are GlaxoSmithKline and
AstraZeneca. These two multinational firms are among the world’s top five
4
5
6
7
8
9
There is no Standard Industrial Classification (SIC) for the Life Sciences industry. The pharmaceutical sector
is defined by SIC 24.4 (manufacture of pharmaceutical, medical chemicals and botanical products). Medical
technology is often defined by a sum of SIC 24.422; 24.66 and 33.1. There is no separate SIC code that would enable
identification of the biotechnology sector.
As defined by the Standard Industrial Classification 24.4
Annual Business Inquiry; 2007 data
Data Monitor 2008; excludes Over-the-Counter (OTC) drugs
Annual Business Inquiry; 2007 data
European Federation of Pharmaceutical Industries and Associations (EFPIA); 2007 data
5
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
pharmaceutical companies measured on the basis of their market share of global
sales10. Table 2.1 below shows leading pharmaceutical companies located in the
UK and their market share of sales in the UK.
Table 2.1: Leading Pharmaceutical Companies Located in the UK in
2007
Company
Country
Sales in the UK
Global Sales
1
Pfizer
US
9.3%
6.7%
2
GlaxoSmithKline
UK
9.0%
5.6%
3
Sanofi-Aventis
France
6.7%
5.0%
4
AstraZeneca
UK
5.7%
4.5%
5
Novartis
Switzerland
3.9%
5.1%
6
Roche
Switzerland
3.7%
4.1%
7
Wyeth*
US
3.3%
2.4%
8
Merck & Co
US
3.0%
4.1%
9
Lilly
US
2.9%
2.5%
10
Boehringer Ingelheim
Germany
2.3%
1.9%
Source: ABPI; Note*: Wyeth now merged with Pfizer
Medical biotechnology
Biotechnology is defined by the OECD as ’the application of science and
technology to living organisms, as well as parts, products and models thereof,
to alter living or non-living materials for the production of knowledge, goods
and services’11. The medical biotechnology sector is primarily focused on the
invention, development and bringing to market of a range of new therapies
based on technologies such as antibodies, recombinant proteins, gene and cell
therapy. The sector includes the following types of companies:
●●
●●
●●
companies involved in the discovery, development or manufacturing of
biopharmaceuticals;
firms offering specialised, sector specific services, to biopharmaceutical
companies; and
innovative small and medium sized enterprises (SMEs) involved in the
discovery and development of chemical ‘small molecule’ pharmaceuticals.
The medical biotechnology sector in the UK consists of around 780 companies
with a combined annual turnover of around £4.2 billion. This represents an
estimated 9% of global turnover and 30% of total European turnover12. The sector
employs some 24,000 people representing an estimated 25% of total European
employment in the sector13.
10
11
12
13
6
ABPI based on IMS data
http://www.oecd.org/document/42/0,3343,en_2649_34537_1933994_1_1_1_1,00.html
Strength and Opportunity: The landscape of the medical biotechnology and industrial biotechnology enterprises in
the UK HM Government (2009c)
Ibid
Structure and features of UK Life Sciences
Leading UK based medical biotechnology companies include: BTG plc; Oxford
BioMedica plc; Antisoma plc; ReNeuron Group plc; Vernalis plc; and GW
Pharmaceuticals plc.
Figure 2.2 below breaks down the number of companies in the medical
biotechnology sector by primary activity; that is, by the type of final product
or service they develop or produce. It shows that the majority of medical
biotechnology firms are engaged in the provision of small molecule products
and specialist services.
The small molecule (traditional chemical drugs) segment contains companies
that are SMEs and innovative companies using the latest biotechnology tools
to identify new targets for chemical based therapies. Specialist services firms
provide inputs and services to companies developing new medicines, in fields
such as biologics scale-up and production, genomics and proteomics, and
clinical trials management.
The biotechnology sector has developed over the last twenty years into a highly
networked system of end-product developers and specialist suppliers. A typical
biotechnology start-up developing a new therapy will have a large 'virtual'
component, outsourcing all non-core activities.
Figure 2.2: UK Medical Biotechnology Companies by Primary Activity
Specialist Services
Small Molecules
Therapeutic Proteins
Advanced Therapy
Medicinal Products
Antibodies
Vaccines
Blood & Tissue Products
0
50
100
150
200
250
300
350
400
450
Number of Biotechnology Companies
Source: BIS Bioscience and Health Technology Database
Medical technology
This sector is defined as the development, manufacture, or distribution of
medical devices as defined by European Union Medical Devices Directive (93/42/
ECC) and In Vitro Diagnostic Medical Devices Directive (98/79/EU). This definition
includes any instrument, apparatus, appliance, software, material or other
7
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
article, whether used alone or in combination, together with any accessories or
software for its proper functioning, intended by the manufacturer to be used for
human beings in the:
●●
●●
●●
●●
●●
diagnosis, prevention, monitoring, treatment or alleviation of disease;
diagnosis, monitoring, treatment, alleviation of or compensation for an
injury or handicap;
investigation, replacement or modification of the anatomy or of a physiological
process;
control of conception; and
which does not achieve its principal intended action in or on the human
body by pharmacological, immunological or metabolic means, but which
may be assisted in its function by such means.
The medical technology sector in the UK consists of around 2,800 companies,
employing 52,00014 people and generating around £10.6 billion of turnover in
a complex market covering products from consumables such as disposable
surgical gloves to systems that enable surgeons to see inside the body as they
carry out minimally invasive surgery.
Around 16.2% of all European medical technology companies are based in the
UK15. Although large multinationals dominate in the supply of mass market
products, the medical technology market is so diverse that there are many
opportunities for niche specialists. The distribution of companies by primary
business activity in Figure 2.3 confirms the diverse nature of the sector.
After professional services and consultancy, in-vitro diagnostics, single use
technology and assistive technology are the primary activities of the greatest
number of firms.
14
15
8
Note there are some differences in employment figures for the medical technology sector between the ONS and BIS
Bioscience and Health Technology Database. These are due to differences in sector definitions and methodologies
used.
EUCOMED
Structure and features of UK Life Sciences
Figure 2.3: UK Medical Technology Companies by Primary Activity
Professional services, Consultancy
Assistive Technology
Re-usable diagnostic or analytic equipment
In vitro diagnostic technology
Single use technology
Mobility Access
Hospital hardware including ambulatory
Orthopaedic Devices
ICT+E-health
Wound care and Management
Infection Control
Surgical Instruments (reusable)
Dental and maxillofacial technology
Medical Imaging/Ultrasound/& Materials
Drug Delivery
Ophthalmic Devices/Equipment
Anaesthetic and respiratory technology
Cardiovascular and vascular devices
Implantable devices
Education and Training
Radiotherapy equipment
Neurology
0
50
100
150
200
250
300
350
400
450
Number of Companies
Source: BIS Bioscience and Health Technology Database
Leading medical technology multinationals such as Johnson & Johnson, Abbott
Laboratories, Olympus Medical and Becton Dickinson have R&D facilities in
the UK. Overall, 25%16 of companies are conducting R&D activities, and 43% of
companies are manufacturing products17.
Companies which are among the world’s 20 largest medical technology
companies and have their headquarters in the UK are the orthopaedic and
wound care specialist Smith & Nephew plc and GE Healthcare, the healthcare
division of the General Electric Company.
Table 2.2 shows the largest five segments in medical technology in the UK
measured on the basis of employment, turnover and number of companies,
respectively.
Table 2.2: Largest Five Sectors in Medical Technology by Measure, UK
Turnover
Employment
Number of Companies
In-vitro diagnostics
In-vitro diagnostics
In-vitro diagnostics
Single use technology
Single use technology
Single use technology
Wound care
Wound care
Assistive technology
Orthopaedic devices
Orthopaedic devices
Re-usable diagnostics
Implantable devices
Support service
Support service
Source: BIS Bioscience and Health Technology Database
16
17
This proportion might be higher as many medical technology companies have an engineering research base where
continuous product improvement is standard.
BIS Bioscience and Health Technology Database
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Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Although it is possible to distinguish between the pharmaceutical, medical
biotechnology and medical technology sectors in broad terms, in practice they
are converging into a single sector as a result of a number of trends. These
include:
●●
●●
●●
The entry of major pharmaceutical companies into researching,
manufacturing and marketing of biopharmaceuticals;
The development of drug-device combination products such as drug-eluting
stents; and
The creation of personalised medicine, combining diagnostics and therapeutic
products.
(ii) SCIENCE AND RESEARCH BASE
The Life Sciences industry is highly knowledge-intensive where product
development depends on the ability of companies to access highly skilled
and innovative scientists, clinicians and technologists. Early stage trials
in which compounds are first used on humans are particularly dependent
upon strong scientific support since this early work takes place at the point
of maximum scientific uncertainty when pharmacological issues such as
absorption, distribution, metabolism and excretion are being explored and
optimum dosages have not been ascertained.
It is not only the private sector that undertakes research and development in
Life Sciences products. Public and third sector research also plays a vitally
important role in the discovery and development of new drugs and other health
technologies.
The National Institute for Health Research (NIHR) and two of the seven UK
Research Councils – namely the Medical Research Council (MRC) and the
Biotechnology and Biological Sciences Research Council (BBSRC)18 – are the
largest public sources of health research funding in the UK generating knowledge
and understanding which industry uses to develop and commercialise new
products and technologies.
In 2008/9, the NIHR invested £135 million in Biomedical Research Centres and
Units across England. On top of this, it spent £158 million in supporting Clinical
Research Networks that accelerate the development of new ways to prevent,
diagnose and treat important conditions, and £116 million on commissioning
research and studies designed to help identify best clinical practice.
The MRC funds research across the entire spectrum of medical sciences, in
universities and hospitals, and in its own institutes in the UK. Around 3,000
researchers are supported by MRC-funded programmes in universities and
hospitals. In 2008/09, the MRC spent over £700 million on medical research19.
18
19
10
Other Research Councils also fund health and medical research, in particular EPSRC and ESRC.
MRC
Structure and features of UK Life Sciences
The BBSRC supports bioscience research with its current budget of £450 million.
It supports a total of around 1600 scientists and 2000 research students in
universities and institutes in the UK20.
Health and medical research is also supported through the R&D budgets of the
Devolved Administrations.
Medical research funded by third sector organisations such as Wellcome Trust
and Cancer Research UK, is also crucial to the development of Life Sciences
products and new technologies. For example, the Wellcome Trust spends
around £600 million a year on biomedical research; Cancer Research UK spent
over £300 million on various forms of cancer research in 2006/07.
(iii) REGULATORY BODIES AND ASSESSMENT AGENCIES
Before medicines and health treatments reach the market, they are subject
to many years (up to 15 years for medicines) of rigorous testing and medical
trials to establish their reliability and safety as well as their cost-effectiveness.
In Europe, new medicines are reviewed by the European Medicines Agency
(EMA) with marketing authorisation granted at Member State level. New
medical technologies are subject to a conformity assessment procedure as
outlined in the relevant Directive, based on the merits of the product, and prior
to the manufacturer affixing a CE mark of conformity. Manufacturers of higher
risk products must obtain an EC Certificate of conformity from a Notified Body
(a third party, independent certification organisation designated for that task).
Once CE marked, the relevant medical device may be placed on the market in
any Member State.
In the UK, the relevant bodies (see Figure 2.1) which play an important role in
regulating and assessing medicines and medical devices are the following;
●●
●●
the Medicines and Healthcare products Regulatory Agency (MHRA);
the National Institute for Health and Clinical Excellence (NICE) in England
and Wales;
●●
the Scottish Medicines Consortium; and
●●
the All Wales Medicines Strategy Group (AWMSG).
The Medicines and Healthcare products Regulatory Agency (MHRA) is an
executive agency of the Department of Health and is responsible for ensuring
that medicines and medical devices work, and are acceptably safe. The primary
objectives of the MHRA are to protect, promote and improve public health to
enable greater access to products, and the timely introduction of innovative
treatments and technologies that benefit patients and the public through
effective regulation and communication.
20
BBSRC
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Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
In England and Wales assessing the clinical and cost-effectiveness of new
medicines is the responsibility of the National Institute for Health and Clinical
Excellence (NICE). NICE measures the patient benefits of switching from current
best practice to a new medicine, and the net impact on costs (including any
‘knock-on’ savings from future treatments no longer needed). It then compares
these net benefits with the benefits that would be generated from alternative
use of the funds, elsewhere in the NHS. If the net benefits provided by the new
medicine are at least as great as the alternative use of funds, then NICE is likely
to give approval for its purchase in the NHS after taking account of other factors
such as innovation, ethical considerations and impacts on health inequalities.
A more detailed description of NICE’s role is set out in Box 2.1. The Scottish
Medicines Consortium provides advice to Scottish Health Boards on the use of
new drugs21. In Wales, the All Wales Medicines Strategy Group also provides
advice on new medicines and on the cost implications of making them routinely
available on the NHS.
Box 2.1: Role of NICE
In a fixed-budget system, it is not possible to fund all the care and treatments
that could provide some benefits to patients. Under such circumstances, limited
funds should be allocated to the treatments that can deliver the most patient
benefits.
The role of National Institute for Health and Clinical Excellence (NICE) is to
advise the NHS on how to make the best possible use of its funds and ensure
that patients get the greatest possible benefit from care purchased with the NHS
budget, including medicines, medical devices and diagnostics.
This responsibility is discharged in a number of programmes, but all share the
same fundamental approach – to consider both the health benefits and the cost
of the range of available treatments that could be funded in the NHS.
It is important to note that the costs of any treatment represent funds that could
be used elsewhere in the NHS, providing health benefits to other patients.
The comparison of the benefits and costs of a particular treatment is really the
comparison of its benefits with those of alternative treatments that could be
provided to patients elsewhere in the NHS.
21
12
Although the NICE’s Multiple Technology Assessment guidance is usually adopted in Scotland.
Structure and features of UK Life Sciences
One of the most important functions of NICE is in assessing new treatments
through its Health Technology Assessment programme, and issuing guidance
to the NHS on whether they should be funded. An important factor22 in this
decision is the determination of whether the benefits gained by funding the new
treatment will be at least as great as the benefits that would have been gained
from the alternative use of those funds.
In order to compare different treatments in this way, it is necessary to have a
common unit of health benefit. Such a measure must reflect both increases in
life expectancy, and in the quality of life. The most widely-used and accepted
unit which fulfils this function is the Quality-Adjusted Life Year (QALY). The
QALY provides a means by which patients (actual or potential) can express the
relative significance of different health states so that the value they gain from
different treatments can be determined.
The benefits gained by patients receiving a new treatment can therefore be
compared, using the QALY unit, with the benefits that would have been gained
by alternative use of those funds23. This comparison is achieved using a ‘costeffectiveness threshold’, which estimates the cost at which QALYs can be
generated by using funds elsewhere in the NHS24. This threshold value can
be used to determine the number of QALYs that would be gained if the funds
required by the new treatment were used elsewhere. If the new treatment
provides more QALYs from those funds, then there are strong grounds for it to
be approved – because doing so would result in the NHS increasing the quantity
of health benefits generated with its budget. Consequently, funding treatments
providing less QALYs would result in a net decrease in patient benefits.
(iv) HEALTHCARE PROVIDERS AND COMMISSIONERS
Health and medical products and services are provided to patients through
public and private healthcare providers and commissioners.
Public healthcare providers
The percentage of total healthcare financed publicly in the UK is higher than in
most other EU and OECD countries. In 2006/07, around 86% of total healthcare
was publicly funded, compared to an average of 77% in the EU and 46% in the
US25.
22
23
24
25
NICE is also able to consider factors beyond just health gains to patients receiving treatments such as innovation,
ethical considerations and impacts on health inequalities.
Note that the total cost impact of the treatment is used when considering the quantity of care that could be provided
with an alternative use of funds. This includes any expected future cost savings from preventative effects that
reduce use of NHS services, which enter the calculation as a negative cost, which can free funds for the provision
of additional treatments, elsewhere in the NHS.
Because of uncertainty around the cost of generating QALYs elsewhere in the NHS, a threshold range is used – from
£20,000 per QALY to £30,000 per QALY.
Office of Health Economics (OHE) Compendium of Health Statistics (2009)
13
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
In the UK, the National Health Service (NHS) – a publicly-funded healthcare
provider – is by far the largest customer for Life Sciences products in the UK
(see Figure 2.4).
Figure 2.4: Structure of UK Healthcare Provision and Expenditure in
2006/07
Private healthcare,
£9.7 billion or 8%
Other medical products,
£7 billion or 6%
Public healthcare (NHS),
£104.7 billion or 86%
Source: OHE Compendium of Health Statistics (2009); Note: Other medical products include medicines not purchased
on NHS prescription, and expenditure on therapeutic equipment such as spectacles, contact lenses and hearing aids.
The NHS can be divided into two elements: primary and secondary care (see
Box 2.2). Primary care is generally regarded as ‘frontline service’. It is the first
point of contact for most people and is typically delivered by a wide range of
independent contractors such as general medical practitioners (GPs), dentists,
pharmacists and optometrists.
Secondary care is known as acute health care and can be either elective care or
emergency care. Elective care means planned specialist medical care or surgery,
usually following referral from a primary or community health professional such
as a GP.
14
Structure and features of UK Life Sciences
Box 2.2: Structure of the NHS
Primary Care
irec
t
ency
and urgent
care
ce
NHS
Trusts
Tr
u
Sec
s
De n
tist
ists
mac
Phar
Ca
Tr re
us
ts
l
ta
en
M alth
He sts
Tru
st
s
S afety
s
an
ici
t
Op
choice
lan
bu
Am
rm
Info ation
Patients
and Public
Q u a lit y
Emerg
GP Practices
SD
–
alk s
S W ntre
ce
in
NH
NH
Department
of Health (DH)
“funding, directing
and supporting
the NHS”
re
o n dary Ca
care
Primary Care Trusts
(PCTs) “assessing
local needs and
commissioning
care”
Strategic Health
Authorities
(SHAs)”managing,
monitoring and
improving local
services”
Primary care
●●
●●
Primary Care Trusts (PCTs) are in charge of primary care and have a major
role around commissioning secondary care and providing community
care services. They are now at the centre of the NHS and control 80% of
the NHS budget. As they are local organisations, they are best positioned
to understand the needs of their community and make sure that the
organisations providing health and social care services are working
effectively. The PCTs oversee 37,000 GPs and 21,000 NHS dentists.
Strategic Health Authorities (SHAs) are responsible for securing health
services for their regional population and are a key link between the
Department of Health and the NHS.
Secondary care
●●
●●
●●
There are 168 acute NHS trusts and 73 mental health NHS trusts which
oversee 1,600 NHS hospitals and specialist care centres. Foundation trusts
are a new type of NHS hospital of which there are currently 122 across
England.
NHS care trusts provide care in both health and social fields. There are
few care trusts and they are based mainly in England. There are none in
Scotland and the Scottish NHS has no plans to introduce them.
NHS mental health services trusts provide mental health care in England
and are overseen by the PCT.
Source: NHS; Note: There are differences in the structure of the health services between the UK countries.
15
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Private healthcare providers
Although every UK citizen is entitled to receive NHS healthcare services that
are for most part free, a large number have enrolled with private healthcare
providers. In 2006/07 the UK public spent some £9.6 billion on private healthcare26,
equivalent to around 8% of total UK healthcare expenditure (see Figure 2.4).
Private healthcare insurers have developed a range of private medical insurance
(PMI) products to meet patients’ needs, for example:
●●
Private hospital facilities;
●●
Rapid access to medical treatment;
●●
Often a choice of when and where medical treatment is provided; and
●●
Some private healthcare treatments that may not be available on the NHS.
Around 6.4 million people (some 10.6% of the population) were covered by PMI
in 2006 in the UK27. There are numerous private healthcare insurance providers
in the UK, including: BUPA; BMI Healthcare; MediCube; AXA PP healthcare;
Standard Life and AVIVA. Some insurance providers, such as BUPA also provide
medical treatment and services.
2.2 Features of the Life Sciences market
The Life Sciences market is characterised by a number of specific features
which distinguishes it from many other markets28. These features include: long
and risky product development timescales for medicines and complexity in the
development of medical devices; high levels of technological uncertainty; high
research and development (R&D) intensity; high development costs and up-front
investment, unique intellectual property rights and a distinct funding cycle in
product development. These are discussed in greater detail below.
LONG PRODUCT DEVELOPMENT TIMESCALES FOR MEDICINES
The drug discovery process usually takes around 10–15 years, although in
some cases it can be significantly longer. Figure 2.5 shows the different stages
of the drug development process, the average duration of each stage and the
probability of a new drug reaching a market launch upon stage completion.
26
27
28
16
Private healthcare spent is defined as part of consumer spending not involving NHS statutory charges (e.g.
prescription charges). It includes subscription to private medical insurance carriers, out of pocket payments for
private hospitals care and consultations with family doctors not covered by health insurance and payments for
private beds in NHS hospitals.
OHE Compendium of Health Statistics (2009)
See for example Van Reenen (2002)
Structure and features of UK Life Sciences
Figure 2.5: Drug Development Timeline
Research
Pre–clinical
Phase 1
Phase 2
Probability
of reaching
launch
Duration
(Years)
• Understand
desease
mechinisms
• Determine
appropriate
dose
• FDA/EMEA
• Confirm
reviews
efficacy in
100,000 page
larger patient
application
populations
and decides
(300-3,000
whether to
people)
grant
• Monitor
approval
side-effects
5%
10%
50%
75%
1–2
1–2
2–3
1–2
• Test
candidate
drugs in
laboratory
• Identify
and animals
targets and
for toxicity
compounds
side–
against them
effects and
therapeutic
value
• Test safety
healthy
volunteers
(20–200
people)
0.1%
1%
3–5
1–2
Launch
Marketing
authorisation
application
Entry in to humans
Stage
objectives
Pre–
registration
Phase 3
• Test efficacy
in targeted
disease (in
200-300
people)
Source: Bioscience 2015
The first stage relates to the research and discovery of the molecule (candidate
drug). Researchers analyse the molecular reactions which cause diseases and
then identify the molecules that could treat that condition. In the discovery
phase, a predominant method of drug discovery is high throughput screening
where only 1 in 10,000 compounds will make it through to the later stage of
clinical trials.
In the second stage, pre-clinical trials are carried out involving laboratory
screening and animal research to predict if the drug is likely to prove toxic in
humans and ascertain the level of dosage which should be used for First in Man
(FiM) studies.
If approved by the relevant regulatory authorities, a series of clinical trials on
human volunteers29 is then run to establish safety and effectiveness (efficacy).
This stage of the process involves three phases:
●●
●●
29
Phase 1:A small number of usually healthy volunteers is tested to establish
safe dosages and to gather information on the absorption,
distribution, metabolic effects, excretion, and toxicity of the
compound;
Phase 2:Patients suffering from disease are tested to obtain evidence on
safety and preliminary data on efficacy. The number of patients
tested in this phase is larger than in Phase 1 and may number in
the hundreds; and
See for example DiMasi (2003)
17
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
●●
Phase 3:Typically consists of a number of large-scale trials that are
designed to firmly establish efficacy and to uncover side-effects
that occur infrequently. The number of patients tested can total in
the thousands and includes testing against a placebo or existing
therapies.
If all three phases in the clinical trials are successful then the regulatory
authorities will issue a marketing authorization, enabling the new drug to be
launched in the market.
Following the market launch, medicines are subject to continuous monitoring
assessing and evaluating information from healthcare providers and patients on
the adverse effects of medicines. In technical terms, this phase is classified as
Pharmacovigilance.
HIGH LEVEL OF RISK AND UNCERTAINTY
Figure 2.5 also shows the probability of a drug reaching the market at different
stages of the development process. Before a prospective new drug candidate
enters the process of clinical trials, the probability that it will ultimately enter
the market is estimated to be around 1%. After successful completion of clinical
trials, the probability of a product launch is still only around 50% as the drug is
still subject to regulatory approvals.
Pisano (2006) argues that profound and persistent uncertainty and risk in drug
development stems from the fact that the feasibility of R&D in biotechnology is
inherently unknown. It is only in the process of lengthy and expensive testing
that the efficacy and safety of drugs can be established. Moreover, scientists
also still find it extremely difficult to predict how new molecules will work in
humans. Historically, about 1 in 6,000 synthesised compounds ultimately make
it to market. This translates into high long-term risks.
Overall, drug discovery projects are very long and highly uncertain: only a few
products will become successful blockbuster drugs.
HIGH R&D INTENSITY
The Life Sciences industry is characterised by high R&D intensity over a very
long product development cycle. This aspect of the industry is unique even in
comparison to other technologically advanced industries.
According to a recent study by NESTA (2008)30, the pharmaceutical sector is the
most research intensive sector in the UK economy, with an R&D intensity of
more than 15%.
30
18
Based on the R&D Scoreboard data in 2007. R&D intensity is often measured as a ratio of business R&D expenditure
to sales in a given year.
Structure and features of UK Life Sciences
The measurement of R&D intensity in the Life Sciences industry is not a
straightforward exercise. R&D intensity is often measured as a ratio of business
R&D expenditure to sales in a given year. However, this is a highly imperfect
measure of R&D intensity in sectors with long product development timescales
such as pharmaceuticals. The reason is that sales of a particular drug in a given
year cannot be directly attributed to R&D spend by a company in the same year.
This is because a drug development process can take around 10–15 years, as
discussed above. By taking into account an appropriate lag structure in R&D
expenditure on a group of drugs, DiMasi (2003) undertook complex analysis
of drug development costs. Based on his work, it has been estimated that
out-of-pocket R&D spend was equivalent to around 23% of sales for patented
pharmaceuticals launched in the period 1992–200231.
Differences in R&D intensities between the industries can be explained by a
number of factors. Within the industry, firms are only likely to invest in R&D
if they can earn sufficiently high profits to cover the costs of that R&D spend.
Industries may differ in the extent to which customers are willing to pay for
performance improvements resulting from an increase in R&D spending32. R&D
is also likely to be highest where the potential opportunities for technological
innovation are greatest. This is most likely to be the case where both the market
and the underlying technology (or combination of technologies) is relatively
new. Finally, R&D will also be higher where there are rapid developments in the
underlying science33.
HIGH DEVELOPMENT COSTS AND UP-FRONT INVESTMENT
In comparison to other sectors, large investment is required throughout the
drug development process. Some studies also argue that the average total cost
of developing a new prescription drug has grown around 2.5 times in inflationadjusted terms since the late 1980s suggesting that the level of investment
required today is significantly greater than around twenty years ago34. Although
this may reflect firms responding to expectations of greater revenues by
investing in more costly projects.
DiMasi et al. (2003) estimate that the average out-of-pocket cost of a new
drug tends to be in the region of some US$400 million with over half of that
cost likely to be incurred in the clinical development phases. The total cost of
capital required to develop a new drug could exceed US$800 million35. Thus,
the product development costs incurred are comparatively greater than in other
innovative industries36. While the sunk costs of pharmaceutical development are
31
32
33
34
35
36
Analysis by the Department of Health based on DiMasi (2003)
However, in the Life Sciences industry, third party payers (or doctors as the agents of the payer or of the patient)
are the key to product adoption; it is therefore often their willingness and ability to pay and use new pharmaceutical
vaccines and medical devices that, among other factors, will drive private sector innovation.
For further discussion on R&D intensive businesses in the UK see for example DTI (2005b) Economics Paper No.11
Tufts Centre for Study of Drug Development ‘Outlook 2002: Pharma Policy News', December 2001
In year 2000 price terms
For example according to Cooksey (2006) an investment of around £4 million enables companies to bring a new
product to the market in the IT and communications industry.
19
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
high, the marginal cost37 of producing a successfully developed new drug is very
low. This low cost means that companies which have not invested in research
could copy the results of the drug developer and produce the same new drug
at a much lower cost since they do not have to cover the significant cost of
investment in research. Without some form of intellectual property protection
on their invention there would be no incentive for the drug developer to invest
in R&D, as they rely on sales revenues to provide a return on that investment.
Figure 2.6 illustrates how the cash flow of a pharmaceutical company can vary
significantly over the course of the development process and its subsequent
launch in the market. It shows cash flow generation before product launch
to be significantly negative owing to the high up-front costs and investment
associated with a lengthy drug development process.
Figure 2.6: Cash Flow for a Successful Drug
+£
0
Product
launch
Patent
expiry
Time
-£
Source: OHE
The high capital outlays associated with drug development mean that it is
only financially viable if the intellectual property system allows the drug to be
patented so that the company can re-coup its up-front investment. Otherwise
the cost of research is too high for drug development to be undertaken. The
revenue from a successful drug has to cover not only its own high sunk costs
but also the costs associated with the amount of research into unsuccessful drug
development, which are considerable.
The UK Intellectual Property Office and the European Union recognised
that investment in the Life Sciences had a long and expensive development
phase and implemented Supplementary Protection Certificates in response38.
37
38
20
The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output.
EU Council Regulation (EEC) No 1768/92 of 18 June 1992 concerning the creation of a supplementary protection
certificate for medicinal products
Structure and features of UK Life Sciences
A supplementary protection certificate (SPC) is a special form of intellectual
property right that extends the protection of a patented active ingredient or
combination of active ingredients present in a pharmaceutical or plant protection
product after the expiry of the patent39. The SPC allows pharmaceutical
companies to recover the cost of investing in drug development and acts as an
incentive for companies to invest in R&D within this sector.
SPC’s are unique to the pharmaceutical sector and were created to ensure
that investment in drug development could be financially possible in the
private market. Patents also serve a more pressing function in the early drug
development process. Patent applications and grants are used as benchmarks
for investors in drug development.
FUNDING CYCLE IN PRODUCT DEVELOPMENT
Funding needs of a typical medical biotechnology company evolve over the
lifecycle of a company and product development, and the level of funding
required increases over time. Entry of products into clinical trials requires a
substantial increase in funding. A simplified picture of a typical biotechnology
company’s funding cycle is illustrated in Table 2.3.
Table 2.3: Illustrative Funding Cycle in Drug Development
Stage of Company/
Product Evolution
1. Idea development and
validation:
●●
●●
Idea generation
Seed funding
Key
Activities
●●
●●
●●
●●
Secure assignment
from university or
originator of IP etc.
Technology validation
Develop commercial
prototype products
Early pre-clinical trials
Level of Funding
£50,000 –
£1 million
Example Sources of
Funding
●●
●●
●●
2. Early stage:
●●
●●
●●
Start-up
First round of VC
●●
●●
●●
●●
39
Start developing
technology platform /
product pipeline
Broaden IP base
Hire a management
group and scientific
group
Start to engage in
corporate partnering
Secure premises
and build company
infrastructure
£1 – £10 million
●●
●●
●●
Angel funding (e.g.
Cambridge Angels):
typically £100,000
VCs (seed specialists
and some broader
biotechnology
specialist funds)
Investment funds
aligned alongside
research funding
bodies (MRC, Wellcome
Trust)
Broader VCs
Very high net worth
business angels
Programmes funding
research collaboration
between industry and
research base e.g. LINK
See the IPO guide for SPC applicants: http://www.ipo.gov.uk/spctext.pdf
21
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Stage of Company/
Product Evolution
Key
Activities
3. Late stage:
●●
●●
●●
Expansions stage
Public companies
●●
Build scale, roll out
technology platform,
continue with clinical
development (even
launch) and prepare for
exit (likely IPO)
Continue with
expansion stage
activities
Level of Funding
●●
●●
●●
Multiple round of VC
funding
£10–£50 million per
round
Large and variable
Example Sources of
Funding
●●
●●
●●
●●
●●
Large international VC
funds
Institutions willing
to invest in private
companies
Pharma/biotech
partners
Public markets: AIM,
LSE, NASDAQ
Debt
Source: Bioscience 2015
Venture capital (VC) tends to be a typical form of early finance among
biotechnology firms. Venture capitalists will generally make their investments
in stages, reserving the right to abandon unsuccessful projects. The venture
capitalist takes a significant equity stake in the company alongside the
entrepreneur/scientist and will usually also take a place on the board and
provide monitoring and specialist advice. Both parties’ remuneration is linked to
the entrepreneur’s performance. The need to share the profits from innovation
between the entrepreneur/scientist and the financier might be desirable from
an incentives perspective. This is because the entrepreneur/scientist will have
high incentives to search efficiently for innovation if they are getting a share of
the potential rewards, assuming such rewards can be protected with intellectual
property rights.
Prior to the Venture Capital phase, seed finance is needed for all start-ups and
this usually comes from private sources, (e.g. Business Angels) as well as
from public sources, such as universities and funds aligned alongside research
funding bodies (e.g. Wellcome Trust, Medical Research Centre). Another
important source of seed finance for biotech start-ups is corporate venturing
from larger pharmaceutical firms.
In the past, when the firm had succeeded in growing to a critical size, an Initial
Public Offering (IPO) of shares used to be an exit route for investors whereby
the public could participate in sharing the risks and the rewards for the firm’s
success. However, in the last few years new biotechnology IPOs have virtually
ceased40.
Trade sales are another form of exit for VCs. Recently there has been a rise in the
number of bioscience companies exiting through a merger or by being acquired
by a privately owned company.
Biotechnology firms, especially those with products in the later stages of clinical
trials, might also benefit from the needs of large pharmaceutical companies
to expand their drug development pipelines in the face of upcoming generic
competition for current blockbuster drugs. Deals with large pharmaceutical or
biotechnology companies for drug development or licensing might help small
40
22
See for example Ernst and Young (2009)
Structure and features of UK Life Sciences
biotechnology firms meet ongoing costs of research as well as providing an
experienced source of guidance for the later stages of drug development and
marketing approval. Figure 2.7 shows the number of European biotechnology –
biotechnology and pharmaceuticals – biotechnology alliances and Mergers and
Acquisitions (M&As). The dynamic M&A scene, together with some company
failures and the virtual absence of new IPOs in the biotechnology sector
in the last years has led to a 30% decrease in the number of publicly listed
biotechnology and pharmaceutical companies on the London Stock Exchange
in the last two years41.
Figure 2.7: European Biotechnology Alliances, 1997–2006
No. of European Biotech Alliances
800
Mergers and Acquisitions
700
Alliances
600
500
400
300
200
100
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Ernst & Young (2007)
MONOPSONISTIC BEHAVIOUR OF THE NHS
The public sector can exert significant buyer power in a number of markets; that
is, it can act as a monopsonist42. This buying power means that a monopsonist
might be able to exploit their bargaining power with multiple suppliers of a
product to negotiate more favourable prices for a product. However, concentration
of purchasing decisions in a single agency can also enable a monopolist to
gain all the benefits from the transaction, by setting the highest price that the
monopsonist can pay which often happens in respect of patented medicines
in the NHS43. Of the £671 billion in UK Government spending projected for the
financial year 2009/10, around 18% or £119 billion is planned for health care44.
41
42
43
44
Pharmaceutical and biotechnology companies listed on the London Stock Exchange, Sept 2007 – Aug 2009
A monopsony is defined as a market where one buyer faces many sellers.
When a monopsonist is faced with a monopoly provider – as with some patented pharmaceuticals – economic
theory says that the price can be set anywhere between the minimum level the firm can accept, and the maximum
(or reservation) price of the purchaser. In the case of pharmaceuticals, firms are able to achieve the NHS reservation
price if they gain approval at the NICE threshold. This means that, for the duration of the patent, the firm appropriates
all the economic surplus from the product. Patients receiving the new medicines will benefit, however, the costs of
the new products are likely to be such that these benefits are offset by health losses for patients elsewhere in the
NHS whose treatments cannot be funded.
Budget 2009 http://budget.treasury.gov.uk/where_taxpayers_money_is_spent.htm
23
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
The impact of public procurement policies on the development and level of
competition in markets can be significant45. The impact of public procurement
on investments and innovations in the development of new products and
technologies will be greater where current demand is limited or where there are
significant barriers to the production and commercialisation of new products
and technologies, but where their development could yield considerable net
social benefits. This is particularly important for Life Sciences where ‘life-style
drugs’ are often more profitable, and can have a shorter development phase
than expensive life-saving medical research. Here the demand in the NHS will
naturally impact the direction of R&D towards domestic medical requirements
although the effect on global R&D is likely to be small as the UK represent around
4% of the world market for pharmaceuticals. Similarly government projects can
incentivise research towards international health priorities, such as malaria, for
which there would be limited domestic demand.
The NHS is a major customer for Life Sciences products in the UK and thus is in
a position to affect competition through its purchasing behaviour. However, the
provision of drugs by the NHS may suffer from a classic principal-agent problem.
Bloom and Van Reenen (1998) argue that ‘the Government (the principal)
may want health practitioners (its prescribing agents) to prescribe drugs in a
cost-effective manner by evaluating every drug prescription on the basis of a
budgetary cost versus therapeutic trade-off. Health practitioners, however, are
trained to treat illness, operate according to the principles of the Hippocratic
Oath and are in the front line of the provision of healthcare. As a result, it is not
surprising that they are far more likely to be concerned with patient welfare than
with ensuring value-conscious prescribing’.
The Pharmaceutical Price Regulation Scheme (PPRS) has been introduced to
ensure that the interests of patients, the NHS, the industry and the taxpayer are
promoted and balanced for each other’s benefit. PPRS is discussed in greater
detail in Chapter 6.
COMPLEX PRODUCT DEVELOPMENT CYCLE IN MEDICAL DEVICES
Although medical devices face a shorter product development cycle than
medicines, the medical device development process has become increasingly
complex over recent years due to the advent of advanced technologies, stricter
regulatory requirements, and the increasing importance of reimbursement
decisions 46.
Depending on the type and complexity of the technology, the medical device
development process can take from 3 to 18 months, although in some cases it
can be longer. As a result, successfully bringing innovative products to patients
depends on knowledge of, and planning for, this process. Patients benefit from
a continuous stream of innovation that depends heavily on the assessment of
45
46
24
See for example OFT (2004)
See for example Pietzsch et al. (2009)
Structure and features of UK Life Sciences
users’ needs and therefore involvement of patients and healthcare providers at
various stages of the process. These include product concept through prototype
development into trials; assessment of clinical utility and cost-effectiveness;
analysis of fitness for purpose, training and instructions for use.
Based on best-practice analysis and in-depth interviews with over 80 experts
involved in the process of medical device development, Pietzsch et al. (2009)
constructed a model that describes a process that is applicable to the development
of a broad range of medical technologies and devices development. Five major
phases have been identified:
●●
●●
●●
●●
●●
Phase 1: Initiation, opportunity, and risk analysis – this phase is often referred
to as a technology phase and is characterised by the early evaluation of
projects aimed at addressing clinical needs by talking to physicians, patients
and hands-on technology users such as nurses, operating-room and lab
technicians and observing them in a clinical setting. It also involves a review
of existing medical devices and procedures that are being used to treat
the condition; preliminary market analysis; financial and technology risk
assessment; analysis of the potential regulatory paths and reimbursement
strategies.
Phase 2: Formulation, concept, and feasibility – a cross-functional team
consisting of members from R&D, quality assurance, manufacturing,
marketing/sales, regulatory, clinical and legal roles is selected to undertake
a product concept formulation and feasibility assessment. Potential users
are often involved to obtain customer input and feedback. It is also common
for new ideas for devices to be generated from considering existing product
complaints.
Phase 3: Design, development, verification, and validation – during this
phase numerous verification and validation (V&V) tests are performed both
before and after product design to ensure a new device meets user needs
and demands and that the development of devices complies with the quality
standards. During this phase, the design and test data are also submitted to
regulatory agencies for review and regulatory approval.
Phase 4: Final validation and product launch preparation – this phase is
characterised by the creation of formal design prints, final product verification
and validation, sales launch preparation and regulatory approval.
Phase 5: Product launch and post-launch assessment – centres of excellence
including hospitals, labs and physician’s office are used for initial product
release. A peer-to-peer physician education model is often used to
promote product adoption whereby physicians who participated in product
development are often involved in regional and local training sessions.
Clinical trials are often performed by physicians following product launch.
These trials aid in gaining reimbursement support and additional marketing
literature, as well as expanding further indication for use.
25
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
The process of developing medical devices or technology development is highly
interactive. Medical devices are frequently developed over several generations,
with the next generation of a device incorporating new technological insights
and experiences gained during field use of the previous generation. In many
technologies, lifecycles are thus very short. Such iterative loops include design
improvements based on clinician feedback, redesigns after failed verification or
validation testing, or design improvements based on unexpected results.
PRODUCT DIFFERENCES WITHIN LIFE SCIENCES
The nature of Life Sciences products is very diverse. Therefore, even within the Life
Sciences, substantial differences between groups of products might be present.
As an example, Table 2.4 illustrates key distinctive features between medicines,
medical devices and diagnostics. These differences distinguish the capital
requirements, product development methods, clinical testing requirements,
manufacturing methods, and overall life cycle for products across Life Sciences.
26
Structure and features of UK Life Sciences
Table 2.4: Key Differences between Medicines, Medical Devices and
In Vitro Diagnostics
Category
Medicines
Medical Devices
In Vitro Diagnostics
Sector:
Pharmaceuticals
Medical biotechnology
Medical technology
Medical biotechnology
In vitro diagnostics
Number of
products:
A more limited number of
products
A large number of diverse products
A large number covering the
wide health spectrum
Mode of
development:
Development by trial and
selection on the basis of
quality, safety and efficacy
Designed specifically to perform
certain functions, as intended by
the manufacturer, based on safety,
quality and performance, using an
engineering model
Developed to measure
targeted biomedical
parameters
Development
timescales:
10–15 years on average
Around 3–18 months on average
and sometimes longer47
3–5 years on average
Level of risk:
High; only a few products will
become successful drugs
Lower in comparison to medicines
Lower in comparison to
medicines
Development
cost:
High
Lower in comparison to medicines
but relatively high in relations to IP
protection and rapid price erosion
High R&D cost in proportion
to final revenues and shorter
product life cycle than in
medicines
Applied
science:
Based on pharmacology,
chemistry, biotechnology or
genetic engineering
Based on mechanical, electrical
materials engineering, chemistry,
biology, physics and applied
sciences
Based on biological and
chemical sciences with
engineering to allow
automation of tests
Source of
innovation:
Primary the result of laboratory
work
Primary the result of insights from
clinicians, also user-led innovation
Varied, academia, health and
industry
Performance
and Safety:
Can be proven before market
launch
The manufacturer must ensure
that the device is safe and fit for
its intended purpose before market
launch. For higher risk devices this
may be using data from clinical
trials
Novel markers are difficult
to show utility for; often
benefits will be seen long
after intervention
Function:
Therapeutic
Diagnostic, or monitoring,
prevention, treatment, alleviation,
investigation, replacement or
modification
Prevention, screening
diagnostic, monitoring
identifying target
populations for drug therapy
Usage:
Biologically active and effective
when absorbed by the body
Generally act by physical means or
mechanically
Provides data used in
healthcare decisions
Distribution
cost:
Low, no service or maintenance
costs
High, including costs for associated
supportive functions
High, includes complex
sales procedure
Product
maintenance:
No service or maintenance
required (although post-market
surveillance requirements
increasing)
Extensive service required for
reusable devices and fixed
installations. There are disposable
devices which require no servicing
or maintenance
Varied depending on test
platform but intensive for
training and user support
Up-grading:
Limited once the product is put
on the market
Frequent, usually based on existing
products
Frequent, upgrading
automation software and
increasing test menu
Source: Based on EUCOMED, Copenhagen Economics (2009) and information from BIVDA and ABHI
47
As medical devices covers such a wide range of differing technologies it is difficult to give a meaningful figure on
timescales.
27
3. Impact of Life Sciences
on the UK economy and
society
3.1 Size and economic trends in the UK Life Sciences industry
The Life Sciences industry is of vital economic importance to the UK, making a
significant contribution in terms of the value of goods and services the industry
produces, employment and productivity.
GROSS VALUE ADDED
Gross value added (GVA) measures the contribution to the economy of each
individual producer, industry or sector. In 2007, the pharmaceutical and medical
technology sectors combined accounted for around 6.5% of all manufacturing
Gross Value Added (GVA) in the UK, compared to 4.1% in 1997. In 2007, GVA
of the pharmaceutical and medical technology sectors amounted to around
£8.1 billion and £2.2 billion respectively (Figure 3.1).
7%
9
8
6%
7
5%
6
5
4%
4
3%
3
2%
2
1%
1
0
1997
1998
1999
2000
Pharmaceuticals
Source: Office for National Statistics (ONS)
28
2001
2002
2003
Medical Technology
2004
2005
2006
% of all manufacturing
2007
0%
% of all Manufacturing GVA
GVA in Pharmaceuticals and Medical Technology (£ Billion)
Figure 3.1: Gross Value Added in Life Sciences (in Nominal Terms), UK
79
68
7
5
6
45
34
23
2
1
1
00
Impact of Life Sciences on the UK economy and society
PRODUCTIVITY
Productivity is a measure of the efficiency by which the economy turns inputs,
such as labour and capital, into value added (see Box 3.1). One measure of
productivity is labour productivity defined as the value of output produced by
an employee.
Box 3.1: Importance of GDP and Productivity to Economic Growth
In order to generate overall increases in prosperity, we need to raise the level
of gross domestic product (GDP) per head. GDP per head depends on both the
number of workers and their productivity. If the Government wants to increase
prosperity, it can adopt policies to improve labour market participation, or to
raise the level of labour productivity.
Productivity is a measure of the efficiency by which the economy turns inputs,
such as labour and capital, into value added. Traditional schools of economic
thought – which stressed the importance of capital accumulation – suggested
that there was little that governments could do to raise the long-term rate
of productivity growth. However, in recent years developments in the way
economists think about economic growth have highlighted the important role
of ‘externalities’ in the growth process. This ‘new growth theory’ suggests
that Government can have a positive effect on both the level and growth rate
of productivity, and thereby prosperity, if policies seek to correct for market
failures48.
The role of Government in correcting market failures and available policy
measures are discussed in more detail in Chapter 6.
Figure 3.2 shows that productivity in the pharmaceutical sector alone, measured
as Gross Value Added per employee, rose from around £68,000 in 1998 to
£121,000 in 2007, representing an increase of some 77% in nominal terms.
Productivity in the medical technology sector increased from around £35,000
in 1998 to around £49,000 in 2007, representing an increase of some 39% in
nominal terms. This figure is similar to the productivity increase recorded for the
total manufacturing sector in the UK over the same period.
48
Aghion and Howitt (1998)
29
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 3.2: GVA per Employee in Life Sciences and All Manufacturing
(in Nominal Terms), UK
Productivity – GVA/employment (£ thousand)
140
120
100
80
60
40
20
0
1998
1999
2000
2001
Pharmaceuticals
2002
2003
Medical Technology
2004
2005
2006
2007
All Manufacturing
Source: ONS
EMPLOYMENT
In 2007, over 100,000 people were employed in the Life Sciences industry in
the UK. Figure 3.3 shows that employment in the pharmaceutical and medical
technology sectors remained relatively constant between 1998 and 2007. In
2007, the pharmaceutical and medical technology sectors employed around
67,000 and 45,000 people49 respectively. There is no comparable time series data
available for the medical biotechnology sector, however, the latest data shows
that the medical biotechnology sector alone employed around 24,000 people in
the UK in 200850.
As a percentage of total manufacturing employment in the UK, the number
of people employed in the pharmaceutical and medical technology sectors
combined, increased from some 2.5% in 1998 to around 3.6% in 2007.
49
50
30
Note there are some differences in employment figures for the medical technology sector between the ONS and BIS
Bioscience and Health Technology Database. These are due to differences in sector definitions and methodologies
used.
BIS Bioscience and Health Technology Database
Impact of Life Sciences on the UK economy and society
Figure 3.3: Employment in Life Sciences, 1998–2007, UK
90
4%
70
3%
60
50
2%
40
30
1%
20
% of all Manufacturing Employment
Employment in Pharmaceuticals and
Medical Technology (thousands)
80
10
0
0%
1998
1999
2000
Pharmaceuticals
2001
2002
2003
Medical Technology
2004
2005
2006
2007
% of all employment
Source: ONS
EMPLOYMENT COSTS
In 2007, total gross wages in the pharmaceutical and medical technology
sectors together totalled around £3.61 billion. The average gross wage in the
pharmaceutical and medical technology sectors were approximately £37,000
and £25,000 respectively (Figure 3.4). These figures are higher than the average
wage for the manufacturing sector as a whole, which in 2007 was around
£24,000.
Employment in the Life Sciences industry is known to provide a wage premium
even after qualifications and experience have been taken into account. That is,
people employed in the Life Sciences industry appear to be paid significantly
more than they would be paid in their next alternative employment. Previous
estimates of the premium included in pharmaceutical wages range from 8%51
to 24%52.
51
52
Analysis by Van Reenen (1998) , quoted in the Pharmaceutical Industry Competitiveness Task Force’s report
of May 2002: http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/
DH_4006558?ssSourceSiteId=ab
NERA Economic Consulting estimate for the Department of Health (2006)
31
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 3.4: Total Gross Wages and Wages per Employee in Life Sciences (in
Nominal Terms), UK
3000
40
Total Gross Wages (£ Million)
30
2000
25
1500
20
15
1000
10
500
0
Gross wage per head (£ thousands)
35
2500
5
1998
1999
2000
2001
2002
Total gross wages Pharmaceuticals LHS
Gross wage per Employee Pharmaceuticals RHS
2003
2004
2005
2006
2007
0
Total gross wages Medical Technology LHS
Gross wage per Employee Medical Technology RHS
Source: ONS
3.2 International comparisons
THE PHARMACEUTICAL SECTOR
Global sales of pharmaceutical products were estimated at around £400 billion
in 200853. The US has the largest proportion of pharmaceutical sales as a
percentage of GDP, followed by France, Japan and Spain54.
However, the greatest growth in recent years has been seen in emerging markets
such as the BRIC group of countries55. For example, in 2008 China’s market grew
by 24% while India’s market grew by 13%56.
53
54
55
56
32
IMS Health
Pharmaceutical Industry Competitiveness Task Force (PICTF) (2009) Indicator 9b (unpublished)
The BRIC group of countries are Brazil, Russia, India and China
Datamonitor; data excludes Over-the-Counter (OTC) and animal health medicines
300040
250035
30
2000
25
150020
15
1000
10
500
0
Impact of Life Sciences on the UK economy and society
Figure 3.5: Gross Value Added in Pharmaceutical Sector in Selected
Countries, 2006
US
Japan
Germany
UK
France
Italy
Sweden
Spain
Belgium
Denmark
Netherlands
Austria
0
10
20
30
40
50
60
70
80
90
100
US$ Billion
Source: OECD STAN; Annual average exchange rates: Federal Reserve Statistical Release
Figure 3.5 shows that in 2006, the UK pharmaceutical sector was ranked the
fourth largest in the world in terms of Gross Value Added (GVA); after the US,
Japan and Germany but ahead of France.
Some 14 (19%) of the world’s top 75 selling medicines in 2007 were developed
in the UK, second only to the US57 (see Figure 3.6).
Figure 3.6: National Origin of Leading 75 Global Medicines in 2007
Others 4%
Germany 2%
Japan 5%
France 5%
Switzerland 10%
US 55%
UK 19%
Source: PICTF (2009) Indicators (unpublished); Note: National origin: the home-base of the company responsible for
the first synthesis, or where not known, the country of patent priority for a New Molecular Entity
57
UKTI UK The gateway to Europe
33
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
UK companies continue to have more success than firms from other countries
in penetrating the dominant US market and continue to have more medicines
launched in the four major markets – US, Germany, France and the UK – than
companies from any other country apart from the US58.
THE MEDICAL BIOTECHNOLOGY SECTOR
Global sales of medical biotechnology products59 are estimated at between
£45–48 billion with growth rates of more than 20% per annum over the period
2002 to 2007. This is more than double the rate for the pharmaceutical market60.
Currently there are approximately 145 products on the market with 11% of all
clinical trials involving a biotechnology based product61.
The US is the largest single market with 65% of all sales, followed by Europe
which represents 30% of the global market62. The major classes of products
are anti-blood clotting, anti-cancer, and anti-diabetic treatments accounting for
around 45% of all sales63. Figure 3.7 below shows that the UK was the largest
market in Europe in 2002, the latest year for which comparative data is available.
Figure 3.7: European Medical Biotechnology64 Market Share (Sales in
European Markets) in 2002
Other 5%
Israel 5%
Ireland 7%
UK 31%
France 10%
Germany 20%
Denmark 22%
Source: Critical I
58
59
60
61
62
63
64
34
PICTF (2009) Indicator 16 (unpublished)
Excluding small molecules
IMS Health, December 2007; IMS Health Market Prognosis, March 2009
Consequences, Opportunities and Challenges of Modern Biotechnology in Europe, April 2007, JRC, European
Commission
IMS Health, December 2007
IMS Health Market Prognosis, March 2009
Excluding small molecules
Impact of Life Sciences on the UK economy and society
The health of the medical biotechnology sector is often measured by the pipeline
of products in development, particularly by those products that are in human
trials. A 2008 report by Ernst & Young65 showed that in 2007, UK biotechnology
companies had the highest number of drugs in development in Europe,
representing around 1 in 5 of all biotechnology drugs in development across
Europe (see Figure 3.8).
Figure 3.8: European Product Pipeline by Country, 2007
UK
Germany
Denmark
France
Switzerland
Italy
Israel
Sweden
Austria
Spain
Netherlands
Belgium
Norway
Ireland
Finland
Other
0
50
100
Preclinical
150
200
No. of products
Phase I
250
Phase II
300
350
400
Phase III
Source: Ernst & Young (2008)
Using data from BioPharm Insight and cross referencing with companies in the
Bioscience and Health Technology Database, a snap-shot of the pipeline data
gives a somewhat different profile66 as shown in Figure 3.9. The total number of
products in development for the UK was 447; of which 43% were small molecule
drugs and 57% were biologics including antibodies, therapeutic protein, vaccines
and advanced therapies (such as gene therapy, cell therapies etc.).
65
66
Beyond Borders: Global biotechnology report 2008
Differences in the total number of medical biotechnology products between both datasets are due to differences
in methodology and types of companies included in the datasets. The BioPharm Insight database includes both
biotechnology and pharmaceutical companies with a pipeline of medical biotechnology products.
35
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 3.9: The Pipeline of Medical Biotechnology Products for UK
Companies in 2008
Discovery/Preclinical
Phase 1
Antibodies
Therapeutic Proteins
Advanced Therapy
Medicinal Products (ATMPs)
Phase 2
Vaccines
Small Molecules
Phase 3
Specialist Services
Regulatory Filing
0
50
100
150
200
250
Number of Products
Source: BIS Bioscience and Health Technology Database Note: The data only represents those companies with UK HQ
identified in the database and found in BioPharm Insight
The investment community has historically seen biotechnology as having high
potential to generate significant risk-adjusted return on investment. In 2007, total
investment in all biotechnology sectors in Europe reached some £4.5 billion,
continuing the year-on-year increases recorded since 2002. The UK was the
largest destination for all types of funds (such as venture financing, Initial Public
Offerings or follow-on offerings) and second only to Germany in terms of the
amount of Venture Capital investment raised67 (see Figure 3.10).
67
36
Ernst & Young (2008)
Impact of Life Sciences on the UK economy and society
Figure 3.10: Capital Raised in Medical Biotechnology in 2007 by Country
Total Capital Raised (EUR billion)
3
UK
2
1
France
Sweden
Germany
Switzerland
0
Netherlands
50
Denmark
100
150
200
Venture Capital Raised (EUR million)
250
300
Source: Ernst & Young (2008); Note: Size of bubbles indicates number of finance deals per region
THE MEDICAL TECHNOLOGY SECTOR
In 2008, global sales of medical technology products were estimated at between
£150–170 billion, with growth rates forecast at 10% per annum over the next
five to six years. The global market is estimated to approach £300 billion in
sales by 201568. This growth is driven by an ageing population and increases in
healthcare expenditure across developed countries.
The US is the largest market worth just over £70 billion and has a strong supply
base with the majority of the world’s largest medical technology companies
originating from there. Europe is the second largest market with sales estimated
at £57 billion with a supplier base of 11,000 companies employing some 435,000
people69. Figure 3.11 shows that the UK was the second largest market in Europe
after Germany in 2007.
68
69
The Medical Device Market: United Kingdom, March 2009, Espicom Business Intelligence
EUCOMED
37
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 3.11: European Medical Technology Market Share (Sales in
European Markets) in 2007
New EU Member States**; 5%
UK; 16%
Other European
Countries *; 18%
Switzerland; 2%
Spain; 8%
Germany; 28%
Italy; 9%
France; 14%
Source: Eucomed; Note: (*) Finland, Sweden, Denmark, Norway, Netherlands, Belgium, Luxembourg, Portugal, Austria,
Greece, Ireland; (**) Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Slovenia, Malta, Cyprus,
Bulgaria, Romania
Until recently, the medical technology sector has not traditionally been a sector
that has attracted much investment in the UK. This situation has changed as
investors have recognised that the sector has many of the attractive features of
medical biotechnology including high growth rates and a shorter and less risky
product approval process.
In the US, investment in medical technology decreased by some 53.3% in
2008 compared to 2007. At the same time, investment in Europe increased by
some 72.8% due to the increase in follow-on investment, convertible debt and
private investment in public equity. However, this apparent robust performance
in Europe is skewed by two large deals that contributed some 73% of the total
increase. If these are excluded then total European financing in the sector was
some 44% lower than in 200770.
Figure 3.12 shows that in 2008 and the first half of 2009, for all types of financing,
the UK recorded the second highest amount of capital raised after Germany71.
70
71
38
Ernst & Young (2009b)
Ibid
Impact of Life Sciences on the UK economy and society
Figure 3.12: Capital Raised in Medical Technology in 2008 and First Half of
2009 by Country
2
Total Capital Raised (EUR billion)
Germany
1
UK
Sweden
Israel
France
Switzerland
0
50
100
150
Venture Capital Raised (EUR million)
200
Source: Ernst & Young (2009b); Note: Size of bubbles indicates number of finance deals per region
3.3 Economic and social benefits of innovation in Life Sciences
According to OHE (2005), innovation in the Life Sciences can have wider impacts
on the economy and society72. These include: improved quality and delivery
of healthcare services, better health, well-being and quality of life; higher
productivity; and greater patients’ convenience.
Improvements in the quality and delivery of healthcare services
Innovation in Life Sciences can help improve the delivery of healthcare services.
For example, the development of new medicines and medical devices which
serve to prevent or slow down the progression of certain diseases and conditions,
and/or bring about faster rehabilitation, may free up valuable resources which
healthcare providers can allocate elsewhere.
The introduction of new products and technologies which serve to change the
way in which healthcare services is provided to patients may also serve to
release resources for alternative use. For example, new medicines and medical
devices may lower hospitalisation costs by reducing the length of patients’ stay
or by eliminating altogether the need for hospitalisation.
Funding of new medicines and health technologies implies the transfer of funds
from some other treatment or service that would otherwise be provided by the
NHS.
72
For a more detailed discussion see for example OHE (2005) The many faces of innovation
39
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
When assessing a new medicine or technology, NICE uses the cost-effectiveness
threshold to evaluate net gains and losses from funding the treatment. Medicines
and technologies are normally recommended if the benefits are equal to or
greater than the losses.
Patients receiving new treatments will benefit. Initially health benefits of a new
product are likely to be offset by health losses elsewhere in the NHS. However,
once a patent expires and a generic becomes available, there will be significant
economic and health gains for the NHS. For health technologies these benefits
may occur sooner.
Improved health, well-being and quality of life
The introduction of new medicines or medical devices can bring about
improvements in health in a number of ways. These include:
●●
●●
●●
●●
●●
Tackling a disease or condition for which there was previously little or no
treatment;
Improved effectiveness and targeting of existing treatments in alleviating
the symptoms of certain diseases and conditions;
Speedier recovery times, for example from weeks to days;
Reduced side effects and/or improved tolerability, which could lead to
better health gains for patients both directly and indirectly through better
adherence; and
Reduced negative interactions with other medicines.
Higher productivity
New medicines and medical devices can also lead to productivity gains in the
economy as a result of patients or carers returning more quickly to work or
not missing work at all, or to them being more productive while at work73. The
Grossman Health Capital Model, which is described in Box 3.2, explains the
impact of improved health and healthcare provision on productivity and longterm economic growth.
73
40
Similarly, when considering productivity gains to the economy, new treatments will only result in a net gain if their
benefits – in terms of reduced sickness and other factors – are greater than the benefits of those treatments from
which funding must be withdrawn.
Impact of Life Sciences on the UK economy and society
Box 3.2: The Grossman Health Capital Model74
‘The idea of health representing – next to education – an important component
of human capital was introduced most prominently by Grossman (1972), but
has recently been acknowledged more widely.
In the original formulation of his theory, Becker (1964) pointed to health as
one component of the stock of human capital, but then focused in his early
empirical work exclusively on education. The major contribution to our
understanding of health as an integral part of human capital was provided by
Grossman (1972), who was the first to construct a model of the demand for
health applying human capital theory.
Grossman distinguishes between health as a consumption good and health
as a capital good. As a consumption good, health enters directly into the
utility function of the individual, as people enjoy being healthy. As a capital
good, health reduces the number of days spent ill, and therefore increases
the number of days available for both market and non-market activities. Thus,
the production of health affects an individual’s utility not only because of the
pleasure of feeling in good health, but also because it increases the number of
healthy days available for work (and therefore income) and leisure.
Health is not only demanded, but also produced by the individual. Individuals
inherit an initial stock of health that depreciates with time, but they can invest
to maintain and increase this stock. Many inputs contribute to the production
of health. Healthcare is one among these factors. The demand for healthcare is
therefore a derived demand for health. The production of health also requires
the use of time by the individual away from market and non-market activities.
While the Grossman model has encountered some criticism, it continues to
stand – with some extensions – as the key model of the demand for health.’
Source: European Commission (2005) The contribution of health to the economy in the European Union
Patients’ convenience
Improvements in the quality and delivery of healthcare services resulting from
innovation in Life Sciences may also serve to improve patient convenience. For
example, new forms of treatment may mean that patients do not need to visit
the hospital for monitoring and evaluation purposes as many times as before.
Boxes 3.3 and 3.4 provide illustrative examples of the wider economic and social
impact of innovation in Life Sciences. The first sets out the potential benefits of
using innovative medicines and techniques to treat patients with diabetes while
the second outlines the potential benefits of using advancements in medical
technology to treat heart failure.
74
See Grossman (1972) and European Commission (2005)
41
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Box 3.3: Benefits of Innovative Medicines and Medical Diagnostics
in the Treatment of Diabetes
Diabetes is a chronic disease characterised by raised blood glucose (sugar).
Currently there are around 1.4 million people in the UK diagnosed with
diabetes, with projections going up to 3.9 million in 2027. Estimates suggest
that diabetes costs the NHS around £2 billion (5% of total NHS resources) a
year split between primary care and secondary care. Patients with diabetes
experience reduced quality of life as complications can be serious and limit
everyday activity. Patients with Type 2 diabetes report lost earnings as a result
of their condition, totalling on average around £14,000 per person per year. In
addition, it is estimated that patients with diabetes have a sickness absence
rate two to three times the rate of the general population.
Existing medicines offer significant benefit in the treatment of diabetes. The
pharmaceutical sector is also continuing to research and develop innovative
medicines, for example, inhaled types of insulin that would not require
injections and that are likely to be highly valued by patients, which could
further increase compliance, allowing the medicines to be used in a way
that maximise their benefits. In vitro medical diagnostics (IVDs) also play
an important role in prevention, diagnosis and management of diabetes.
Technologies such as blood glucose monitoring by the patient and regular
measurement of glycated haemoglobin in conjunction with education can
help individuals achieve good blood glucose control essential for managing
this disease. Some suitable candidates can also benefit from the use of an
insulin pump (a device which effectively acts as the pancreas automatically
monitoring the individual’s blood sugar and administering insulin as needed).
Benefits to patients: Reduction and avoidance of complications due to new
products and improved treatment techniques are likely to be of high value to
patients.
Benefits to the NHS: Diabetes currently costs the NHS some £2 billion a year.
Medicines can free up NHS resources from fewer complications. Relatively few
people with diabetes are currently under tight management (keeping fasting
plasma glucose concentrations below 6 mmol/1) using medicines. However,
this tight management of blood glucose for the current population with
diabetes could save some 380,000 bed days with the potential to treat some
78,000 patients per year by 2007. Going forward the potential for treating the
current population with diabetes and new cases arising from ageing, lifestyle
trends and better diagnosis could save some 600,000 bed days and treat an
extra 130,000 patients per year by 2027.
42
Impact of Life Sciences on the UK economy and society
Benefits to the economy: Avoidance of sickness days would result in benefits
for the wider economy. Without tight management of diabetes the potential
number of lost workdays is estimated to be around 6 million working days a
year in 2002. This amounts to around £418 million a year in direct financial terms
to employers (which includes estimates of lost salary costs and replacement
costs, and lost service or production time). Going forward, the potential cost
could be some 9 million workdays or £650 million in the year 2027.
Source: NERA (2004); ABPI and BIVDA
Box 3.4: Benefits of Innovative Medical Technology in the Treatment
of Heart Failure
The aim of the Cardiac Resynchronisation Therapy (CRT) is to improve the
heart‘s pumping efficiency by re-synchronizing the pumping action of the
chambers, which is decreased as a result of heart failure. It helps restore the
normal timing of the heartbeats. This involves implantation in the upper chest
of a pulse generator from which three leads descend via veins into the heart.
It is estimated that the total annual cost of heart failures to the NHS is around
£716 million per year. Approximately 70% of this total is due to the costs of
hospitalisation75.
Benefits to patients: Most people who receive the CRT device notice they
can function better. They may not be in hospital as often and they have
fewer symptoms. Analysis of eight randomised-controlled trials with a total
of 3380 patients has proven that CRT therapy reduces mortality by almost
30%, reduces hospital admissions by about 50% and provides a substantial
improvement in quality of life76.
Benefits to the NHS: Hospital admissions due to heart disease are projected to
rise by 50% over the next 25 years, largely due to the ageing population. The
CRT implantation is proven to reduce hospitalisation of heart failure patients.
Source: ABHI
75
76
NICE Scope Technology Appraisal on Heart Failure – Biventricular Pacing; February 2006
Freemantle et al. (2006)
43
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
3.4 Economic importance of the NHS
The purpose of the NHS is to provide the greatest possible health benefits to the
UK population, using the funds made available to it by Government. Through
publicly-funded R&D, expenditure on innovative medicines and technologies
and collaboration with the industry, the NHS creates benefits for patients, the
Life Sciences industry and the wider UK economy. Some of these were identified
in the preceding section and are discussed in more detail below.
Knowledge spillovers
Spending in the NHS can create spillover benefits for firms. These benefits may
take the form of knowledge transfers, cost efficiencies and productivity gains.
There are at least four major examples of these types of spillover effects:
●●
●●
●●
●●
The publication of R&D information by medical practitioners working in the
NHS. These academic publications form a significant part of the foundation
of knowledge on which all medical advances depend and they are extensively
exploited by firms developing treatments for diseases;
Providing other incentives are in place, firms should be able to benefit from
the economies of scale of health provision by the NHS in conducting clinical
trials of their products. These companies’ costs would be far higher if they
had to build the required medical facilities from scratch. By utilising existing
facilities – and paying for their use – they are able to conduct R&D much
more cost-effectively;
The foundation of new commercial enterprises, based on innovations
developed in academia and the NHS. Many new biotechnology start-up
ventures exploit ideas generated in academia often with the collaboration
of teaching hospitals in the NHS. The innovations themselves may directly
originate from new practices developed in provision of NHS healthcare. In
2006/07, 34 new spin-out and start-up companies were created as a result of
research activities carried out in NHS Trusts77; and
The creation of human capital, embodied in practitioners who have trained
and worked in the NHS. Many Life Sciences firms employ clinicians and
other healthcare professionals, and so benefit from the skills and experience
they have gained through their employment in the NHS.
The most important benefits from public R&D and NHS spending are likely
to be in health but it is also possible that other technology-related industries
and markets may benefit from discoveries made in health R&D. Thus social
benefits from public R&D and NHS expenditure may go beyond health benefits.
For example, the basic biological research, which led to the development of
molecular biology, was mostly motivated by medical objectives but the resulting
77
44
Technopolis Limited for DIUS (2008) Fourth Annual Survey of Knowledge Transfer Activities in Public Sector
Research Establishments
Impact of Life Sciences on the UK economy and society
understanding of the molecular basis of life has profound implications for
agriculture, and industrial biotechnology.
Improved health, well-being and quality of life
Providing healthcare through the NHS has advantages over private markets
(see Section 6.1). Health markets suffer from many serious information
problems such that consumers are unlikely to be able to make rational decisions
when engaging with providers. Differences in health also lead to significant
differences in equity because illness is not only welfare-reducing in itself, but it
also dramatically limits the individual’s ability to work and earn money to fund
other consumption. Government provision of health through the NHS mitigates
both these problems.
Higher productivity
Spending in the NHS contributes to long term economic growth. In the long
run, economic growth is determined by improvements in technology. R&D
conducted in the NHS, and by its collaborators and suppliers, leads directly
to improvements in the productivity of healthcare delivery and also indirectly
improves technology in other fields, by R&D spillovers.
45
4.UK strengths and
weaknesses in the
Life Sciences
4.1 UK comparative advantage in Life Sciences
Analysis of the 2006 UK and world trade data78 provides a measure of UK
Revealed Comparative Advantage (RCA) in different business sectors. RCA is
an indicator used to identify the strength of a country’s export performance in
different goods and services relative to other countries (see Box 4.1 below).
A value greater than one indicates that a country has a revealed comparative
advantage in a given product or service with higher RCA values indicative of
relatively greater or revealed comparative advantage.
Box 4.1: Revealed Comparative Advantage
A country is said to have a comparative advantage in the production of a
particular product or service when it is able to produce it at a lower opportunity
cost than other countries. A country has revealed comparative advantage
(RCA) in a product if that product accounts for a greater share of that country’s
total exports relative to the share of the total world exports accounted for by
that product.
The following formula for determining revealed comparative advantage in the
UK business sectors has been used:
(UK exports sector A)
UK RCA (sector A) if
------------------------------(UK total exports)
(World exports sector A)
>
------------------------------(World total exports)
The above formula for assessing RCA gives an indication of the relative ratio
of exports in a specific sector for a country, to the exports of all goods and
services produced by all business sectors for that country.
As Figure 4.1 shows the UK has a revealed comparative advantage in Life
Sciences related products compared to emerging economies, including China,
Hong Kong, India, Indonesia, Malaysia, Philippines and Thailand.
78
46
BIS calculations based on the IMF Balance of Payment Statistics and the UN COMTRADE data
UK strengths and weaknesses in the Life Sciences
Figure 4.1: UK and Emerging Markets Revealed Comparative
Advantage by Sector
Clothing and Textiles
Electrical Machinery
Metals and Metal Products
Food, Drink and Tobacco
Road Vehicles
Office Machinery and Equipment
Chemicals and Related Products
Other Manufactured Goods
Machinery and Transport Equipment
Medical and Pharmaceutical Products
Computer and info services
Telecoms Equipment
Other business services
Communications
Insurance
Financial services
0.0
0.5
EM RCA
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
UK RCA
Source: BIS calculations based on the IMF Balance of Payment Statistics and the UN COMTRADE data
This analysis is supported by findings from recently commissioned research by
UKTI (2009). This study found that the UK had a significant share of the global
pharmaceutical market in 2007, and that this had increased since 2002. According
to the study, UK revealed comparative advantage in pharmaceutical products
increased from a value of 1.35 in 2002 to 1.84 in 2007, which represented one
of the largest increases in RCA levels among the 16 UK sectors covered by the
study.
In addition, the UKTI study projected that the annual growth in pharmaceutical
imports from the world is likely to be around 5.35% per annum between 2008 and
2014. By combining the information on UK export performance and destination
markets import demand, the study identified pharmaceuticals as a high potential
growth sector for UK exporters.
International trade
The level of exports – measured in volume or value terms – is also a measure of
the ability of companies from a particular country to compete on world markets,
as exporting firms tend on average to be more productive and more innovative
than non-exporters79.
Figure 4.2 shows that UK exports and imports in pharmaceuticals have both
increased over the period 1998–2008. In 2008, UK exports totalled around £18
billion while imports were around £11.9 billion, resulting in a trade surplus of
79
See for example Melitz et al. (2003)
47
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
some £6.2 billion. In the same year, UK exports of medical technology were
around £5.4 billion, with a net trade surplus of £300 million.
Figure 4.2: UK Trade in Pharmaceuticals, 1998–2008
20
18
16
14
£ Billion
12
10
8
6
4
2
0
1998
1999
2000
Exports
2001
2002
Imports
2003
2004
2005
2006
2007
2008
Net Exports (Exports – Imports)
Source: ONS UK trade in goods data
The EU is the main destination for Life Sciences products exported by the UK
(some 56%), followed by North America (some 22%) and Asia and Oceania
(around 10%). The rest of the world accounts for the remaining 12% of UK Life
Sciences exports80.
The number of UK firms exporting Life Sciences products (and the average
value of these exports) to the emerging markets such as Russia, India and China
increased between 2002 and 200881. However, the data from a UKTI survey82
shows that firms have reported higher barriers to entering fast growing markets
such as the BRIC economies (Brazil, Russia, India and China). The highest
barriers reported are the fixed costs of entering a new market, the existence of
legal and regulatory barriers, and a lack of contacts in the market. The fixed costs
associated with entering high growth markets may encourage firms to expand
exports to existing markets, rather than seek to enter new ones, despite the
significant commercial opportunities that may exist in fast growing markets83.
80
81
82
83
48
HM Revenue & Customs (HMRC) UK Trade Info data (2008). Note: intangible R&D is not measured under standard
accounting measures in the dataset. As a result, the accounted destination might not be a true reflection of the
reality.
The number of UK pharmaceutical and biotechnology firms exporting goods to Brazil decreased between 2002 and
2008.
UKTI International Business Strategies, Barriers and Awareness Survey 2008
However, firms who reported these difficulties in entering a new market had still entered the market despite the
problems so this might not necessarily be the case.
UK strengths and weaknesses in the Life Sciences
Foreign Direct Investment
An important contribution to investment in the UK is made by foreign investors
(Foreign Direct Investment, FDI), either through the creation of new businesses
or Mergers and Acquisitions (M&As). Specific and up to date pharmaceutical
sector FDI data is unfortunately not available.
According to the UNCTAD World Investment Report 2009, the stock of inward
FDI into the UK pharmaceutical sector was equivalent to around US$47 billion
in 2002.
The European Investment Monitor provides data on the number of new
FDI projects in the pharmaceutical sector. Figure 4.3 shows that in 2008 the
number of new FDI projects in the UK was higher than in France, Germany and
the Netherlands. However, these results should be treated with caution as the
data does not distinguish between the size and value of these projects.
Figure 4.3: Foreign Direct Investment – The Number of New Projects
in Pharmaceuticals
35
Number of Projects
30
25
20
15
10
5
0
2001
2002
2003
2004
2005
2006
Netherlands France Germany UK
2007
2008
Source: Ernst and Young European Investment Monitor 2008 Note: Projects exclude M&As
4.2 Sources of UK comparative advantage
The UK’s significant comparative advantage in Life Sciences stems from a
number of sources. These relate to innovation activity; the science base; skills;
R&D and manufacturing capabilities; networks and collaboration; the provision
of services and research by the NHS; the environment for undertaking clinical
trials; and the quality of institutions and infrastructure. Each of these different
factors is discussed in greater detail below.
49
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
INNOVATION IN THE LIFE SCIENCES
Innovation is one of the key drivers of productivity, economic growth and
standards of living. The Government’s White Paper Innovation Nation published
in 2008 stated that the UK must excel at all types of innovation if it is to
raise productivity, foster competitive businesses in an increasingly global
economy and meet the challenges associated with environmental, social and
demographical change.
Innovation is usually defined as the successful exploitation of new ideas84. In Life
Sciences, innovation can take a number of different forms:
●●
●●
●●
●●
Product innovation – e.g. the development of a new pharmaceutical product,
technology or device;
Process innovation – e.g. use of new research or delivery methods in drug
development;
Marketing innovation – e.g. new ways product promotion or pricing; or
New organisational structure – e.g. collaboration and alliances between
larger pharmaceutical companies and small biotechnology firms.
A distinction can also be made between incremental and radical innovation85.
Incremental innovation refers to the steady stream of improvements to an already
established product, process or technology which does not fundamentally alter
the character of the product. In the context of Life Sciences, the OHE (2005)
defines incremental innovation in the pharmaceutical sectors as ‘a follow-on
modification in molecular structure or dosage formulation having similar, but
not identical, pharmacological action or a different absorption, metabolism or
excretion profile‘. Many medical devices and technologies are also developed
through the incremental approach to innovation, as enhancements are often
identified once a product is introduced into clinical practice.
Radical innovation refers to the development of an entirely new product, process
or technology embodying new knowledge or features. Innovations of this type
have the potential to completely undermine the position of market incumbents,
whereas incremental innovations are less likely to do so. OHE (2005) defines
a radical or breakthrough innovation in Life Sciences as ‘a first agent with a
particular clinical action or pharmacological action or the first with the same
clinical effect as existing agents but a different mechanism of pharmacological
action‘. Breakthroughs in medical devices and technologies, such as minimal
invasive surgery, are rarer than innovation which occurs incrementally.
However, both in Life Sciences and other technologically advanced industries,
the divisions between these different forms of innovation are not clear cut. It
should not be assumed that incremental innovations only represent ‘small’
84
85
50
DTI (2003) Competing in the global economy: The innovation challenge
This classification follows from those identified earlier by a number of scholars, including Schumpeter (1942), Kline
and Rosenberg (1986) and Freeman and Soete (1997) and Swan (2009)
UK strengths and weaknesses in the Life Sciences
changes and radical innovations refer to ‘large’ shifts as both forms may
have the potential to significantly disrupt the rest of the market and the wider
economy. It should also not be assumed that lower levels of effort are required
to achieve incremental improvement while only large investment will lead to
radical change. Large levels of investment may be required for some small but
vital incremental improvement in a particular product or technology while in
other instances significant changes may be achieved with minimal investment.
The distinction therefore relates to the impact that outputs of the innovation
process have rather than the volume of inputs into it.
Uncertainty and ‘learning by using’
The difficulty associated with trying to gauge beforehand the required level of
input/effort means that innovation is a fundamentally high risk activity. Gelijns
and Moskowitz (2000) argue that innovation in general, and in medicines in
particular, involves a high degree of serendipity and creativity, which cannot be
planned for in advance. There is an element of uncertainty not only during the
R&D process but also after the products have been introduced into the market.
The authors show that for the top 20 best selling drugs in the US in 1993, by
1995 40% of their revenues were in fact generated from sales in secondary
indications, i.e. disease conditions which were different to those for which they
were originally developed. Pritchard et al. (2000) undertook a similar analysis for
the UK market for the top 50 UK products and found that secondary indications
accounted for a smaller but still significant 25% of sales.
It is therefore also important to emphasise the importance of ‘learning by
using’ when considering the innovation process in Life Sciences. Kettler (1998)
demonstrates how experience gained after market approval of a particular drug
or technology can result in new or better uses of the same product. He identified
three main routes through which this could be achieved:
●●
●●
●●
New formulations, dosage forms or new forms of administration can
provide improved safety and efficacy or extend the range of indications in
the original therapeutic area;
There can be an extension of therapeutic areas of use by application of
known pharmacological actions; or
There can be unexpected new therapeutic uses discovered mainly by chance.
The importance of ‘learning by using’ in Life Sciences implies the need for
an element of flexibility in any definition of innovation in order to capture the
unexpected medical benefits revealed through use by patients and clinicians.
51
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
User-led innovation
The customer or end-user is playing an increasingly important role in shaping
innovation in Life Sciences86. The term ‘user-led innovation’ has been used to
refer to innovation which is driven by customers to meet their needs, while
‘collective innovation’ refers to the development of an innovation that is brought
about by several individuals or organisations. Although it is difficult to think
of innovations which do not aim to meet customers’ needs and draw on the
available evidence on how to achieve this, it is apparent that users are now
playing a more proactive role in the innovation process. Box 4.2 below provides
an illustrative example of user-led approach to innovation in the design and
development of medical devices.
Box 4.2: MATCH – Co-ordinated Approach to Medical Device
Development
MATCH (Multidisciplinary Assessment of Technology Centre for Healthcare)
is a research collaboration between leading UK universities in healthcare
technology assessment, and a cohort of industrial partners. It is recognised
and funded by the Engineering and Physical Sciences Research Council
(EPSRC) as a centre of excellence in its field, having been awarded the status
of Innovative Manufacturing Research centre (IMRC).
MATCH supports the healthcare technology sector and its user communities
by creating methods to assess value from concept through to mature product
and by engaging with regulatory bodies at home and abroad. MATCH is
focused on providing advice to device developers, practical application, costeffectiveness and likelihood of wide sector acceptance.
A major aim of MATCH is to encourage the inclusion of the user throughout the
product lifecycle in order to achieve devices that truly meet the requirements
of their users.
RESEARCH AND DEVELOPMENT CAPABILITIES
Business R&D expenditure in the UK pharmaceutical and biotechnology sector
has risen over the period 1999 to 2007 from some £2.2 billion to some £3.9 billion
in nominal terms. In 2007, the sectors accounted for some 25.2% of total business
R&D expenditure in the UK (see Figure 4.4). In the UK pharmaceutical sector,
approximately 60% of R&D investment was made by UK-owned companies and
around 40% by foreign-owned companies87.
86
87
52
See Chapter 4: User Knowledge and Innovation in BERR (2008a) Economics Paper No. 1
ONS Business Enterprise Research and Development (BERD) data
UK strengths and weaknesses in the Life Sciences
Figure 4.4: Business Expenditure on R&D in Manufacturing Sectors in
the UK (in Nominal Terms)
14
12
£ Billion
10
8
6
4
2
0
1999
2000
2001
Pharmaceuticals and
Biotechnology
2002
2003
2004
2005
2006
2007
Aerospace
Electrical Machinery
Transport Equipment
Other Manufacturing
Mechanical Engineering
Chemicals excluding
Pharmaceuticals
Source: ONS; BERD data
The process of research and development consists of a range of activities, from
the earliest stages of drug discovery, through compound screening and the
identification and development of robust production processes, to undertaking
clinical trials and other experiments to demonstrate the safety and efficacy
of a product. A number of factors can determine UK R&D capabilities in Life
Sciences, including the provision of the science base, intellectual property rights
framework, public funding of research and the level of collaboration between the
NHS, academia and the private sector.
The UK is a key location for Life Sciences R&D. In Europe, the UK is the most
popular location for R&D investment in pharmaceuticals and biotechnology88.
Globally, the UK pharmaceutical sector accounts for almost 10%89 of world
pharmaceutical sector R&D funding and is only third to the US (which receives
over 50%) and Japan (which receives around 15%)90. This should be seen in the
context of the UK having around 4% of the global market share for medicines91.
Investment in R&D does not only provide benefits to the company making that
investment. Many studies have shown that society as a whole can gain additional
benefits that are not realised by the company making the initial investment. In the
case of UK pharmaceutical companies, this can mean spillovers from R&D such
as the development of an expert workforce and sharing of expertise between
non-competing companies, which can (i) increase the productivity of capital
88
89
90
91
European Commission (2006)
This is defined in terms of the amount of total world pharmaceutical industry R&D investment that takes place
within the UK borders.
PICTF (2009) Indicator 8 (unpublished)
IMS World Review (2005) quoted in PICTF (2005)
53
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
and labour in firms operating in the Life Sciences as well as in other industries;
(ii) encourage entry of potential competitors, and (iii) reduce production costs.
A simple framework is illustrated in Figure 4.5.
Many studies show that it is not just the individual company that can gain from
investment in R&D; there maybe spillover benefits for the wider economy. In the
case of UK pharmaceutical companies, these can include R&D and knowledge
spillovers in the form of new information and expertise about new Life Sciences
related products, processes and technologies which is passed onto other
companies in the industry, perhaps as a result of people moving from one
company to another.
These spillover benefits can have the following economic effects. First, they
can increase the productivity of capital and labour in firms operating in the Life
Sciences as well as in other industries. For example Cockburn and Henderson
(1994), demonstrated that productivity of an individual firm’s R&D is dependent
not only on its own internal R&D activity but also that of other firms.
Second, these spillovers may encourage the market entry of potential competitors.
For example, Aaronson et al. (2006) argue that new entrants are influenced by
factors promoting the benefits of co-location that would allow them to benefit
from knowledge spillovers.
Third, work by Levin and Reiss (1994) and Bernstein and Nadiri (1989) show
that spillovers may help to reduce production costs. A simple framework is
illustrated in Figure 4.5.
Figure 4.5: Spillovers from Private R&D Investment by Life Sciences
Companies
Return to other sectors
Return to Life Sciences
industry as a whole
Private rate of return to R&D
by Life Sciences companies
Source: OHE (2008)
54
UK strengths and weaknesses in the Life Sciences
It has been estimated that society as a whole may gain an annual return of
40% from investments in R&D in the pharmaceutical sector, while the company
making the investment only receives 11%92.
Employment in R&D accounted for 42% of all pharmaceutical employment in
the UK in 2007. This compares with 38% in 2000 (Figure 4.6). A high proportion
of R&D workers can be explained by the fact that the sector’s performance is
influenced by the ability of companies to access highly skilled and innovative
scientists, clinicians and technologists. Early stage trials in which compounds are
first used in humans are particularly dependent upon strong scientific support
since this early work takes place at the point of maximum scientific uncertainty
when pharmacological issues such as absorption, distribution, metabolism and
excretion are being explored and optimum dosages have not been defined.
Figure 4.6: Employment in R&D and Other Activities Performed in the
UK Pharmaceutical Sector, 2000–2007
80%
70%
60%
50%
40%
30%
20%
2000
2001
2002
2003
% Employed in R&D
2004
2005
2006
2007
% Employed in other activities
Source: ONS
SCIENCE BASE
The continued movement towards high value added manufacturing activities93
such as Life Sciences is likely to create greater demand for highly skilled labour
with STEM related subjects; that is, science, technology, engineering and
mathematics. Although Government policy is aimed at improving the UK skills
base at all levels, higher level skills are often considered critically important for
the creation of new technology and innovation.
92
93
See for example Jones and Williams (1998)
See for example BERR (2008b) Economics Paper No. 2
55
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
The Life Sciences industry is highly knowledge-intensive. Its competitiveness
and development depends on the ability of companies to access highly skilled
and innovative scientists, clinicians and technologists. Early stage trials in which
compounds are first used in humans are particularly dependent upon strong
scientific support since this early work takes place at the point of maximum
scientific uncertainty.
According to research undertaken by NERA (2007) on the key factors which
attract inward investment in the UK pharmaceutical sector, the quality of the
science base is one of the most important drivers of firms’ location decisions for
R&D.
The UK has a strong scientific heritage. Global rankings suggest that the UK is
second only to the US in terms of academic excellence in higher education. In
the 2009 Times Higher Education – OS World University rankings, UK universities
occupied six of the top 50 rankings for Life Sciences, with Cambridge and Oxford
placed second and third respectively overall94. A strong science base provides a
strong platform for clinical research. To date, UK researchers have won over 20
Nobel Prizes in Life Sciences related disciplines.
Although the UK is home to just 1% of the world’s population, it undertakes 5%
of the world’s science, producing 9 to 11% of academic papers95.
Biological Sciences
Papers
Figure 4.7: Share of World Citations by Discipline, 2008
China
France
Japan
Germany
UK
US
Health Sciences
Papers
China
Japan
France
Germany
UK
US
Clinical Sciences
Papers
China
Japan
France
Germany
UK
US
0
5
10
15
20
25
30
35
40
45
50
% Share of World Citations
Source: DIUS (2009)
The UK’s share of world citations has risen to 11.8% in 2008 despite a drop in
share of publications. Figure 4.7 shows that across the three science disciplines,
94
95
56
Times Higher Education – QS World University Rankings 2009
King (2004)
UK strengths and weaknesses in the Life Sciences
the UK is second only to the US in terms of its share of world citations in clinical
sciences (12.7%), health sciences (13.8%) and biological sciences (12.4%)96.
The UK’s strong research performance compared to its relatively low use of
inputs suggests that UK science generates a high level of output per unit of
input. Whether based on Gross Expenditure on R&D (GERD), Higher Education
R&D spend (HERD), or total public expenditure on R&D, the UK is performing
well per unit of R&D spend in comparison to its major competitors97.
Across all research disciplines, there is evidence that science collaboration at an
international level is growing. Increasing international collaboration is perceived
to have an influence not only on the transfer of knowledge and know-how but
on the potential quality of the research that is done.
UK science has a strong tradition of forming international collaborations. In
2001–2005, there was an 11.4% increase in the amount of collaborative research
publications generated by the UK relative to 1996–2000. This increase was
substantially greater than that recorded by a number of the UK’s competitors
including the US, Germany, France and Japan98.
Co-authorship is often used as a proxy for collaboration. It does not cover all
types of collaboration but is likely broadly to reflect other interactions.
Figure 4.8: Share of UK Internationally Co-authored Papers
% of UK internationally co-authored papers
35
1999
2008
30
25
20
15
10
5
0
USA
Germany
France
China
India
Source: DIUS (2009)
96
97
98
DIUS (2009)
Science and innovation investment framework 2004–2014
Evidence Limited (2007)
57
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
UK publications with a non-UK co-author have increased from 23,800 (33% of
total output) in 1999 to 43,000 (47%) in 2007. Most UK research collaboration
is with the G8 countries. Figure 4.8 shows the proportion of UK internationally
co-authored papers with selected countries99.
The Life Sciences industry relies heavily on an adequate supply of high quality
STEM (Science, Technology, Engineering and Mathematics) graduates entering
academia, industry and the healthcare sector, particularly those who have
studied a biological science degree.
Figure 4.9 shows that except for computer science, the number of first degree
graduates increased across all STEM subjects. The number of all first degree
STEM graduates increased by 15%, from 118,000 in 2002/03 to 136,000 in
2008/09. However, the number of all first degree graduates in non-STEM subjects
increased from 156,000 to almost 190,000 over the same period, up by over 21%.
Figure 4.9: First Degree Qualifiers by STEM Subject in 2002/03 and
2008/09
35,000
No. of First Degree Qualifiers
2002/03
2008/09
30,000
25,000
20,000
15,000
10,000
5,000
0
Subjects
allied to
medicine
Biological
Sciences
Engineering
and
Technology
Computer
Science
Physical
Sciences
Medicine
and
Dentistry
Architecture, Mathematical Agriculture
Building and Sciences
and related
Planning
subjects
Veterinary
Science
Source: HESA
The data from the Higher Education Statistics Agency (HESA) show that between
2002/03 and 2008/09, the number of first degree graduates in biological sciences
increased by around 27%, from 24,000 to 30,000. This is illustrated in Figure
4.10. The increase is higher than the 15% increase in the number of first degree
entrants in all STEM subjects stated above. However, the increase in the number
of graduates with a first degree in biological sciences is almost entirely driven
by the increase in the number of graduates in psychology and sports sciences.
99
58
DIUS (2009)
UK strengths and weaknesses in the Life Sciences
The number of PhD awards in biological sciences grew by around 6% between
2002/03 and 2007/08. However, this compares to an increase of 12% for all STEM
PhD awards.
The UK is slightly increasing its global share of PhD awards in medical sciences,
which has risen from 6.3% to 8.0%. The change in the UK’s global share is
affected by the recent rapid expansion of US numbers, almost doubling in three
years to 7,500 PhDs per year, balanced by a static output and falling share from
Germany. France has little research training in this area and PhD numbers have
declined to fewer than 250 per year. The UK remains 4th but South Korea is
ranked a close 5th and rising100.
Figure 4.10: First Degree Qualifiers in Biological Sciences in 2002/03
and 2008/09
14,000
No. of First Degree Qualifiers
2002/03
2008/09
12,000
10,000
8,000
6,000
4,000
2,000
0
Psychology
Sports
science
BIology
Molecular
biology,
biophysics &
biochemistry
Others in
biological
sciences
Zoology
Microbiology
Genetics
Broadlybased
programmes
within
biological
sciences
Botany
Source: HESA
The UK compares favourably with other OECD countries in terms of the number
of science graduates relative to employment (Figure 4.11). There are some
2,300 science graduates per 100,000 aged between 25 and 34 year olds in
employment. This figure is greater than for Japan (1,600), the US (1,400) and
Germany (1,400). France has proportionately more science graduates (2,700)
but Korea is considerably ahead of all other countries with 3,900 graduates per
100,000 employed.
100 DIUS (2009)
59
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Number of Science Graduates per
100,000 25–34 year olds in employment
Figure 4.11: International Comparisons of Science Graduates per
100,000 Employed 25–34 Year Olds
4,000
3,000
2,000
1,000
0
a
re
Ko
ce
an
Fr
lia
ra
st
Au
nd
la
Ire
d
an
nl
Fi
ew
N
d
d
te
ni
U
m
an
al
Ze
do
ng
Ki
nd
la
Po
Sw
nd
la
er
itz
en
ed
Sw
pa
Ja
k
n
y
ar
nm
De
an
m
er
G
ak
ov
Sl
ic
bl
pu
Re
ly
Ita
l
ga
rtu
Po
U
n
d
ite
es
at
St
d
an
el
Ic
n
ai
Sp
ria
st
Au
m
iu
lg
Be
h
ec
Cz
ic
bl
pu
Re
y
ke
r
Tu
o
ic
ex
M
ay
w
or
N
N
s
nd
la
er
h
et
y
ar
ng
Hu
Source: OECD Education at a Glance (2008a)
However, a number of studies have identified a shortage of supply in some
of the critical skills areas required by Life Sciences companies101 including
both technical and employability skills. Furthermore, there appears to be
some institutional barriers, which may negatively impact on Higher Education
providers of Life Sciences related courses.
In 2006, the Sector Skills Council for science, engineering and manufacturing
technologies (SEMTA) conducted a survey of some 178 employers in the UK
pharmaceutical and bioscience sectors which together employed some 27,500
people102. Results from the survey showed that around 39% of employers
reported having vacancies that were hard-to-fill over the last 12 months with
the main disciplines facing recruitment difficulties being biological and medical
sciences, chemical sciences, and engineering (see Figure 4.12).
Through analysis of recent industry, society and Government reports and
bilateral conversations with academia, industry and health organisations, four
underlying causes have been identified:
●●
Incomplete and inconsistent information, advice and guidance to students;
●●
Complex and multi-layered nature of Life Sciences industry;
●●
●●
Incomplete information on full range of employment pathways for biological
science graduates; and
High cost and specialist nature of some biological sciences laboratory-based
courses.
101 See for example ABPI (2008) and SEMTA (2007)
102 SEMTA (2006)
60
UK strengths and weaknesses in the Life Sciences
The market failures and barriers associated with skills provision in the Life
Sciences industry are discussed in more detail in Chapter 6.
Figure 4.12: Life Sciences Disciplines with Reported Hard-to-fill
Vacancies
22
All Generic disciplines
Biological and Medical Sciences
19
Discipline
Other
14
Chemical Sciences
11
Engineering
11
8
Statistics / Mathematics
Biotechnology
5
Emerging disciplines
5
In Vivo Sciences
4
0
5
10
15
20
25
Number of sites reporting hard to fill vacancies
Source: SEMTA (2006); Note: Base=70; Respondents were able to give multiple replies
NETWORKS AND COLLABORATION
A number of studies show that networking and collaboration can help increase
productivity at the firm-level, firstly by reducing transaction costs and secondly
by generating cost savings through more efficient stock control and building up
stocks of specialised and mobile labour and managers103.
The activity of the Life Sciences industry is heavily concentrated in certain
geographical areas. In the US there are major centres in California, Massachusetts
and Maryland. In the UK, the Life Sciences industry is centered in Cambridge,
Oxford, London, North West and Central Scotland. An obvious feature of this
geographical pattern is that these areas are clustered around major universities,
medical schools and research centres.
Firms rarely innovate alone, often relying on other firms and a variety
of organisations such as universities and education bodies, Government
laboratories, research and technology organisations (RTOs) and information
property organisations for information to augment their internal innovation
activities. They are increasingly seeking horizontal and vertical co-operative
agreements of various kinds with other firms and institutions. Box 4.3 provides
an illustrative example of collaboration between Public Sector Research
Establishments and commercial organisations. Box 4.4 illustrates an example of
103 See for example Porter and Ketels (2003)
61
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
research collaboration between Medical Research Council and the Life Sciences
industry.
Box 4.3: Collaboration between Public Sector Research
Establishments and Commercial Organisations
Public Sector Research Establishments (PSREs) are a diverse collection of
public bodies carrying out research. They include NHS Regions, cultural
institutions, Research Councils and Institutes and Departmental Research
Bodies. This research supports a wide range of Government objectives,
including informing Government policy making, statutory and regulatory
functions and providing a national strategic resource in key areas of scientific
research.
There are a variety of PSRE ‘knowledge transfer’ activities. Free dissemination
of research outputs tends to be the primary means of knowledge transfer, with
benefits accruing to industry and wider society more generally rather than to
specific businesses. Other routes include research collaborations and contract
research on behalf of industry, the licensing of technology to business users,
the sale of services, data and software, and the formation of joint ventures and
spin-out companies.
In 2006/07 PSRE activity resulted in the creation of 140 new spin-out and start
up companies and over 3,000 new activities, such as licensing of IP, consultancy
work, leasing of facilities and equipment, training services and other income
generated activities with commercial organisations, which generated revenue
of £622 million for PSREs.
Source: Technopolis Limited for DIUS (2008)
Box 4.4: Collaborative R&D between Medical Research Council
(MRC) and the Life Sciences Industry
‘AstraZeneca, Boehringer Ingelheim, GlaxoSmithKline, Merck-Serono / Merck
KGaA, and Pfizer committed to a further four years of funding from 2008,
totalling £10.8 million to support the Division of Signal Transduction Therapy
(DSTT). The DSTT is a partnership between the pharmaceutical companies
and thirteen research teams based at the University of Dundee, eight of which
are within the MRC Protein Phosphorylation Unit. This brings the funding
raised by DSTT to a total of £23 million since 1998, and assists in translating
recent research findings and ideas into potential new treatments for cancer,
hypertension and Parkinson’s disease. The aim of the DSTT is to accelerate
the development of improved drugs to treat global diseases such as cancer,
diabetes and rheumatoid arthritis and which exert their effects through two
types of enzymes; ‘kinases’ and ‘phosphatases’. The market for drugs that act
on kinases is estimated to be worth £7 billion a year and projected to reach
£33 billion by 2010’.
Source: MRC
62
UK strengths and weaknesses in the Life Sciences
Research collaboration between the NHS, academia and the Life Sciences
industry can serve to ensure supply responds to demand and the needs of
patients are met as effectively as possible. In principle, the market for healthcare
should reach an equilibrium state in which firms provide consumers (healthcare
commissioners or patients) with all the products and services that can be
economically produced; that is, whose benefits are sufficient to justify the costs
of producing them. In practice, it is likely this efficient outcome is not reached
because the needs of patients, and the possible technologies that could be used
to meet them, are constantly changing. Eventually the market will reach a new
point where all the beneficial products and services are provided but any delay
in reaching this outcome will result in a welfare loss. Delays can be caused by a
lack of understanding by firms of the needs of patients and how the technology
at their disposal can be used to help them. The NHS can reduce these losses
by providing clearer signals to firms about what is needed and working with
them to determine how new technologies can meet these needs. This might be
achieved through greater engagement and better communication of the clinical
and, therefore, commercial value of different treatments104. The UK has a strong
reputation for investing in collaboration across the Life Sciences. Key examples
are highlighted in Figure 4.13.
104 It may not be optimal for the NHS to reveal the maximum price it is prepared to pay for new products, as this can
enable producers to appropriate all the ‘surplus‘ or benefits available from the transaction. Overall, this situation
would mean that the full value of the product is captured by the company. Benefits to companies obviously have
some social value, but this situation may lead to net losses in UK welfare for a number of reasons: the profits may
be appropriated by overseas shareholders; the beneficiaries may have low marginal utility of consumption – and
so value the benefits less – as their incomes are likely to be above average; there may be inefficiencies in the
transmission of the transfer into profits – for instance by excessive and socially inefficient advertising.
63
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 4.13: Examples of Collaboration in Life Sciences
University Medical Schools
University Medical Schools
Clinical Research Facilities (CRF,
Clinical Research Facilities
Wellcome
Trust)Trust)
(CRF,
Wellcome
Biomedical Research Units (BRU,
Biomedical
Research Units
National
Institute
for Health
(BRU,
National
Institute
for
Research)
Health Research)
Aberdeen
Aberdeen
Collaborations for
for Leadership
Leadership in
Collaborations
Health
Research
and Care
inApplied
Applied
Health
Research
(CLAHRC,
National
for
and Care (CLAHRC),Institute
National
Health Research)
Institute
for Health Research)
Dundee
Dundee
Edinburgh
Edinburgh
“Comprehensive” Biomedical
“Comprehensive”
Biomedical
ResearchCentres
Centres (BRC,
(BRC, National
Research
Institute Institute
for Healthfor
Research)
National
Health
Research)
Glasgow
Glasgow
Newcastle
Newcastle
“Specialist”
“Specialist” Biomedical
Biomedical Research
Research
Centres
(BRC,Institute for
Centres (BRC,
National
National
Institute
Health Research) for Health
Research)
Manchester
Manchester
Liverpool
Liverpool
Experimental
Medicine
Experimental Cancer
Cancer Medicine
Centres
Research UK
Centres(ECMC,
(ECMC, Cancer
Cancer Research
UK
and
Department
of
Health)
and Department of Health’s)
Cambridge
Cambridge
Oxford
Oxford
Imperial
Imperial
UCL
UCL
Academic
SciencesCentres
Centres
Academic Health
Health Science
(AHSC,
of Health)
Health)
(AHSC,Department
Department of
Clinical
ClinicalRotation
Rotation Scheme
Scheme (Wellcome
(Wellcome
Trust)
Trust)
There are numerous research initiatives between the industry and academia
that aim to maximise joined working and collaboration in Life Sciences research
in the UK. Recent evidence shows that overall UK businesses are increasingly
benefiting from improved interactions with universities, as demonstrated by the
fact that the number of licensing agreements and total IP licensing income for
UK universities increased by more than 200% between 2001 and 2005105.
This trend was highlighted in the EU innovation scoreboard report (2008) when
it named the UK ‘one of the innovation leaders’ in Europe. The report noted
the UK’s collaboration and coordination activities as particular strengths in
innovation.
Existing research centres and public research funders are already investing
strongly in collaboration between academia, the NHS and industry. However,
these focus on bilateral collaborations aimed at improving facilities and skills
that will support the development process of Life Sciences products.
105 Higher Education Funding Council for England, 2007
64
UK strengths and weaknesses in the Life Sciences
Through the assessment of existing collaboration programmes and bilateral
conversations with academia, industry and health organisation, further
collaboration needs have been identified across the UK Life Sciences:
●●
●●
Stronger co-ordination of existing collaborations that cut across the
traditional bilateral collaborations and departmental boundaries to provide
a single point of access for industry, academia and the NHS: individual or
individuals who can connect industry with compounds to test, with research
centres with patient populations to access; and
A streamlining of the processes and protocols established to support early
stage Life Sciences product discovery and development.
MANUFACTURING CAPABILITIES
Manufacturing in Life Sciences covers a range of processes. These can range
from primary bulk manufacturing of active pharmaceutical ingredient (API),
through secondary manufacturing involving combining API with excipients and
producing tablets or other formulations of the product, to tertiary manufacturing,
or packaging. It should also be noted that different degrees of technical
sophistication are required in the manufacturing of different products. There are
differences between the manufacturing of new and old products. For example,
there may be more difficulties associated with the production process for new
products. A distinction can be also made between chemical (small molecule) and
biological (large molecule) manufacturing, in that the latter can be substantially
more difficult to manufacture.
According to research undertaken by NERA (2007) a wide and increasing range
of countries have the capability to undertake pharmaceutical manufacturing, at
least at the simpler end of the manufacturing spectrum. In these circumstances
cost might be an important factor on firms’ international location decisions. Other
factors which may influence firms’ location decisions include the skills base,
infrastructure, the regulatory regime, and proximity to markets. Tax is often not
cited as a major factor, but the industry has reported during Government’s
recent work on tax and innovation that it can be a consideration alongside these
other drivers.
Labour market regulations may also drive firms’ location decisions. According
to NERA (2007), flexible labour markets might be more important to firms than
wage costs alone. There is poor availability of appropriate measures showing the
extent to which a market is regulated for Life Sciences. Surveys of businesses’
perceptions of the labour market suggest that UK labour market is more flexible
than in Germany, France or Italy. However, the US and Canada continue to be
seen as having the most flexible labour markets (see Figure 4.14).
65
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 4.14: Business Executive Perceptions of Labour Market
Regulations
Average Survey Score: 0 (low flexibility)
-10 (high flexibility)
8
1994/95
2004/05
7
6
5
4
3
2
1
0
Germany
France
Italy
UK
Japan
Canada
US
Source: PICTF (2009) based on World Competitiveness Yearbook from Institute for Management Development
However, as the level of non-tax factors (such as skills and infrastructure)
increases in different economies, so too does the relative importance of the tax
system as a factor influencing location decisions. At 28%, the UK’s corporation
tax rate is now at its lowest ever level, and the UK currently has the lowest
corporation tax rate of the major G7 economies. The UK remains a magnet
for overseas investment, which is reflected in the UK’s continued strength in
attracting Foreign Direct Investment (FDI).
UK ENVIRONMENT FOR CLINICAL TRIALS
All new medicines must undergo extensive clinical trials in order to ascertain
their safety and efficacy before they are approved for human use. The
pharmaceutical industry spends 70% of its R&D budget on this type of clinical
research. The potential contribution to the UK economy of conducting clinical
trials is illustrated in Box 4.5.
66
UK strengths and weaknesses in the Life Sciences
Box 4.5: Role of Clinical Trials
An important role for Government in the market for Life Sciences products
is in assuring patients and medical practitioners of the safety and efficacy of
treatments marketed by companies. Without this assurance, the market would
suffer from significant information failures as it would not be possible for
consumers to determine which products would benefit or harm them.
Companies achieve validation by conducting a series of increasingly large
clinical trials which test, to objective standards of proof, whether their
products are safe, and effective. Government agencies – notably the European
Medicines Agency (EMA) – then review the evidence generated in clinical trials
before giving marketing authorisation for the product.
Patients who participate in clinical trials stand to gain health benefits if they
are able to access new treatments with a positive health impact that would
otherwise have been unavailable.
There are also likely to be knowledge spillovers associated with conducting
of clinical trials in the UK, which may serve to increase the productivity of the
UK labour force. In particular, doctors in the UK could increase productivity
through interaction with researchers investigating new treatments, boosting
the output of the NHS, and providing an incentive for the best doctors to
practice in the UK.
Lastly the treatments administered to patients in clinical trials might, to some
extent, replace treatments that would otherwise be funded out of the NHS
budget resulting in cost savings for the NHS. However it should be noted
that the majority of trials involve treatments that are provided in addition to
standard NHS care.
The UK has historically benefited from its ability to attract a disproportionate
amount of clinical research activity. A recent McKinsey study (2005) identified
five key factors that determine the attractiveness of a location for clinical trials.
These factors include strategic relevance, quality, time, reliability and cost
(see Table 4.1).
67
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Table 4.1: Factors Influencing the Location of Clinical Trials
Criterion
Relative importance
Key elements
Strategic relevance
High
●●
●●
●●
Quality
High
●●
●●
●●
●●
●●
Time
High-Medium
●●
●●
●●
●●
Reliability
Medium
●●
●●
Cost
Medium-Low
●●
●●
Value of the market opportunity
Time for product to be launched and accepted in the
market
Degree to which key opinion leaders are needed for
success
Prevalence of desired patient or disease
Availability of skilled physicians and investigations
Domain expertise (e.g., speciality devices, CNS,
oncology)
Quality of protocol adherence
Tracking and data systems
Approval time (e.g., protocol approval by ethical
review boards and regulatory agencies)
Site set-up time
Patient enrolment time
Speed of CRF completion and transmission
Ability to forecast delivery against targets
Predictability of delivery against targets
Trial of clinical investigation costs (e.g., investigator,
site overheads)
Level of R&D tax incentives
Source: McKinsey (2005)
According to McKinsey, the UK performs at a similar level to comparator
countries in terms of its strategic relevance and the quality of clinical trials. The
UK has a long-standing reputation for quality and innovation in clinical research
and publication rates are high, as discussed in the previous section.
According to Kinapse (2008)106 an international comparison of time taken to
begin trials is difficult, and there is no evidence that the UK performs any worse
than other countries. However, the industry has reported in recent work on
clinical trials that there is a need to improve performance on the time taken to
set-up clinical trials in the UK.
There is historical evidence to suggest that the UK has not performed well in
terms of the reliability of its execution of clinical trials, with only 29% completed
within planned timelines, compared to 77% internationally (see Figure 4.15).
However, enhanced performance has been reported via National Institute for
Health Research Clinical Research Network (NIHR CRN). In the last quarter of
2009, 80% of contract commercial trials were delivered on time and target. Some
4% of sites were non-recruting107.
106 See Kinapse report (2008) Commercial Clinical Research in the UK
107 See http://www.ukcrn.org.uk/index/industry/metrics.html
68
UK strengths and weaknesses in the Life Sciences
Figure 4.15: Proportion of Studies Completed within Planned
Timelines
UK
90
International
80
% of studies
70
60
50
40
30
20
10
0
2000/01
2003
2002
Source: Kinapse (2008)
The costs of labour and overheads involved in running trials in the UK are
among the highest in Europe (see Figure 4.16), though they are partially offset
by favourable tax incentives. According to McKinsey, R&D incentives in the UK
are comparable with those of the US and major European countries. R&D tax
credits provide significant support for R&D in the UK. In April 2008, R&D tax
credits were raised from 150% to 175% for SMEs, and from 125% to 150% for
large companies.
Figure 4.16: Cost per Patient Comparison, 1995–2002, UK=100 Base
100
UK
Scandinavia
78
Netherlands
78
Germany
70
68
France
Poland
58
Hungary
57
Czech Republic
43
0
10
20
30
40
50
60
70
80
90
100
Source: McKinsey (2005) Note: Comparison of clinical trial phase 2/3 costs per patient
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Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
However, concerns have been raised about a decline in the number of trials
conducted in the UK, due to increased competition from emerging economies.
As pharmaceutical companies are able to conduct their research globally, it is
important to consider the trends occurring worldwide in order to assess the
current and future attractiveness of the UK as a location for trials.
It has been proposed that the emergence of economies such as India and China,
Central and Eastern Europe and the increasing sophistication of their health
systems will lead to the UK losing its comparative advantage in attracting
clinical research. It is reported that the quality of clinical trials conducted in
these countries is now of a comparable level to those conducted in the UK
and companies wishing to sell into these markets increasingly need to include
them in their clinical trial locations108. These emerging countries are reported
to outperform the UK in terms of costs and reliability. Consistent with these
arguments, CMR International data shows an increasing proportion of global
patient enrolments in Latin America, South East Asia and the West Pacific.
However, given developments in stratified medicine, Life Sciences companies
will also want to consider the ethnic mix within a clinical trial.
However, the evidence about the trend of global investment in clinical trials in
the UK is mixed. Evidence from CMR International shows that the number of
patients enrolled in UK trials accounted for 2% of worldwide patient numbers
in 2006, compared with 6% of patient numbers in 2000 – a fall of 66%. However
data from the Medicines and Healthcare Products Regulatory Agency (MHRA)
indicates the number of Phase 2–4 trials in the UK fell from 668 to 561 over
the same period, although this figure then rose to 728 in 2008. McKinsey cite
evidence showing that 12% of global trials were located in the UK in 2005, and
trial numbers grew by 19% in the period 2000–2005. A decrease in the number of
patients without a commensurate fall in the number of trials implies a decrease
in the number of patients per trial. It is thought that although companies are
continuing to include UK sites within global studies, the drop in the number
of participating UK sites and recruited patients is because other countries are
recruiting the majority of patients in larger studies.
PUBLIC INSTITUTIONS IN LIFE SCIENCES
The provision of regulatory infrastructure and institutions for assessing new
products and technologies will also impact on the performance of the Life
Sciences.
Public investment in R&D, through the NHS, contributes to technology
development, enhancing the attractiveness of the UK as a location for Life
Sciences. Through the National Institute for Health Research (NIHR), the
Government has funded millions of pounds worth of research, generating
108 Late stage clinical trials are often conducted in multiple locations.
70
UK strengths and weaknesses in the Life Sciences
knowledge and understanding which industry uses to develop and commercialise
new technologies.
The NHS is also the major customer for Life Sciences products in the UK. The
UK spends a smaller amount of national income on medicines (including overthe-counter medicines) than many other countries109. There are two potential
explanations for this difference. Firstly, the UK might be more successful in
implementing generic prescribing measures so that patients get the maximum
benefit of price-competition following patent expiry. Figure 4.17 shows that
generic penetration in the UK market is relatively high: 49% in volume terms and
21% in value terms.
Secondly, funding decisions for high cost medicines in the UK are made using
guidance issued by NICE, which is recognised as the world leader in evaluation
of cost-effectiveness of medicines. It is therefore likely that the UK gets better
outcomes, and more patients benefit from its spending on pharmaceuticals than
other countries. However, measurement of uptake, and comparison between
different countries, is an inherently difficult problem subject to numerous
uncertainties.
Figure 4.17: Generic Medicines Share of Market Value and Volume in
2007
60
Generics as a % of total market
Volume
Value
50
40
30
20
10
0
UK
Canada
Germany Sweden
France
Spain
Italy
Japan
Source: PICTF (2009) Indicator 10 (unpublished); based on EGA data
Figure 4.18 shows generic prescribing and dispensing in England between 1998
and 2008. The first set of data shows the proportion of prescriptions in which
the generic (or chemical) name of the drug is written on the prescription form.
This is normal practice in most cases, whether generic products are available or
not. The pharmacist is then able to dispense a generic product if it is available.
109 PICTF (2009) and PICTF (2005)
71
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
This is shown in the second set of data. Drugs that are patent-protected, while
still identifiable by the generic name, will only be available as branded products.
The final generic dispensing rate is therefore lower than the generic prescribing
rate. The data shows that both the rate of generic prescribing and dispensing of
drugs in primary care increased over time.
Figure 4.18: Generic Prescribing, 1998–2008
90
80
70
Percentage
60
50
40
30
20
10
0
1999
2002
2004
2006
2007
2008
1998
2000
2001
2003
2005
% of prescriptons prescribed generically
% of prescriptions prescribed and dispensed generically
Source: NHS IC Prescriptions Dispensed in the Community Statistics for 1998 to 2008: England
The speed and efficiency with which medicines and medical products are able
to pass through the various regulatory stages between discovery and launch
onto the market will impact on the competitiveness of the Life Sciences industry.
The Medicines and Healthcare products Regulatory Agency (MHRA) is an
executive agency of the Department of Health and is responsible for ensuring
that medicines and medical devices work, and are acceptably safe. The primary
objectives of the MHRA are to protect, promote and improve public health
through effective regulation and communication.
Cohen et al. (2006) compared 64 drugs that were approved by the Federal Drug
Administration (FDA) in the US and the Medicines and Healthcare products
Regulatory Agency (MHRA) in the UK. The study concluded that the marketing
authorisation was obtained more quickly in the US. However, ‘patient access’
has other dimensions than the speed of the marketing approval. A subsequent
assessment by Cohen et al. (2007) examined eight sub-dimensions110 of patient
access to a sample of commonly used best-selling drugs in the US, UK, France
and the Netherlands. The research showed that patient access took longer in the
US.
110 The eight sub-dimensions of patient access to drugs were: marketing approvals, time to marketing approval,
coverage, cost sharing, conditions of reimbursement, speed of marketing approval to reimbursement, extent
to which beneficiaries control choice of their drug benefit, and the evenness of the availability of drugs to the
population.
72
UK strengths and weaknesses in the Life Sciences
Figure 4.19 shows the average time from the first world application for a market
authorisation to launch in the period 1999 to 2003111. Although the UK scored
slightly less favourably in comparison to the US, UK scored better than many
other comparator countries such as France and Japan.
Figure 4.19: Time Elapsed between First World Application and
Launch in a Particular Market, 1999 – 2003
4.0
Average time interval (years)
approval in market – launch in market
3.5
application in market – approval in market
3.0
1st world application – application in market
2.5
2.0
1.5
1.0
0.5
Ja
pa
n
ce
an
Fr
ly
Ita
n
ai
Sp
lia
ra
st
rla
he
et
Au
nd
s
da
na
N
Ca
en
ed
la
er
itz
Sw
nd
K
U
Sw
G
er
m
U
an
S
y
0.0
Source: PICTF (2005) Indicator 27
There have been concerns that the UK may score less favourably in respect to the
up-take of new medicines once they are approved. A comparison of the up-take
of 40 medicines in comparator OECD countries in 2005 shows that the median
up-take in the UK one year after product launch was only 17% of the average
for all comparator countries. Figure 4.20 shows that in 2004, the share of the UK
market accounted for by products launched within last five years was about 17%,
lower than in the US (around 27%) and in France and Germany (around 23%)112.
111 Due to lack of data on the US, UK and Germany, the indicator has not been updated since 2004
112 PICTF (2005) Indicator 19
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Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 4.20: Percentage (by Value) of National Pharmaceutical Market
in 2004 Accounted for by New Products Launched within the Last
Five Years
30%
Share or Market (value)
25%
20%
15%
10%
5%
0%
Japan
UK
Switzerland
Italy
Canada
France
Germany Australia
Spain
US
Source: PICTF (2005) Indicator 19
However, a recent study showed that most NICE approved medicines quickly
reached their predicted levels of usage113. In September 2009 the NHS Information
Centre (NHS IC) published statistics on the uptake of selected drugs and
treatments appraised by the National Institute for health and Clinical Excellence
(NICE). The statistics compare the ‘predicted’ use of medicines, as calculated
by NICE using the expected number of eligible patients (proportion of patients
assumed to be appropriate for treatment with a particular medicine), the average
dose and average length of treatment, with their actual, or ‘observed’ use. A
range of 26 drugs positively appraised by NICE had been selected, covering 13
technology appraisals. Some are used mainly in primary care, and others have
a more specialised use in secondary care. The report, Use of NICE-appraised
medicines in the NHS in England – Experimental statistics, showed that out of
the 12 appraisals where a comparison could be made, observed use by the NHS
in England in 2008 was higher than predicted use for seven and lower for five.
113 See: www.ic.nhs.uk/pubs/niceappmed
74
5.UK challenges and
opportunities in the
Life Sciences
A number of emerging trends will present the UK Life Sciences industry with
significant challenges and opportunities in the years ahead. These include major
social and demographic change, further technological progress and advances
in medical science, and increased globalisation and international competition in
the Life Sciences markets.
SOCIAL AND DEMOGRAPHIC CHANGE
Healthcare needs vary according to the age structure and health profile of a
population. Social and demographic factors will therefore drive future demand
and supply of health products and services. These factors include:
(i) increased welfare;
(ii) an ageing population; and
(iii) changing health status and lifestyles.
Growth in income is expected to increase the relative value of health. Research
by Gravelle and Smith (2001) and Hall and Jones (2007) suggests that as people
become wealthier, they place a greater value on health, and consequently
demand more healthcare. As UK wealth continues to grow in the long-run so the
demand for high quality healthcare services is expected to rise further.
A key feature of the UK’s population is that it is now ageing. The proportion of
the UK’s population that is aged over 60 is forecast to grow from some 22%
in 2008 to some 28% by 2050, as shown in Figure 5.1. A higher proportion of
elderly people will serve to increase the demand for healthcare services. Data
on prescriptions per head across different age groups shows that those 60 years
old or above, were prescribed on average 42 prescriptions a year while 16–59
year olds were only prescribed around five114. This serves to illustrate that older
generations tend to require relatively greater levels of healthcare and treatment
reflecting their increased susceptibly to some conditions, particularly those
associated with old age.
114 OSCONS (2006) Population by age last birthday in five year age bands
75
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 5.1: Predicted Proportion of Population Aged Over 60+ in
England, 2006 to 2081
Percentage of population
aged over 60
34%
32%
30%
28%
26%
24%
22%
81
71
20
61
20
20
51
41
20
20
30
28
20
26
20
24
20
22
20
20
20
18
20
16
20
14
20
12
20
10
20
08
20
20
20
06
20%
Source: ONS
Changing lifestyles will also shape future demand for health-related products
and services. Some evidence suggests the UK’s population is becoming less
healthy. This is partially because of less healthy lifestyles (e.g. working in
environments involving higher levels of stress) and a shift away from balanced
diets to fast food consumption resulting in health conditions that need treatment
such as obesity and high blood pressure.
The prevalence of obesity in the UK has increased since the mid 1990s. Over the
period 1996 to 2006, the percentage of the population defined as overweight115
in Great Britain has increased from 61% to 67% in men and from 52% to 56% in
women116. The Foresight report (2007) estimates that if current trends continue
then by 2050 the UK will be a mainly obese society. Compared to other EU and
OECD countries, the UK has a relatively high level of obesity for both men and
women. In the US, where obesity is most commonplace117 over 1 in 3 men and
women could be defined as clinically obese in 2005. By comparison, in Japan,
less than 1 in 50 could be regarded as such118 (see Figure 5.2).
Obesity increases the chances of poorer health such as diabetes, cancer and
heart conditions, all of which will need treatment. This will serve to increase
the demand for healthcare. The Foresight report (2007) predicts that obese and
overweight individuals will cost the NHS an estimated £6.5 billion by 2050.
115
116
117
118
76
Overweight is defined as having a body mass index (BMI) in excess of 25.
OHE Compendium of Health Statistics (2009)
Clinical obesity is defined as having a body mass index (BMI) in excess of 30.
OHE Compendium of Health Statistics (2009)
UK challenges and opportunities in the Life Sciences
Figure 5.2: Prevalence of Obesity, Males and Females in Selected OECD and
EU Countries, 2005
US
Mexico
New Zealand
Australia
Greece
UK
Canada
Germany
Spain
Italy
Males
Netherlands
Females
France
Japan
0
5
10
15
20
25
30
35
40
45
Prevalence of obesity aged 15 and over
Source: OHE Compendium of Health Statistics (2009) based on WHO Global InfoBase
The percentage of smoking among men and women has declined in Great
Britain, from around 40% in 1978 to around 22% in 2006. Today, the rate of
smoking in the UK is relatively low compared to other EU countries. However,
the UK consumes higher level of alcohol per person than most other EU and
OECD countries119.
Circulatory diseases remain the most common cause of death in the UK with
the coronary heart disease rate being higher than for most countries in Europe.
Some 35% of all deaths registered in the UK in 2006 were due to diseases of the
circulatory system. The second leading cause of mortality in the UK is strokes.
Cerebrovascular disease (mainly strokes) accounted for almost 10% of all
registered deaths in the UK in 2006120.
In the UK in 2005, there were some 155,000 deaths due to cancer and 1.2 million
in the EU27 as a whole. Diagnoses of cancer continue to rise with around 289,000
new cases in 2005 with similar numbers of women and men being diagnosed.
The rates of both lung and breast cancer in women are among the highest in
the EU121.
119 OHE Compendium of Health Statistics (2009)
120 Ibid
121 Ibid
77
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Figure 5.3: Number of Deaths by Main Cause in the UK, 2006
Circulatory
system
All cancers
Respiratory
system
Digestive
system
External causes of injury
and poisoning
Infectious and
parasitic diseases
Diabetes Mellitus
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Number of deaths
Source: OHE Compendium of Health Statistics (2009) based on Annual Abstract of Statistics (ONS)
Figure 5.4: Age Standardised Mortality Rates by Disease, 2005
Age standardised mortality rate
per 100,00 population
120
OECD EU27 Japan (2004)
UK (2006) US (2004)
100
80
60
40
20
0
Males
Females
Coronary heart disease
Males
Females
Cerebrovascular disease
Males
Females
Lung cancer
Females
Breast cancer
Source: OHE Compendium of Health Statistics (2009) based on ONS and WHO data
Mental health problems will also impact on the future demand and supply of
healthcare products and services. Mental health problems were the greatest
single cause of working days lost as a result of work related illness in 2006/07 in
Great Britain. It has been estimated that around 6.8 million days off work were
lost due to stress, depression or anxiety caused by work in 2006/07, compared
to some 5.9 million in 2001/02122. Mental health problems account for the highest
122 OHE Compendium of Health Statistics (2009)
78
UK challenges and opportunities in the Life Sciences
proportion of NHS expenditure by treatment category. In 2006/07, 14.8% of the
NHS Programme Budget equal to some £9.1 billion was spent on mental health
treatment123. Mental health is ranked third by the World Health Organisation in
terms of global morbidity124. According to Cooksey (2006), conditions such as
dementia and bipolar disorder (depression) are among the most complex and
least understood areas of health science.
Higher morbidity, caused by changing lifestyle factors and changing demographics
will increase demand for healthcare services. Long-term projections from the
WHO, however, counter this argument. The WHO have predicted the disease
burden on Europe will increase from 2008 to 2015, but decrease in the years to
2030125.
Global conditions and infections such as malaria, tuberculosis (TB) and HIV/AIDS
that disproportionately impact on the developing world may also create further
challenges and research opportunities for Life Sciences in the UK (see Box 5.1
below).
Box 5.1: International Health
Malaria
‘Malaria is responsible for more than 1 million deaths per year, and there
are an estimated 500 million clinical cases in the world today. It has been
estimated that one child dies of malaria every 30 seconds, and around 2,000
African children die of malaria every day. In a given year, nearly 10% of the
world’s population have the disease, and most survive after between 10 to 20
days of illness, but many do not.
Tuberculosis (TB)
TB is estimated to kill someone every 18 seconds, and is projected to cause 35
million deaths around the world in the period between 2000 and 2020.
HIV/AIDS
HIV/AIDS kills around 3 million people every year, 99% of them in developing
countries. 39.5 million people in the world today are living with HIV/AIDS, 2.3
million of whom are children. It is estimated that there are around 12 million
children in Africa who have lost one or both parents to HIV/AIDS and that
of the 6.8 million people in need of life-saving drugs, only 1.65 million are
actually receiving them.‘
Source: Cooksey (2006)
123 OHE Compendium of Health Statistics (2009)
124 Cooksey (2006)
125 Out of 136 illnesses, 73 have a reduction in QALYs in Europe when comparing 2030 to 2008. There is a net reduction
in QALYs lost of 2.5% when comparing 2030 with 2008 predictions. Whilst these are figures for Europe, and there
is no equivalent data for the UK, this is the best illustration available for what will happen in the UK.
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Delivering the Blueprint’
TECHNOLOGICAL PROGRESS AND ADVANCEMENTS IN LIFE SCIENCES
To meet growing future demand for healthcare services, further improvements in
health technology will be crucial. Technological progress and advancements in
medical science have the potential to meet future healthcare needs and improve
the provision and efficiency of healthcare. Some of the recent and on-going
developments and advancements in Life Sciences are highlighted below.
Regenerative medicine using stem cells
Stem cells are master cells which are able to differentiate into any of the body’s
cell types. According to the industry, stem cell biology represents a substantial
opportunity for future Life Sciences innovation.
An increasingly important area of medical biotechnology is advanced therapeutics
which includes stem cell-based therapeutics, tissue engineering products
and gene therapy. This type of product is used in regenerative medicine: the
replacement of tissue damaged by ageing, injury or degenerative diseases such
as Parkinson’s disease.
Globally, there has been major investment in regenerative medicine and the
sector is becoming increasingly competitive. It is estimated that Australia, China,
Israel, Singapore, South Korea and Sweden are investing between US$20–180
million in this sub-sector.
Despite some restrictions the US is also a major player. The National Institute of
Health (NIH) spent US$517 million on embryonic stem cell research in the 2003
fiscal year. In addition, the US State of California has committed US$3 billion to
embryonic stem cell research up to 2014.
The UK has some leading companies in stem cell technology such as
ReNeuron which has received regulatory and conditional ethical approvals to
commence the UK’s first stem-cell based clinical trials and also has strengths
in tissue engineering (both cell replacement and the development of advanced
biomaterials for implants).
The stem cell therapeutics market is largely untapped and currently estimated
at around US$87million126 but could grow to as much as US$8.5 billion over
the next decade. The tissue engineering and regenerative medicine market was
estimated at US$8.5 billion in 2008 and could grow to US$118 billion by 2013127.
The number of Life Sciences companies involved in regenerative medicine has
grown since 2003. Whilst the prospect of growing back a severed limb is still
in the realms of science fiction, developments in medical science have come a
long way since the development of bone marrow transplantation in the 1950s.
Patients can now benefit from advances in the process of regenerating skin
126 Medical Industry Analyst
127 Life Science Intelligence
80
UK challenges and opportunities in the Life Sciences
(for burns patients), and growing corneas (for eye patients). According to the
industry128, there is potential here for the UK to nurture development of this
fledging industry by making investment more attractive so that one day it may
be as successful as the monoclonal antibody industry is now.
The UK is already a thought leader in this area. There has been substantial policy
work over the last five years, including the 2005 Pattison report The UK Stem
Cell Initiative, the Human Fertilisation and Embryology Act 2008, and a number
of initiatives aimed at supporting the development of therapies based on stem
cells such as the MRC-led International Stem Cell Forum, the UK Stem Cell Bank,
and a number of regional networks.
The Government and the pharmaceutical industry has formed a Public-PrivatePartnership ‘Stem Cells for Safer Medicines’129 which is designed to develop
stem cells in predictive toxicology but which will also be a potential contributor
to the development of tools for regenerative medicine. The programme
managed by the Technology Strategy Board (TSB) comprises a total investment
of £21.5 million130 and is aimed at helping consolidate a regenerative medicine
industry here in the UK.
The pharmaceutical sector has become directly engaged in programmes for
regenerative medicine. For example, Pfizer’s £40 million investment in its
Regenerative Medicines Unit in Cambridge UK131 and GSK’s US$25 million
funding for the US Harvard Stem Cell Institute132 demonstrates that regenerative
medicine is no longer just a niche activity.
Biopharmaceuticals and Biologics
The development of biopharmaceuticals (large molecule therapeutics otherwise
known as biologics) is currently a major focus area for the multinational
pharmaceutical companies. All the top-ranking pharmaceutical companies –
Pfizer, GSK, AstraZeneca, Lilly, Merck, Roche, Sanofi-Aventis and Johnson &
Johnson – have made large investments in this area particularly through the
acquisitions and collaborations with biotechnology companies.
Around a third of drugs in development are biopharmaceuticals and they
currently represent around 10% of the total pharmaceutical market by value. The
current value of the global biopharmaceutical market is estimated at US$85.9
billion and it is conservatively forecast to exceed US$135 billion by 2011133.
Biopharmaceuticals are high value products which generally have a better
chance of being successful in the clinical stages of development than small128 The Review and Refresh of Bioscience 2015
129 SC4SM website – www.sc4sm.org/ November 2008
130 £18 million from the TSB and £3.5 million jointly from the Engineering and Physical Sciences, Biotechnology and
Biological Sciences, and Medical Research Councils.
131 14 November 2008: Pfizer launches Global Regenerative Medicine Research Unit – http://www.pfizer.com
132 http://www.gsk.com/media/pressreleases/2008/2008_pressrelease_10089.htm
133 IMS Health
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Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
molecule pharmaceuticals. Not all medical biotechnology companies, however,
are developing biopharmaceuticals; some are using advances in Life Sciences to
identify targets for small molecule drugs. The UK has particular strengths in high
growth areas of biopharmaceuticals such as therapeutic proteins and antibodybased drugs.
Box 5.2: Biopharmaceutical Research in the UK – GlaxoSmithKline
According to GlaxoSmithKline (GSK) the biopharmaceutical medicines are
an exciting area of growth for the UK and an area that GSK, the UK’s largest
pharmaceutical company, considers is core to its future success. The company
is investing heavily in biopharmaceuticals alongside its small-molecule
portfolio and over just six years biopharmaceuticals have already grown to
constitute almost 15% of GSK’s overall pharmaceutical pipeline.
Over 270 members of GSK’s biopharmaceutical research teams are based
in the UK, a number that has grown by around 14% over 2009 with further
recruitment geared around the success of the biopharmaceutical pipeline.
Activities are split between the UK and the US with early-phase work
predominantly conducted in the UK and later-stage development run out of
the US.
Research into biopharmaceuticals holds great promise for the development of
new medicines that can make a real difference to patients. Biopharmaceuticals
are quite different from more traditional small-molecule medicines. Smallmolecules, engineered by chemists and produced synthetically, are the
traditional mainstay of the pharmaceutical pipeline. They are relatively easy
to formulate, have a broad array of dosage forms and can be efficiently
manufactured.
Derived from living organisms, biopharmaceuticals provide much greater
specificity, binding to specific targets in the body. Their specificity not only
increases their effectiveness as medicines, but also reduces their side effects
significantly over small-molecule drugs. However, they are more difficult and
time-consuming to manufacture than traditional medicines. They are also more
difficult to administer as their relatively large size and fragility limit the delivery
mechanisms that can be used. For example, they are unlikely to survive in the
digestive tract and so can not be administered orally. Injections are usually
considered the most practical method of delivery. Research, development and
manufacturing techniques are thus highly specialised. However, new research
being undertaken by GSK in the UK around domain antibodies, which are
much smaller entities, could help overcome these issues in the future.
The company is considering building its first biopharmaceutical manufacturing
facility in the UK, to complement its research efforts in this area.
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UK challenges and opportunities in the Life Sciences
Bioprocessing and Biosimilars
The growth in the biopharmaceuticals market has created commercial
opportunities for those with bioprocessing technology used in their manufacture.
The first branded biopharmaceutical drugs are now going off-patent generating
increasing demand for bioprocessing skills to produce the first generation of
biosimilars (drugs with biologically similar effects to the branded drugs). The
market for biosimilars is also expected to grow as more biopharmaceuticals
come off-patent.
The UK has particular strengths in contract biomanufacturing, both in the primary
product manufacture and the secondary formulation and packaging processes.
The contract biopharmaceutical manufacturing market was US$2.4 billion in
2007 and estimated to grow 14–15% in 2008134.
The UK also has a strong and varied domestic supply chain for the equipment
and reagents used in the development and manufacture of biopharmaceuticals.
Stratified medicine
This is the targeting of medicines to relevant sub-groups of the population based
on information from genetic or other biomarker based tests. There is a growing
trend for new drugs, especially expensive drugs such those targeting particular
cancers, to be developed in tandem with diagnostic tests allowing physicians
to predict which patients will respond best to the drug (theranostics). This is
creating a new market for rapid diagnostic tests and there is interest from the
pharmaceutical companies which are developing tests for stratified medicine.
Significant improvements in personalised medicine should be expected in the
next few years as molecular diagnostics represent one of the fastest growing
segments in the US$37 billion in vitro diagnostics market. The overall market
is expected to grow by 5% per annum to US$50 billion between 2007 and 2012
with sales of molecular diagnostics expected to grow by 14% per annum from
US$2.6 billion to US$5 billion135.
Pharmacogenomics
Vernon (2009) examines the evolving field of pharmacogenomics, which is
the science of using genomic markers to predict drug response, and how it
may impact on future costs, risks, and returns to pharmaceutical research and
development. The authors identify a number of factors and issues that are likely
to influence the expected returns and, hence, the incentive to invest in new
pharmaceuticals R&D in tandem with the development of pharmacogenomics.
Specifically, the authors identify how pharmacogenomics may lower the
cost of drug development by shortening drug development times. Thus,
pharmacogenomics may lead to an increase in a drug’s effective patent life, and
134 HighTech Business Decision Report
135 PricewaterhouseCoopers (PwC)
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may also increase the demand and adoption rate for new products (although
it may presumably reduce the market size for some products). For these and
other reasons, the authors note, pharmacogenomics may one day enhance
expected future returns to R&D, leading to higher levels of R&D investment and
an increased pace of pharmaceutical innovation.
Box 5.3: Stratified Medicine in the UK – AstraZeneca
AstraZeneca is committed to developing personalised healthcare products.
The history of the company’s anti-cancer drug IRESSA provides an example
of the health benefits of developing a drug for a specific patient population. While conducting trials of IRESSA, AstraZeneca scientists discovered that only
around 10% of patients responded to the drug. The company later learned
that the responder group tended to have a genetic mutation of the epidermal
growth factor receptor (EGFR). This knowledge informed subsequent trials and
later resulted in the EU approval of IRESSA for the treatment of lung cancer
exhibiting these EGFR mutations. IRESSA is the first truly targeted treatment
for lung cancer and an important step forward in the treatment of this disease.
Today all AstraZeneca research projects are assessed at key decision points to
determine whether a personalised healthcare approach might be scientifically
and clinically viable.
Advancements in medical technology
The healthcare industry thrives on innovation, constantly searching for solutions
that enable safer, more efficient medical provision and enhance the quality of
care. The prescription and distribution of medication is a critical area where
even the smallest mistake could impact on a patient’s recovery. For example,
the adoption of new technology to automate this process offers hospital and
care home pharmacies the opportunity to improve medication dispensation,
inventory management and administration. An example of the impact of
information and communication technologies (ICT) on the provision of cancer
treatment is illustrated in Box 5.4.
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UK challenges and opportunities in the Life Sciences
Box 5.4: The Role of Technology in the Treatment of Cancer
C-PORT is a web-based simulator which enables cancer hospitals to effectively
plan capacity and improve access to cancer treatment for patients. It is used to
help clinicians and managers work out what the impact of the change will be
before it is implemented so that they can get the maximum benefit for patients
from their resources. C-PORT helps chemotherapy suites and pharmacy units
plan how they may deliver services, and what might be re-designed effectively
to cope with the increasing demand and the changing face of chemotherapy.
Since its roll-out in November 2006, C-PORT has been taken up by the NHS
for use in 23 cancer networks across England and is being used by more than
100 hospitals:
C-PORT can be used to make substantial efficiency savings in both staff hours
and in the use of other resources. For example, the West London Cancer
Network has used C-PORT to help model savings of around 1,300 hours of
nursing time and around 2,200 hours of chemotherapy chair time over a six
month period by planning investments in new staff and introducing more
efficient practices.
C-PORT can be used to increase the productivity of NHS services by modelling
scenarios before they are implemented. With the help of C-PORT, Norfolk
and Norwich University Hospitals NHS Foundation Trust achieved an 11%
productivity increase with no additional resources.
C-PORT can be also used to access the impact of future changes in healthcare
provision in a risk-free manner before they are implemented. The North Devon
Chemotherapy Unit conducted a review of local incidence data and predicted
that they will experience a 20% increase in local cancer incidence in the coming
year. C-PORT was then used to model the re-provisioning of the chemotherapy
unit and to find the optimum number of nurses and chemotherapy chairs
required to support the increase in patient numbers.
Source: ABPI
Technological advancements also impact on the treatment of patients. For
example, cutting-edge imaging technology from the UK is helping to detect and
treat disease, and negates the need for invasive surgery. Medical imaging is able
to produce pictures of the internal workings of the body in a variety of ways and
has transformed the way we approach healthcare: Computerised Tomography
(or CT scans) generates 3D rather than 2D images; ultrasound uses highfrequency sound waves; endoscopy uses a camera to relay images to a monitor;
and molecular imaging uses different properties of radioactive elements for the
detection of, for example, cancers and blood cell disorders.
A study by Arthur D Little (2004) for DTI concluded that UK firms have the capacity
to generate and exploit new medical technologies, particularly in orthopaedics,
IV diagnostics and advanced wound management.
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Imaging equipment
New versions of CT scanners have been produced which offer the same quality
of imaging while reducing the radiation dosage by 40–50%. This can reduce the
effects of long-term radiation exposure and is particularly helpful in treatment
of children.
Imaging equipment is also being reduced in size, with MRI, ultrasound and ECG
scanners now being produced in portable versions suitable for use in rural and
remote areas. A UK company has developed an innovative method of wide field
retinal imaging. Unlike many eye tests, their device maps the majority of the
retina, and can detect signs of heart disease, hypertension, cancer and diabetes.
The test is painless, and does not require dilation drops and is suitable for young
children.
Advanced woundcare
Advanced woundcare is a market which has continued to grow with an
increasing number of patients requiring treatments for chronic and challenging
wounds. According to Espicom, the global market was valued at US$4.9 billion
in 2008. Particular progress has been made in understanding and treating the
factors which hinder wound healing such as chronic inflammation, infection,
maceration and dehydration. One UK company developed alginate dressings
produced from seaweed. These dressings absorb exudates and donate calcium
to the wound area which also helps to stop bleeding. Alginates absorb exudates
away from the wound whilst also maintaining an ideal moist wound-healing
environment.
A UK company has produced a point of care test for diagnosing bladder cancer. It
detects the presence of a marker for bladder cancer in a urine sample. The main
current method for diagnosing bladder cancer is cystoscopy, which involves
passing an endoscope up the urethra and into the bladder under anaesthetic.
The new test will be much cheaper and more comfortable than the current
invasive cytsoscopy test
Orthopaedics
In the field of orthopaedics, UK companies have made particular advances
in the development of bone substitute. Approximately 1.5 million bone graft
procedures are performed annually worldwide. Many of these require bone to
be taken from other parts of the body, or from other donors.
One company has developed synthetic, biodegradable material which has the
texture of toothpaste but when injected into the body hardens within 15 minutes
at body temperature and has similar characteristics to normal bone. Another
company has developed a novel silicate substituted calcium phosphate bone
graft material. Both products avoid the need for bone to be taken from other
parts of the body, or from other donors.
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INCREASING GLOBALISATION AND COMPETITION
As a result of increasing globalisation, the world economy has experienced
substantial growth in international trade in goods and services, flow of capital
and people. This has been driven by factors such as:
●●
●●
●●
The adoption of more open economic policies including the removal of
major tariff and non-tariff barriers to trade;
Technological progress (particularly in the areas of transportation and
communication); and
The integration of rapidly growing emerging economies into the global
economic system.
Outsourcing of medical research
Increasing globalisation and the emergence of lower cost economies such as
China and India has helped to drive the fragmentation of the global value chain.
Traditionally, higher valued added activities such as research, development and
design have tended to be concentrated in more Western economies with low
skilled high volume manufacturing activities being transferred to lower wage
cost economies.
However, Life Sciences companies have increased outsourcing of research and
manufacturing in recent years in an attempt to reduce costs and become more
competitive136.
Today, fewer firms have large in-house clinical research units as they increasingly
rely on Contract Research Organisations (CROs) to run the clinical trials.
According to Business Insights (2006), CROs now account for over 40% of annual
research spending by pharmaceutical firms, compared to 4% in the early 1990s.
Many European CROs are based in the UK and the UK has a number of worldclass CROs of its own. However, Eastern Europe also has a well developed
infrastructure for outsourcing clinical research. India and China are also expected
to account for a substantially greater proportion of outsourced clinical research
over the next few years.
According to NESTA (2008) 'the role of CROs has grown rapidly as a result
of increasing pressure on pharmaceutical firms to bring drugs to market
more quickly and the increased complexity of clinical trials and regulatory
submissions. The ability of CROs to cut clinical trial times by as much as 30%
has become critical to large firms, especially given their concerns over R&D
productivity and generic competition. CROs also tend to be more able to conduct
studies on a multinational and multi-centre basis.
In recent years, the portfolio of services offered by CROs has widened to include
R&D enabling technologies such as genomics, high throughput screening, and
136 See for example NESTA (2008)
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combinatorial chemistry, using proprietary techniques for which they often own
the intellectual property rights. CROs can also offer post-commercialisation
services such as sales and marketing'137.
Emergence of new competitors
European Life Sciences firms face an increasing challenge from lower R&D
costs in developing countries. As mentioned above, developing economies are
increasingly being used for R&D activities, especially through the use of CROs.
The Chinese and Indian economies are still expected to continue their rapid
growth over the next few decades. By 2050 they are forecast to be the first and
third largest economies in the world respectively138. According to KPMG (2007)
the Indian pharmaceutical sector is developing strongly. India represents 13% of
the global pharmaceutical sector by value and its drug exports have been growing
by 30% a year. The Indian government estimated that the pharmaceutical sector
could generate revenues of US$22.4 billion in drug development by 2010139.
Cultural shifts, coupled with rising disposable incomes, are driving change in the
pattern of consumer spending in emerging economies. The share of spending
on essentials such as food is declining while the importance of areas such as
personal products, private education and healthcare is set to rise:
●●
●●
●●
Private spending on health related goods and services in China and India is
expected to reach 13%–14% of household consumption by 2025, substantially
higher than in most advanced economies;
China’s ageing population, coupled with increases in ailments associated with
pollution, urbanisation and a richer diet, will combine to make this the fastest
growing category of household expenditure;
India’s demographics are more favourable, but health spending will grow
almost as rapidly.
Investment in China and India has surged as overseas companies seek to
take advantage of these opportunities. However, emerging economies remain
challenging places to do business. Both countries continue to struggle with
corruption and bureaucracy and enforcement of Intellectual Property Rights
remains poor140.
The above trend – coupled with the recession – is creating new challenges
for Life Sciences companies as it places greater pressure on current business
models. Boxes 5.5. and 5.6 consider case studies for pharmaceuticals and medical
technologies.
137
138
139
140
88
See NESTA (2008)
Goldman Sachs (2003)
Department of Chemicals and Petrochemicals, Government of India (2005)
See BERR (2009) Economics Paper No. 5
UK challenges and opportunities in the Life Sciences
Box 5.5: Changing Business Model – Pharmaceuticals
The pharmaceutical sector has not been affected as much by the global
recession as most manufacturing sectors141, and it is forecast to grow at 5–7%
in the years to 2013142. Despite its relative robustness to the current recession,
the pharmaceutical sector is being challenged to improve its efficiency and
respond to changes in technology and patient demand in a number of ways:
●●
●●
●●
●●
Globally, major pharmaceutical companies are restructuring to cut costs
including moving manufacturing to lower cost locations and outsourcing a
growing proportion of their operations including aspects of manufacturing,
drug development and clinical trials (creating opportunities for Contract
Research Organisations).
Consolidation: the sector has recently seen some major Mergers &
Acquisitions (M&As) deals, which aim to bolster revenues and pipelines
of the merged companies. This consolidation is often followed by
streamlining of operations to take advantage of synergies and to reduce
costs. Examples of major M&A in 2009 include: Pfizer/Wyeth (US$68
billion); Merck/Schering-Plough (US$41 billion) and Roche/Genentech
(US$47 billion).
Large pharmaceutical companies are obtaining a greater proportion of
their pipeline from smaller pharmaceutical and biotechnology companies
via development deals, licensing and company acquisitions. Radical
approaches are being developed to reduce the high cost of R&D and
improve R&D productivity including greater use of predictive software and
virtual models of cells and organs. Development of products for particular
sections of the population (stratified medicine) might have a potential to
improve data on clinical efficacy.
There is a move away from dependence on blockbuster drugs to focus on
more specialised and niche markets and to balance branded pharmaceutical
activity with less high risk products; for example, some research-led
larger pharmaceutical companies are also moving into development of
generic drugs. Biologics, vaccines and (drug) companion diagnostics (for
example, for use in stratified or personalised medicine) are becoming a
major area of pharmaceutical interest. Biologic drugs, which are more
expensive to produce but harder to copy once their patents expire, are
accounting for a growing proportion of bestselling drugs. Many of the
leading pharmaceutical companies are increasing focus on biologics in
their development pipelines.
141 See for example PwC UK Economic Outlook March 2009
142 IMS Health
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Figure 5.5: Number of Blockbuster Drugs by Type
120
Number of blockbuster drugs
Biotech
Other
100
80
60
40
20
0
2000
2002
2004
2006
2007
Source: IMS Health
Box 5.6: Changing Business Model – Medical Technology
As for pharmaceuticals, larger companies in the medical technology sector are
restructuring to reduce costs. Manufacturing is liable to be moved to lower
cost locations or outsourced, some R&D has moved to emerging markets.
SMEs with successful products and promising development pipelines are
attractive acquisitions to larger companies and those wishing to expand into
new markets.
There is some convergence between some medical technology and
pharmaceutical markets; e.g. in drug delivery, bioactive implants, companion
diagnostics for personalised/stratified medicine. Regenerative medicine is
bringing together advances in cell therapy, biomaterials, tissue engineering
and stem cell technology.
The ageing population is also creating opportunities and expanded markets
for some medical technology products; e.g. replacement joints, diabetes
testing, assistive technology products, telecare and remote monitoring.
Clinical effectiveness is not sufficient for success of new products: value for
money and cost effectiveness need to be demonstrated to enable take up by
healthcare providers and reimbursers. There are opportunities for products
that could reduce healthcare costs if these can be clearly demonstrated.
Medical technology companies are looking to emerging country markets
(Eastern Europe, India, China, South America, and Middle East) to expand
as growth slows in the US and Europe. The increasing sophistication of
indigenous companies in these markets might be a challenge for UK exporters
maintaining their competitiveness.
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6.The role of Government
in the Life Sciences
6.1 Market failures in Life Sciences
Under certain circumstances, markets may fail to function properly. In the Life
Sciences, there are a number of areas where the market may not work well.
These relate to:
●●
Public delivery of healthcare services;
●●
R&D in Life Sciences;
●●
Up-take of innovative products by the NHS;
●●
Provision of skills required by Life Sciences;
●●
Access to finance; and
●●
Inward investment and access to global markets.
Each of these is discussed in turn below.
PROVISION OF HEALTHCARE SERVICES
The provision of healthcare services is characterised by a number of potential
market failure problems. These include the presence of positive externalities,
imperfectly competitive markets and information asymmetries in the market for
health insurance.
Externalities
An externality is said to exist when the actions of an individual unintentionally
bring about costs or benefits for third parties without appropriate compensation
being paid or received. The externality argument is often used to make the case
for subsidies to public services such as healthcare143. For example, preventative
and primary care such as the use of vaccinations that reduces or stops the
spread of infectious diseases clearly benefits not just the private individual
receiving treatment who gains immunity from the disease but also the wider
community. This is because an increase in the number of people in society that
have been vaccinated reduces the risk to non-immunised people of contracting
the disease. Since these positive externalities are not taken into account by
private individuals when purchasing healthcare, this can lead to an under-supply
of healthcare services.
143 An externality is said to exist when the actions of an individual unintentionally generate costs or benefits for a third
party without compensation being paid or received.
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In the same way as education, health care may constitute a merit good and as
such provide Government with a further justification for intervention. A merit
good is defined as a good or service which Government deems it necessary
to provide because society does not place as high a value on it and if left to
individuals would be under-supplied by the market.
Private market for health insurance: risk, uncertainty and information
asymmetries
There are large numbers of both suppliers (GPs, hospitals, schools etc) and
consumers, which might be expected to lead to high levels of competition in
healthcare provision. In practice, market entry is restricted by professional
regulation. Private health markets may also fail to reach efficient allocations,
largely because of asymmetric information between consumers (patient) and
providers (doctors). There are also important equity considerations that are
generally used to justify government intervention in provision of health.
Information asymmetries between the insurer and the insuree may also cause
the market to operate imperfectly. Two forms of information asymmetry can be
distinguished:
Adverse selection: the insurer cannot differentiate above average-risk insurees
from below average-risk. By offering premia based on the average the insurer
will only attract above average risk insurees.
Moral hazard: if consumers and their medical advisers know their medical costs
will be covered by insurance they may take less care to ensure that they remain
fit and healthy. As a result, the likelihood that they may fall ill subsequently
increases.
MARKET FAILURES RELATED TO R&D IN LIFE SCIENCES
As previously mentioned, the Life Sciences industry and the pharmaceutical
sector in particular is very R&D intensive. R&D is costly and there is no
guarantee that firms will be able to fully recoup the costs of investment in new
drug development. There are two closely related reasons for this.
Firstly, post-discovery, new drugs can be copied and manufactured by rival
firms on a large scale very quickly and cheaply because their marginal cost
is low. Secondly, rival firms know that the active ingredients of new products
will be made public at launch and so have no reason to pay inventors for this
information.
To counter this problem, governments allow inventing firms temporary protection
from competition by granting patents. These instruments grant firms time
limited monopoly power for their discovery allowing them to charge prices
above production costs for the duration of the patent. In this way, patents
strengthen the incentives to invest in the R&D of new products. In the UK,
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The role of Government in the Life Sciences
patents enable firms to gain all the social benefits from their products during the
period of patent protection, assuming prices are consistent with the NICE costeffectiveness threshold. After patent protection, entry of competitive generic
versions of medicines forces prices towards production costs, and the NHS can
henceforth be considered to gain all the surplus resulting from production and
consumption.
Patents clearly mitigate at least part of the market failure described, by conferring
excludability on the products of R&D, as demonstrated by the large UK and
world markets for pharmaceuticals. However, there may be some circumstances
in which this excludability is compromised, even when products embodying the
output of R&D are protected by patents. A potential instance of this problem
is the requirement for firms launching an innovative product to freely reveal
information that may be useful for competitors in designing products that may
take market share from the original innovation. For example, a new product
addressing a previously untreatable condition may do so by targeting a hitherto
unknown molecular mechanism involved in the disease. The identity of this
mechanism which the firm will have invested in discovering – may be published
freely when the product is launched. While competitors are unable to copy
the new medicine, they may be able to exploit information about the disease
mechanism and so develop their own products which take market share from
the original innovation. Hence, a part of the output of R&D for the innovative
product is rendered non-excludable with the effect that firms may under-invest
in this type of R&D as they know they will not be able to control its use to gain
a return.
When considering the UK’s response to this, and other market failures, it is
important to recognise that the global nature of pharmaceutical markets limits
the capacity of any individual country to affect R&D incentives. Any action taken
by the UK will have a relatively small impact on the overall incentives to invest
in R&D because the UK only represents around 4% of the total world market in
pharmaceuticals.
MARKET FAILURES RELATED TO THE UP-TAKE OF NEW PRODUCTS BY NHS
Medicines and technologies which are cost-effective – that is, whose benefits for
patients exceed the patient benefits from alternative uses of funds – generate
net increases in the health output gained from the NHS budget. Not using the
most available cost-effective technology leads to an unnecessary loss of health
benefits.
In many cases it is possible that medical practitioners and commissioners of
healthcare will not become immediately aware of new technologies causing a
lag in their utilisation and consequent welfare losses.
Government intervention can mitigate this problem of information transmission,
minimising the lag and reducing the welfare losses due to failure to use available
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cost-effective medicines and technologies by imposing minimum standards and
regulatory requirements.
MARKET FAILURES PRESENT IN THE PROVISION OF SKILLS
The complex, cross-cutting and fast-moving nature of the Life Sciences market
means that the employers may be unable to accurately judge what types of jobs
will be required in the future and which skills will be needed for employment in
the industry. The market may also not provide sufficiently strong signals about
the demand for particular skills set which may increase the uncertainty which
employers and employees may face. This may lead to underinvestment in the
critical skills required, including insufficient information and guidance to those
interested in pursuing a career in the Life Sciences.
Furthermore, the current system does not incentivise students to complete
sufficiently vigorous courses in pertinent disciplines. The high degree of choice
in science and bioscience courses enables students to avoid difficult but essential
modules in Higher Education (HE). Also, HE biological sciences courses rarely
demand A-Level or equivalent maths for entry and, linked to the point above,
this often means graduates enter the labour market with relatively low level
maths skills144.
The evidence shows that there is also a lack of general (not sector specific) skills
training in the Life Sciences industry, which could be due to the fact that sciencebased courses, as well as in other disciplines, at HE level often lack any business
or leadership skills elements.
As a result, employers in Life Sciences are reporting that some graduates
entering the labour market are not fully prepared for all the requirements of
the job as well as reporting hard-to-fill vacancies, especially in biological and
medical sciences, chemical sciences and engineering (see Chapter 4).
ACCESS TO FINANCE IN LIFE SCIENCES
Taking a prospective new pharmaceutical ingredient or drug from the research
lab to product launch takes from 10 to 15 years. Therefore, building a successful
bioscience company requires significant funding from third party investors over
a long period. Typically, a bioscience company needs different types of funding
as its pipeline matures, and the level of funding increases dramatically over time.
Uncertainty and information asymmetries about the likelihood of success of
potential drug candidates and of new medical technologies, and the potential
size of the market may all preclude investments in Life Sciences as SMEs might
struggle to obtain sufficient financing to undertake research and development.
Problems with access to finance may be particularly acute for academic spin-outs
144 APBI (2008)
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The role of Government in the Life Sciences
or very young companies which require seed funding to develop a concept. Early
stage Life Sciences companies developing innovative products and technologies
also require follow-on investment for continuous product development.
MARKET FAILURES AND BARRIERS RELATED TO INWARD INVESTMENT AND
ACCESSING GLOBAL MARKETS
Inward investment
Incomplete and asymmetric information may limit the entry of inward investors
and inward investment. A limited knowledge of local market conditions can be
a significant barrier to inward investment. A survey of inward investors carried
out for UKTI in 2005 by OMB Research, found that the key barriers were:
●●
●●
Local linkage barriers, such as recruitment of appropriately qualified
employees and finding suitable local suppliers; and
Framework barriers, such as an understanding of legal requirements.
Accessing global markets
There are a number of institutional barriers and market failures that prevent
firms from accessing international markets. Firms may not be fully aware of
the benefits of exporting and may also lack awareness of the knowledge and
capabilities required to exploit overseas opportunities successfully. For example,
the SME Industry Study (2008)145 found out that many medical technology SMEs
lack the in-depth understanding of the US legal and regulatory system to access
the US market.
Analysis of a 2008 survey of internationalised firms indicates that innovative
firms are more likely to report barriers to internationalisation than noninnovative firms. The most frequently cited barriers were resource barriers and
contact barriers146. Firms questioned in the survey tended to indicate that a lack
of capital represented an important barrier, (e.g. a lack of working capital147 or
a lack of capital148). However, the financial status of firms prior to exporting has
not been found to determine whether a firm will export149. This suggests that
the barriers may not actually be of a financial nature despite being perceived as
such. In addition to financial constraints, firms report resource barriers such as a
lack of management resources150, exchange rates and foreign currency, and the
marketing costs associated with doing business in overseas markets151.
Qualitative studies of Life Sciences firms indicate that resource barriers may be
linked to founders of these types of firms having a high level of education, usually
145
146
147
148
149
150
151
For the Ministerial Medical Technology Group (MMTSG)
OMB (2008) International Business Strategies, Barriers and Awareness Survey
Fleiss (2007)
Gallup (2007)
Greenaway et al. (2007)
Gallup (2007)
Kneller and Pisu (2006)
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in science but having no entrepreneurial experience, business qualifications or
family histories of entrepreneurship. Some of these firms have no staff with
international experiential knowledge, overseas education or foreign language
abilities. International human capital is one way in which international networks
can be accessed so failure to have such capital within a firm creates a barrier
to international activity. For some firms existing networks are very specific, for
example, to a narrow field of science or technology. Indeed, some Life Sciences
firms report having the wrong network or a network in the wrong places152. This
can make it difficult to broaden the network into one which is more able to assist
in the process of internationalisation.
The Government’s access to social networks and intermediaries, play an
important role in overcoming local barriers, enabling international linkages
and flow of information, and allowing businesses to identify and gain access to
overseas contacts and opportunities.
6.2 Government policy
The UK Government uses a wide range of financial and non-financial policies
and measures to address the different types of market failures identified in the
previous section. In many cases, these are horizontal (or economy-wide) in
nature. This is because many of the market failures that exist in the Life Sciences
industry can also be found in other sectors of the economy. In some instances
however, the scale and impact of these market failures are such that sectorspecific measures have been required.
ECONOMY-WIDE MEASURES
Encouraging greater innovation activity
The DTI Economics Paper No. 7 Competing in the Global Economy – The
Innovation Challenge identified the different ways in which Government policies
can raise innovation performance in the economy and improve the business
environment in which firms operate.
The UK Government works to create the business conditions for innovation
to flourish by ensuring that the macro-economic climate is stable, the legal,
regulatory and the intellectual property framework is appropriate and robust and
that markets continue to be open and competitive. Maintaining these objectives
over the long term will allow innovation to flourish by reducing the uncertainty
firms may face in the market place.
The UK Government has introduced a mixture of financial and non-financial
policies designed to strengthen the incentives to carry out innovation including
152 Jones et al. (2008)
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The role of Government in the Life Sciences
R&D and promote greater knowledge transfer and collaboration in hightechnology industries such as Life Sciences. These measures include:
●●
●●
●●
●●
●●
●●
The introduction of financial and fiscal incentives such as R&D tax credits,
and other business support products including Collaborative R&D, Grant for
Research and Development, and most recently Innovation Vouchers153;
As announced in the 2009 Pre-Budget Report, Government will introduce a
Patent Box, reducing the rate of corporation tax on patent income in April
2013 from a top-rate of 28% to 10%. This will strengthen the incentives to
invest in innovative industries and ensure the UK remains an attractive
location for innovation. Government will consult with business in time for
Finance Bill 2011 on the detailed design of the Patent Box;
Providing funds for innovation in technologically advanced sectors through
bodies such as the Technology Strategy Board;
The Government’s ten-year Science & Innovation Investment Framework
2004–2014 which targets an increase in R&D share of GDP per capita from
1.9 to 2.5% by 2014;
The Networking for innovation scheme which supports businesses to build
relationships with knowledge base institutions to develop and exploit new
ideas; and
The creation of Knowledge Transfer Partnerships which provide grants to
enable the placement of a recently qualified person in a business, or the
exchange of staff between businesses and knowledge base institutions.
Improving access to finance
The UK Government has introduced a variety of schemes aimed at improving
access to finance for small firms across all sectors of the economy. These include:
●●
●●
●●
Enterprise Capital Funds (ECF) to provide equity finance to SMEs where
Government funding is used alongside private sector funds to establish
funds that operate within the ‘equity gap’; targeting investments of up to £2
million that have the potential to provide a good commercial return;
Establishing the UK Innovation Investment Fund (UKIIF) to provide equity
finance to technology-based companies in areas such as Life Sciences; ICT;
advanced manufacturing and low-carbon; and
A growth fund to provide a new channel to attract private sector investment
into UK SMEs seeking between £2 million and £10 million to ensure that UK
firms have the finance they need as the UK emerges from the recession. The
fund structure will be announced in 2010154.
153 For more information see: http://www.businesslink.gov.uk
154 See HM Government (2010) Going for Growth: Our Future Prosperity
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Increasing investment in skills and training
The UK Government has also taken steps to develop the general and specialist
skills and training many sectors of the economy including Life Sciences need.
These include:
●●
●●
Both the Higher Ambitions framework for higher education155 and the Skills
for Growth strategy156 for adult skills create new incentives for universities,
colleges and training bodies to work closely with business and Government
to define and provide the skills needed for the jobs and businesses of the
future. This includes entrepreneurship skills and generic employability
skills such as teamwork and computer literacy, along with the complex and
creative skills in science, technology, low carbon, digital communication and
the Life Sciences;
Investment in the Higher Education Innovation Fund (HEIF) has helped
universities establish dedicated teams to work with business, allowing
the formation of professional links and long-term relationships. 80% of
universities now have knowledge transfer explicitly in their institutional
missions. HEIF has invested nearly £600 million in universities between
2001 and 2007 generating an estimated £3–4 billion in fiscal constraints, by
2010–11 Government investment in the UK research base will have doubled
from its 1997 level, to over £6 billion157.
Maximising inward investment and improving access to global markets
The UK Government has introduced measures to provide information, advice
and tailored help for potential and existing inward investors to help them decide
to invest in the UK to develop their UK business:
●●
Through the Maximising Foreign Direct Investment product, UKTI provides
support to overseas-owned companies looking to set up or expand in the
UK by providing a fully integrated advisory service, delivering the latest
business intelligence through a global network of commercial teams;
155 BIS (2009c) Higher Ambitions
156 HM Government (2010)
157 HM Treasury (2007) Pre-Budget Report and Comprehensive Spending Review, Annex D4
98
The role of Government in the Life Sciences
There are two business support products introduced by the UK Government to
encourage UK firms to invest more in developing internationalisation capabilities
and to help them access international markets. These are:
●●
●●
The Developing Your International Trade Potential. This product seeks
to encourage firms to invest more in developing internationalisation
capabilities. It focuses on sources of market failure which affect the demand
side of the market for international trade services. The product has two
strands. The first is designed to provide information and advice on beginning
to export or seeking to do business in new overseas markets; the product is
available to UK registered companies of all sizes and incorporates a number
of schemes: Passport to Export, Export Marketing Research Scheme and
Export Communications Review Scheme, High Growth Market Advisers. The
second provides matched funding for agreed export capability development
projects for SMEs who are either ‘new to export’, or innovative and between
one and five years old;
Through the Accessing International Markets product, UKTI provides help
such as tailored information and other support in 99 overseas markets
drawing on the commercial sections in UK Consulates, Embassies, and High
Commissions overseas and participation in overseas visits and trade shows.
TARGETED INTERVENTIONS
In addition to the above measures, the UK Government has found it necessary
to take further more targeted action to support either directly or indirectly the
Life Sciences industry. Some of the more sector-specific measures, which it has
taken, are set out below.
(i) The Office for Life Sciences
The Office for Life Sciences (OLS) was set up in January 2009 providing an
example of Government’s active approach to industrial policy in the Life
Sciences. The Life Sciences Blueprint, which was published in July 2009 sets
out a package of measures to transform the UK environment for Life Sciences
companies158. The actions fall in four key areas:
●●
The NHS as an innovation champion;
●●
Building a more integrated Life Sciences industry;
●●
Access to finance and stimulating investment; and
●●
Marketing the UK Life Sciences industry overseas.
These policy measures and deliverables have been further developed in the
accompanying policy document Life Sciences 2010: Delivering the Blueprint.
158 More details can be found in the Life Sciences Blueprint (2009) http://www.dius.gov.uk/innovation/business_
support/~/media/publications/O/ols-blueprint
99
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
The Government also supports ongoing strategic engagement with the
UK-based Life Sciences firms through other programmes and initiatives, such
as the Ministerial Industry Strategy Group (MISG) and the Ministerial Medical
Technology Strategy Group (MMTSG).
(ii) Encouraging greater innovation activity
Publically funded health research infrastructure
In severe cases of market failure, the Government can in principal assure that
socially valuable activities, which would not otherwise be supplied by the
private sector, take place by direct Government expenditure on R&D or other
expenditure on the science and technology infrastructure.
The National Institute for Health Research (NIHR) has been established to
carry forward the vision, mission and goal outlined in the Government’s health
research strategy for England: Best Research for Best Health (2006) with the
vision to improve the health and wealth of the nation.
A key part of NIHR’s aim is to:
●●
●●
develop the reputation of the NHS as a world-class environment for
collaborative research in the public interest; and
establish NHS as the preferred host for multi-centre clinical research in
partnership with and for industry.
With its partners, it is working to create the best possible research environment
in the NHS and build the country’s international reputation for excellence in
translational and applied research. Industry – devices, diagnostics, biotechnology
and pharmaceuticals – is involved at a strategic and operational level in initiatives
to enhance the UK’s clinical research environment.
Through the NIHR and the Research Councils, i.e. the Biotechnology and
Biological Sciences Research Council (BBSRC); and the Medical Research
Council (MRC); the Government has funded millions of pounds worth of healthrelated research – generating knowledge and understanding which industry uses
to develop and commercialise new technologies.
NIHR Clinical Research Network (CRN) has been established to provide a
performance managed research infrastructure within the NHS to support the
conduct of commercial, as well as non-commercial, clinical research. The NIHR
CRN is committed to working with pharmaceutical, biotechnology, and medical
device companies to facilitate commercially-sponsored clinical research and
overcome the barriers that have been holding back industry sponsored trials
in the UK. The NIHR CRN has a dedicated industry team in both the NIHR
CRN Coordinating Centre and in each of the NIHR Networks (Diabetes, Stroke,
Mental Health, Cancer, Dementia & Neurodegenerative Diseases, Medicines
100
The role of Government in the Life Sciences
for Children, and Primary Care) to facilitate the conduct of industry studies.
A Comprehensive Clinical Research Network (CCRN) has also been established.
It provides an infrastructure for Research Management and Governance through
Comprehensive Local Research Networks.
One of the aims of the NIHR CRN is to facilitate the timely conduct of commerciallysponsored clinical trials, targeting resources to support study delivery including
patient recruitment, follow-up and data collection.
The aims of the NIHR CRN are to:
●●
Ensure patients and healthcare professionals from all parts of the country
are able to participate in and benefit from clinical research;
●●
Integrate health research and patient care;
●●
Improve the quality, speed and co-ordination of clinical research; and
●●
Increase collaboration with industry partners and ensure that the NHS can
meet the health research needs of industry.
The NIHR CRN provides a single point of contact for industry studies, offers
centralised and co-ordinated study feasibility assessment and support with
patient recruitment.
In addition to improving the processes which support initiation of research in the
NHS, the NIHR is funding or supporting infrastructure and programmes which
will support the development of interventions for the prevention, diagnosis
and treatment of ill health and the evaluation of their safety, effectiveness or
performance.
Twelve NIHR Biomedical Research Centres (BRCs) are turning laboratorybased discoveries into new cutting-edge treatments, diagnostic tools and
other interventions in clinical settings, attracting top international researchers
and boosting innovation and economic development in surrounding areas.
Complementing the BRCs in translating biomedical research to benefit patients,
sixteen NIHR Biomedical Research Units are driving forward research in common
but debilitating conditions that affect millions and have considerable personal
and economic cost, helping to turn scientific discoveries into new interventions.
101
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
Box 6.1: Publically Funded Biomedical Research in the UK
The history of Government funded biomedical research in the UK predates
1945. It is argued that publically funded R&D programmes in the UK contributed
to important advances in medical knowledge, practices and innovations, and
have been a crucial factor behind the strength of the UK Life Sciences industry.
Much of the UK biomedical research has been conducted in medical schools
and universities, with close proximity to the training of students and the
treatment of patients.
By the 1960s, medical research in the UK was supported by three main
government organisations:
●●
●●
●●
The Medical Research Council (MRC), which was set up in 1919;
The Ministry (and later the Department) of Health, which in the 1950s began
to support large-scale research activities (e.g. population screening); and
The National Health Service (NHS), which was founded in 1948 to provide
health care for all UK citizens.
Although the NHS initially provided little funding for research, its support for
research gradually expanded. Up to the 1980s, the research funded by the
NHS consisted of a series of uncoordinated projects. In 1991, a formal NHS
R&D Programme was established to coordinate overall research. To make the
NHS a centre of excellence for health research, in 2006, NHS R&D funds were
brought together under a newly created National Institute for Health Research
(NIHR), with a budget of £660 million in 2006/07, which has risen to almost
£1 billion in 2009/10.
There are numerous examples of the scientific innovations generated by
the UK’s publically-funded medical research. For example, the discovery of
penicillin and the structure of DNA took place in the UK laboratories. Publicly
funded research has also played a central role in the origins of the UK
biotechnology industry. For example, the technology for genetic engineering
of livestock was first developed at the Institute of Animal Physiology and
Genetics and funded by the Agricultural and Food Research Council.
Source: NESTA (2009) and BIS
In 2007, the Government set up the Office for Strategic Co-ordination of Health
Research (OSCHR). OSCHR’s mission is to facilitate more efficient translation
of health research into health and economic benefits in the UK through better
co-ordination of health research and more coherent funding arrangements
to support translation. Through its Board, with an independent chair, three
non-executive members and representation from BIS and the four UK health
departments/directorates and their funding agencies, OSCHR works to:
102
The role of Government in the Life Sciences
●●
●●
●●
Ensure a more strategically coherent approach to publicly-funded health
research;
Create a step-change improvement in the translation of basic research into
health and economic benefits; and
Encourage a stronger partnership with the health industries and charities.
HealthTech and Medicines KTN
A national network funded by the Technology Strategy Board (TSB) with the
goal of accelerating and exploiting the UK knowledge base, and particularly
supporting innovative SMEs. It provides a UK focus for the area of medical
devices and support in areas such as:
●●
Development and exploitation of new medical devices;
●●
Focusing research on healthcare and clinical needs;
●●
Identification of funding sources;
●●
Facilitating regulatory approval;
●●
SME support;
●●
Advice on IP;
●●
Encouraging cross-disciplinary interaction;
●●
Technology translation;
●●
Industry specific training; and
●●
International links.
The National Institute for Health Research Invention for Innovation (i4i) Funding
Programme
The NIHR (i4i) Funding Programme brings together the work of several smaller
programmes in a new responsive investment stream to help accelerate
the development of new healthcare technologies and devices. Funding for
the programme has been gradually increased from £4 million in 2006/07 to
£13 million in 2009/10. Activities included under the umbrella of i4i include
the following:
●●
●●
i4i Future Product Development funding streams, which includes a funding
stream that requires co-funding of proposals by industry;
Pilot Healthcare Technology Co-operatives, involving NHS, academia and
industry working closely together to develop clinically needed, cost-effective
health technology products in neglected areas with high disease burden; and
103
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
●●
The Small Business Research Initiative (SBRI): part of the revised CrossGovernment SBRI, the i4i programme leads on the development of a pilot
programme in the area of Health Care Associated Infections. A number of
phase 1 SBRI projects have been selected for funding and further areas are
under consideration.
Many of the above initiatives have been developed specifically to address
the needs of the industry recognising that, in improving the clinical research
environment for the medical technology industry, the specific needs of SMEs
must be addressed.
(iii) Improving skills required in Life Sciences
Most recently the Government created an Industry and Higher Education
Forum for Life Sciences. This Forum enables employers, universities and public
sector funders to agree what specialised course content is needed to ensure
undergraduates and postgraduates, undertaking relevant degrees and courses
such as biological sciences, gain the necessary skills and knowledge to pursue
a career in Life Sciences.
(iv) P
ublic procurement and adoption of innovative products and services
by NHS
The Pharmaceutical Price Regulation Scheme
The Pharmaceutical Price Regulation Scheme is the mechanism which the
Department of Health uses to control the prices of branded prescription
medicines supplied to the NHS by regulating the profits that companies can
make on their NHS sales. It is a voluntary agreement made between the
Department of Health and the branded pharmaceutical industry represented by
the Association of the British Pharmaceutical Industry (ABPI). There have been
a series of voluntary agreements with the industry since 1957 to limit branded
medicine prices and profits, each lasting five years or so, although the details
of these agreements have evolved over time to reflect developments in the
NHS and the pharmaceutical industry. The scheme seeks to achieve a balance
between reasonable prices for the NHS and a fair return for the industry to
enable it to research, develop and market new and improved medicines.
The objectives of the scheme are:
●●
●●
104
Deliver value for money: Deliver value for money for the NHS by securing
the provision of safe and effective medicines at reasonable prices, and
encouraging the efficient development and competitive supply of medicines.
Encourage innovation: Promote a strong and profitable pharmaceutical
industry that is both capable and willing to invest in sustained research
and development to encourage the future availability of new and improved
medicines for the benefit of patients and industry in this and other countries.
The role of Government in the Life Sciences
●●
●●
Promote access and uptake for new medicines: The Department of Health
and industry are committed to increasing uptake and patient access for new
clinically and cost-effective medicines in the NHS in a sustainable manner.
Provide stability, sustainability and predictability: To help the NHS and
industry develop sustainable financial and investment strategies, the UK
must remain a stable and predictable market that does not place unforeseen
burdens on either party over the coming years.
Technology Adoption Centre
The NHS Technology Adoption Centre aims to assist the NHS and industry to
navigate the complexities of the NHS adoption landscape. It develops systematic
processes to bring innovative technologies into full use within the healthcare
systems in England. The Centre also carries out a range of implementation
programmes across the NHS, managing the sustainable implementation of new
technology as an integral part of service and system solutions and identifying
where changes to the pathway or service may be needed to unlock the full
benefits of the technology. Each implementation programme is in the process
of generating a clear How to – Why to guide to assist NHS organisations to
de-risk and accelerate the implementation process and to deliver a sustainable
improvement in patient outcomes from the use of the new technology. The
Centre therefore plays a role in overcoming barriers to adoption for beneficial
new medical technologies and is a key contributor to the NSR medical technology
programme.
DH Rapid Review Panel
The Department of Health Rapid Review Panel (RRP) panel provides a prompt
assessment of new and novel equipment, materials, and other products or
protocols that may be of value to the NHS in improving hospital infection control.
NHS Innovation Centres (hubs)
England has nine regional NHS Innovation Centres (hubs), aligned to Regional
Development Agency and Strategic Health Authority boundaries. The Centres
were established in 2004/05 to champion the cause of healthcare innovation
and to identify, develop and commercialise innovations and IP created by NHS
staff. Many hubs also offer services for industry such as advice on new product
development, clinical investigations, access to clinical know-how at an early
stage, selling social care services, and establishing R&D consortia. Hubs can
interact with industry from any region or country. They are not restricted to
dealing with companies in their own region.
105
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
DH National Innovation Procurement Plan
The innovation landscape across the Department of Health and the NHS is
complex, with numerous elements and players, operating at local, regional and
national levels. The National Innovation Procurement Plan published by the
Department of Health in December 2009 seeks to bring clarity and coherence
by organising the adoption of technology-led innovation at the regional level,
pivoting around the Strategic Health Authorities (SHA) Innovation Lead located
within each Authority.
Each SHA holds a legal duty to promote innovation, raising the profile of
innovation and encouraging a more rapid adoption of innovation throughout the
health service. ‘Innovation Leads’ are employed in each Authority to deliver this
requirement. Supporting this legal duty, an Innovation Fund has been created to
support faster innovation and more universal diffusion of best practice.
Under the Commercial Operating Model, Commercial Support Units (CSUs)
are being created in each region, and as part of their role, will support their
Innovation Lead by providing a key interface between industry and the NHS.
CSUs are expected to be in place by April 2010.
Quality Productivity Challenge
In December 2009, the Department of Health launched, NHS 2010–2015: from
good to great, its vision for meeting the Quality and Productivity Challenge –
achieving high-quality care through innovation and prevention in a leaner
financial climate. From good to great identifies opportunities for transforming
quality of care though technological and service-led improvements. Box 6.2
illustrates an example of new technology use by healthcare providers and
greater interaction between the product suppliers and healthcare providers.
106
The role of Government in the Life Sciences
Box 6.2: Roche Diagnostics Limited
The Peninsula Purchasing and Supply Alliance was established in 2002 to
support the treatment of more patients with improved outcomes at a lower
cost. The Alliance is a network of five acute hospital trusts covering Devon
and Cornwall and provides procurement services for the hospital trusts in
Barnstaple, Exeter, Plymouth, Torbay and processes over 24 million laboratory
tests per year.
One of the Alliance’s first initiatives was to procure pathology services. The
goals were to reduce costs, increase productivity and improve communication
and connectivity. Roche Diagnostics was chosen as preferred supplier for
pathology services. Roche provides all equipment and reagents, maintenance,
upgrades, training, and reagent inventory as well as put their people on site.
The programme aims to offer the following benefits:
Cost efficiencies
A single source of supply for the entire network means greater cost
effectiveness and reduced administration costs. In addition, by transferring
risk to Roche, the laboratories are able to recover VAT in full. According to
Bruce Daniel, laboratory manager at Royal Cornwall Hospital, as a result of the
alliance senior lab staff has around 10% more time available to focus on their
core responsibilities rather than on admin and operational work.
Standardisation
A common family of assays in use across all the trusts, with standardised
reference ranges, makes comparing results quick and simple, even when a
patient is transferred from one hospital to another.
Improving productivity
There is greater flexibility for laboratory staff who are free to move between
locations, if needed, without the need for costly and lengthy retraining.
Further, as a result of the programme around 99% of laboratory results from
daily samples get to GPs on the same day, which impacts on the workflow and
patient treatment.
Better connectivity and communication
With a single family of software products, laboratories can be easily networked,
simplifying sample processing, enabling remote authorisation and rapid
transmission of results and direct comparison of quality control. In addition,
dedicated staff facilitates communication across the network.
107
Life Sciences in the UK – Economic analysis and evidence for ‘Life Sciences 2010:
Delivering the Blueprint’
(v) Improving access to finance
The Strategic Investment Fund
In Budget 2009, the UK Government established the Strategic Investment
Fund (SIF) to support a range of targeted investments across the UK economy
intended to strengthen its capacity for innovation, job creation and growth. The
Strategic Investment Fund is a two year time-limited fund set at £750 million.
Since its creation it has made a wide range of commitments to a diverse range
of projects. These include support for low carbon technologies, advanced
manufacturing, digital technologies and UK export promotion. While it is not a
fund that has been open for bidding from organisations or businesses to fund
their specific projects, officials from the Department for Business, Innovation and
Skills (BIS) have been working with business, devolved administrations and the
Regional Development Agencies to identify suitable investments. In many cases,
SIF projects have taken the form of joint investments with some of these key
stakeholders. The recently published interim report sets out in detail the projects
that have already benefited from SIF support159. Investment in development
facilities for Life Sciences companies have been made in the innovation campus
in Stevenage and the Edinburgh BioQuarter.
Box 6.3: Bioscience Park in Stevenage
In October, the Government announced a joint £37million investment between
the Strategic Investment Fund, the Technology Strategy Board (TSB), the
East of England Development Agency (EEDA), the Wellcome Trust and
GlaxoSmithKline to create a unique BioScience Park in Stevenage.
The Bioscience Park will provide access to specialist equipment and services
and knowledge sharing on drug development. In its first phase it will be home
to around 25 companies with plans to expand the available space five-fold.
The aim of the Park is to attract inward investments, spin-out and start up
companies and to increase collaboration in research activity. It will provide
access to specialist equipment and services and knowledge sharing on drug
development.
(vi) Reducing barriers to inward investment and accessing global markets
The UK Life Sciences Marketing Strategy
In 2007, the UK Government launched the UK Life Sciences Marketing Strategy.
This aims to produce an integrated marketing programme that maximises the
impact of the resources and enables the UK Life Sciences industry to achieve its
potential for international commercial success over five years. Its key objective is
to develop overseas trade and inward investment opportunities by promoting the
159 www.berr.gov.uk/files/file53157.pdf
108
The role of Government in the Life Sciences
UK Life Sciences industry in key overseas markets; thereby helping to generate
additional jobs, investment and revenue into the UK. Broadly, the objective is to
achieve three key benefits for the UK Life Sciences industry:
●●
●●
●●
Increased trade with international customers for UK Life Sciences companies;
Increased investment into the UK from international Life Sciences businesses;
and
Continuous improvement of the reputation of the UK Life Sciences industry.
The strategy aims to work across the diverse nature of the Life Sciences
industry, including biotechnology, pharmaceuticals, healthcare and medical
technology sectors, and be relevant to companies both large and small helping
businesses to augment their own marketing efforts by exploiting the UK’s
position as a desirable place to do business with and invest in.
Most recently, the Government, through UKTI, invested £1 million from the
Strategic Investment Fund to further promote the UK and NHS brands at flagship
Life Sciences events in the UK and overseas.
MedilinkUK and regional Medilinks
MedilinkUK is a national network of regional business support organisations
whose aim is to support regional businesses to thrive in a global market. The
regionally-based independent programmes in MedilinkUK work for a common
goal: to raise the profile of the medical and healthcare sectors in the United
Kingdom. Regional Medilinks offer a range of support services for their local
communities. These can vary from region to region but include, for example:
●●
●●
Developing the partnerships between the NHS, academia and industry to
assist the commercialisation of ideas;
Gateway for national and international clients interested in developing
relationships (commercial, research or clinical) with the region’s medical
sector;
●●
Direct support to its members through a variety of projects;
●●
Signposting to funding sources, sources of expertise/advice;
●●
Business planning advice;
●●
Enabling networking;
●●
Brokering collaborations; and
●●
Investment readiness assistance.
109
Annex
Technical Glossary
Biologic drugs
A biological molecule used as a drug, for example a protein.
Bioprocessing
Any process that uses complete living cells or their components (e.g. enzymes)
to effect desired physical or chemical changes.
Biosimilars
Biosimilar medicines are follow-on versions of original biological medicines.
They are independently developed for sale after the patent protecting the
original product has expired. Unlike generic versions of small molecule drugs
biosimilars may not be identical copies of the original drug because of the
complex nature of biological molecules and their production.
Medical device
A diagnostic or therapeutic article that does not work by chemical action.
Medical or health technology sector
Companies whose business involves the development, manufacture or
distribution of medical devices as defined above.
Medical biotechnology sector
Companies primarily focused on the invention, development and bringing to
market a range of new therapies based on technologies such as antibodies,
recombinant proteins, gene and cell therapy.
Medicinal products
Article 1 of Directive 2001/83/EC defines it as: ‘Any substance or combination
of substances presented as having properties for treating or preventing disease
in human beings; Any substance or combination of substances which may
be used in or administered to human beings either with a view to restoring,
correcting or modifying physiological functions by exerting a pharmacological,
immunological or metabolic action, or to making a medical diagnosis‘.
110
Annex
Medicines
Any chemical compound that may be used on humans to help in diagnosis,
treatment, cure, mitigation, or prevention of disease or other abnormal
conditions.
Pharmaceuticals
The chemical components of medicines or drugs but the terms are often used
interchangeably.
Pharmacovigilance
Continuous monitoring of medicines and maintaining safety oversight.
Regenerative medicine
The replacement or regeneration of human cells, tissues or organs to restore or
establish normal function.
Stem cells
Immature cells that have not yet been developed into specialized cells. They
are found throughout the human body: in early embryos (embryonic stem
cells) and in adulthood. Stem cells can be considered to be medicinal products
or investigational medicinal products, if they are being presented as exerting
principally a pharmacological, immunological or metabolic action.
Stratified medicine
An approach to medical treatment where patients who are more likely to benefit
or experience an adverse reaction with a given therapy are identified.
Vaccines
A preparation of dead or weakened disease causing organisms (pathogens), or of
substances derived from them, that is used to induce the formation of antibodies
or immunity against the disease causing organism. A similar approach is also
being used to target vaccines against cancer cells.
111
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