Life sciences: UK government’s grand rhetoric does not match the reality

Depending on the day of the week AstraZeneca is either Britain’s biggest or second biggest company listed on the London Stock Exchange. At the time of writing the giant pharma group is the second biggest, worth £179 billion, just a smidgeon behind Shell as the UK’s most valuable corporate. 

AstraZeneca is also one of the UK’s biggest employers, with a workforce of around 8,000, a tenth of its global headcount, and it supports another 41,000 jobs in the supply chains around its five sites. Thousands of private investors and pensioners benefit from its business with dividend income through their pension schemes.  

The Anglo-Swedish giant is also bold: it spent more than $1 billion on building its brand-new global R&D headquarters – known as the Discovery Centre – at the heart of the Cambridge Biomedical Campus, which is now Europe’s most exciting centre for bio-medical research.

Opened two years ago, the Discovery Centre employs around 2,000 highly skilled scientists and researchers for its research in the fields of oncology, cardiovascular research, renal & metabolism, respiratory & immunology and rare diseases. It’s pioneering research, discovering new drugs and therapies which are or will be life-saving: there are 15 new molecular entities in the pipeline right now. 

As Sir Pascal Soriot, AZ chief executive, said when opening the building two years ago: “Our ambition today is to not only unveil a building, but to also drive the next wave of scientific innovation.”

One of the reasons AZ chose Cambridge as its global epicentre is the city’s extraordinary and tightly-woven eco-system in areas from precision medicine to AI. Based next door to Addenbrooke’s Hospital and Papworth, AZ scientists work alongside the clinicians but also with more than 200 local partnerships across academia, business and leading science institutions. 

As one Cambridge professor once put it to me, the secret to the city’s great success is because the person working on the ground-breaking formula you need is only in the pub next door or a bike ride away. 

As we saw with the roll-out of the first Covid-19 vaccine, AZ also works closely with colleagues at Oxford University on research as well as other life science clusters around the country. Indeed, Soriot and his team have been central in establishing the UK as such an attractive place for the life sciences industry, operating its second biggest manufacturing plant and European packaging centre in Macclesfield, Cheshire, which has helped the north-west become a serious hub for life sciences. The Midlands has its own cluster with the Coventry-based McKesson being the first company in the world to roll out the Pfizer vaccine at scale.  

While AZ, along with GSK, are the giants of the industry, there are at least another 6,300 life sciences businesses with a combined turnover of £80.7bn employing more than 256,000 people. Not only are these enterprises in the business of life-saving but they are also big business, with thousands more jobs supporting the sector which make the industry so exciting. 

Even successive governments have realised how exciting, with David Cameron appointing the world’s first life science minister, George Freeman, now minister of state for science.

Rishi Sunak has gone one step further, creating a new department for science and innovation in his ambition of turning the UK into a science superpower –  although bizarrely the life science portfolio has been chopped in three. Jeremy Hunt, the Chancellor, even name-checked life sciences as one of the country’s five most important sectors on which to focus.

Here’s the thing. All this rhetoric does not match the reality: the once-thriving life sciences industry is coming under huge pressures, most of them as a consequence of the government’s misguided – if not stupid – policies on issues ranging from corporation tax to the VPAS tax pharma pays to the NHS.

The problem first came to the surface in December when the Association of the British Pharmaceutical Industry warned that the enormous hike in the NHS sales levy, a voluntary agreement under which drugmakers pay rebates on sales of branded medicines to the NHS if its spending on drugs rises by more than 2% a year, was undermining investment. The trade body warned ministers the hike to 26.8 percent for 2023 would be devastating, and more than double that of any comparable country, taking UK clawbacks to levels seen in Romania and Greece. The EU average is about 8 percent.

If the UK cannot sort out the levy, the ABPI claims the government’s Life Sciences Vision will not be deliverable and that pharma will disinvest from the UK. After the new hike, drugmakers will have to pay almost £3.3bn in sales revenue to the government, up from £600m in 2021 and £1.8bn in 2022 under the voluntary pricing agreement. US drugmakers AbbVie and Eli Lilly have recently pulled out of the scheme.

GSK’s Dame Emma Walmsley added her voice to the criticism, saying the industry had reached a “tipping point”. On top of the higher VPAS, she said the UK needed reverse the decline in clinical trials (down 40% over the last few years), speed up regulatory approval for new treatments like the new wave of vaccine technology that’s being created right now and deploy the latest medicines more rapidly. 

Another negative factor is the planned cut to R&D tax credits to smaller companies. This will hit the life science sector more than other areas as it is the smaller firms which are the source of so much innovation. The lack of entrepreneur’s relief is another challenge holding the industry back. 

No wonder then that along with others from the industry, Walmsley was a signatory to a letter to the Prime Minister setting out their concerns. So far there has been no official response.

Although AZ is Britain’s biggest investor in the sector, Soriot had stayed away from the industry criticism. Until now. Last week the softly-spoken Soriot added his critique of government policy when announcing the  group’s final results. 

And it was worth the wait. This is part of the transcript of what he said: “The country was making a lot of good progress building a life sciences sector.  I have to say that in the recent past it has not been as supportive as we would hope.  At the end of the day, if we want a flourishing life sciences sector we need more than discovery science.”

“Discovery science and the research in the UK is one of the best in the world, and it will remain so.  Many companies – starting with us – will want to invest in research in the UK, but if you want a life sciences sector you need more than research.  Research is very important, but in the end it is a small number of jobs that are created there.  You need clinical development, statisticians, regulatory experts, manufacturing people an support functions that are helping all these teams achieve their work.  That is where you really create a large life sciences sector.”

Then came Soriot’s killer-blow: he explained why AZ is now building a new £300 million state of the art manufacturing plant just outside Dublin, rather than where it had been planned alongside the existing facilities in Macclesfield.

More pertinently, he said the decision to build in Ireland was made because the “the tax rate was discouraging” in the UK, referring to the  latest rise in corporation tax from 19% to 25%, which takes effect this April. (Ireland, even as a member of the EU, has a 12.5% corporation tax rate.)  As he put it more simply: “You need an environment that gives you good returns and incentive to invest.”

He went on, and it’s worth quoting his words in full: “That means a lower corporate tax rate and, unfortunately, it is going up.  You need good access and you need to know that the products you are developing are going to help patients.  Otherwise, you do research but you do not develop here.  You develop in countries where basically you know you are going to get access and you are going to get a price that can justify the investment.”

“Those are some of the things you need and, unfortunately, we are not in an environment where we see that happen.  What we see is price reductions that are really, really very large, and this disincentivises companies. In fact, lately, we have made a $400 million investment in a state-of-the-art manufacturing facility, which we wanted to make in this country and we have made in Ireland, because the tax rate was discouraging here in the UK.  I think these are some of the things we want to see happen so not us, necessarily, but the whole industry invests in the UK.  We are very committed, but we need to see supportive policies for the whole industry.” 

Despite the great success of recent years, Soriot’s decision to build in Ireland and the industry’s war over the VPAS, are a tragic indictment of Sunak’s cack-handed policy over tax and support. Any other country in the world would have been throwing subsidies at AZ to persuade Soriot to build in the north-west. What better way of achieving the so-called levelling-up than more investment and hundreds of new low and high-skilled jobs ? 

It’s no accident that AZ has not made any new investments in the UK for the last two years. You do wonder if Sunak – or any of the many ministers involved – even listen to what the industry is telling them or take the problems seriously.  Or is the natural scepticism within the NHS and the Department of Health and Social Care towards the pharma industry, now so great that the concerns of Walmsley, Soriot & Co are being willingly ignored?  

One bio-medical chief told me that the PM had been warned personally that cutting R&D tax credits would hurt small life science  companies particularly badly because they are a great source of innovation.  His reply was to ask why had nobody told him.

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