Future Of UK Life Sciences: How To Reshape The Industry .

FUTURE OF UK LIFE SCIENCES:HOW TO RESHAPE THE INDUSTRY FOR THE 2020Sintended for the UK market to EU markets prepared to pay a higher margin. Angela McFarlane, marketdevelopment director at IQVIA, believes that the availability of products such as anticoagulants, statinsand contraceptives is at risk. As of December 18th 2019 the government had issued temporary bans onexports of 33 vaccines and medicines including 19 hormone replacement therapies, in order to preventshortages in the UK.However, some analysts, such as Dan Mahony, a partner at research-based investmentmanagement company Polar Capital Partners, believe that, instead, there is a real chance that thepound will rise on any good news. This may unleash pent-up investment, pushing up capital inflows.After all, in comparison to many markets, the UK (for all its Brexit risks) is a safe haven. The inflow couldstrengthen, along with the pound, if the Bank of England indicates it is more willing to raise interestrates to reduce inflation. All of this would be likely to dampen exports still further, however.Foreign fieldsThe second area where uncertainty will continue is over the UK’s international relationships,both political and commercial. After all, the past three years of wrangling have only been over thewithdrawal agreement with the EU. The permanent trade deal has yet to come, and negotiations willbe equally fraught. Quarrels over tariffs, quotas and oversight will continue. For the pharmaceuticalindustry, there will be a tension between the need for UK-EU mutual recognition in multiple areas, andthe UK’s ability to introduce more flexible rules that will encourage innovation or speed the uptake ofnew medicines.At the same time, the UK will need to forge new trade links outside the EU. For a start, there areabout 40 countries that have EU free-trade agreements (FTAs), economic partnership agreements(EPAs) or mutual recognition agreements (MRAs) in place. By December 4th 2019 the UK had struckcontinuity deals with just 20 of these and some of the remaining countries—including Canada—arebargaining hard. A rollover is not necessarily simple. In addition, the UK must strike deals from scratchwith important markets such as the US, China and India.Beyond this lie the continuing political risks of Brexit. The process of leaving the EU has laid barethe disconnect between the UK’s political parties and the electorate. Even more worryingly, Brexit hasraised profound questions about the British constitution, and about the status of Scotland, Wales andNorthern Ireland within the UK. After the strong showing of the Scottish National Party in the recentelection, it has increased the risks that the UK itself—and indeed the EU—may fall apart.For companies in the life sciences sector, all of this will mean continued uncertainty that may affecttheir performance for years to come. It will oblige them to remain flexible and to keep contingencyplans in place. But it will not change companies’ long-term strategic goals. The two overriding questionsare whether the products they are selling meet a real need for patients, and whether the UK remains asuitable place to develop and make those products.4 The Economist Intelligence Unit Limited 2020

FUTURE OF UK LIFE SCIENCES:HOW TO RESHAPE THE INDUSTRY FOR THE 2020SUK pharmaceuticals exports by value, 2018(US bn)2017/18% 6Saudi ussian Federation0.3Austria0.3EU13.9 bnWorld 30.0 bn8.5-7.5-17.9Source: UN Comtrade.5 The Economist Intelligence Unit Limited 2020

FUTURE OF UK LIFE SCIENCES:HOW TO RESHAPE THE INDUSTRY FOR THE 2020SWhere the UK can winSo, once the dust settles on Brexit, how can the UK life sciences sector start to carve out a globalrole? The answer lies in mapping the UK’s current strengths against the trends occurring inthe industry. The development of personalised medicines, the search for value and efficiency, thedevelopment of Big Data, the need for elderly care, the rise of emerging markets: these all holdopportunities that the UK needs to grasp.The government has already made a start on the process. In August 2017, just a few months afterits industrial strategy green paper was published, Sir John Bell published a detailed strategy for thelife sciences sector. This was followed by a Sector Deal, backed by 25 global companies, that unlockedfunding for R&D, health data and innovation. Since then, several initiatives have emerged, includingDigital Innovation Hubs, which aim to tackle Britain’s biggest health challenges, and the AcceleratedAccess Collaborative, which aims to roll out innovations to patients more quickly.Professor Bell’s strategy also set out some ambitious targets for the sector. He calls for a rise inR&D spending from 1.6% to 2.6% of GDP within five years, including heavy investment in “moonshot”research. He advocates the recruitment of 2,000 new discovery scientists and the creation of lifesciences clusters that would draw in global investment. He also wants the UK to create four companieswith market capitalisation of over 20bn over the next ten years.Professor Bell’s targets differ slightly from those outlined by the government, which is aiming forR&D spending to reach 2.4% of GDP by 2027 and 3% in the longer term. However—possibly to avoidthe trap of picking winners—neither the government nor Professor Bell outlined where that researchspending should be focused or how exactly it will help to build up the life sciences sector. We thereforeasked our panel for their thoughts on the UK’s future direction, and how it can compete internationally.Country ranking R&D expenditure and pharmaceutical exportsHighHybHybrid modelLowPharmaceutical export US rankingsExport modelInnovation modelLowInnovation expenditure rankingHighSources: OECD; UN Comtrade.6 The Economist Intelligence Unit Limited 2020

FUTURE OF UK LIFE SCIENCES:HOW TO RESHAPE THE INDUSTRY FOR THE 2020SThe innovation gameOur panel, like Professor Bell, was convinced that the UK’s future lies in capitalising on its reputationfor innovation and research, which has fuelled the growth of its universities and earned severalNobel Prizes. Although UK exports may have fallen recently, longer-term prospects for innovativemedicines—indeed for all types of healthcare innovation—are strong.Many of those opportunities lie in China. For much of the past decade, its focus has been on uptakeof generics: fast-growing demand has made it the world’s second-largest market for prescription drugs(behind only the US). In terms of demand for new active substances (either small or large molecule),China has accounted for less than 1% of global sales over the past decade, against 65% for the US,according to IQVIA data.In the past 18 months, however, this has changed. Tariffs have fallen, marketing approvals havesoared and reimbursement has expanded, fuelling growth in innovative drug sales. Indeed thatgrowth is described as “unprecedented” by David Peacock, managing director of MSD, a major UKpharmaceutical company. The opportunities for UK-based innovators are huge, but they need to begrasped before China becomes an innovator in its own right.The UK’s selling pointsSo, what kind of innovations should the UK focus on? For the life sciences sector, one answer seems tolie in genomics, primarily for diagnostics but also for preventative health. In the past few months, NHSEngland has become the first public healthcare system to use genomics in clinical care, initially for rarediseases and some types of cancers. A Genomic Laboratory Hub situated within the Addenbrooke’sTreatment Centre in Cambridge offers testing for up to 10m people, in what will undoubtedly become acornerstone of future care.Allied to this, future areas of specialisation for the UK are likely to include promising cell and genetherapies. In March 2019 the UK government announced that it was to invest more than 1bn per yearin a national platform for clinical research, including 60 cell and gene therapy trials. Investment invector manufacturing includes the Cell and Gene Therapy Unit at King’s College London, as well as thenew Cell and Gene Therapy Catapult in Stevenage.The UK can also capitalise on its role as Europe’s major hub for clinical trials. It currently attracts atleast one-quarter of the EU’s clinical trial applications, and has developed a particular expertise in trialsfor advanced therapy medicinal products (ATMPs). Other promising areas include the developmentof more sophisticated medical software, or innovations enabling better old-age care (includingneurology), or improvements in ambulance services.Finally, Dan Mahony of Polar Capital Partners points to the promise of innovations that bringtogether several British areas of excellence, such as finance, creative arts and education. It would bepossible, for example, to develop innovative financing models, including insurance, for cell and genetherapies; or mobile health apps that build on the UK’s skills in video gaming; or medical educationtools that take advantage of the UK’s academic reputation.Digging out dataMore broadly, however, the panel agreed that the UK’s key differentiator lies in its ability to bringtogether cohesive health data, genomics, its expertise in clinical trials and its world-leading role in7 The Economist Intelligence Unit Limited 2020

FUTURE OF UK LIFE SCIENCES:HOW TO RESHAPE THE INDUSTRY FOR THE 2020Sthe gathering of real-world data. This means benefiting from the data gathered through UK Biobankand Genomics England, and marrying them with data collected through NHS Digital or through thePrescribing Information System for Scotland, which covers social care as well as healthcare.“If we get a well joined-up data set, we

The Economist Intelligence Unit (The EIU) is the research and analysis division of The Economist Group, the sister company to The Economist newspaper. Created in 1946, we h ave over 70 years ’ experience in helping businesses, financial firms and . pound will rise on any good news. This may unleash pent-up investment, pushing up capital .