Staff Writer

LONDON – The U.K. is seeking to dispel the clouds of Brexit uncertainty with a new industrial strategy that, in addition to promising a conducive business and regulatory environment, includes a side serving of targeted support for life sciences.

Although a departure in being the first explicit national industrial strategy since the 1980s, the 18 months of reviews and consultations in the run up to publication of the strategy mean there are no surprises.

However, the strategy does consolidate several policies for which the U.K. Bioindustry Association (BIA) has lobbied in that time, particularly over increasing the provision of patient capital to allow biotechs to scale-up and become self-sustaining.

Amongst other initiatives to increase the supply of capital, the government will encourage pension funds – which are sitting on £3 trillion (US$4 trillion) – to invest in riskier, more speculative assets.

The government will put £2.5 billion into a national innovation fund, which the strategy says will pull in a further £5.5 million from co-investors in the private sector, including newly liberated pension fund capital.

Martin Turner, BIA's policy manager, said there are no real regulatory barriers to pension funds investing in life sciences. "It's more a question of not understanding the sector and being risk-averse – and that pension funds are so large they can't make small investments."

The national innovation fund will not be about the government "picking winners," Turner said. There will be private sector managers to oversee the fund and perform due diligence. That will be important in reducing the risk and keeping the fees low for pension funds.

"The most important thing is the scale of the investment in U.K. equity," Turner said. "This is a way for taxpayers to benefit from the growing life sciences sector . . . and provide a way for pension funds to invest."

Against that boost in capital availability must be weighed the likelihood that the U.K. will lose access to the EU's European Investment Fund, which is an important funding source for biotechs.

In addition, tax relief on R&D spending by private companies is to increase from 11 percent to 12 percent, and the rules on private individuals investing in startups through the Enterprise Investment Scheme (EIS) and the Seed Enterprise investment Scheme (SEIS) are being changed to allow tax relief on investments up to £2 million.

At the same time the classification will be tightened so that only companies designated as innovative can access money through the scheme, to prevent EIS being used as a shelter for low-risk capital preservation.

"EIS and SEIS have been extremely successful and we want to see them continue. But they need to be better targeted to knowledge-intensive companies," said Turner.

There also are plans for a £50 million fund to provide innovation loans for companies that are on the cusp of commercialization, but have not yet reached the stage where they can secure loans from commercial lenders.

Other general measures that are supportive of life sciences include a pledge to increase the U.K.'s shockingly low level of investment in R&D from 1.7 percent currently, to the OECD average of 2.4 percent of gross domestic product, over the next 10 years.

In terms of the public contribution, government spending on R&D will rise from £9.5 billion in 2016/17 to £12.5 billion in 2021/22.

At the same time, decisions on how that money is invested will be consolidated, with seven subject-specific research councils and the national innovation agency Innovate UK being brought together under one roof, as UK Research and Innovation, from April 2018.

Pharma support

The government was able to claim early success in giving the life science sector the certainty and incentives needed to invest in the U.K. despite Brexit, with announcements from Merck & Co. Inc. (known as MSD in Europe) that it is to set up a new drug discovery center in London and from Qiagen NV that it is establishing a genomics hub in Manchester.

The government initially gave the impression the Merck facility would create 950 new jobs, whereas in fact, the plan is to transfer 800 staff from the company's existing U.K. headquarters 22 miles north of London to the new center, which is expected to open in 2020.

The new facility is a "major opportunity" to work with the U.K. government to build on the "forward thinking and ambitious" industrial strategy, said Louise Houson, MSD's U.K. managing director.

Merck's commitment "proves the process outlined in the industrial strategy can give companies the confidence and direction they need to invest in the U.K.," said Business Minister Greg Clark. Investments by other pharma companies in support of the life sciences sector deal are due to be signed in the coming weeks, according to Clark.

As yet, there are few details of Qiagen's investment in Manchester, other than a commitment to expand its current operations in the city, which are built on its 2009 acquisition of Astrazeneca plc spin-out DxS Ltd., a pioneer in companion diagnostics.

That sale provides a perfect case study for the industrial strategy's observation that, with a few exceptions, "innovative companies do not grow to be substantial, big or strong" because investors "prefer selling businesses to growing them." Increasing access to capital is the way to prevent companies being bought by foreign acquirers, the strategy says.

While seeking to boost investor confidence by setting out a long-term plan, the government acknowledges uncertainty will continue until the terms of future trading arrangements with the EU are agreed.

It may not be in its gift, but the industrial strategy reiterates the government's aim to minimize uncertainty and risk by negotiating a two-year transition period after the U.K. leaves the EU in March 2017.

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