UNITED KINGDOM — The UK’s life sciences sector is experiencing a concerning situation as foreign investment in the industry dropped by £0.9 billion (US$1.1 billion) from 2021 to 2022, according to a government report.
The latest Life Sciences Competitiveness Indicators report reveals a substantial decline in inward foreign direct investment (FDI) in the UK life sciences sector, with the estimated value falling from £1.9 billion (US2.45 billion) in 2021 to £1 billion (1.29 billion) in 2022.
The report indicates that the UK has fallen from second to ninth place in a comparative ranking of countries based on foreign investment in their life science industries.
While the US also experienced a significant decrease in life sciences FDI during the same period, it retained the top position. In contrast, Ireland’s life sciences FDI doubled, propelling the country to second place in the rankings.
As a result of this decline, the UK dropped to ninth out of 18 comparator countries in 2022, with countries such as Ireland, India, Singapore, and Belgium becoming key beneficiaries.
Additionally, the UK witnessed a significant decline in equity finance raised, with the amount falling from £7.2 billion (US$9.29 billion) in 2021 to £3.3 billion (US$4.26 billion) in 2022.
Both the number and amount raised through initial public offerings (IPOs) also experienced notable drops.
The Association of the British Pharmaceutical Industry (ABPI) attributes the decline in investment to the increased clawback rates imposed on manufacturers of branded medicines in the UK.
The rates rose from 15% in 2022 to 26.5% in 2023. The ABPI has previously cautioned that unless the UK addresses these excessive and internationally uncompetitive rebate rates, it will struggle to attract investment, jobs, and research partnerships.
Richard Torbett, Chief Executive of the ABPI, emphasized the need to create an attractive investment environment in the UK.
While acknowledging the country’s potential as a global life science leader, Torbett stressed the importance of addressing the rebate rates and making the UK a genuinely appealing prospect for companies and investors.
The report’s findings align with recent calls from the medicines manufacturing alliance, highlighting the significance of not only discovering and developing new medicines but also manufacturing a substantial share of them in the UK.
Brian Henry, Chair of the Medicines Manufacturing Industry Partnership, emphasized the need for sustained efforts to leverage the UK’s strength in early-stage science and translate it into successful medicines manufacturing, which would contribute to long-term growth, investment, and job creation.
Unfriendly tax environment for international investors
The UK’s life sciences sector is encountering further criticism as companies and drug manufacturers claim that the country’s tax environment is becoming increasingly unfriendly for international investors.
This comes in the wake of recent investment decisions by major pharmaceutical companies, such as AstraZeneca and Eli Lilly, which have chosen to invest in manufacturing centers in Ireland rather than the UK.
In February, AstraZeneca announced a £274 million (US$360 million) investment into manufacturing centers in Ireland instead of the UK.
Similarly, Eli Lilly suspended a potential investment in Britain, citing a “stifling commercial environment.”
The tension between the UK government and pharmaceutical companies largely stems from the Voluntary Scheme for Branded Medicines Pricing and Access.
While aimed at controlling the drugs bill for the National Health Service (NHS), it effectively acts as a sales levy, creating challenges for the industry.
In addition, clawback rates that pharmaceutical manufacturers are required to pay on their UK revenue have significantly risen. This year, the rates reached 26.5%, compared to 15% in 2022.
The Association of the British Pharmaceutical Industry (ABPI) has repeatedly warned that unless the UK addresses these excessive and internationally uncompetitive rebate rates, it cannot expect companies and investors to choose the UK as their base.
Richard Torbett, Chief Executive of the ABPI, expressed the difficulties of reversing the situation when international markets turn away.
“When international markets turn away from you, it can be tough to turn things around,” said Richard Torbett.
“The industry has repeatedly warned that unless the UK addresses the excessive and internationally uncompetitive rebate rates, it cannot expect companies and investors to base themselves here.
“The UK continues to have all the hallmarks of a global life science leader, and ministers are right to single out the industry’s potential to drive UK economic growth, but talk can only get you so far.
“We need to fix the commercial environment and make the UK a genuinely attractive investment prospect.”
Furthermore, a Global Date survey released recently revealed a sharp decline in overall investment funding for UK-based start-ups compared to the previous year.
The first half of 2023 saw a total of 706 venture capital funding deals worth US$7.2 billion in the UK, whereas during the same period in 2022, there were 989 funding deals with an investment value of US$15.9 billion.
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