HC 805 Pfizer's decision to close its research and development facility at Sandwich

Written evidence submitted by the
Association of the British Pharmaceutical Industry (PZ 01)

1. The ABPI welcomes the opportunity to participate in the Science and Technology Select Committee’s current inquiry into the environment for pharmaceutical research and development in the UK.

2. Media comment since Pfizer’s announcement of the closure of its facility at Sandwich has not always been accurate in its interpretation of the research and development challenges facing the industry both in this country and globally. Significant global economic pressures mean the model for the development of new medicines is changing; industry is seeking both to boost its capacity to innovate and to reduce its operating costs. It is therefore vitally important that regulation, legislation and the incentives and rewards for innovation accommodate these shifting dynamics. The UK, as the second largest beneficiary of pharmaceutical investment, must play a leadership role in creating an environment that balances a great science base and reward for innovation with the need to have an efficient healthcare system.

Summary

3. The Global Picture

- There is great potential in bioscience and its long-term ability to address a high level of unmet medical need.

- The global pharmaceutical industry is seeking new ways to improve the productivity of research and development operations, to bring medical advances to patients quicker and more cost-effectively.

- It is doing so in an environment characterised by revenue loss from major patent expiries and downward global pressure on drug prices combined with increased demands from regulators and payers to demonstrate the broader value of medicines.

- A combination of these pressures means that many companies are rationalising and consolidating their R&D and manufacturing organisations as they restructure their global operations.

- There needs to be concerted action amongst key players (industry, governments, regulators and others) for a more intelligent, adaptable and streamlined development pathway, reducing the cost of new medicines.

4. In the UK

- Life science in the UK is an ecosystem, involving academic research, small and medium sized enterprises (SMEs) and larger companies, working ever more closely together. In an increasingly competitive global environment a strategy for growth must strengthen the environment for all three, in ways that encourage their interaction to be better here than elsewhere.

- The UK is an international leader in the life sciences sector, with world class basic research giving the potential for continued competitiveness.

- The Government has already recognised the potential of the life sciences sector to make a significant contribution to its ambition to rebalance and grow the UK economy. However, with global restructuring underway, the UK will continue to lose out without improvements to its innovation environment.

- Many of the right policies are already in place to ensure that we can continue to innovate and produce the new medicines needed by patients to improve their quality, and length, of life.

- The ABPI has made a number of recommendations to Government to support growth in the sector, some of which could be implemented relatively quickly without significant cost.

- The single largest obstacle to future UK leadership in the life sciences is the widespread reluctance of the NHS to adopt of innovation, and this needs to be a priority for the Government.

About the ABPI

5. The Association of the British Pharmaceutical Industry (ABPI) has 150 members including the large majority of the research-based pharmaceutical companies operating in the UK, both large and small.  Our member companies research, develop, manufacture and supply more than 80 per cent by value of the medicines prescribed through the National Health Service (NHS). 

6. The ABPI is pleased to assist the Science and Technology Committee in its inquiry into how UK Plc can use science to drive economic growth. In this memorandum we will set out how pharmaceutical research and development is changing, what challenges to growth currently exist in the UK and how these might be addressed. The ABPI recently submitted a detailed list of recommendations to the Health and Life Sciences Growth Review and will shortly do the same for the Manufacturing Growth Review. We would be happy to share both of these documents with the Committee.

The Challenge for Pharmaceutical Research and Development – the global picture

7. The development of a new pharmaceutical product takes on average 12-15 years. For every 25,000 compounds tested in the laboratory, 25 will enter clinical trials, 5 will be approved by regulatory authorities and only 1 is likely to recoup the investment made. Industry success rates in getting medicines to market have declined in recent years and the average cost currently stands at around £1 billion.

8. It is clear that this is not sustainable in the long-term. Analysts are sceptical of the value of many companies' R&D pipelines, indicating that they are not convinced that the industry can earn a rate of return that exceeds its cost of capital through investment in R&D. A number of challenges exist:

- Research is now focused less on the blockbuster approach typical of the 1980s and 1990s, where a medicine was used to treat broad patient populations. As scientific understanding develops, research is increasingly targeted to the populations that are most likely to respond to the treatment. While this is without doubt great news for patients, it does mean that the market for new drugs is smaller.

- It is becoming harder and harder to innovate - more often than not the scientific advances achieved are incremental rather than transformational, while clinical trials are becoming technically more complex as a result of both the nature of the diseases being treated and the regulatory environment. The attrition rate of compounds in development is very high – we need better science and technology to predict safety more accurately earlier in the development pathway as well as better translational models and biomarkers as predictors of efficacy.

- Payers around the world, from national governments to insurance companies, are applying ever more scrutiny to medicines. The burden of proof is greater than ever, focusing on more than just clinical efficacy and requiring new approaches to drug development to understand the true "real life" value of each drug. Health Technology Assessment has become commonplace and increasingly sophisticated over the last decade as bodies such as NICE seek to assess the value of new medicines. The type of evidence required by HTA bodies differs from that of regulators and while the industry understands and completely accepts that it must provide evidence of the value of its products, the research required to do this adds to the costs of R&D.

- 2010 saw significant downward pressure on prices as a result of US healthcare reform and European cuts to medicines bills. In the UK, the 2009 Pharmaceutical Price Regulation Scheme delivered cuts of 3.9% in 2009 followed by 1.9% in 2010. The UK taxpayer is now benefiting from prices of branded medicines that are amongst the lowest in Europe.

- The industry is experiencing a "patent cliff", as blockbuster medicines launched in the 1990s are approaching the loss of market exclusivity as a result of patent expiry and the entry of generic competition. This will result in companies facing substantial revenue losses over the next few years which means that less money is available to invest in R&D. The impact of this will vary from country to country, but in the UK it is estimated that the revenue lost to the innovative industry in the period 2009-2014 will be £8.5 billion.

9. There is great potential in science. Globally the industry is trying to ‘crack the code’ on R&D, to adjust business models and investments in order to bring medical advances to patients quicker and more cost-effectively, and to develop medicines in areas where there is still significant unmet need. Several trends are emerging:

- The advent of new business models:  as pharmaceutical companies try to get access to cutting edge innovation as soon as possible, we are seeing much greater interest and scale in academic and "pre-competitive" collaborations.  Increasingly, large companies are sourcing some of their pipeline products and services from SMEs. Not only is this good for industry and smaller companies but it represents a great opportunity for the world's leading academic institutions, and could also serve to plug the gap left by the drying up of venture capital funds during the economic downturn.  There is a move to more open source innovation or sharing of intellectual property between organisations.

- Rightsizing of investment in R&D:  with excess industry capacity and returns lower than the cost of capital on R&D investments, most companies are looking to reduce their investment in internal R&D.  Some are also narrowing their focus, investing in a smaller number of diseases where they believe they have a higher likelihood of getting a compound to market that will return its investment.  In some cases, this focus is regrettably resulting in job losses.

- Consolidation of the global R&D footprint: because of the way the industry has evolved through acquisitions and collaborations many companies find themselves with multiple R&D sites that have grown up around discrete areas such as specific diseases being researched. In order to improve operational efficiency and address the challenges of running multiple R&D sites, some companies are finding they must close sites.  In cases where companies have sites that are almost exclusively dedicated to research in diseases they no longer see as viable, these tend to be the first sites to go.  This is typically unrelated to the geography in which they operate and more focused on the activities they undertake.

Leveraging Pharma R&D to stimulate economic growth in the UK

10. The pharmaceutical industry has the potential to make a significant contribution to the Government’s ambition to rebalance and grow the UK economy. This country is an international leader in the life sciences sector, competing at a global level through our ground-breaking research institutions and highly skilled workforce.

11. We are, however, operating in an increasingly competitive global environment. To ensure life sciences can continue to be a cornerstone of the economy, we must have a market that drives growth and investment confidence.

12. Life science in Britain is an ecosystem, involving academic research, SMEs and larger companies, working ever more closely together. But all of them are under pressure and in the process of change:

- Academics are realising that they can and must engage in product-focused innovation, not just conduct world-leading basic research, if they are to remain well-funded magnets for the world's best researchers.

- SMEs in search of funding for growth have to collaborate with large companies. This type of collaboration provides the best opportunity for SMEs’ promising products to reach global markets.

- Larger companies, under more economic stress than ever before from patent expiries and downward payer price pressure, are pruning their internal R&D machines. They are also sourcing both pipeline products and support services from SMEs, which have often proved more productive as discovery engines.

13. Each of these three groups needs the others in order to thrive. A UK strategy for growth in life sciences must strengthen the environment for all three, in ways that encourage their interaction to be better here than elsewhere. We set out below a summary of the ABPI’s recommendations to the Health and Life Sciences growth review:

Creating the right environment for research

14. Global competition for pharmaceutical investment is intense, and the capital that funds this investment is mobile. In order to position itself as a viable contender to challenger markets in the EU, US, and Asia, the UK must create the right frameworks, incentives and partnerships to attract and retain high-value investment into this country.

15. The UK does not have a globally competitive corporate tax regime. In 2008 the effective global tax rates were 29% for UK pharma, 20.2% for US pharma and 17.8% for EU pharma. The reduction in corporation tax, introduction of the Patent Box and review of R&D tax credits are welcome steps on the way to making the UK more competitive.

16. The ABPI believes that improved collaboration in research, a more dynamic regulatory framework, and improved fiscal incentives would serve as an effective starting point to encourage greater investment in the pharmaceutical sector. In particular, we recommend:

- The implementation of the Academy of Medical Sciences’ review on the regulation and governance of medical research. The UK desperately needs to streamline the process involved in the establishment of clinical trials, and improve the culture for clinical research

- The creation of a more level playing field between the UK and EU in clinical trials. In particular, we call for an amendment of the UK Patents Act and a swift conclusion of the review into the EU Clinical Trials Directive

- The use of information for research must be at the forefront of the NHS information revolution as this potentially provides the UK with a unique advantage in attracting research. Electronic health records should be made available urgently as this is vital for personalised medicines and pharmaco-vigilance

- The introduction of Consortium Relief, as developed by the Office for Life Sciences (OLS), to encourage investment in SMEs. The Treasury should also explore the potential to use tax incentives to fund the development of spin-out companies, and should streamline the administrative process for spinning-out

- The improvement of incentives to encourage greater cross-sector collaboration. For example, the Government should sustain its support for the Charity Research Support Fund to maintain joint-working between the private and third sectors, and should implement the revised Research Excellence Framework as soon as possible to reward academic collaboration with industry

- Improved movement of individuals between academia and industry, facilitated by joint academic-industry appointments, increased availability of sabbatical placements, and the embedding of industry collaboration and exchange within research council training fellowships

- The protection of all research scientists from animal rights extremism, and the maintenance of public sector support for the National Centre for Replacement, Refinement and Reduction of Animals in Research

Establishing a skills-led infrastructure

17. The pharmaceutical industry is dependent on the presence of a dynamic, highly-trained workforce. The UK has been home to some of the world’s leading life scientists, and has fostered some of the biggest breakthroughs in medical science. But we are consistently failing to develop and realise all the latent talent in this country.

18. The ABPI believes that only co-ordinated action from Government, industry, schools and universities will unlock this potential. We recommend:

- Improved guidance for students, to help them understand what careers can follow from bioscience degrees

- Courses which are better suited to students’ increasingly varied backgrounds. In particular, we recommend increased provision of part time higher education opportunities, and increased use of tax breaks for training apprentices

- The Higher Education Funding Councils for England, Wales and Scotland should continue to offer schemes that allow employers to part-fund and jointly commission courses. They should also review the incentives for universities to improve the high cost practical training they offer science and engineering undergraduates

- The Life Sciences Advisory Council needs to develop a strong dialogue with universities and employers to ensure education and training reflects the needs of the market

- The Home Office and BIS should actively engage with industry on an ongoing basis to understand the impact of immigration policy on pharmaceutical and contract research companies. We strongly agree with Government that developing a domestic skills base in the bioscience sector is important, but until the benefits of any future investment are realised – in at least 10 to 15 years time – it will be necessary to supplement UK-born workers with highly-skilled international recruits.

Securing uptake and improving outcomes

19. The pharmaceutical industry in the UK is fully committed to the Government’s ambition to deliver world-class outcomes for patients, which in itself will support economic growth.

20. The uptake of new medicines in the UK is comparatively low and slow, and the NHS’s current efficiency programme (requiring savings of £15 - £20 billion) is likely to exacerbate this problem. As the Government re-frames and re-structures the NHS to make it more effective and efficient, we have the opportunity to make the Health Service a sponsor and supporter of innovation in life sciences research. We will only be able to achieve this if the new structures within the NHS, from the system for reimbursement of medicines (including the introduction of Value-Based Pricing from 2014) to the way GP consortia commission their services, are configured to promote the appropriate use of new treatments.

21. To deliver this step-change in the way the NHS rewards innovation, we recommend:

- Co-development of the final framework for Value-Based Pricing by Government and industry, to ensure the new system rewards innovation and R&D

- The introduction of a national outcome measure on the uptake of new medicines of proven value

- The creation of joint-working initiatives to improve uptake of medicines during the period of NHS reform, and to inform future R&D investment decisions.

Conclusion

22. The pharmaceutical industry is undoubtedly going through a period of major change, but as development pathways adapt and our scientific knowledge expands there is great opportunity to bring new advances to patients. Countries that are able to provide supportive environments will be well placed not only to secure global investment but to ensure their populations are able to benefit from access to new medicines. The UK has many strengths but action is needed in the areas we have highlighted to ensure it can capitalise on these in the future.

Association of the British Pharmaceutical Industry

February 2011