Science and TechnologyWritten evidence submitted by Novartis

1. Novartis welcomes the opportunity to respond to the Science and Technology Committee’s inquiry on “Bridging the ‘valley of death’: improving the commercialization of research”. We are delighted to have the opportunity to outline the company’s views and experiences on the current research environment and how this could be improved.

Background on Novartis

2. Our research focuses on areas of unmet medical need, connecting science with patient insights in order to develop new treatments and drive industry standards. One of the world’s biggest industry investors in research and development, Novartis globally invests $8 billion annually, representing 16% of sales, and does more clinical research in the UK than any other company. Novartis employs over 3,200 people across eight sites in the UK, with responsibility for the research, development, manufacture and sales of pharmaceuticals, generics, biosimilars, vaccines, over the counter (OTC) and eye care products, as well as medical devices. This extensive portfolio of products and treatments enables Novartis to provide a distinctive perspective on the current situation regarding research, from early research through branded products, to generics, over the counter medicines and devices.

Opening remarks about research in the UK

3. Research investment in the UK by global sponsors has been in decline in recent years, dropping from 6% (global share) in 2002 to between 2% and 3% in 2008. Yet patients who enroll in clinical trials have better outcomes because a trial provides an earlier opportunity for the NHS to adopt innovative medicines, creates a highly skilled NHS workforce and positions the UK as a leading centre for the life sciences sector. However, research and development is a long and costly process, with most medicines taking between 12–15 years from inception to being available for patients and only one in 5,000 researched new compounds making it to market.

4. It is essential that all stages of development are considered when assessing the barriers to the commercialisation of research. This is because there are multiple factors at work, none of which can be viewed in isolation. For example, a key factor for Novartis in deciding where to place this early phase research is whether there is uptake of new and innovative medicines by the NHS once they have secured the relevant regulatory approvals. While we support the role of NICE in ensuring the NHS gets value for money and cost effectiveness for new medicines, when patient access to innovative medicines is blocked, it negatively impacts on the UK as a welcoming environment for innovative companies to place their research and development. Put simply, without adequate uptake of medicines, commercialisation will decline.

What are the difficulties of funding the commercialisation of research, and how can they be overcome?

5. The geographical allocation of funding for research in a global pharmaceutical company is competitive. Decisions about where to allocate funding are based on a myriad of factors including access to medicines, the skills base, the competence and track record of a particular country and, of course, issues around costs, efficiency and timeliness of research. In short, the UK needs to be a world leading home for research in order to attract global research investment.

6. This is particularly acute for Novartis. The R&D model for many pharmaceutical companies is changing, with many now looking to biotech companies and academia to provide them with new targets and new therapies, thus reducing the need for in-house activity. Novartis has publicly stated the opposite approach and continues to have major in-house R&D facilities, including our global centre for respiratory research which is based in the UK at our Horsham site in West Sussex. However, in order to sustain this position, we must demonstrate to our global parent company that the UK is a world-leading location in which to attract research funding, thus sustaining our major R&D investment in the UK.

7. The UK faces strong competition from emerging economies such as China, India, Brazil and Russia which offer strong incentives, both simple subsidy and contractual incentives, for pharmaceutical companies to establish R&D and manufacturing facilities. From an R&D perspective, these countries can enable companies to have a simplified path to registration and marketing. On occasion, the UK has lost out as few similar investment incentives have been offered.

8. The UK is also let down in attracting funding for research by barriers such as:

An overly complex market access environment with multiple hurdles and inconsistent decisions, which vary by location and result in slow and inconsistent uptake of new medicines.

Lack of consistency between MHRA and NICE on trial endpoints.

New product innovations being blocked by reimbursement bodies. The UK performs very poorly in the overall ranking for speed of uptake of new medicines, despite having among the lowest prices in Europe.

The use of unlicensed medicines in place of licensed alternatives undermines the regulatory process and presents a major barrier for Phase II-IV trial placement, innovation and investment.

A complex, costly and slow clinical research environment, with an historic lack of inter centre collaboration.

A lack of accountability for the delivery of commercially sponsored studies at NHS Trust level.

9. Overcoming some of the barriers outlined above will require a concerted focus on R&D in its entirety from basic research/translational medicine, clinical trials and outcomes research based on real life data. Whilst we welcome the Government’s proposals to position the UK as a global leader in open data, it is vital to recognise that this will not be a possibility without greater commitment to the skills that underlie all aspects of R&D work.

Are there any specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

10. We can only comment on difficulties in commercialising medicines research. The key point here is that pharmaceutical R&D investment in the UK is, to some extent, dependent on the willingness of the NHS to support and adopt the innovations that are developed as a result of R&D activity. Without adequate uptake, medicines commercialisation will decline.

11. There is a particular issue in the UK around slow uptake of new medicines. We have been encouraged by recent proposals from Government to address this in the Innovation Review and we look forward to working with the NHS to see these recommendations implemented.

12. Currently, Novartis is aware of a number of local NHS agencies that are seeking to provide patients with unlicensed medicines in place of licensed and NICE approved medicines in order to save money. This acts to undermine the medicines regulatory regime, with negative implications for patient safety, and creates significant business uncertainties for companies, thus damaging the UK as a location for investment in R&D.

13. Recent draft General Medical Council guidance on Good practice in prescribing and managing medicines and devices is potentially very damaging if adopted. By proposing to relax regulations around the prescribing of unlicensed medicines to allow cost savings to be achieved, this guidance creates uncertainties for companies investing in the R&D work required to bring a new treatment to market.

14. The issues outlined in the previous section also need to be addressed to overcome challenges with commercialisation.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

15. In general, the erosion of clinical research investment in the UK has been in favour of increased investment in lower cost markets. This decline in UK investment must be viewed in the context of an environment where the industry is under great pressure from patent expirations and increased demands from regulators and payers, so difficult decisions must be made by global pharmaceutical companies about where to place research.

16. China increased R&D spending by more than 20% year on year between 1999 and 2005, and it is now the second largest R&D investor after the USA, with a six-fold increase in investment planned by 2020. India is also investing heavily in research and science institutes, while Singapore has one of the fastest growing bioscience clusters in the world after recent government investment of over $2 billion. In order to compete with these countries—the scale of their investment, their population size and the magnitude of their current and future economic growth—the UK must also continue to invest in research to ensure it retains its comparative advantage.

17. The US, China and Singapore are performing well on early research. China, Germany and Eastern Europe are proving successful on late phase research by enrolling more patients into studies, through bigger centres which are better equipped to undertake research, and through stronger links between primary and secondary care. A similar “hub and spoke” approach in the UK would be enormously beneficial to our ability to attract investment for research.

18. With regards to manufacturing, Brazil, China and even the US have become attractive destinations for investment, through subsidies or contractual incentives. The recent Novartis flu vaccine manufacturing site in North Carolina received approximately 50% capital funding from the US government with 50% of ongoing operating costs for the next 15 years. Our Italian vaccine manufacturing plant has also attracted investment, partly due to co-located R&D.

19. Recent changes to the immigration system do not support and, in fact, may actively hinder business goals. In a specialist industry such as biologics manufacturing, the UK simply does not have the right mix of skills at present. To develop this expertise is a long-term process that will require significant investment in engineering, the sciences and on-the-job skills. Industry needs to select the right people with the right skills now, while the skills base across the UK as a whole is further developed and enhanced over the next few decades.

20. An added problem for the UK is that there are too few clinicians equipped to undertake research and the system in which they operate is too fragmented. The UK needs a talent pool of medics with an interest and expertise in research, drug development, translational medicine and the industry. With many of these elements having been removed from the basic medical training curriculum, the UK is no longer developing the same talent pool as other countries such as Germany or the USA. This leads to an impression that the NHS culture does not embrace R&D, as evidenced by the lack of performance management measures for research and the lack of ambition (for instance, 50% recruitment to a trial is considered a good result). We need to see a shift in NHS culture, with greater incentives for research and external partnerships.

21. Our perception is that, while there will probably be a reduction in high level scientific research, a small volume will continue to be located in the UK as long as British universities are world class, and there is recognition that a strong scientific and translational community needs to be coupled with a strong pharmaceutical base. However, unless there is a significant improvement in terms of the clinical research environment, medicines uptake and the regulatory environment for manufacturing, the UK will continue to see a decline in investment from the pharmaceutical industry in terms of drug development, production and commercial activity.

What evidence is there that Government and the Technology Strategy Board initiatives to date have improved the commercialisation of research?

22. The Government has made several moves to enhance the pre-clinical research agenda, but with mixed success:

Patent Box: in its current form, the Patent Box is not currently an incentive for a company like Novartis to invest in the UK because it is only open to companies that have registered the intellectual property (IP) in the UK. To rectify this, we would recommend that the Patent Box is extended to include income arising in the UK from overseas registered IP that is exploited here.

R&D tax credits: we welcome the recent changes to R&D tax credits which will mean that by 2013 we are able to account for the benefit more visibly, bringing the UK into line with other markets which are already able to do so and which attract more investment as a result.

However, we are concerned that this will be offset by the unintended consequences that the reduction in corporation tax will have on our ability to recoup investment made in R&D via the R&D tax credits. While the reduction in corporation tax is to be welcomed, this benefit will be enjoyed by all business sectors and, if the Government is focused on attracting more R&D specific investment, we would suggest consideration is given to neutralising the impact of the reduction in corporation tax.

Currently companies benefit from an uplift in the credit of 30%, which gives a tax benefit (at 28%) of 8.4%. As the UK rate falls to 23% from 2014, the effective benefit of the 30% uplift will fall to 6.9%. We believe that the uplift should be increased to, at least, keep the effective benefit level at 8.4%. Once public finances improve we would suggest that an effective benefit of 10% would be really powerful in terms of persuading businesses to move R&D to the UK.

Capability Clusters: we have been encouraged by the Government’s work on forming therapeutic capability clusters in respiratory and joint inflammatory diseases, and Novartis is a partner in both clusters. We believe these clusters could enable the UK to compete with global hubs, such as Boston, through collaboration of UK plc, academia and the NHS in sharing knowledge and skills.

23. We have also been pleased to see some initiatives focused on the later stage research agenda. For example, Government support for the research networks: NOCRI has helped to flag areas of expertise that have previously not been obvious; NIHR metrics are beginning to make a difference to the speed of start-up and recruitment for trials; and we are hopeful that the new Health Research Authority, alongside the Clinical Research Practice Datalink (CRPD), which will provide real life data, will also contribute to this new, positive support for R&D in the UK.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

24. We have been encouraged by recent Government announcements relating to research, particularly in the recent Life Sciences Strategy published in December 2011. We particularly welcomed Mr Cameron’s statement on R&D that “we are determined to support it, to invest in innovation, to stoke early-stage investment and to tear down the barriers to development...and above all to have your products tested and adopted in the NHS much more quickly”. We are pleased that it has been recognised that the NHS should work “hand in glove” with the life sciences industry because the sector is changing fast and “a new paradigm is needed”. We particularly welcome initiatives on the early access scheme, Clinical Practice Research Datalink and £180m Biomedical Catalyst Fund.

25. As explained above the critical success factor for the UK is how the challenges around access to innovative medicines in the NHS will be addressed, whether in terms of hurdles with NICE or local access barriers post NICE approval.

26. Overall, the strategy contains a strong focus on SMEs. We would like to have seen further measures to support established large pharmaceutical companies, which employ thousands of UK nationals, make a substantial contribution to the UK economy and are critical for growth in the UK. For this to succeed we need to see a shift in NHS culture, with greater incentives for research and external partnerships.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

N/A

What other types of investment or support should the Government develop?

27. A further area that could be looked at is the inconsistent and non-transparent approach many NHS Trusts have for calculating prices and incentivising research. In our view, it is essential that all stakeholders are incentivised fairly to participate in industry sponsored research. NHS trusts have historically managed income from research in a variety of ways but it should be expected that funding flow from commercial research is used to support investigator incentivisation and local infrastructure for research. However, there is currently no structured arrangement for this. The UK will only become competitive as a location for industry trials if the clinicians who run the trials are properly incentivised to deliver on their commitments to industry trials.

28. In Germany, for example, there is a system called the Gebührenordnung für Ärzte (GOÄ) which defines exactly the amount of money an investigator can get for a specific examination. Investigator fees are not negotiated individually and all investigators receive the same amount of money. The German system is widely considered to be the “gold standard” for their approach to incentivising investigators.

29. We recommend that the following steps are taken to address this situation:

Address the per patient reward disparity at a NHS Trust department level between commercial and academic grants to ensure that there is a level playing field.

Ensure that investigators are properly rewarded for their research in two ways:

Funds should go directly back to investigators’ departments and not “lost” in general NHS Trust budgets.

Where the funds do return to R&D departments, consideration needs to be given to investigators receiving a higher percentage of the total trial budget. 10% is not an adequate incentive.

Introduce a mechanism to ensure that NHS Trusts adhere to the NIHR costing template.

Overhead costs in NHS Trusts need to be dramatically reduced and more proportionate to the numbers of patients recruited.

Ensure that the Clinical Excellence Awards are able to continue as a valuable incentive in encouraging clinical research.

February 2012

Prepared 11th March 2013