UK Pharma, Life Sciences and Medical Technology sectors see R&D spend hold up despite Brexit and Covid-19, survey reveals

UK Pharma, Life Sciences and Medical Technology sectors see R&D spend hold up despite Brexit and Covid-19, survey reveals

• R&D spending either up or unchanged since the pandemic and set to increase in 2021
• Funding has remained the same or increased since the pandemic started in March 2020
• 50% of respondents fear for prospects of foreign investment in the UK due to Brexit

A survey of 75 pharmaceutical, life sciences and MedTech businesses, including fast growing SMEs in these sectors in the UK, conducted by top 12 accountancy group MHA, indicates R&D spending is being maintained and is set to rise this year, despite Brexit and the impact of Covid-19*. This is good news for the government’s objective of making the UK a world class destination for investment, talent and innovation.

According to the results, the majority of companies surveyed have either maintained their level of R&D spending since the start of the Covid-19 pandemic in March 2020 (40%) or increased it (21%), with only 17% reporting a decrease. In addition, when asked to make a prediction for their R&D spend across the course of 2021, 38% thought R&D spending would increase while a similar percentage (35%) thought it would remain the same and only 9.5% projected a decrease.

The survey provides some early indication that the recent trend of increasing R&D spending by UK businesses will not have been broken by the Covid-19 pandemic and associated economic downturn. According to the Office for National Statistics (ONS), R&D spending in the UK by businesses has been following an upward trend in recent years, with a 3.3% increase in 2019 (the last year from which data is available) from 2018. In 2019 total R&D spending by businesses across the country came to £25.9bn, of which the pharmaceutical industry contributed 6.9%, the largest single proportion**.

The broadly positive picture was also reflected in the percentage of respondents saying funding opportunities have either increased or remained constant since March 2020 (59% on aggregate), despite the pandemic and Brexit. Indeed, 38% of businesses surveyed reported funding being more available since the start of the Covid-19 pandemic, with almost all of these attributing the new opportunities to an increased demand for medical products and research in response to Covid-19. However, over 27% were unsure whether the level of funding would increase or decrease. Of those companies who had seen funding opportunities decrease (15%), only 20% attributed this to Brexit, with 50% saying the lack of funding was not related to Brexit.

However, almost 50% of respondents thought Brexit makes foreign investment in UK pharmaceutical, life sciences and MedTech companies less likely and of these an overwhelming 93% said this would be a long-term issue with effects felt for a decade or more. On the other hand, 39% of respondents said Brexit would either make no difference to foreign investment or make it more available.

Yogan Patel, partner and Head of the Pharma, Life Sciences and MedTech sectors at MHA, said: “Overall neither Brexit nor Covid-19 have significantly damaged the sector and a substantial minority of firms have seen a pandemic boost to their funding prospects. In addition, our survey suggests the trend of increasing R&D spending, reported by the ONS, is continuing unabated. Some credit for this should go to the UK’s system of R&D tax relief which is relatively well constructed. It is a more flexible system than other nations, such as France or the USA use, and encourages risk, providing scope for a project to change over the course of development.

“On the other hand a substantial proportion of firms in our survey believe overseas investors are liable to be put off from investing in the UK because of Brexit. There is likely to be some truth in this. If a foreign investor wants to invest in an early stage businesses in the UK, they will be worried about facing challenges if they wish to expand into the EU at a later date. Meanwhile mature businesses which have made the UK their headquarters may be reconsidering their investment decision. We have seen this ourselves first hand, with some businesses headquartered in the UK now looking to invest directly into the EU by setting up subsidiaries and warehousing for ease of movement and selling of products.”

*The survey was conducted between 16 April and 1 June 2021

**ONS Statistics