London – To the imponderables of the Brexit vote to leave the EU, U.K. biotech investors must now add the uncertainties generated by U.S. President Donald Trump’s pledge to bring down drug prices.
There are threats and opportunities in both, according to directors of the U.K.’s new breed of patient and consistent capital funds. The crux of taking advantage – or not – will lie in building on an excellent science base to deliver innovative therapies that truly add value.
“Keep the focus on innovative science and you will still get good returns,” Nigel Pickford, chief investment officer of the quoted university technology commercialization company Touchstone Innovations plc, told delegates at the Biotech and Money conference which convened in London in February. “We are purely focused on innovation,” he said.
Large and unprecedented investments in biotech since the referendum last June are being held up as evidence that the U.K. life sciences industry is Brexit-proof. However, it is likely those investments were in the works and would have happened anyway. On the other hand, it is not known how many would-be investors have changed their minds or are pausing to see how the consequences of Brexit unfold.
For Pickford, an immediate concern is that the well-spring of innovation in the country’s science base could be undermined if scientists from other EU member states decide to leave. To date, the U.K. government has refused to give any assurances about working rights and it has even been suggested that EU nationals working here are bargaining chips in the Brexit negotiations that are due to get underway this month.
Over and above the status of individual scientists, Pickford said their families must be made to feel welcome, so they want to stay. “We have to nail that pretty fast,” he said.
Kate Bingham, managing partner of SV Life Sciences, agreed that where the U.K. has a leading edge in biotech is in the quality of its universities and the fact that academics are increasingly aware of how their science should be shaped so it can be commercially exploited.
Another advantage is cost, with SV Life Sciences investee companies based in the U.K. requiring only 60 percent of the cash burned by U.S counterparts to advance programs to the same point. “The U.K. from a R&D perspective is very strong,” Bingham said. “It is a more joined up system and it is cheaper.”
Layered onto the significant life science base in the U.K., there is now more optimism about the ability to deliver the commercial benefits, said Martin Murphy, CEO of Syncona Partners, the patient capital fund established by medical research charity Wellcome Trust.
“The ambition has gone up; people have been in several companies and so have investors. They want to build companies that would not look out of place in Kendall Square [Cambridge, Mass.]. The environment to really develop opportunities from basic research is there.”
RELOCATION OF EMA
Jim Mellon, chairman and co-founder of Mann Bioinvest, bashfully admitted he voted for Brexit, “for economic reasons,” but said that “one downside is the loss of the EMA.” However, he said he believes the U.K. will be able to retain its influence in pharmaceutical regulation once the EMA relocates from London.
Bingham said it is crucial that the U.K. is aligned with either the FDA or EMA regulatory processes. “You can’t have the U.K. out on its own; there needs to be a partnership with a central regulatory authority,” she said.
Murphy said one way for the U.K. to retain its position as a market for launching innovative drugs is to establish mechanisms supporting early access that are linked to reimbursement.
“Drugs have got to be paid for. If you get drugs into the system faster, then the U.K is an attractive place to bring drugs to market,” Murphy said.
Mellon pointed to the steep drop – from 15 percent to 4 percent – of clinical trials worldwide that are conducted in the U.K. Most of the fall can be attributed to bureaucracy emanating from the EU, he said. “If Brexit happens, it will be good for clinical trials.”
However, Pickford also pointed to a higher cost of carrying out trials in the U.K. compared to mainland Europe. “We need a reappraisal and a look at costs,” he said.
READING THE TRUMP RUNES
The indication that President Trump will give Medicare the right to negotiate prices underlines the importance of having innovative products, according to the panel.
“If you are developing the 13th me-too drug, with an incremental improvement, you will face downward price pressure,” Murphy noted. “If your drug is innovative and there is no other product, there can’t be counterbids, so innovative products will still be attractive.”
For Mellon, it depends on the type of treatment. Drugs for rare diseases that require repeat dosing are likely to face greater pricing pressure than cell and gene therapies where a single treatment may deliver long-lasting effects. “Orphan drugs are an obvious and easy target [for price reductions],” he said.
While she welcomed “putting the lid on” egregious examples of overpricing, Bingham questioned whether Trump will have his own way on price cuts, given the power of the pharma industry. She pointed to last November’s defeat of California’s proposition 61, the “Drug Price Standards Initiative,” saying, “Don’t underestimate the pharma lobby.”
However, she said she also believes the threat of pricing negotiations will force pharma to be better at explaining how it adds value. “The industry has to make coherent justifications for innovation,” she said. “I’m happy to see [Trump] squash prices if we get innovation through.”
Murphy suggested there will be repercussions for European biotech if President Trump changes the tax regime to encourage pharma to repatriate profits currently stored abroad. That will mean there are fewer incentives to buy biotech assets outside the U.S.
Pickford agreed that could prompt a slow-down in European merger and acquisition activity. “Most of our companies we try to sell – if capital is repatriated to the U.S., there will be a quiet time for a while, as people work out what to do,” he said.
For additional insights on the UK pharma industry’s post-Brexit path, please review the new report from Association of the British Pharmaceutical Industry (ABPI), “Open for Innovation: UK Biopharma R&D Sourcebook 2016,” now featured on State of Innovation.