Resuscitating innovation

Laura Mole and Paul Gershlick

Matthew Arnold &amp, Baldwin LLP

Do you think the pharmaceutical industry is doing enough with regard to innovation? Laura Mole and Paul Gershlick discuss what opportunities are available in the UK to resuscitate innovation.

One issue which resurfaces time after time in industry articles, is innovation. Is the industry doing enough? Will the glory days of the nineties and the age of the blockbuster drug come again?

These are genuine concerns. The implications of the patent cliff, tightened regulatory controls and expensive research and development practices are taking their toll. These concerns have called into question whether the UK pharmaceutical industry can keep up the pace and continue to bring new, innovative drugs to market on a regular basis.

There is no doubt that the UK has the capacity, the skill and the facilities as a nation to create fantastic new and better drugs, that our scientists are driven towards this goal and that the pharmaceutical industry has the talent to see its dream of new drugs for previously uncured illnesses come to fruition.

But the risks associated with R&amp,D, more specifically the costs, can be extensive. The average cost to develop a drug is now approximately US$1-4 billion and comes with over a decade of tests and trials.

The justification of these costs is the potentially staggering profits pharma companies can make from a patented drug which secures protection in multiple countries around the globe. But what if failure to achieve a patent was a significant, rather than a minimal, risk? What if US$1 billion had been spent, only to find that the drug could be produced in another country without having to pay the premiums demanded by patented products that reward the innovation?

The law has certainly seen a string of big disappointments for the industry, and Big Pharma in particular, in terms of patent applications, the two most notable being the Brüstle v Greenpeace case and the recent Novartis patent application rejection in India for its improved formulation of the drug, Glivec. Both decisions have been met with mixed reactions.

Some heralded the decisions as a victory for free access to drug development and cheaper drugs for impoverished countries, whilst others have warned that the cases are a sign of poorer things to come for the industry, including restricted R&amp,D practices in India and a retreat from stem cell and bioscience research in Europe.

But surely the biggest and most important question is: if there is no protection, or obtaining a patent is more difficult, how will companies find the funds in return, and where is a safe haven, to continue to produce new or better drugs? If there are no new drugs, the world will collectively be a poorer place for it.

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“The average cost to develop a drug is now approximately US$1-4 billion and comes with over a decade of tests and trials.”

Look no further than the UK. The UK Government wants Britain to remain a sanctuary for innovation. Part of that involves the encouragement of successful new patents and innovation through research and development. Pharmaceutical businesses, big and small, should be taking advantage of the UK Government’s help at hand for UK innovation. Here are key areas developed by the UK Government in this area:

• Patent Box – As of 1 April 2013, certain businesses have been entitled to a new scheme set up by HMRC called “The Patent Box”. The new scheme enables certain people to take advantage of a lower rate of corporation tax (ultimately 10%) for profits from patented products – whether they are the patent owner, or even a licensee that has exclusive rights to use them. The rules are also wide enough to consider other innovations for relief, such as certain medicinal or botanic innovation rights.

• Research and Development Expenditure Credit – In the last budget, the UK Government announced an increase of research and development expenditure credit from 9.1% to 10%. The research and development expenditure credit is a tax relief for companies undertaking R&amp,D. In brief, it allows a company to enter a credit in its profit and loss account, which reduces the overall cost of qualifying expenditure. It is the rate of this tax credit which will be increased from 9.1% to 10%. The City firm, Deloitte, has stated that the increase will provide approximately £1.1 billion worth of tax relief to innovative companies over five years.

• Patent Act Amendments – The UK Government has announced that it plans to amend the Patent Act to scrap patent restrictions on the use of patented drugs in certain areas of research and development. This change in the law will allow the life sciences sector to trial new treatments using patented drugs without fear of legal action. The flexibility and freedom this change in the law will bring to scientists in the UK will allow (and hopefully encourage) innovation to expand through the examination of combination drugs not previously tested due to fear of prosecution for patent infringement. The amendment will exempt clinical and field trials from patent infringements under the Patent Act.

• UK Life Sciences Strategy – The UK Life Sciences Strategy was launched by the UK Government in December 2011. The Strategy aims to keep the UK as a world leader for innovation through a number of measures. These measures include the encouragement of new collaboration models, including bringing academics, industry, investors and the NHS together for a common purpose and resource sharing, and the investment of £310 million in the discovery, development and commercialisation of research (to name but a few).

An example of how the UK has benefitted from new collaborations is the Stevenage Bioscience Catalyst - the first open innovation bioscience campus in the UK supported by an impressive list of stakeholders, including GlaxoSmithKline and the Wellcome Trust. The Strategy looks at a wide range of UK life science activities, from simple actions such as increasing the number of apprenticeships schemes, right up to the most complex and innovative technology research, including high-throughput gene sequencing technology, synthetic biology studies and the examination and development of cellular therapies.

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“Some heralded the decisions as a victory for free access to drug development and cheaper drugs for impoverished countries...”

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Pharmaceutical businesses (and those that benefit from their products, such as exclusive licensees) should look at the above options and see how they can use one or a number of these opportunities to help their organisation resuscitate innovation. Get involved in collaboration, open up your resources, get professional advice on The Patent Box and re-examine whether there is something which can be done to open up new and exciting prospects for your business.

The UK is a really exciting place to be for pharmaceutical and life sciences, and as English lawyers we cannot help but feel enthusiastic and energised about any measure which sees UK businesses prosper and our reputation as a world leader in the industry enhanced and supported.

Let’s keep the country that discovered penicillin and the double helix structure of DNA at the forefront of innovation, use the measures available to the industry and explore how (and where) your business can benefit – to the benefit of us all.

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