Could the proposed changes to R&D benefit the Pharma and Life Sciences sector?
The 2021 Autumn budget should give us a better steer as to where HMRC are taking the UK’s two R&D regimes, particularly around the potential inclusion of data acquisition and cloud computing costs as part of qualifying R&D expenditure.
The government’s aim is to raise total investment in R&D in the UK in the next five years, ensuring strong incentives are in place for innovation. As many countries have their own R&D regimes, there is a bit of international competition to make sure the UK’s schemes remain attractive to existing claimant companies and those who wish to relocate to the UK.
HMRC will also look to determine what changes should be made to the type of expenditure eligible for relief. With particular relevance to the biotech and pharmaceutical industries, HMRC will look at whether the current definition of R&D which has broadly applied since 2000 needs to be updated to reflect the quantum leaps made in computing and data analysis since then.
Software costs and consumables are two areas of expenditure which are potentially qualifying expenditure for R&D purposes. Problems existed as consumables had to be “consumed” i.e. used up and there has been some uncertainty where the acquisition of data is a “consumable” eligible for R&D as the data remains intact and is not “consumed” like a physical material in the development of new drugs and medicines.
Likewise, any software costs had to be directly incurred for the purposes of the R&D and the increasing move towards utilising as software as a service has also caused issues. Is this the acquisition of software used directly in the R&D or the procurement of a service.
With the industry going through a digital transformation, the need to give R&D relief for data acquisition and cloud computing costs will become more pressing if the UK wishes to have a competitive R&D regime.
R&D in the pharma industry – digital transformation
R&D in the pharmaceutical industry is widely recognised as a long and difficult process which can take years to complete – often 10 years or more to bring a single drug to market, and that is just for those who have managed to successfully negotiate the clinical trials. It has been estimated that pharmaceutical companies spend $2.8 billion testing drugs that don’t make it to market. The recent Covid 19 vaccination also highlighted the need to dramatically speed up the drug discovery process to deal with new pandemics.
A key growth area which offers promise in offsetting these challenges is in the field of data analytics for drug development. Big data analytics involves the collection, manipulation, and exploitation of large data sets for predictive modelling and statistical analysis and is currently a focus of the industry. For example, GSK’s recent R&D spending plan focused on data analytics and advanced technology to support investments in immune system related research.
More broadly, large biological data sets can enable research teams to uncover insights by exploring phenomena in a non-biased way. Execution of projects can be enabled by centralising and monitoring outcomes for patient trials. Data is being harnessed by the industry in innovative ways to drive forward research projects. Challenges exist around the integration of data systems within the pharmaceutical value chain, particularly where linking up laboratory and clinical data and new technical offerings will need to be developed to overcome this.
In coming years, we are likely to see developers further implementing the use of artificial intelligence (‘AI’) and machine learning into pharma R&D with applications, for example for the modelling process to predict the effect of medicines on various conditions. We have seen that Google’s DeepMind made the headlines during summer on its mapping of human proteins resulting from the use of AI and a quick google of the internet can quickly find many more technology companies using their expertise to assist with clinical trials and drug development.
Many pharmaceutical and biotech companies will look to acquire this knowledge from third party computing and data analytic companies rather than develop this expertise in-house, so it is important that these costs do qualify for R&D relief if they are to become more embedded in the way in which we research new medicines.
The future of R&D
Digital transformation is therefore likely to be the future of pharma R&D and the government has recognised that UK R&D relief must reflect this. Whilst the cash benefit of an R&D claim can be up to 33% of R&D costs identified, it has been estimated that up to 90% of pharma companies miss out on claims due to a lack of public knowledge on who may qualify for relief under the scheme. The potential for including digital costs in future claims should drive forward future claims for relief by the industry.
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