The debate over the UK’s membership of the European Union is heating up, with both pro-and anti-EU groups having launched their respective campaigns in advance of the EU referendum, which is widely expected to take place in 2016. In the latest in our series on the effects of a “Brexit” in the life sciences area, Claire Skentelbery looks at the potential consequences for the UK research base, life science start-ups and the country’s ability to lead European industry-academia collaborations.
The United Kingdom has long been proud of its research and commercial science base, having pioneered many scientific breakthroughs and driven scientific collaboration worldwide. It is the headquarters for some major European organizations, such as the European Medicines Agency, and boasts commercially mature clusters in England, a strong CRO and clinical presence in Scotland, and a growing medtech sector in Wales. This is all underpinned by a university sector that has the strongest national presence in Europe in the global university rankings.
Within the European Union, the UK is a significant participant in the huge collaborative research programs (Framework Programmes), with both industry and academic participation. In the last Framework Programme (FP7, 2007-14), the UK had 17,379 participants in FP7 projects, second only to Germany with 17,950; it also came a close second in finance received, with €6.8bn, behind Germany’s €7bn.
A new seven-year program, Horizon 2020 (H2020), is now driving scientific collaboration in Europe and includes a high level of industry integration, from big pharma through the Innovative Medicines Initiative (IMI) down to the smallest SMEs, using the new SME Instrument, which helps high-potential companies develop innovative products and services.
The UK makes a hugely positive impact through international collaboration and its European integration should be celebrated, not viewed as any kind of threat to national achievement. Global objectives that would not otherwise be achieved are delivered through large-scale collaborative programs that harness and develop the skills of many nations, and the cost of scientific progress is shared.
The Day Swiss Science Accidentally Left Europe
The following assessment of the potentially adverse consequences of a Brexit for the life sciences sector is not based on speculation – Switzerland has conveniently provided an example of what happens, which we can mirror onto the UK so as to review the impact it would have on each part of the life science sector and its associated service base and skills set.
Switzerland is outside the EU, but it gains significant access to the EU internal market and collaborative funding programs such as H2020 through a series of sectoral agreements signed in 1992 that covered free movement of people, public procurement, removal of technical trade barriers and other areas. According to the Swiss Biotech Report 2015, the chemicals, pharma and biotech sector accounted for 41% of all Swiss exports in 2014. 83% of these sector exports came from pharma, which is a big sector and one reliant on imported skills and market access.
These sectoral agreements had underpinned Switzerland’s access to the EU internal market and science funding… until now.
On Feb. 9, 2014, the Swiss population voted for a federal popular initiative to limit mass immigration initiated by the conservative Swiss People’s Party. The constitutional amendment, to regulate immigration with upper limits, won by 50.3% to 49.7%.
Switzerland then found itself in the unenviable position of having to inform the European Commission that it could not sign a free movement accord with the newest EU member state, Croatia, resulting in the immediate suspension of Swiss participation in the Horizon 2020 and Erasmus programs. The popular vote result has had a double impact on the valuable Swiss life science sector. From a research perspective, in losing direct participation in H2020 it effectively closed international collaboration with immediate effect. From an investment and trade perspective, the uncertainty suddenly hanging over market access made any investment beyond the short term questionable.
In a crisis move, the Swiss government had to ensure that its science base was kept open for international partnership and it also had to plug the cash flow gap left by its exclusion from H2020 and the Erasmus program, a mainstay of academic scientific funding in Switzerland.
A sticking plaster consisting of three measures was therefore applied to the Swiss scientific research sector:
- Creation of a temporary national back-up scheme to replace the European Research Council.
- Two-year access as full partners to H2020 priority one research (including ERC and Marie Curie funds, worth more than €35bn), and contributing financially upfront to Brussels based on Swiss GDP and population base.
- Two-year access to H2020 priority two (industrial leadership, €17bn) and three (societal challenges, €30bn) – here the government pays for Swiss partner participation but without any coordination role.
However, this solution is expensive, short term and moves Switzerland to the periphery of European research – a lesson that is highly relevant to the UK in both financial and scientific terms. This hard won access finishes at the end of 2016, when the European Commission has told Switzerland in no uncertain terms that it expects ratification of the Croatia protocol and full respect for freedom of movement of persons. If it cannot do that, then all access to H2020 will be lost, not to mention the impact on access to the internal market if Switzerland breaches its contractual freedom of movement obligations.
In research priorities two and three, where the Swiss government is funding participation directly, it has agreed to recognize all evaluation decisions made in Brussels, as a parallel Swiss evaluation would erode further any confidence in Swiss partners. This means that Switzerland, even outside Horizon 2020, has no control of its national science budget and must fund domestic research based on a decision made in Brussels. For the UK, this is the polar opposite of what the anti-EU groups wish to achieve.
Creating a parallel Swiss administration for participation in European research has been expensive, and represented a reversal of the situation where Switzerland was a net beneficiary of EU funds (like the UK). It had to replicate what happens in Brussels, which makes a contribution to the centralized Brussels machinery start to look like very good value for money.
Finally, Switzerland was formally excluded from all discussions and decision making regarding the development of European programs. It is not at the table when funding directions are discussed or when work programs are agreed, so it follows scientific priorities and administrative framework conditions set in Brussels.
In a nutshell, Switzerland now pays more to get less, coordinates almost nothing internationally, and has no control over its scientific budget or which topics to fund.
Despite agreeing temporary access to H2020, Swiss participation has crashed and there has been a fundamental loss of confidence in Swiss researchers as partners.
The numbers for participation in European Research Council (ERC) funding tell their own tale:
|ERC projects awarded||FP7 2013||H2020 to date (2014/15)|
Both UK and Swiss numbers are down in the first year of H2020 compared with FP7 in 2013, reflecting the number of projects that have not yet been officially added to the European projects database. However, where the UK is seeing 12% fewer projects, Swiss participation has dropped more than threefold. The scale of reduced funding can be directly replicated into the UK academic systems – a 75% drop in ERC funding will impact research across the spectrum.
Moreover, the timing of the EU referendum will exacerbate the impact for the UK – Switzerland lost access to H2020 during the break between the end of FP7 and the beginning of H2020, and the government had time to rapidly renegotiate access by the time H2020 was launched. The UK will have no such luxury: the referendum will fall in the middle of H2020 and there will be a gap of at least six months when the UK has no access to proposal applications while negotiations take place.
Losing Research Leadership
The big impact for the UK from Swiss-style access to H2020 will be a loss of coordination roles. Of the projects in which the UK participated in the FP7 Health program, it coordinated almost 23%. In H2020, the coordination percentage is a staggering 34%, ahead of Germany (29%). The UK is an extremely good project coordinator, with a keen market drive and an entrepreneurial ecosystem.
These coordination roles are almost always taken by universities, which have developed experienced and sophisticated management teams that not only deliver a solid project but also apply their expanded skills into business planning and a more strategic development of university key strengths.
There are fundamental advantages to coordinating international collaborations, and such a loss would reshape the UK research landscape. Inevitably, there will be a loss of revenue. Coordinating an international partnership brings significant additional income and can fund management, business development or technology transfer posts, enabling universities to scale up their professionalism in research management and exploitation.
The coordinator also invariably drives the science in a project – they are the ones that initiate the project idea, develop the consortium and undertake most of the proposal development. This loss of coordination will also damage the UK’s ability to develop, attract or retain leading researchers, whether established group leaders or ambitious young scientists. The dog eat dog world of academic research means that you strive to lead your field and you only do so by leading international research.
Losing a mechanism to coordinate international projects will reduce the quality of research leaders in the UK, with the inevitable slide in global research rankings as a direct result. The strength of the UK science base will not buy it any favours in Europe should it exit. At present, the UK is a very strong participant in H2020 and a net beneficiary from FP7 and H2020, which means it gets out more money than it contributes. Instead of worrying about a lack of access to UK science, institutes across Europe would recognise the chance to occupy the coordination posts and budget in projects vacated by the UK.
Impact On Innovation
This is where a Brexit would start to impact the rest of the UK’s scientific ecosystem, including start-ups and industry-academia collaboration. Eroding a skills base in a knowledge driven economy is not generally considered good practice in bringing about the desired economic return. If a research group is not leading the field, it will not be generating patentable outcomes because the leader of the field, somewhere else, will have got there first.
Fewer patents mean fewer home-grown start-ups. Fewer start-ups mean lower cluster development and maturation, with the associated decline in expert scientific and business services that define a successful cluster. The level of industry-academia collaborations in the UK will also decline, as life science companies will not be able to access the novel research they need to add value to their platform.
It may sound alarmist, but it is a simple reversal of the theory behind economic return from scientific investment. Removing the ability of the UK to lead international research collaborations triggers a chain reaction across its innovation system. In the short term, the UK will be diverted by dealing with a contraction in the size and quality of its research base and universities will be adjusting to a much chillier collaboration climate. After a while, spin-outs will become an endangered species, particularly with the associated loss of business support skills in universities that were growing as part of their role in leading international collaborations.
Money Can’t Buy Class
This is a change that cannot be fixed by money, which is lucky because it looks like that isn’t going to be an option anyway for the UK. Even without leaving Europe, the UK science base is under threat, with the comprehensive spending review expected to result in a cut of 20-25% to science budgets delivered through the research councils. This will impact all aspects of research, including the industry-academia collaborations which are championed as a driver behind the UK’s scientific sector.
Combine the national cuts in science spend with the loss of leadership and funding that will come from any decline in H2020 participation, and the UK science base looks even weaker. The theory behind Brexit (with a complete withdrawal from H2020) is that spending in Europe is redistributed inside the UK. However, as a net beneficiary from H2020, withdrawal immediately reduces the potential UK science budget. Many universities also doubt that the full EU science budget would actually find its way back to UK scientific research – there are too many other sectors that could use the money and there are many ways to “mislay” budgets between Brussels and UK science councils.
If the UK were to try and rebuild its scientific leadership on a national basis, it would have to replicate the supporting research competences that it currently accesses through international collaboration, which is an ambitious undertaking to say the least. As it will be doing this alone, it will also have to work harder to out-compete the continuing collaboration in the rest of Europe and indeed globally. There are no logical ways in which the UK can replace international scientific leadership, even with unlimited spending.
The UK industry is not a strong performer in terms of EU funds. SMEs received the third-highest SME contribution under the FP7 Health programme, with €64m, but this was well behind Germany at €134m and France at €90m, and only just ahead of countries like Denmark – a disproportionately low level when the number of SMEs per country is considered. The UK was also ranked a lowly 21st out of 27 countries in terms of the percentage of EU funds allocated to SMEs as part of the total national contribution, with just 9.6% of EU funds awarded to the UK going to SMEs.
However, SMEs will be affected in many ways other than loss of access to direct EU research funds. Trade, employment and regulatory barriers will be the first negative impact, followed by a decline in the UK scientific ecosystem that supports investment and access to skills.
SMEs are adaptable by their very nature, and a simple way to avoid or minimize such barriers is to move elsewhere. A Brexit would see a flurry of UK SMEs setting up in EU countries in addition to their UK base: this is easy to do, and it will be a bonus for countries such as the Netherlands, Germany, France and Belgium, who will roll out the red carpet for incoming SMEs.
Moreover, in Scotland a Brexit would be expected to trigger a new independence referendum and a subsequent reintegration with Europe. Scotland already has an excellent science base and accessible international cities, and the rapid expansion of a relatively small industry base would be perfectly feasible.
The Swiss situation is showing the impact for industry of uncertainty over future access to European trade and collaboration. The advantage of multinational companies is, of course, that work can be carried out in more than one place, and Switzerland has seen large company research quietly transferred from local sites to other sites within the EU. Companies are preparing for the possibility of loss of access to Europe and are protecting themselves. A site, after all, does not have to be a large-scale employment base: it can just be an address or a market entry point, as consolidating pharma companies have been demonstrating globally. A history of large company operation in one country does not guarantee a future of large company operation, as witnessed in Sweden with AstraZeneca.
If the UK votes to leave the EU, it will have to be seen to be restricting free movement from other European countries. That places it in a position much worse than Switzerland, where freedom of movement is an integral part of its access to European funds and the internal market. Without freedom of movement, the UK won’t be creating any trade deals with Europe or even taking a small role in H2020.
Even if the UK can partly buy its way back into Horizon 2020 on the current Swiss model, it will need to re-establish its international scientific leadership. If it can’t gain access to H2020 (based on any national decision to restrict freedom of movement) it has to recreate a complete parallel international research infrastructure. Bilateral research agreements are the logical way forward. The UK will need to target countries within Europe and beyond where it sees strongest scientific fit and create funded partnerships.
This already happens between a number of countries in Europe, outside H2020, where national funds are aligned to fund international collaborations, usually between SMEs. The drawback is that other European countries commit most of their international research money into H2020, their primary tool for collaboration. The UK could no doubt set up a number of research agreements but they aren’t going to be high value – why would other countries reduce their H2020 spend, which buys them global collaboration, to spend with the UK? Its science base is excellent but it is not irreplaceable and once outside H2020, factors beyond its control dictate access to collaboration and leadership.
What about the US? From a research funding perspective, the huge US NIH funding program is already open to access for global applications. A recent review determined that the Karolinska Institute in Sweden was the highest recipient of NIH funds in Europe, so the UK does not perform strongly in a program that it is already free to access. NIH Awards are usually also made to individual organizations – they don’t drive collaboration and are not a mechanism through which UK actors are likely to build US partnerships. Ironically, that happens through H2020, where US partners are funded by Brussels within European collaborations – UK organizations are far more likely to build US research connections through a European pathway.
The forthcoming Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union, whatever its troublesome development, will reinforce a channel for research and commercialization flow across the Atlantic and the UK will probably have to replicate that exactly if it wants to stay economically in step.
It is hard to find positive routes forward for UK science outside Europe. An immediate shrinkage in the research base, feeding into a decline in early-stage commercial innovation, will be compounded by market uncertainty and restrictions pushing back on SME and large company operations. The UK will only have a limited control over its scientific destiny, as the rest of the Europe will continue to freely collaborate and set the scientific and regulatory framework. The decline in national science budgets will severely limit the UK’s capability to compensate for the loss of international leadership.
The referendum will be a serious turning point for UK science, and lack of awareness of the consequences plus voter apathy could derail European membership. The UK needs to learn from Switzerland and ensure that all actors in the scientific sector understand the consequences of exclusion from the EU internal market and funding programs.
Claire Skentelbery is secretary general of the European Biotechnology Network, a scientific network aiming to build strong research and business partnerships across different sectors and types of organisations in Europe. She has worked in the European life science sector for more than 15 years, and is also involved with the Council of European BioRegions, a network that addresses all aspects of building SMEs and clusters.
This article was originally published at Scrip Intelligence (paywall) and is reproduced here with kind permission from them.