Spending on drug development in the UK has never been higher. According to Statista, UK pharmaceutical businesses spent over nine billion pounds on R&D in 2024 alone, as part of a spending boom post-Covid.
Drug R&D is a huge driver of our economy, with the government’s Life Sciences Sector Plan noting that pharmaceutical research and development accounted for 17% of all UK business R&D in 2023.
But the pharmaceuticals sector still has some fairly large obstacles to overcome, particularly when it comes to bringing new drugs to market. With AI creating the potential to rapidly accelerate drug development, the UK is very keen not to fall behind, with the government setting some ambitious targets for the sector’s future.
In this article, we look at what’s driving the drug R&D market, the challenges the sector needs to overcome, where the current opportunities lie, and how R&D Tax Credits can boost pharmaceutical innovation.
What is driving drug R&D in the UK?
Government targets for life sciences
Drug R&D is benefiting massively from government backing, with the Industrial Strategy naming life sciences as one of the eight sectors with the highest growth potential.
Within this strategy, the government has set the target for the UK to become Europe’s leading life sciences economy by 2030 and the third-largest life sciences economy globally, behind the US and China, by 2035.
Faster regulation through the MHRA
The government wants to shorten the time it takes for new drug treatments to go from discovery through to clinical trials and into use. One key way of making this happen is making the Medicines and Healthcare products Regulatory Agency (MHRA) a faster, more agile regulator. They have recently published their MHRA Strategy 2030, which sets out their plans for making regulation faster to keep up with innovation while using AI and data to improve safety monitoring.
AI for Science and new research funding
As well as the Life Sciences plan, the government has also published an AI for Science Strategy, which says that the “first mission” is to use the technology to “speed up the research of new drugs and treatments”, with an ambition to develop trial-ready drugs within 100 days by 2030 and to deploy new treatments faster.
The Department for Science, Innovation and Technology (DSIT) has backed this ambition with an £8 million grant for the OpenBind consortium, which is building a large, industrial-scale dataset on how drugs interact with proteins to help train AI models for drug discovery.
The government is also investing £30 million in a new preclinical translational models hub to create a pipeline of novel translational medicine models.
Better access to UK health data
The government wants to give innovative companies better access to UK health data. To deliver this, it’s working with Wellcome, an independent charitable foundation that funds health research, to establish the Health Data Research Service (HDRS) to make it easier to access UK health data for research (including NHS data), backed by up to £600 million of investment.
Better access to health data could help as potential drugs move closer to human trials, especially with the UK’s homegrown advantage of having the NHS. The AI for Science Strategy says the HDRS will support the development of models that “improve prediction of human responses to interventions”.
What is holding back drug R&D in the UK?
Struggles with finding investment and regulatory challenges
R&D into creating new drugs is often cited as one of the UK’s real strengths (as mentioned in our introduction, pharma accounted for 17% of UK business R&D in 2023). However, the government’s Life Sciences Sector Plan acknowledges that the UK struggles with commercialisation and adoption, with businesses often finding it hard to find the necessary investment needed for growth.
However, a recent Parliamentary report on Medicines Security flagged several other serious barriers holding back drug R&D in the UK. It discusses some high-profile cases where investment in UK-based medicines R&D was withdrawn or paused. For example, Eli Lilly paused investment in UK R&D amid concerns about financial viability, and AstraZeneca paused plans to invest £200 million at a Cambridge research site.
Explaining what caused these companies to pivot away from their R&D and manufacturing operations in the UK, the BioIndustry Association pointed to “higher operating costs, limited tax and investment incentives and regulatory challenges.”
Clinical trial delays
Both the Life Sciences Sector Plan and Medicines Security reports found that clinical trials were underperforming, with it taking the UK longer to set up and approve trials compared to competing countries. In a startling example, the Parliamentary report said that getting approval for a clinical trial in the UK takes 60 to 90 days, compared to the US, which takes just 30 days.
Where are the biggest opportunities for drug R&D?
AI in drug discovery
Perhaps the biggest and most exciting opportunity is the use of AI in drug discovery. The government’s AI for Science Strategy says that the “richest AI opportunities” are concentrated in the preclinical phase of the drug discovery pipeline.
For example, in the discovery stage AI tools can find signals “scattered across vast scientific literatures” and buried in genetics and health datasets that no single researcher could ever hope to survey on their own.
The government also wants to make binding affinity, which is how strongly a drug molecule binds to its target, “far more predictable”, helping scientists choose and design drugs that work better with fewer “off-target” effects. It is also exploring how better developability models could “accelerate lead optimisation and preclinical testing”.
Human-relevant models and organoids
Another opportunity for R&D is developing more human-relevant models. The Replacing Animals in Science Strategy highlights 3D cell systems and organoids, which can recreate an environment “more representative of human tissue”. Not only is this more humane, but it could also create “physiologically relevant human disease models” with likely much better R&D outcomes.
It also points to developing new organ-on-a-chip technologies, which can simulate the functions and environment of human tissues and organs, with the potential to improve how researchers study drug and chemical behaviour in humans.
How can R&D Tax Credits support pharmaceutical drug innovation?
With the government currently prioritising and investing in technologies that can help to drive drug R&D, there is a huge opportunity for exciting new breakthroughs in the sector.
But despite access to funding holding UK drug development back, many businesses in the pharmaceutical industry are not taking full advantage of the tax relief the government has made available to them in the form of R&D Tax Credits, which offer generous financial incentives to encourage investment in science and technology (including drug development).
What counts as R&D in drug development?
R&D in drug innovation can be broadly defined as solutions or supporting activities that resolve a pharmaceutical unknown or uncertainty. It can be virtually limitless; however, some of the key areas we have identified as prime for R&D Tax Credits are:
- Medical device development, including correlating software development
- New product testing and development (including manufacturing process and methodology development)
- Trials to determine or improve the efficacy of certain treatments
- Increasing the capabilities of existing tools or procedures
- Attempts to increase the accuracy and reliability of existing protocols
R&D Tax Credits can help pharmaceutical companies working on drug discovery de-risk innovation by providing tax relief on qualifying research and development costs. To qualify for R&D tax relief, a project must seek to achieve an advance in a field of science or technology through the overcoming of scientific or technological uncertainty.
What costs can you claim for drug R&D?
If you’re eligible, you can claim R&D tax relief on costs such as:
- Staff costs
- Software
- Data licence and cloud computing costs
- UK-based contractor payments
- Consumables
- Prototypes
- Clinical trials volunteers
- Qualifying indirect activities
You can find out more by reading our guide to qualifying expenditure for R&D Tax Credits.
Importantly, the R&D doesn’t have to succeed to qualify. Drug development frequently involves testing approaches that ultimately fail, but this work can still qualify where it has attempted to resolve scientific or technological uncertainty and contributed to knowledge in the field.
How Leyton can help
Are you investing in drug R&D?
At Leyton, our R&D Tax Credits specialists work with pharmaceutical companies to identify qualifying projects and expenditure, helping them to prepare the technical and financial evidence needed to support a successful claim.
We’re pharmaceutical specialists, with close ties to the industry including our strategic partnerships with Bio UK, SEHTA (the Science and Engineering Health Technologies Alliance), the Chemical Industries Association, IBioIC, and Medilink.
Get in touch to find out how R&D tax relief could support your innovative drug development projects.
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