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Commentary - Sir Tom McKillop

Chief Executive, AstraZeneca PLC

Pharmaceutical Innovation in Europe for Health and Economic Success

Pharmaceutical Research and Development is a major contributor to overall UK and European R&D activity and one in which we have been historically very successful.

AstraZeneca plays its full part in this. In the UK alone, we employ over 4,500 staff in R&D and spent over £700 million in 2002 out of a total R&D budget of over £1.9bn, an increase of 11% over 2001. In addition to this direct investment in R&D, we contribute through our relationships with universities, hospitals and smaller companies. We estimate that we have spent over £50 million over the last five years in grants and contracts with UK universities. Each year we directly fund over 100 post-doctoral students at a cost of approximately £100,000 each per annum, as well as contributing to many post-graduate research collaborations and providing student bursaries in selected topics. Indeed, we participate in research and the teaching of science at all levels and we do so with a sense of purpose and commitment. To us, innovation is the principal source of wealth creation and we need a good supply of well trained scientists, passionate about research, if we are to compete successfully.

We are particularly fortunate in pharmaceutical R&D that the products of our work can save and improve the quality of many people’s lives, in addition to adding value to the local and national economies where the work is conducted. Direct and indirect employment flows from the investment programmes of companies like AstraZeneca and successful research leads to additional high-value manufacturing investment and exports. AstraZeneca pharmaceuticals are manufactured in the UK at Avonmouth and Macclesfield who in turn are customers for a large number of UK and Continental European suppliers. We set out to play an active part in the local communities in the 73 countries in which we operate, whether it be our employees giving their time to local projects or in helping many local good causes where we hope we can make an integral contribution to community life. In addition to the important contribution we make to the economy as a major employer, AstraZeneca spends over £1m each year in support of local communities, schools and charities within the UK.

Given such a virtuous circle, it is disappointing to observe that European based pharmaceutical companies are now locating less of their R&D within the EU, the level having declined from 73% of their worldwide R&D in 1990 to 59% in 1999. In the case of AstraZeneca, whilst we continue to increase our investment in R&D in both the UK and Europe in absolute terms, we are investing at an even faster rate in the US. Why is this happening?

The size of the US market and its premier position in biomedical research are of course important factors but so too is the US receptiveness to new medicines. 70% of the worldwide sales of new medicines introduced between 1998 and 2002 were in the US and just 18% in the more populous European Union – a dramatic change from a decade ago when the European market was larger than the USA.

As a result, European citizens are not getting as ready access to new medicines as their American counterparts and Europe is losing industrial and R&D competitiveness. Pressures on healthcare budgets are well understood as is the need for tough choices to be made, but Europe has been slow to deal with many structural and policy issues which have adversely affected the pharmaceutical industry to no economic gain, indeed to its significant economic loss. Overall the pharmaceutical industry is a huge net economic contributor to both the UK and European economies and is exactly the sort of high technology, high added value sort of industry in which we need to be successful.

Success is important not just to the large R&D based pharmaceutical companies but also to start-up companies and SME’s who can only grow alongside established industry and a thriving academic research base. The UK Government has recognised this and the cycle of economic competitiveness driving further growth and R&D investment is being supported through Government policies, such as R&D tax credits and the development of clusters of world class bioscience companies in a number of regional strategies, including the work of Northwest Science (supported by the North West Regional Development Agency), in which I am involved. These moves combined with a 68 per cent real terms increase in the Government’s total science budget from 1997/8 to 2004/5 are indeed welcome; but we must do even more to create an enabling climate for R&D discoveries to reach their full potential and to capture global investments in R&D capability.

Regulatory frameworks must become world class and that does not mean more regulation, but that it is fast, effective and responsive to innovation. More innovation is also needed in our approach to the public procurement of medicines which takes into account both their value to patients’ health and the savings that medicines can and do make to healthcare budgets. Europe must seize the chance it now has to correct the distortions to the single market in pharmaceuticals, currently eroding so much value and driving away investment. The Commission, European governments and industry must deliver on the bold targets set for R&D and innovation in the Lisbon agenda. These are just a few of the improvements needed if we want to create the conditions for continuing success in pharmaceutical innovation for the UK and Europe.

Our scientists can compete with the best in the world. Within my own company they have played a vital role in the transformation of AstraZeneca from a company dependent on sales of mature medicines facing patent expiry to one with a range of high potential new medicines with strong patent protection. UK and European scientists can continue that success given the right conditions in which to compete and, in doing so, secure pharmaceutical innovation as one of the economic cornerstones of Europe, while bringing better health to its 450 million inhabitants.