The UK government recently revealed its ambitious Life Sciences Industrial Strategy and pledged £146m to support health care-related projects. In this Q&A, Ethan Lovell, co-portfolio manager of the Janus Henderson Global Life Sciences Strategy, provides his take on these initiatives.
Earlier this year, Prime Minister Theresa May earmarked life sciences as one of five areas critical to the UK’s economic growth and commissioned a proposal on how to bolster the sector, especially as the country prepares to leave the European Union (EU). Last month, that proposal was released. The report – the Life Sciences Industrial Strategy – laid out an ambitious agenda, from launching a Health Advanced Research Programme that would fund new industries and high-risk ‘moonshot*’ projects, to establishing a migration system to recruit and retain highly skilled life sciences workers from the EU and beyond.
In tandem with the report’s release, Business Secretary Greg Clark pledged £146m of government money for a number of health care-related projects. Those projects include £30m for hospital-based centres that deliver cell and gene therapies to patients, and £66m for developing and manufacturing vaccines.
It is still early stages, but could these initiatives signal new opportunities for investors in the UK’s £64bn life sciences industry? We caught up with Ethan Lovell, co-manager of Janus Henderson’s Global Life Sciences Strategy, for his take on these developments.
Q. Generally, what is the impact of government-led support at a corporate level in life sciences?
A. Typically, governments will provide tax breaks, such as a research and development (R&D) tax credit. That way, expenses on the development side get sheltered and companies are enticed to invest. Governments might also write grants for scientific research that can have a practical impact on the industry – though the impact is usually realised many years down the road.
For example, let’s say you want to know more about gene therapy. You give the UK Medical Research Council (MRC) a big budget increase, and the MRC turns around and gives researchers at universities grants to purchase lab equipment and hire post-doctoral fellows. Then, universities do what is known as a tech transfer agreement with for-profit companies: essentially, universities license basic discoveries to pharmaceutical firms for further development, usually in exchange for royalties.
This process becomes accelerated when venture capitalists build an innovative medical start-up around promising research, or when private capital is attracted to an industry after government capital gets the ball rolling.
Q. The UK commissioned the report, in part, because of Brexit and the upcoming departure of the European Medicines Agency (EMA) from London. What impact could Brexit have on UK life sciences?
A. From a UK life sciences perspective, the biggest impact of Brexit is EMA’s move out of London. The agency’s departure could limit Britain’s role as a hub of scientific research, as well as a market for new drug launches. Drug and medical device approvals could also potentially slow – in both the UK and in the EU – as personnel are transferred and the relationship between the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) and EMA is worked out. Currently, MHRA handles as much as a third of EMA’s regulatory workload.
Q. Gene therapy was highlighted as an area for investment. How much progress have UK firms made in this field and why is it such an exciting area of growth?
A. To date, the majority of gene therapy development is taking place in the US, so the UK has some catching up to do. One avenue might be for UK researchers to capitalise on the country’s expertise in vaccine development, improving upon exciting new combinations of gene therapy and immune modulation. There are now, for example, immune-based approaches to treating cancer, such as CAR-T cell therapy. In this process, the body’s T cells – which orchestrate the immune system’s response to infections – are harvested from a patient’s blood, genetically engineered to recognise and destroy specific cancer cells, multiplied in a laboratory, and then reintroduced into the bloodstream.
The US Food and Drug Administration recently approved the first CAR-T therapy for paediatric acute lymphoblastic leukemia, and, in August, Kite Pharma filed for approval in Europe to market a CAR-T therapy for certain types of lymphoma. However, these therapies are still in early stages and have limitations that could be improved upon (including the fact that the cells are modified outside of the body, which is time-consuming and relies on a patient having sufficient immune cells). In fact, down the road we could see the development of ‘off-the-shelf’ cancer vaccines that use immune cells from healthy individuals and that can be easily replicated.
Long term, gene therapy is an exciting area of growth because it addresses the short-term nature of many treatments. Today, most drugs are taken orally and, therefore, last only a few hours to a few days. With gene therapy, you are using genetic material to manipulate cells or infusing new cells in the body. These therapies can last days, weeks, months – even years – and have less toxicity than synthetic drugs. So you can take someone with a genetic defect and instead of giving her a drug every day for the rest of her life, you can fix the problem and it might last her lifetime.
*medical moonshot = a novel approach to a treating a significant health problem or addressing a previously unmet medical need, using breakthrough science/technologies.
These are the manager’s views at the time of publication. The information in this article does not qualify as an investment recommendation. References made to a sector and its stocks do not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase them. Examples are intended for illustrative purposes only and are not indicative of the historical or future performance of a sector or its stocks, or the chances of success of any particular strategy.
The health care industries globally are subject to differing government regulation and reimbursement rates, as well as governmental approvals of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations.
Foreign securities are subject to risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, and may be magnified in emerging markets.