Continued Innovation is Key for COVID-19 Recovery

According to the Federation of Small Businesses (FSB), more than a quarter of a million businesses are due to close their doors for the final time in 2021 (1). The COVID-19 pandemic has ravaged many businesses across the United Kingdom, and as we navigate the third lockdown it is still unclear what lies around the corner. Thinking ahead, therefore, may seem impossible. However, for the tables to turn, businesses must adopt an open-minded approach that balances surviving the here and now, with working towards long-term, sustainable recovery solutions.

As we seek to build back better from the impacts of the pandemic and bolster the strength of the UK as a nation independent of the European Union, the healthcare sector has a prime opportunity to boost innovation through the prioritization of targeted R&D and the commercialization of intellectual property (IP), which will be critical driving forces behind achieving this resilience.

However, what has become even more apparent in the second half of 2020 and early 2021, is the nation-wide misunderstanding and underappreciation of such readily available solutions. The government has been right to prioritize the sectors most at risk and make large sums available at a time of need; however, throwing more money at businesses where the funds are just swallowed up and the payback may be minimal is simply not going to achieve the recovery we need.

Keeping it within our borders

While innovation, in this instance, has been key in providing us with the crucial answers we need and giving us all hope that there is some light at the end of the tunnel, it’s also vitally important for our hopes of a sustainable economic recovery. A big part of this comes down to keeping R&D and innovation on UK shores. Historically, R&D was largely a domestic process in the UK (2), but the development of automation technologies and cheap offshore labour has resulted in many companies moving production overseas. This trend has continued apace since first emerging in the late 1980s as cost-saving became the driving force behind global sourcing, driving manufacturers towards lower cost regions, typically in Asia. Unfortunately, a large proportion of the development work has followed suit, reducing the investment in UK-based innovation in recent years.

But as important as encouraging innovation on UK shores is, it becomes a pointless activity if IP isn’t being commercialized in the way it should be. For example, every pound spent now on R&D and innovation will hold its value in 20 years in terms of company value. Her Majesty’s Revenue and Customs (HMRC’s) data that highlights the disparity in spending on R&D and Patent Box is proof that the hard work of businesses is not being followed through to the patent stage, meaning all commercial value is lost (3).

A key reason behind Switzerland leading the way in the World Intellectual Property Organization’s 2020 Global Innovation Index for 10 consecutive years (4) is due to its excellent innovation outcomes including patent applications, IP receipts, and high-tech manufacturing products.

Utilizing IP

Put simply, the UK needs to take a leaf from Switzerland’s book and focus on how we can turn the UK into an IP powerhouse. A key factor to businesses surviving and thriving in a post-pandemic world will be a company’s ability to find and maintain its unique selling point—something even more important in the healthcare sector. Indeed, patents are vital to the healthcare industry and for fostering healthcare research. Without the patenting system, new innovation would undoubtedly slow significantly.

However, there is confusion around one of the primary purposes of IP—value creation. The majority see IP as something they need to protect and defend rather than commercialize. Research from GovGrant reaffirms this, with less than a quarter of UK small-to-medium enterprises (SMEs) claiming that the primary purpose of a patent was to gain commercial value, while more (38%) thought the primary purpose of a patent was to protect innovations (5). To a business, an IP right should be driven by how they can improve margin, sell more, or engage better with potential clients.

The government’s motivation behind the Patent-Box scheme is to help retain IP in the UK, by encouraging businesses to undertake R&D activity within its borders rather than offshoring. However, as innovation within the healthcare industry develops, the correct use of IP will become key, particularly with the challenges of recovery from COVID-19 and Brexit looming on the horizon. Businesses need to start thinking about IP from a commercial perspective, rather than just protection—after all, it’s value that will drive investment into the UK as a whole.

Solutions are available

It is clear more needs to be done to educate businesses around the value of innovation, while demonstrating the availability of funding through schemes readily available, and already baked into the budget such as the R&D tax credit scheme and Patent Box. There is value for everyone—tax credits provide businesses with an immediate cash boost in return for their hard work, while fuelling further innovation and driving longer-term growth for both the businesses and the economy. Indeed, an assessment made by HMRC shows the R&D tax credit scheme can accurately show return on investment (6).

Similarly, Patent Box exists to reward businesses financially for those keeping R&D within the UK, but is still under-utilized. Data from HMRC in 2020 showed that while £5.3 billion (€5.9 billion) was claimed in R&D tax credits in 2017–2018, only £1.1 million (€1.2 million) was claimed under the Patent Box scheme, proving IP is not being commercialized in the way it should be (7).

Encouragingly, GovGrant’s research demonstrates that 76% of healthcare, 78% of medtech, and 82% of pharmaceutical SMEs are aware that the government offers the R&D tax credit and Patent Box schemes to incentivize R&D and when used effectively, can alleviate the cost of innovation for SMEs—something cited as a barrier to innovation, with 47% of those in health-related sectors claiming cost is hindering efforts to innovate (5).

However, with so many still concerned about the cost, there is clearly a disconnect between the support on offer and if it is enough. So, this is the wake-up call. The tax office is so often overlooked as a mean for supporting businesses—but it is an essential way to distribute much needed funds available in appropriate and fair proportions. Businesses willing to invest more receive more, therefore driving proportionate and sustainable growth—something that is ultimately the key for recovery, post COVID-19.

It is, therefore, high time for the government, industry bodies, and businesses alike to work together to create a butterfly effect that transcends across the UK, so that as we continue to navigate the crisis, funds being thrown at businesses that merely paper over the cracks can be invested more effectively elsewhere. And instead, the government can focus its efforts on creating an environment where innovation can thrive, driving the sustainable recovery we need to achieve.

We’re all in this together—and amidst the devastation caused by COVID-19, we’ve been given an opportunity to change our fortunes for the long-term. But we need to act now.

References

1. B. Cotton, “Record Number of SMEs Set to Close in 2021 due to Impact of COVID-19,” Business Leader, 11 Jan. 2021.
2. MHA Monahans, “Manufacturing Capability Returning to UK from Overseas,” News Release, 11 Nov. 2019.
3. UK Gov., “Evaluation of the Patent Box,” gov.uk, 17 Nov. 2020.
4. Cornell University, INSEAD, and WIPO, “The Global Innovation Index 2020: Who Will Finance Innovation?” wipo.int (2020).
5. GovGrant, “Innovation Nation—The UK SME Innovation Survey,” govgrant.co.uk, November 2020.
6. L. Hamm, “The Patent Wake-Up Call,” govgrant.co.uk, 18 Nov. 2020.
7. L. Hamm, “Latest R&D Tax Credits and Patent Box Statistics Are Out,” govgrant.co.uk, 30 Sep. 2020.

About the Author

Luke Hamm is CEO of GovGrant.

Article Details

Pharmaceutical Technology Europe
Vol. 33, No. 2
February 2021
Pages: 31–33

Citation

When referring to this article, please cite it as L. Hamm, “Continued Innovation is Key for COVID-19 Recovery,” Pharmaceutical Technology Europe 33 (2) 2021.