Author: The Centre for Sectoral Economic Performance

From biopharma innovation to biopharma impact: Can the UK compete globally in 2025?

Author: Professor James Barlow

In 2024, the UK dropped out of the top ten countries in global manufacturing rankings.[i] The decline reflects long-standing structural weaknesses that stretch back decades, including a lack of coherent industrial strategy and inconsistent policies, inadequate adoption of innovation and productivity-enhancing practices, and insufficient investment in workforce training. These have left many of our manufacturing industries without a solid foundation for global competition. Compounding these challenges, geopolitical shifts have also led to other countries overtaking the UK – Russia’s surge in defence industry spending, a manufacturing boom in Mexico spurred by Chinese investment seeking to bypass US tariffs, and Taiwan’s continued dominance in semiconductor production.

Innovation without impact

Does this matter? According to a widely held narrative, the UK lies at the global scientific frontier in key technologies such as life sciences and advanced computing. Yet, the UK often struggles to translate this cutting-edge research into commercial success, limiting its ability to produce world-leading companies. There are also concerns that even the belief in the UK’s scientific performance may be misplaced. Recent research[ii] on some of the priority technologies described in the UK’s 2021 National Integrated Review (engineering biology, AI, and quantum computing) concluded that while the UK performs reasonably well despite low investment, there are real questions about our ability to remain competitive in the long term. Addressing this will require attention to the level, focus and nature of science funding in the UK. But it also requires an ability to turn scientific breakthroughs into companies that grow into global players.

Life sciences: opportunities to unlock growth

A case in point is life sciences, where the UK is recognised for its strengths. Much of this science feeds the biopharma sector, where the UK has two of the world’s largest companies, AstraZeneca and GSK. However, growth in biopharma gross value added (GVA) has stalled and the UK has fallen behind other competitor countries in international rankings.[iii] Moreover, much of our pharma manufacturing capacity has been transferred abroad and the environment for conducting clinical trials has been problematic for several years.

The potential for future growth in the sector is there. The Government’s proposed industrial strategy prioritises life sciences, including biopharma innovation. The UK could leverage its AI capabilities and the NHS’s extensive health data to accelerate drug development and enhance the flow of research breakthroughs into commercial applications. As well as AstraZeneca and GSK, around 500 smaller biopharma companies—three-quarters of which demonstrate measurable research output—indicate a strong foundation for growth.[iv]

A critical question is whether the UK can translate its scientific strengths into GVA for the UK economy. Small companies with promising products are often acquired by US and other foreign investors. While UK biopharma companies outperform their European peers in securing early-stage funding, they raise less late-stage growth financing. This makes it preferrable to seek acquisition by a large pharmaceutical company or possibly an IPO in the USA, where the average IPO size is significantly higher than in the UK.[v]

Between Q3 2023 and Q3 2024, there were 130 mergers and acquisitions (M&A) in the UK pharmaceutical sector, valued at $15 billion, with most involving foreign buyers. [vi] This activity is not inherently detrimental – it can bring capital and global collaboration opportunities – but it also raises concerns about the UK losing control over innovative assets, intellectual property, and the ability to independently drive growth. There are also risks of job relocations and profits being redirected overseas. The volume of

M&A activity signals the need for a strategy that ensures the UK retains the economic benefits of its life sciences innovation.

Delivering an industrial strategy

The Government’s proposed industrial strategy offers some hope. We welcome the framework provided by the overarching eight sectors set out in the Green Paper. We also believe that it is right to concentrate on sectors – such as biopharma – rather than technologies, as productivity growth is a function of how technology is used by firms to generate value. The approach provides a clear departmental sponsor for each sector.

However, two dangers risk the industrial strategy being blown off track:

  • First, a limited understanding of the nature and dynamics of industries which are rapidly evolving because of technology innovation and changing markets. The eight sectors are very broad, comprising ecosystems of players spread across different industries. It is important that the next phase of the industrial strategy captures the distinctive features of each sector – the configurations of players and technology innovations that shape them. Some industries also form part of larger sectors that might currently be small in terms of their overall contribution to the UK economy but have significant growth prospects or the potential to drive growth elsewhere in the economy. These should not be neglected. Understanding the changing dynamics of sectors and ensuring that strategies are well-crafted (and industry-led) will increase the likelihood that they deliver the growth that is needed.
  • Second, there are dangers that the ambitions of the industrial strategy are undermined by other policies. Fifty economists and other experts recently warned that easing post-2008 rules designed to prevent excessive risk-taking, and giving the Financial Conduct Authority a remit to promote growth in financial services, could harm efforts to stimulate the wider economy.[vii] Research suggests that once a country’s financial sector grows past a certain point, it can lead to productive investment being crowded out [viii], misallocation of resources [ix], and undue influence by a powerful financial sector on policymaking. Studies [x] suggest that large financial sectors have negative effects on economies when private credit is the equivalent of at least 100% of GDP – in the UK, this averaged 160% since 2000. For businesses, especially SMEs such as the biopharma companies discussed earlier, a tangible outcome is that there has long been a shortfall in investment to finance their growth.

Being ‘open for business’ should not mean blindness to the consequences of losing control over promising UK technology companies. Ensuring there is coherence in both industrial and financial policy will be key to success in the growth agenda for the UK economy.

About Centre for Sectoral Economic Performance (CSEP) at Imperial College London.

The goal of CSEP is to help improve the competitiveness of the UK economy and drive economic growth by bringing together the UK’s leading experts from science, technology and business. Since we started work last January, we have begun an ambitious programme of research and engagement with industry and government to co-design strategies for our key industries. Amongst our activities for 2025, we will be launching new reports on the UK’s aerospace, automotive, data science, telecoms, and tidal energy sectors. We are continuing our research on productivity in the biopharma sector and running a series of regional events to develop a health technology industry strategy.

 

 

[i] UK manufacturing seen ‘chronic underinvestment’, but Labour’s industrial strategy could be a ‘beacon of hope’

[ii] Paul Nightingale, James Phillips. Is the UK a world leader in science?

[iii] The UK Biopharmaceutical Sector 2024. CSEP, October 2024.

[iv] The UK Biopharmaceutical Sector 2024. CSEP, October 2024.

[v] McKinsey. The UK biotech sector: The path to global leadership. 2021.

[vi] GlobalData – Deals Database.

[vii] Response to Financial Services Growth and Competitiveness Strategy Call for Evidence.

[viii] For example, by focusing on short-term returns and financial metrics such as dividend payouts rather than productivity-enhancing investment.

[ix] Because financial institutions engage in extracting value from the economy rather than creating it.

[x] By the International Monetary Fund and Bank for International Settlements. See Positive Money.

Supporting the UK’s strengths in aerospace will unlock growth

Author: Professor Rafael Palacios

The UK is one of five countries in the world with the capability to build its own aeroplanes. As an island nation we rely on aerospace more than other countries. So aviation technology here has always developed at pace. We have the third largest sector in the OECD by market share, after the US and France and a healthy pipeline of startup ranging from nanosatellites to large lighter-than-air vehicles. And the operations of companies like Rolls Royce, BAE Systems and Airbus stand as symbols of the sector’s future potential.

The pressure to accelerate development in aviation

Today, the defining challenge for the industry is net zero and producing the technical solutions and new business models to make net zero flight a reality in the second half of this century. There is no realistic future without flight. So the aviation industry is under enormous pressure to accelerate the development of sustainable fuels and more fuel-efficient aeroplanes, and to ramp up investment to support the pace of technological progress.

Transitioning to net zero will also mean defining new ways of working. To electrify road transport, consumers must shift their perspective to buy electric cars. But the way fleets are financed in aviation is business-to-business and much more complex. So transitioning to net zero flight will only happen if the UK government intervenes positively, introducing the economic incentives to create new business models, with companies reacting to that policy environment.

Aerospace regulation can drive growth and competition

In other words, the way to reduce the environmental impact of aviation is regulation. It cannot be left to the market. The UK’s Aerospace Technology Institute and industry-led Jet Zero strategy demonstrate that both government and business accept this. Defining a regulatory pathway to net zero is a key focus of work supported by the Centre for Sectoral Economic Performance, with policy recommendations that will help drive economic growth and competitiveness in the UK’s aerospace industry.[1]

Britain can make major gains in aerospace

We can be confident that the UK can make major gains in the sector in the coming decades. Aerospace engineering and innovation in the UK is thriving, whether it’s the Wing of Tomorrow made at Airbus or Rolls Royce producing the largest ever jet engine.

The UK is also pioneering new types of air travel, such as battery-powered air taxis. Imagine hopping on an air taxi from Heathrow to Gatwick to make a connecting flight or to finish your journey on the right side of London, avoiding road traffic and emissions. Vertical Airspace in Bristol is working on making that journey a reality.

Working towards new forms of sustainable aviation

The UK is rich with innovation in this area. Last November saw the flight100 project led by Virgin Atlantic, where a team of experts from Imperial and the University of Sheffield analysed a flight from London to New York to see if sustainable aviation fuel can be used with existing infrastructure while reducing carbon emissions. For these larger aircraft, it’s likely we will need to combine hydrogen with CO2 obtained from carbon capture to make e-fuels, a new form of sustainable aviation fuel.

These fuels are still very expensive, and in the medium-term we expect these fuels to be produced from biomass. Meanwhile, as we move to a hydrogen economy for uses where electric power is not possible, companies including ZeroAvia are developing hydrogen propulsion for smaller aircraft used in regional aviation. Given the UK’s expertise in AI and data science, we also need to see more innovative work applying these capabilities to accelerate development.

Partnership is essential for progress

There are also some areas with exciting potential, like the work Google and American Airlines have done to show that flying slightly different routes can reduce the climate impact of contrails. These trap large amounts of heat that would otherwise have left the earth’s atmosphere, and which might account for up to 35% of aviation’s global warming impact. Satellite analysis found the experiment reduced contrails by 54%, while only burning 2% more fuel.

We need to see more of this kind of strong partnership between academia, industry, government and finance. Our report will also show how we can put the right policy mechanisms in place to support this collaboration, from R&D and net zero to the business environment and access to investment. In the coming decade we have a golden opportunity to build, protect and capitalise on the UK’s aerospace capabilities. But we will only do this if we have a clear direction, informed by this research.

Professor Rafael Palacios is Director of The Brahmal Vasudevan Institute for Sustainable Aviation, a collaborative research centre at Imperial College for blue-sky thinking towards environmentally friendly aviation. He is a Professor in Computational Aeroelasticity as Deputy Head of the Department of Aeronautics in the Faculty of Engineering. He has been a consultant for Facebook and Airbus in the design of solar-powered aircraft. He is an Associate Fellow of the American Institute of Aeronautics and Astronautics, and a Fellow of the Royal Aeronautical Society.

The Centre for Sectoral Economic Performance at Imperial College London investigates how to improve the competitiveness of the UK economy and drive economic growth. It is a joint initiative between Imperial’s Faculty of Engineering and the Imperial College Business School, bringing together the UK’s top engineers, scientists and economists with the UK’s science and technology industries to co-design globally competitive strategies for major global challenges such as net zero.

[1] https://www.imperial.ac.uk/sectoral-economic-performance/

 

Partnerships between universities and industry will make UK AI a success

Author: Dr. Juan Bernabé-Moreno, Director of Scientific Research in Europe, IBM

As IBM’s Director of Scientific Research in Europe, I know what a huge opportunity the AI Revolution represents for the UK economy. But translating that potential into economic growth and scientific progress requires close collaboration between technology companies and universities. That’s why I was delighted last month to sign a Memorandum of Understanding (MoU) between IBM and Imperial College London, committing us to work together over the coming years on the application of AI technologies to global problems including climate change.

AI is one of the UK’s best opportunities for growth

No technology has ever advanced as quickly as AI. Already it has begun to revolutionise every sector in every country. The UK is well positioned to perform well in this incredibly competitive market, boasting some of the world’s most advanced computer technology and a great deal of high-quality, centrally-held data. Many of the world’s leading experts in AI and its applications work at British universities. In addition, the UK’s regulatory framework allows for significant space for innovation.

But the UK is not yet making the most of its strengths. Industry and academia are not working closely enough together, which slows down innovation in an area where the UK needs to move fast.

By bringing IBM and Imperial together, the MoU marks a major step towards turning the UK’s enormous potential in the field of AI into success.

To apply the power of AI we must first understand it

The MoU’s primary goal is to pool our engineering, computing, and machine learning resources to address climate and sustainability challenges. Our generative AI technologies are developing so quickly that not even we can foresee the full extent of their possible applications. That’s where we value the partnership with institutions like Imperial.

You only need to look at the number of successful spin-outs Imperial generates to see what a practically-minded institution it is. Imperial students and researchers start with problems, then work out ways to solve them. In our climate and sustainability efforts, IBM will provide cutting-edge technologies, and Imperial will provide students and postdoctoral researchers will find ways to apply them to solve specific problems.

Let’s say, for example, that we wanted to map the areas of the UK most at risk of flooding because of extreme weather events. IBM would provide Imperial with foundation models which are trained on satellite images, climate forecasting and a myriad other relevant data. An Imperial team would fine-tune that model into a specialist model for flood detection, which they would then share with IBM.

Collaborations like this are how IBM, Imperial, and the UK more broadly will make major gains in AI over the coming years, generating jobs, economic growth, and – most importantly – solutions to the existential challenges the world faces.

Collaboration beyond our partnership

But AI is too important a technology to be in just a few hands. So the MoU between IBM and Imperial also formalises a shared commitment to collaboration and openness beyond our partnership in all our future work on AI.

IBM and Imperial will work together with our AI Alliance partners to define industry-wide frameworks for everything from hardware and application to policy making and regulation. Imperial produces some of the most advanced research and policy thinking on the ethics and implications of AI, while IBM bring industry experience. Together, we will be a powerful voice for ethical practices in AI on the world stage.

To that end, the MoU also commits IBM and Imperial to participate together on EU projects. Earlier this year, the UK rejoined Horizon Europe: the EU’s key funding programme for research and innovation aimed at addressing global challenges and driving economic growth. By joining forces, IBM and Imperial can place climate, sustainability and AI at the centre of Horizon’s agenda.

I am confident that the work IBM and Imperial do together over the coming years will contribute to making Britain a true world-leader in AI. This MoU would not have been possible without the work of Imperial’s Centre for Sectoral Economic Performance to identify the sectors where the College can make the most difference. It is a testament to Imperial’s entrepreneurial problem-solving spirit, and something I would like to see embraced across higher education.

Dr. Juan Bernabé-Moreno is the Director of IBM Research in Europe. He leads three labs in Ireland and the UK, working on cutting-edge science and technologies in the areas of artificial intelligence, quantum computing, multi-cloud, and semiconductors. Dr. Bernabé-Moreno is also responsible for the Accelerated Discovery Strategy for Climate and Sustainability, leading a team of researchers across seven global research labs to explore how the convergence of AI, quantum computing and hybrid cloud can accelerate the discovery of sustainability and climate solutions. He holds a PhD in Computer Science from University of Granada and is the recipient of several patents.

The Centre for Sectoral Economic Performance at Imperial College London investigates how to improve the competitiveness of the UK economy and drive economic growth. It is a joint initiative between Imperial’s Faculty of Engineering and the Imperial College Business School – bringing together the UK’s top engineers, scientists and economists with the UK’s science and technology industries to co-design globally competitive strategies for major global challenges like net zero, economic competition and technological disruptions.