Matching capital with innovation – Funding R&D in life sciences

9th November 2022

Written by

By Chris Wongsosaputro

Life sciences is a key industry for the UK generating £20.7bn revenue and 90,000 roles in 2015/6. The UK is a leader in this field, as shown by the Foreign Direct Investment rising from £566m in 2019 to £1.9bn in 2021 (second only behind the US). IPOs have increased from £36m to £751m over the same period (fifth in the world) and equity financing risen 12-fold from 2012 to reach £7bn in 2021 too.

The industry has been funded mainly via direct and indirect sources such as the National Institute for Health Research (c.£1bn in 2016), Medical Research Council (£928m), Small Business Research Initiative Healthcare and Innovate UK. Furthermore, local funds from 39 Local Enterprise Partnerships and Local Authorities also fund the industry.

These investments have yielded many notable successes for the UK’s life sciences industry, including the extension of Biobank, 100,000 Genomes Project and Francis Crick Institute.

Private companies and research charities such as Cancer Research UK, British Heart Foundation and Wellcome Trust play an important role in funding too. They contribute significant amounts of c.£5.7bn and c.£1.6bn respectively into life sciences research.


Despite its past successes, the life sciences industry faces funding challenges which might hamper its growth potential. An IPPR report projected a £7.8bn drop in life sciences R&D budget in this decade alone. Funding initiatives such as the Government’s Charity Research Support Fund (CRSF) have seen real-term funding cuts – CRSF funding had remained at £198m from 2010 to 2016. Meanwhile, the European Investment Fund no longer invests in UK projects post-Brexit, and investment from the charity sector has markedly reduced.

Life sciences SMEs in particular need to overcome structural funding issues too given most of their funding originates from venture capitalists (VCs) and angel investors. Both typically invest for only 5 to 7 years, a timeframe too short for SMEs to realise growths. Additionally, the Government’s Research Council funding regulations potentially exclude SMEs from funding bids despite their state-of-the-art innovations.

In order to maintain its competitive edge, there is thus a need for the UK to ramp up R&D funding. Increasing the current level of funding from 1.7% of GDP in 2019 to 2.4% by 2027 would place the UK in the top quarter of OECD nations. Furthermore, there is a clear economic case for such an investment as R&D output from external organisations increases by 20p annually for eternity for every £1 of Government R&D investment.

Financial-related initiatives – initiatives in progress and need to be ramped up

As possible solutions to narrow the funding gaps, the UK has begun implementing the below joint funding initiatives between UK Government and external organisations which need to be ramped up:

  • Overseas partnerships:
    • The UK Government has started a drive to increase funding via the £200m Life Sciences Investment Programme. This is supplemented by a further £800m from Abu Dhabi’s Mubadala Investment Company to invest into life sciences. An example initiative utilising the funding is the £20m Medicines and Diagnostics Transformation Fund to boost British life sciences production.
  • Local partnerships:
    • The UK Research Partnership Investment Fund is working together with external UK-based organisations to fund 19 Life Science projects with funding totalling c.£1bn

Moreover, the Government can invest further into state-led VC funds and through the British Business Bank (BBB) to support fast-growing SMEs during their growth cycles. The Government has taken steps to implement this by funding the Advanced Research and Invention Agency £800m over the next few years.

As a way to complement training schemes, the Government can further expand the Apprenticeship Levy and maintain the provision enabling big corporations to pass up to 25% of their allowance to smaller firms in their supply chain.

Another area for consideration is tax where the Government can boost R&D-related tax incentives. Some examples which have been implemented are:

  • Corporation tax: Reductionto 10% for profits generated by patents from April 2013
  • Seed Enterprise Investment Scheme (SEIS): 50% income tax relief for investments on high-risk nascent companies via SEIS
  • Capital gains tax: Exemption for profits arising from asset disposal starting from 2013

Besides the Government, there is a possibility for life science enterprises to collaborate and utilise funding from research charitable organisations including Cancer Research UK and Wellcome Trust. Both contribute nearly £1bn altogether annually into medical research, thereby constituting a vital funding mechanism.

Financial-related initiatives – recommended further initiatives going forward

While the Government has taken steps towards enhancing funding for the life sciences sector, there are further steps which can be taken to further boost funding.

For instance, financial (and visa) support can be offered into recruiting top talents in the life sciences industry too including covering their housing and educational needs, similar to other countries including Canada. This is to be accompanied by funding to expand Institutes of Technology, nurture home-grown talents and realise the vision of training 1,000 students to be AI experts – Institutes of Technology focus on technical education, especially in digital and advanced manufacturing.

In addition to funding, the Government, via its VC team, can leverage its connections with potential overseas investors to help high-potential SMEs secure overseas funding. The FCA can also play a role by supporting pension funds and ISAs to invest into life sciences which they do not typically do.

Non-financial-related initiatives – initiatives in progress and need to be ramped up

Ultimately, solutions need to go beyond increasing funding into maximising its impacts by identifying focus areas. The Government has taken the below steps to help enhance the life sciences sector which need to be further ramped up:

  • Establish more centres as co-working spaces (e.g. Stevenage Bioscience Catalyst) for researchers, pharma and biotech companies. Doing so will facilitate collaborations and ideation
  • Expand biological data-storage facilities such as the European Bioinformatics Institute in Cambridge
  • Hold more safe clinical trials to grant patients access to the latest treatments and boost the probability of success before the drugs are fully launched
  • Boost investment into cutting-edge technology which the UK Government has started doing via >£250m NHSX and £130m AI award funding to facilitate the use of innovations and AI in the NHS

Non-financial-related initiatives – recommended further initiatives going forward

Besides the above steps, the Government can implement the below initiatives to help enhance the life sciences sector:

Additionally, the Government, in collaboration with large companies, can offer some guidance to assist life sciences SMEs in their decision-making procedures and strategic thinking as some might not possess the know-how. Grant claims procedures for SMEs can be simplified too vis-à-vis large MNCs.


The UK is a leader in the life sciences industry although the sector has faced some headwinds including funding cuts, Brexit and COVID-19.

Therefore, there is a need to find other funding sources, for which the priorities are to form new overseas and local partnerships as well as tap into pension funds and ISAs to invest into the sector. Given the long-term nature of investing into life sciences, the UK Government should also prioritise spearheading investment into the sector via the Government-led VC funds and BBB.

Another priority area is to go beyond increasing funding into identifying focus areas for the funding. Example steps to be taken as a priority include facilitating investment into life sciences products in their nascent stage as well as attracting home-grown and overseas talents into the sector.

Chris Wongsosaputro

LITC Exco Member

The contents have been researched to the author’s best ability so Chris would welcome further dialogue with members and other interested parties on this topic.

Sources and Suggested Further Readings:

“Life Sciences Sector Report”, House of Commons Exiting the European Union Committee,

Balfour, Hannah, “UK life sciences sector: do you have the Vision for innovation?”, European Pharmaceutical Review,

Bloor, Christine; Sriskandarajah, Radhika; Croxford, Vicky and White, Hannah, “Strategy for UK Life Sciences”, Department for Business, Innovation & Skills, December 2011,

“Life Sciences Industrial Strategy – A report to the Government from the life sciences sector”,

Ferguson, Mark and Jadeja, Nicole, “A year of change expected in UK life sciences in 2022”, Pinsent Masons, 10 January 2022,

Tsang, Lincoln and Bray, Daisy, “How well is the UK Life Sciences Industry performing globally?”, Ropes & Gray, 25 August 2021,

“Bold new life sciences vision sets path for UK to build on pandemic response and deliver life-changing innovations to patients”, Department for Business, Energy & Industrial Strategy, Prime Minister’s Office, 10 Downing Street, Medicines and Healthcare products Regulatory Agency, Department of Health and Social Care, The Rt Hon Sajid Javid MP, 6 July 2021,

“Life science competitiveness indicators 2022”, Department for Business, Energy & Industrial Strategy, Department of Health & Social Care and Office for Life Sciences, 21 July 2022,

“Life Sciences Industrial Strategy Update”,

Hutton, Georgina; Ward, Matthew and Rhodes, Chris, “Research and development spending”, House of Commons Library, 2 September 2021,