Britain, biotech & brexit - the impact of leaving the EU on the UK biotechnology entrepreneurial ecosystem

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Britain, Biotech & Brexit -

the impact of

leaving the EU on the UK biotechnology

entrepreneurial ecosystem

Thomas Murray

Degree: MSc Business Administration: Entrepreneurship and Innovation Amsterdam Business School, University of Amsterdam

Word Count: 16,999

Student ID: 11444185

Supervisor: Tsvi Vinig

2nd Reader: Michele Piazzai

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Statement of originality

This document is written by Student: Thomas Murray, who

declares to take full responsibility for the contents of this

document.

I declare that the text and the work presented in this document is

original and that no sources other than those mentioned in the text

and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for

the supervision of completion of the work, not for the contents.

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1. Abstract

This research investigated the impact of the UK leaving the EU (Brexit) on the UK biotechnology entrepreneurial ecosystem. The study considered the ecosystem as a combination of elements comprised of either systemic or framework conditions. The approach taken was to determine the key areas of EU support for the UK biotechnology entrepreneurial ecosystem and to investigate the impact of Brexit on these elements, using a two-staged mixed method approach. The first stage utilised an analysis of relevant documents taken from the perspective of key actors within the ecosystem. This suggested specific themes that were used in the second stage of the research which involved interviewing ten individuals who represented key components of the biotechnology entrepreneurial pipeline: academic researchers; technology transfer professionals; and entrepreneurs/CEOs.

The research found that there may be an impact on the ecosystem through damage to three of the systemic elements, namely: knowledge, networks and talent; document analysis and interviewees agreed on this. The element of finance was regarded by the interviewees as less likely to be impacted, whereas the document analysis suggested there might be a negative impact. After Brexit, the framework condition of formal institutions will change due to the end of EU’s regulatory oversight and the loss of single market access. However, both these aspects were viewed as having a minor effect on the ecosystem by interviewees. In contrast, the document analysis suggested that

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the changes in formal institutions could have a negative impact on the ecosystem.

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2. Introduction

The UK voted to leave the European Union (EU) on the 23rd June 2016. This vote triggered the process of withdrawal from the EU which will occur on 29th March 2019. The UK will then enter a transition period that will expire on the 30th of December 2020. The UK’s exit from the EU (Brexit) will fundamentally change the business environment in the UK although it is unclear what the final outcome of Brexit negotiations will be _{(Balls et al. 2018).}

The UK biotechnology (biotech) sector is the strongest in Europe and the third most significant in the world after San Francisco and Massachusetts the US (BIA 2018)_. The sector is highly integrated across the EU through sophisticated shared system of legal, institutional and regulatory bodies. The biotech entrepreneurial ecosystem has been a key driver of its success, producing high quality startups and spin-outs that drive economic growth and job creation, with the sector regarded as a key foundation of the UK economy post-Brexit _{(Department for Business, Energy & Industrial Strategy 2017). The} aim of this thesis is to investigate the impact of the vote to leave the EU on the UK biotech entrepreneurial ecosystem.

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2.1 The UK biotech sector

The sector is broadly divided into three specialties: medical biotech, covering medtech (medical devices) and pharmaceutical (drugs); white or industrial biotech, covering biofuels and the use of biotechnology to produce or alter chemicals; and agricultural biotech (agritech), primarily focused on genetically modified organisms and their use in agriculture _{(Kircher 2006).}

This study will refer to biotech in the broadest terms, covering medical; industrial; and agricultural biotech, and will utilise the Organisation for Economic Co-operation and Development’s (OECD) technique-based definition found in Table 1. It will not, however, include the pharmaceuticals sector as it is primarily focused on the production and distribution of drugs, although the area of drug discovery will be covered. This is because drug discovery aligns more closely with biotech sector due to the large proportion that occurs outside of large pharmaceutical firms and instead within biotech SMEs _{(Moscicki and Tandon 2017).}

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Table 1: List of technique-based definition of biotechnology adapted from OECD _{(OECD 2005)}

DNA/RNA:Genomics, pharmacogenomics, gene probes, genetic engineering, DNA/RNA sequencing/synthesis/amplification, gene expression profiling, and use of antisense technology.

Proteins and other molecules:Sequencing/synthesis/engineering of proteins and peptides (including large molecule hormones); improved

delivery methods for large molecule drugs; proteomics, protein isolation and purification, signaling, identification of cell receptors.

Cell and tissue culture and engineering:Cell/tissue culture, tissue

engineering (including tissue scaffolds and biomedical engineering), cellular fusion, vaccine/immune stimulants, embryo manipulation, synthetic biology.

Process biotechnology techniques:Fermentation using bioreactors, bioprocessing, bioleaching, biopulping, biobleaching, biodesulphurisation, bioremediation, biofiltration and phytoremediation.

Gene and RNA vectors:Gene therapy, viral vectors.

Bioinformatics:Construction of databases on genomes, protein sequences; modelling complex biological processes, including systems biology.

Nanobiotechnology:Applies the tools and processes of

nano/microfabrication to build devices for studying biosystems and applications in drug delivery, diagnostics etc.

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The key actors that make up the biotech sector are: an established network of world leading research universities; a large and growing number of startups, spin outs, SMEs as well as larger biotech businesses; science parks and incubators; supportive government departments, institutions and initiatives; international pharmaceutical and diagnostic companies; and the financial services sector, centred around London. The entrepreneurial ecosystem and new venture pipeline is at the heart of this network, with new innovation driven by the interactions and collaborations that exist between these various bodies and organisations.

The primary source of innovation and growth within this system is through the support and growth of biotech startups and university spinouts _(Paul, Thangaraj, and Ma 2015)_{. Although some biotech firms are spun out of big} pharmaceutical companies, the main starting points for new technological development are the UK’s world leading universities and research institutes. Basic research in universities is very often the first stage of this pipeline and is supported by governments both in Europe and the UK as the starting point for the new discoveries that can lead to new innovative products. University research is therefore considered as the one of the key determinants of sustainable long-term economic growth _{(Klevorick et al. 1995). The UK} government has recognised the overall importance of the sector through the Industrial Strategy Life Sciences Sector Deal that outlines financial support delivered through government agencies such as Innovate UK and the

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country’s various research councils _{(Department for Business, Energy &} Industrial Strategy 2017)_.

The support of universities in the commercialisation of research, termed technology transfer, plays a central role in the biotechnology entrepreneurial ecosystem _{(Paul, Thangaraj, and Ma 2015). The infrastructure to support} these new spin outs is provided through universities, private incubators and science parks that give access to laboratory space, equipment, technology, and networks of other researchers and entrepreneurs, as well as seed investors. The UK government supports this vital part of the ecosystem with grants and through institutions that are tasked with supporting this innovation by increasing the ability of researchers to spinout firms from potentially commercialisable discoveries _{(Innovate UK 2018).}

The finance that is needed to spin out companies is support by university seed funds; EU and UK government grants research grants; the UK’s British Business Bank (BBB) and other bodies tasked with supporting innovation such as Innovate UK. These bodies also help financially support the early and growth stages of startup development along with investment from the venture capital and investment vehicles that are part of the UK’s world-leading financial centre based primarily in London _{(Finch 2017). The availability of} patient capital is vital in the biotech sector given the long and complex timeframes required to develop and bring biotech innovations to market (Mazzucato 2015)_.

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3. Literature review

This review of literature details the entrepreneurial ecosystem concept and outlines the theoretical model that will be used in this research. It then presents the biotech entrepreneurial ecosystem and the prominent role of universities in the sector and ecosystem. The key systemic and framework ecosystem elements that the EU supports are then outlined with the mechanisms and the rationale behind this support. The areas focused upon are: finance; talent; knowledge; networks; and formal institutions. The review of literature concludes with the identification of the research question and leads into the conceptual model.

3.1 Entrepreneurial ecosystems

The entrepreneurial ecosystem is comprised of communities of individuals, institutions and social structures that interact to produce entrepreneurial activity (Roundy, Brockman, and Bradshaw 2017). These ecosystems have become the focus of academics and policy makers and are viewed as the new drivers of innovation and economic growth (Arruda, Nogueira, and Costa 2013) (Spigel 2016). There are multiple approaches taken to explore how these ecosystems are understood, whether through understanding the key individual elements that are required for a successful ecosystem (Isenberg 2010); or through the connections that exists between system components

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et al. identified four main perspectives on entrepreneurial ecosystems described as: industrial ecology; business ecosystem; platform management; and the multi-actor network_{(Tsujimoto et al. 2017). This research will consider} the UK biotech entrepreneurial ecosystem as a multi-actor network, comprising of ‘entrepreneurs and private investors; innovators; users/user communities; governmental bureaucrats/policy makers; and universities’ (Tsujimoto et al. 2017) _{; and will investigate the impact of the withdrawal from} the EU through the key elements that make up the systemic and framework conditions that are required for a successful ecosystem _{(Stam 2015).}

Stam’s 2015 model (Fig. 1) identifies ecosystem elements as either framework conditions that create the basis for entrepreneurial activity or systemic conditions which contribute to the successful functioning of the ecosystem. The combination of an ecosystem framework with the system conditions produce entrepreneurial activity which leads to aggregate value creation. Stam’s model isolates each key element required for a successful entrepreneurial ecosystem; this allows for_{role of different institutions, such as} universities and the EU, to be analysed based on their support for each element within the ecosystem_{. This model is therefore appropriate to be used} to investigate the role of the EU in the biotech entrepreneurial ecosystem and the impact that the UK’s exit from the EU will have on the ecosystem.

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Fig 1. Elements, outputs and outcomes of the entrepreneurial ecosystem (Stam 2015)

3.2 The biotech entrepreneurial ecosystem

The biotech entrepreneurial ecosystem demonstrates much of the characteristics of a standard, non-science sector ecosystem, however, the role of the university in the biotech sector is larger than in other non-science industries _{(Kenney and Patton 2005). In life science focused sectors, such as} biotech, the university acts as an anchor for entrepreneurial clusters within the ecosystem _{(Powell, Packalen, and Whittington 2012). This increased role can} be accounted for within Stam’s (2015) model through the universities’ support of the systemic conditions of: networks; finance; talent and knowledge.

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The biotech sector relies more heavily on academic research, and the knowledge it generates, to produce innovation than other industries _(McMillan, Narin, and Deeds 2000)_{. The importance of this research to these industries} was also shown by _{(Czarnitzki and Thorwarth 2012), who described a} “productivity premium” that occurs and _{(Toole 2012) demonstrated the highly} significant role basic research plays in driving innovation in high-tech industries. This research is commercialised through technology transfer and is supported by universities; the proximity of industry to university is a key factor in determining the rate of technology transfer _{(Villani, Rasmussen, and} Grimaldi 2017)_{. The university functions as a key component of the biotech} network and operates as a hub within the ecosystem; life science firms are more likely to form entrepreneurial clusters around universities than other sectors _{(Kenney and Patton 2005).}

Universities also provide talent to the ecosystem through high-skilled graduates and researchers. This is of increased importance in high-tech sectors, such as biotech, due to the highly specialised skill-sets required to develop innovations _{(Sheen 1992). In addition, universities often provide seed} financing for spinouts arising from commercialisation. This additional role is described in the theory of the ‘entrepreneurial university’ which outlines how the traditional separations between industry and universities have begun to disappear with their roles overlapping _{(Etzkowitz 2003). The universities have} developed to become a key driver of innovation and entrepreneurship in the economy _{(Guerrero et al. 2016). However, some researchers have suggested} that the focus on the commercialisation of research is impacting the type and

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form of academic research being undertaken which could impact future discoveries in the longer term _{(Larsen 2011).}

3.3 UK biotech entrepreneurial ecosystem and the EU

The EU’s role within the UK biotech entrepreneurial ecosystem is complex, with a range of supportive activities at both the systemic and framework levels. Utilizing Stam’s model (2015), the EU underpins the framework condition of ‘formal institutions’ through the shared EU regulatory regime and single market. The systemic conditions the EU is linked to are: networks & research - through the funding of international research collaborations; finance - through GVCs and the EIF; and talent - through the free movement of people. The EU has built support frameworks and initiatives that have developed both within each member state and at a supranational level. The supranational institutional frameworks that UK biotech operates under are likely to experience considerable change following the exit from the EU (Cumming and Zahra 2016)_{. The key support initiatives and frameworks,} along with the theoretical rationale for the support of these elements is outlined below.

3.3.1 Knowledge and networks - international research

collaborations

The EU supports public research and innovation policies through transnational programmes. The systems and networks of the EU have focused in part on fostering international collaboration between researchers

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through the funding and collaborative Framework Programme (FP), as well as through joint infrastructure and by coordinating collaborative projects (Kuhlmann 2001)_{. The FP programme objective is the financing of science in} the EU; technology development; and fostering international collaboration between research organisations but also private firms _{(Nepelski and Piroli} 2018)_{. The objective from these collaborations, that are supported across} Europe and other associated partner countries, is to drive scientific advances and to help develop social and economic transformation through the improved effectiveness of knowledge networks _{(Audretsch and Link 2016). The EU has} placed conditions on access to these programmes and their funds that stipulate a minimum number of countries must be represented. In the case of the FP6, and the FP7 program that followed it, a minimum of three partners needed to be represented coming from different associated member countries (Pandza, Wilkins, and Alfoldi 2011)_{. This focus on international collaboration} was also a condition of the FP8 program, termed Horizon 2020.

The European Research Area has become more integrated over time_(Barber et al. 2006) but it is difficult to determine the impact of the specific EU policies on supporting research collaboration as international collaboration between researchers has grown exponentially in recent decades _{(Leydesdorff and} Wagner 2008) both between EU states and with partners outside of the block. The UK produced 1.6 million research papers from 2005 - 2014, 37% of which were co-authored internationally _{(The Royal Society 2017).}

The most

common partnership for UK co-authorships was the US, however, when the data is normalised to account for the large research output from the US,

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Germany was the greater collaborative partner_{(The Royal Society 2017). The} US’s lead over EU nations has also fallen by 50% since 1993 (Adams 2013) and there is some evidence that the EU’s programs have increased international scientific collaboration at a higher rate than has been occurring across the world, specifically in the increased cluster connections between collaborators within the EU _{(Leydesdorff and Wagner 2008).}

The rationale for EU support is based on evidence that international collaboration benefits science and innovation. The impact of papers co-authored internationally is higher than papers co-authored within one country; impact is a reflection of the quality and significance of the research paper and is measured by the field weighted citation index (FWCI) _(Wagner, Whetsell, and Leydesdorff 2017)_{. Internationally co-authored publications also} exhibit higher citation rates than those domestically authored _{(Glänzel and} Schubert 2001)_{. The need for collaboration has also been driven by the} increased complexity of modern scientific research and the growth in the size of research teams (Wuchty et al. 2007). Levels of international collaboration have increased across the globe and ‘an exceedingly robust global science system has emerged’ with researchers from developing nations now participating in large numbers and producing top-cited papers _(Bornmann, Wagner, and Leydesdorff 2015)_{. International collaboration has grown rapidly} in biotech, and life science now has the highest levels of international collaboration of any field _{(Gazni, Sugimoto, and Didegah 2012).}

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3.3.2 Finance - GVCs and the EIF

The European venture capital market is supported by the EU as it is recognised as a key driver in the success of entrepreneurial and innovative ventures _{(Guerini and Quas 2016). The support is deemed to be needed} given a lack of available venture capital money and financing available to SMEs through a failure in the supply side of the market _{(Hege, Palomino, and} Schwienbacher 2009)_{. The performance of firms that are backed by venture} capital funds is on average superior to firms without VC backing. This is measured in higher levels of innovation; faster growth; better financial performance; higher productivity _{(Chemmanur, Krishnan, and Nandy 2011);} and a higher probability of going public _{(Gompers and Lerner 2004). The} benefits that venture capital provide in regard to supporting innovation are used as the rationale for the EU’s intervention in this market. This market intervention occurs through two primary mechanisms: the European Investment Fund (EIF) backing of private venture capital funds; and through publicly backed government venture capital funds (GVCs).

GVCs are vehicles set up and run by government to invest public money into strategic areas of the economy to drive innovation or advance other strategic goals. The support of GVCs is not exclusive to the EU, with national governments, including the UK through the ‘Enterprise Capital Funds’ which is now part of the British Business Bank (BBB), also providing funding. These funds have been examined extensively in literature with conflicting

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assessment of their success. _{Guerini and Quas (2016}) found that backing of government venture capital funds had a positive impact of facilitating firms access to additional private venture capital by helping to attract new investors and that GVCs did not crowd-out private capital. This positive impact was also found by _{(Brander, Du, and Hellmann 2015) who observed that firms funded} by both private venture capital (PVC) and GVCs attracted more investment than firms backed only by private funds. However, firms only backed by GVC received significantly less investment overall. A positive association was also found between joint investment of GVC and PVC and initial public offerings. Evidence from the UK suggested that GVCs have been successful in addressing the equity gap; improving innovation impacts; and delivering revenue and employment _{(Baldock 2016). (Alperovych, Hübner, and Lobet} 2015) however, described reductions in efficiency that were observed at GVC backed firms when compared to both privately back firms and non-VC backed firms in Belgium.

The second mechanism of support is through the EIF. The EIF aims to increase access to finance for SMEs across the EU and acts as a funder of funds, not directly investing in SMEs but providing capital to venture capital funds that focus on the EU and the European Economic Area (EEA). The EIF differs from GVCs in that the bodies making the investment decisions are privately run and owned. There is limited literature on the success of these policies or whether EIF backed funds act or perform differently to funds with only private capital backing them but_{(Buzzacchi, Scellato, and Ughetto 2013)}

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found that funds with a higher share of public funds backing them will invest over a longer duration. The UK venture capital ecosystem has benefited from EIF support and the fund reports that between 2011-2015 the it provided capital totalling €2.3billion to 144 funds; this represented 37% of venture capital investment in the UK over this period (Kraemer-Eis et al. 2016). The body exists as a public-private partnership between the European Investment Bank (EIB), the EU and 32 private financial institutions from eighteen member states.

In addition to the support of venture capital, the EU also recognises the importance of public scientific research in driving industry innovation and economic growth _{(Toole 2012) and supports the funding of research through} the FP programmes (see section 2.2.1). The EU currently funds 17% of all UK university science contracts through its various programmes, with the UK obtaining approximately £300 million per year more than it pays into the programmes _{(Galsworthy and McKee 2017).}

3.3.3 Talent - Free movement of people

The EU allows for the free movement of people, if they are EU citizens, to any member state. This policy allows businesses and research institutions to access talent from anywhere in the EU, and hire any EU citizen without the need for a national visa. The policy gives employers a wider pool of talent and skills to meet their requirements. Universities and biotech firms benefit from this wide pool of skills due to the highly specialised roles they recruit for. There is also evidence that building teams from a diverse international pool of

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talent with a wide range of experiences and backgrounds improves innovation performance of firms, with the probability of product innovation found to increase when teams are comprised of multiple international partners (Solheim & Fitjar 2016). These authors also found that high skilled immigrant workers collaborate more internationally than non-immigrant colleagues. The value of skilled immigrants to the innovation levels of a region was also found by_{(Islam, Islam, and Nguyen 2017) showing that skilled immigration positively} impacts innovation levels in the economy. Diversity of background and nationality were also shown to positively impact new venture performance (Amason, Shrader, and Tompson 2006)_{. This policy also indirectly supports} international collaboration with the mobility of researchers shown to have a positive impact on collaboration (Jonkers & Cruz-Castro 2013).

3.3.4 Formal institutions - the single market and regulation

Formal institutions in the entrepreneurial ecosystem refer to the governance and regulatory framework that the ecosystem operates within (Stam 2018). These institutions provide the structure and order that allows for entrepreneurial activities to take place, reducing risk and facilitating interactions (Field 1991). This framework facilitates how ecosystems develop and the oversight it provides shapes the development and functionality of the ecosystem (Acs, Desai, and Hessels 2008)_{. The formal institutions are also} key determinants of how productive an ecosystem is, and the total level of entrepreneurship that can occur _{(Bruton, Ahlstrom, and Li 2010); the strength} of formal institutions is positively linked to levels of entrepreneurship

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(Fuentelsaz et al. 2015)_{. The efficiency of the ecosystem in transforming} inputs, such as technology, to entrepreneurial outputs is also impacted by the institutional context _{(Acs et al. 2017).}

The EU provides a regulatory and market framework that facilitates entrepreneurship through reducing barriers to the flow of goods, capital and people, and through regulatory oversight that allows firms from across the EU’s member states to compete on even terms _{(European Commission} 2018)_{. The single market ensures that all firms within the EU are governed by} the same rules, ensuring they are not discriminated against in different parts of the market. The EU single market represents the world’s largest single economic area with a total GDP of €14 trillion. The single market is accessible through either membership of the EU or the EEA. Countries that are outside of the EU or EEA cannot trade with the same freedom. The single market is supported with integrated economic policy from the EU commission and governance systems. This level of integration goes beyond the framework of a standard free trade or common market agreement _{(Fiess and Fugazza 2002).}

In order to operate an effective free market for entrepreneurs, a common set of regulations are needed to govern all actors under a single framework. The biotech sector is regulated through a wide range of bodies covering the three main areas of medical, agricultural and industrial biotech. The EU agencies related to the biotech sector are listed in Table 2. The table describes the roles of different bodies in the regulation of the sector; the arrangement for

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third countries to be regulated by the body, (of relevance to whether the UK might be able to remain part of after it leaves the EU); the EU body that has jurisdiction and oversees the complaints mechanism.

Table 2: EU agencies related to biotechnology _{(House of Commons} Science and Technology Committee Brexit 2018)

Agency Role Arrangements for third countries Jurisdiction or complaints mechanism European Medicines Agency (EMA) Provides market authorisation for medicines and medical devices

No provisionsfor third party participation, but representatives of international organisations can participate

CJEU - (Court of Justice of the European Union)

European Chemicals Agency (ECHA)

Provides market authorisation for chemicals and products containing chemicals

Third countriescan be invitedto participate

Board of Appeal and CJEU

European Intellectual Property Office (EUIPO) Manages the EU trademark and registered Community design; also works with IP offices of the EU Member States and international partners to standardise registration for trademarks and designs globally

Third countriescan be observers and

co-operate, but cannot become members

European Anti-Fraud Office(OLAF); Board of Appeal and CJEU jurisdiction European Research Council Executive Agency (ERCEA) Implements European Research Council strategy and awards some Horizon 2020 grants

Representatives “should collectively reflect the full breadth of there search community across Europe”, butno clear ban on non-member states

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Research Executive Agency

Manages and awards some Horizon 2020 grants

No provisionfor third country membership

Under a Memorandum of Understanding between the Research Executive Agency and various Commission DGs:

Commission, OLAF, CJEU

European Institute of Innovation and Technology (EIT)

Brings together higher education

institutions,research labs and businesses to develop new products and startnew

companies

Third countriescan participate, subject to agreementwith EU in relevant areas

OLAF; Court of Auditors; CJEU European Environment Agency (EEA) Provides independent information on the environment to policymakers and the public No provisionfor 3rd party involvement CJEU European Centre for Disease Prevention and Control (ECDC)

Gathers, analyses and disseminates data on over 50 communicable diseases and conditions

Third countriescan participate_{, subject to} equivalent regulations CJEU European Monitoring Centre for Drugs and Drug Addiction (EMCDDA)

Collects, analyses and disseminates

evidence-based information on drugs and drug addiction

EMCDDA co-operates with candidate and potential candidate countries to the EU

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3.5 Research question

The aim of this research is to investigate whether and how Brexit is impacting the UK’s biotech entrepreneurial ecosystem. It will focus on the role of the EU in the components of the ecosystem where it has the most impact, utilizing the model of Stam 2015 (Fig.1). It will consider the ecosystem as a set of systemic and framework conditions. The EU’s role in the framework conditions is through the element ‘formal institutions’, due to the regulatory and single market framework the EU provides to entrepreneurs. The EU’s role in system conditions are: the knowledge and networks elements through the EU’s support and funding of international collaborative research; the element finance, to its role in supporting the financing for startups and growing SMEs through GVCs and the EIF; the element talent, through the visa-free access to EU workers it provides through the free movement of people.

The following questions will be addressed:

- Will levels of investment in biotechnology startups and spin-outs be impacted because of Brexit?

- Will loss of single market access from leaving the EU damage UK biotech startups and spin-outs?

- Will Brexit damage UK research?

- Will Brexit create new opportunities through deregulation and a changed regulatory framework?

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- Will Brexit damage the ability to hire and retain talent of research institutions, startups and spin-outs?

The approach to be taken will be an initial analysis of documents from multiple perspectives to ascertain the key themes. The themes found will then be used to formulate questions to be asked in open interviews with people in positions of relevance in the biotech entrepreneurial ecosystem. The interviewees will cover the areas of: academics; technology transfer professionals that facilitate the commercialization of research and the transition from university to industry; and industry professionals in the form of entrepreneurs and CEOs.

4. Conceptual model

The conceptual model (Fig. 2) is comprised of three components: antecedents; process; and outcomes. The ‘antecedents’ component is the situation that exists before the UK exits the EU and states the key areas of support that the EU provides to the UK biotech ecosystem that were specified in the literature review. The ‘process’ component is the change process that will occur, in this case the exit of the UK from the EU. The ‘outcome’ component contains the propositions that will be explored through this research to determine whether or not there will be either a positive, negative or no impact on the ecosystem based on the impact on: investment; knowledge; networks; talent; and formal institutions.

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5. Methodology

The study investigated the impact of Brexit on the UK biotechnology entrepreneurial ecosystem. It is split into two parts: the first used document analysis to outline key themes that were used to inform the second, which utilized interviews to gain the perspectives of professionals that work in the biotech sector on how Brexit will impact and is impacting the biotech entrepreneurial ecosystem. The interviewees selected worked in key parts of the biotech entrepreneurial pipeline that include: the entrepreneurs who form new ventures; the academics whose research forms the basis of the innovation commercialised by these entrepreneurs; and technology transfer professionals that work in the intermediary organizations between research and industry, such as university incubators and collaborative research centres, to facilitate the commercialisation of research to form new businesses _{(Villani, Rasmussen, and Grimaldi 2017)}

5.1 Research design

The research utilised qualitative methods and an exploratory case study strategy to investigate how the Brexit vote has impacted the biotech entrepreneurial ecosystem in the UK. A qualitative approach was taken to reveal new insights into how the Brexit process is impacting the ecosystem. A single case study approach was used, with the biotech entrepreneurial ecosystem as the unit of analysis. The research was exploratory and utilised

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inductive reasoning to build theory based on findings of the research; and was also deductive, with the research design and data collection on based on knowledge understood from theory, as outlined in the literature review. The study was cross-sectional in nature and presented a perspective on the Brexit process and its impact on the sector over the period from April - June 2018. The research developed as the Brexit process progressed and this required a form of action research that ensured questions and research changed based on new information is it became available. An example of this was the announcement of the Horizon Europe programme on 7th _{June 2018 (see} section 6.4.1.).

5.2 Research instruments and procedures

The research utilised a case study approach with a multi-method design. The first part of the study was a document analysis which was used to formulate themes used in the second stage of the research. It utilized documents written by academics; the trade industry association of biotechnology, the BioIndustry Association (BIA); the business services firm PwC; and a select committee report on Brexit, science and innovation from the UK House of Commons, with an appendix containing a response from the UK government to specific issues related to biotech and Brexit. The second study used a series of ten open interviews with relevant experts to determine the impact of Brexit on the biotech entrepreneurial ecosystem. The questions for these interviews were based on the themes developed from the document analysis.

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5.2.1 Document analysis

The document analysis was used to assess whether areas covered in the literature review reflected the reality of the perceptions of key actors in the ecosystem. The perspectives of: ‘government’; ‘industry’; ‘business services’, termed support services in Stam’s (2015) model; and ‘academics’. The analysis of these documents presented the key themes and issues impacting the ecosystem from four different perspectives. These four perspectives helped triangulate the research and ensure that the conclusions reached at the end of the analysis that formed these themes were reliable _(Thurmond 2001)_{. The themes that emerged as a result of the document analysis were} then used, in combination with the literature review, to inform the questions asked in the open interviews.

5.2.2 Open Interviews

Open interviews were used in order to increase the likelihood of new insights being revealed by the participants and to explore the interviewees’ perspective; thoughts; feelings; and experiences of the impact of Brexit on them and the ecosystem. The interviews were semi-restrictive in nature with themes developed from the document analysis used to form the basis of questions to prompt responses in key areas identified by the literature review and the first stage of the research _{(Bowen 2009).}

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5.3 Data collection

The data collection occurred in two stages, first documents were selected and analysed; then interviewees were selected, interviewed and their responses recorded and transcribed. The sample selection for both processes is outlined below.

5.3.1 Document selection

The sample selection of the document analysis, used as the first stage of research, was based on obtaining four different perspective from: government; industry; business services and academics. The academics perspective was taken from a comment article publish in the paper Nature Biotechnology titled “Policy implications for post-Brexit biotech”. The article outlines the perceptions of the impact of Brexit on UK biotech from the view of the academic community.

The industry perspective analysed the BIA’s report on “Maintaining and growing the UK’s world leading Life Sciences sector in the context of leaving the EU”. This report was delivered to UK EU Life Sciences Steering Committee and outlined the views of the industry association that represents biotech.

The business services perspective was analysed through the the PwC report “Brexit: Implications for Pharma and Life Sciences companies”. This report provides an external viewpoint from a firm that supports the biotech ecosystem through the business services it offers, but does not exist as a

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primary actor unlike the other perspectives of academics, industry and government.

The government perspective was taken from the government response to the select committee report “House of Commons Science and Technology Committee Report: Brexit, Science and Innovation Second Report of Session 2017–19”. It is a legal requirement for government to respond to select committee reports _{(“Select Committees” 2010), therefore this document was} used and the government's viewpoint determined from the “Appendix: Government Response” that was provided at the end of the document. The report outlined the impacts of Brexit on the UK science and innovation and presented key questions that were highly related to the UK biotech entrepreneurial ecosystem. The documents used for analysis were sourced through search engine based research and the list of documents is outlined in Table 3.

Table 3: Documents analysed

Source of document Title of document Date Academic Nature Biotechnology

(academic journal)

- “Policy implications for post-Brexit biotech”

Aug 8, 2017

Industry BioIndustry Association (BIA)

- “Maintaining and growing the UK’s world leading Life Sciences sector in the context of leaving the EU”

Sep 6, 2016

Business Services

PwC - “Brexit: Implications for Pharma and Life Sciences companies”

Feb 2018

Government House of Commons Science and Technology Committee

- “Brexit, science and innovation, Second Report of Session 2017–19 + Appendix: The Government

Response”

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5.3.2 Interviewee selection

The second stage of the study utilised open interviews to gain perspectives from three key roles in the entrepreneurial ecosystem to form a non-homogenous sample. The selected interviewees are founders or CEOs of startup biotech business; university academics; or technology transfer professionals working for universities in facilitating the commercialisation of research and supporting spin-outs. These three categories are termed ‘academic’, ‘technology transfer’, and ‘business’. In order to select appropriate interviewees purposeful sampling was used. The three categories of respondents were chosen based due to the three key stages of new venture creation in biotech entrepreneurship.

The first stage of the entrepreneurial development pipeline is basic research that produces an outcome that has the potential for commercialization; this stage is covered by the academics. The second stage of the pipeline is the transition from research to a new venture or spin-out, facilitated in universities by technology transfer departments; technology transfer professionals were therefore interviewed to cover this stage. Finally, the third perspective is the creation, growth, and running of a new venture; this stage was covered by interviewing startup CEOs and entrepreneurs. The interviewees were selected based on their knowledge and experience of the sector and where chosen from multiple regions of the UK. The sampling method was designed to ensure highly relevant responses that could be used to determine the impact on the whole of the UK ecosystem. In total, 10 interviews were conducted with

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3 academics, 4 technology transfer professional and 3 entrepreneurs/CEOs. The list of interviewees and their roles is given in Table 4.

Table 4: List of interviewees and their roles

Name: Role in biotech sector: Based: Category: Date: Interview: Dr Neil Bruce Professor at the University of

York and

CNAP Chair in Biotechnology

York, UK Academic 11th May 2018

(Skype)

Dr Adrian Harwood

Co-Director of the

Neuroscience and Mental Health Research Institute, Cardiff University

Cardiff, UK Academic 19th June 2018

(Skype)

Dr Susan Rosser

Professor of Synthetic Biology at the University of Edinburgh and Director of the Edinburgh Mammalian Synthetic Biology Research Centre Edinburgh, UK Academic 7th June 2018 (Skype) Dr Andy Boyce

Innovations Manager for BrisSynBio Bristol, UK Technology transfer 23rd May 2018 (Skype) Dr Anne Dobree

Head of seed funds at Cambridge University Enterprise Cambridge, UK Technology transfer 15th May 2018 (Skype) Dr John Collins Commercial Director of Synbecite London, UK Technology transfer 4th May 2018 London, UK Dr Neil Bradshaw

Director of Enterprise within the Division of Research and Enterprise Development, University of Bristol Bristol, UK Technology transfer 8th May 2018 Bristol, UK Dr Jason Mellad CEO of Cambridge Epigenetix Cambridge, UK Business 31st May 2018 (Skype) Dr Laurence Tisi

CEO of ERBA Molecular and Co-founder of Lumora

Ely, UK Business 4th May 2018

Ely, UK

Dr Darrin Disley

Co-founder of Horizon Discovery and biotech angel investor Cambridge, UK Business 26th April 2018 (Skype)

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5.3 Analysis strategy

5.3.1 Document analysis strategy

The first analysis was of the analysis of documents from four relevant perspectives: academics; industry; business services; and the UK government. The documents were coded, a process of assigning a word or short phrases to each section or sentence of the text based on its particular meaning or relevance _{(Simula 2018). This coding utilised computer software} Nvivo and focused on highlighting the key statements relevant to Brexit within each document and grouped these codes into themes that could then be used to form the basis of the interview questions used in the second part of the research. The documents were then analysed and cross referenced, taking the key findings, recommendations, and section titles from each report to form an overall picture of the key themes. An example of this codification is the quote "The EU catalyses networks and collaborations across Member States, Europe and the globe” was coded as “research collaboration networks” and then grouped into the theme of “research”. An example of the Nvivo coding used for both the document analysis and the interview analysis is given in Appendix 1.

5.3.2 Interview analysis strategy

The second stage of the research utilized open interviews as the study was exploratory and was not attempting to test a hypothesis or theory. The

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interview questions and prompts were based on six key themes identified from the first stage of the research, the document analysis. An example of the interview questions is given in Appendix 2.

The research involved interviewing ten people. The interviews were conducted in person or over Skype call when a face to face interview was not possible. The interviews were recorded with the permission of the interviewees obtained via email and confirmed before recording. The interviews were then transcribed in order to ensure accuracy, to demonstrate the research was transparent and enable software analysis. Interview questions varied across interviews based on the interviewee’s responses and expertise. Questions were not asked if the interviewee had discussed the area that the question was looking to explore unprompted. This approach ensured that all six key themes identified in the first stage of the research were covered and that interviewees provided views and perspectives in the most open and natural way possible.

The transcribed interviews where then submitted to the Nvivo software _(Welsh 2002)_{. This software was used to aide in the analysis of the qualitative data} collected through interviews, allowing it to be structured in a thematic way (Braun and Clarke 2006)_{. This process enabled the software to highlight} trends, see patterns and run queries that could help explain and visualise the data. The coding process employed a combination of inductive and deductive approaches, using the six themes identified in the desk research as starter codes but with new codes and themes added based on the development of

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the interviews as they were analysed. An example of the list of codes generated can be found in Appendix 3. The codes were constantly analysed during the process in order to group and regroup the codes in a way the added meaning and highlighted links and relationships. This axial coding credit categories and subcategories within codes highlights the emergence of trends and areas for potential interview questions. The codes were then used to carry out a cross sectional analysis of each interview group the responses based on the themes developed form the document analysis and the new themes that emerged from the process of coding.

6. Results

The results section first outlines the findings of the document analysis and the themes that the initial stage of research work uncovered. It then details the outcomes of the interviewees that utilized these themes to assist the interview structure. The results for the interview section are arranged by these themes.

6.1 Document analysis

The first stage of the research utilised documents analysis to determine key themes that could be used to formulate open interview questions. The themes that were identified consistently appeared in each of the documents from the different perspectives of academics; industry; business services and government. The five themes were: investment; research; people; market

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access; and regulation. The interview questions developed from these themes can be found in Appendix 2.

6.1.1 Investment

‘Investment’ in the sector was mentioned in all the documents analysed. The academic perspective from Nature Biotechnology emphasised the importance of the EIF “lack of EU membership also restricts access to vital EU-designated R&D investment capital (e.g., the EIF)”. The parliamentary select committee report outlined the relevance of investment in broad terms without focusing specifically on investment in entrepreneurial biotech enterprises; the government response did not mention investment. The business services firm PwC questioned whether there was a “longer-term question over the UK’s attractiveness for investment due to the ability to attract and retain top talent”. The firm also suggested that the foreign direct investment in the UK had been linked to the UK functioning as a “useful as a platform from which to access Europe” and that this could impact “European investment decisions made by international companies”. The firm also reiterated the importance of the EIF to the investment in the sector a view that reiterated by the BioIndustry Association (BIA) “the UK venture capital ecosystem is reliant on EU funds”.

6.1.2 Research

The theme of ‘research’ appeared in two ways which were often interlinked: the need for research funding and international collaborations to be maintained. These two issues often appeared together as the EU funding

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programmes are used as a mechanism to increase international collaboration. The BIA stated that “the UK should seek to retain long term access to European funding and collaborations”. PwC stated that after Brexit academics “could find cross-country collaboration harder” and that there would be a funding reduction if EU programmes were not replaced as “the UK was the beneficiary of 16% of the funding from one such initiative, compared with the UK’s contribution to the EU of 11.5%”. The select committee report recognised the importance of research funding - “in particular the need either to secure ongoing access to sources such as the Horizon 2020 Framework Programme and its successors, or to develop appropriate domestic funding mechanisms at a similar level if access is not negotiated” and the government agreed, and stated that the UK would attempt to remain as part of the FP programmes after Brexit as an associate country. The select committee noted that further “clarity over future access to funding… is required in order to provide certainty”. The academic perspective in the journal _Nature

Biotechnology stated that research funding and collaboration were ‘key

concerns’.

6.1.3 People

The documents from all perspectives mentioned ‘people’ and stated the need for continued access to highly skilled talent that is currently provided by access to EU workers - “the UK must remain accessible and attractive to the world’s best talent”. The BIA also emphasised the need to “address concerns that the UK is an unattractive environment for foreign workers” due to

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perceived hostility to foreigners that has arisen since the Brexit vote. The select committee reported noted that it was vital to continue “retaining and attracting essential talent that our science and innovation sectors need”, the academic also noted recruitment as another of their “key concerns”. The government response also recognised “that access to talent after we leave the EU remains a key issue for business and individual migrants.

6.1.4 Market access

EU ‘market access’ and the ability to freely trade as a member state will be lost after Brexit was mentioned in all reports. The _{Nature Biotechnology article} noted that there would be an “economic cost” associated with loss of access and this would damage the biotech sector. The BIA noted the importance of the UK’s continued “ability to trade and move goods and capital across borders” and that the loss of this would be damaging; the PwC report agreed with this. The government did not comment on issues of the single market in their response to the select committee report.

6.1.5 Regulation

The documents universally noted the importance of the ‘regulation’ and the value of EU frameworks to the biotechnology sector. The BIA stated the importance of the EU’s “European Medicines Agency (EMA) (that covers) 25% of global pharmaceutical sales” and that “creating a stand-alone UK regulator, would require significant resource, time and expertise”. PwC

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highlighted that the “UK may have to adhere to European regulations without having a say in their development” and that this and the disruption caused by changes in the oversight of regulation could damage the biotech sector. The select committee report outlined different perspectives from the sector including: the Agricultural Biotechnology Council who “had concerns about the ‘close regulatory alignment’ sought in the Government’s position paper in the context of agricultural biotech, since the EU regulatory regime ‘has not been based on science’ and has proved to be a barrier to innovation”; and “the Royal Society, (who) told us that there was a need for careful case-by-case assessment of regulations”. The government’s response stated that they remain “fully committed to continuing the close working relationship with our European partners”.

6.2 Interview analysis

At the request of some interviewees quotes are not attributed to individuals and are instead grouped by whether the interviewee worked as an academic researcher, in technology transfer or as an entrepreneur/CEO. This section is organised by the themes identified in the document analysis. The sub-themes that were coded as part of the Nvivo analysis are discussed with quotations to outline the findings.

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6.2.1 Investment

Key finding: _{Private investment at seed, early, and growth stages of new} ventures is unlikely to be impacted in at least in the short to medium term.

The importance of finance to the biotechnology sector focused on seed, early and growth stage funding and investment in spin-outs, startups and growing biotech firms. There was not a universal view on the impact of Brexit on future investment in the sector but 5/7 of the technology transfer professionals, and CEOs/entrepreneurs believed that investment would not be impacted in the short to medium term; with one CEO stating it could potentially “be easier to raise funds, because the US is looking at the UK as kind of a wayward lost ship that has a lot of great talents”.

The strength of the sector and its “strong fundamentals” were given as reasons for why investment would not decrease. There was also a more cautious view that the withdrawal of backing of funds by the EU will take several years to take effect as the EIF funds from previous funding cycles will still be available; however, the funding from the next round of cycles will not - “not so much instant impact on investment funds but future impact on investment funds because a lot of the VC funds have been raised with European capital funding money making up a part of that fund, so obviously those funds are still investing”. This view on the timescales impacting the UK being long and extended is shared across several respondents along with the view that it is hard to predict what will occur.

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The notion that a reduction of research funding could lead to a reduction in overall investment over the medium to long term, as firms that received backing of EU funds are seen as having gained a “mark of confidence” that can help improve access to private funding. It was speculated that if fewer firms gain access to these funds then investors could have less confidence in investing in the sector - “I think they might be a little more reluctant because of the potential effect on research funding and innovation funding from government”.

The beneficial tax and investment environment in UK was cited as a key reason why the entrepreneurs believed that investment in UK biotech businesses would not be impacted, if a firm's technology is worth investing in - “there is a massive tax advantage to investment here”, and “if it's (still) a cheap place to invest in it's going to be ... it's going to pull money in”. Technology transfer professionals also highlighted that most investors at the spin-out stage are “fairly hands on” and localised; they did not expect there to be an impact on the decisions of these investors. A comment was made by several respondents that a decline in the overall performance of the economy was the main concern regarding Brexit as this would impact available funds far more than any Brexit-related issues would - “If we were to have a really hard Brexit then that would probably have a reasonably severe impact on what we are doing… in terms of the general effect on the UK economy, things like access to capital could be more difficult, angels and venture funds would be more risk averse and less likely to invest.”

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The strength of the UK as a financial centre is also key for the resilience of biotech investment in the UK. The interviewees noted that access to finance for growing firms has improved dramatically over the last decade and that “markets are working much more efficiently than they used to” in supporting the sector. Linked to this, several entrepreneurs highlighted the demand from venture capital for biotech businesses to be very high and that this demand was unlikely to be dampened by Brexit - “venture capital are dying to give money away at the moment and struggle to find things to invest in”. The point was also made that investors recognise that the market for new innovations is often outside the EU and the UK.

There appeared to be a general perception that if their products or innovation is good enough biotech firms will get funding regardless of Brexit, given the strength of the UK ecosystem in support and funding. The overall view was that in regard to investment in spinouts, startups and SMEs, Brexit is unlikely to have a significant impact if the economic fundamentals do not decline significantly.

6.2.2 Research

The theme of research is divided into two areas: the first is on the impact on international collaboration and the second is on research funding.

6.2.2.1 International collaborations

Key finding: _{Anecdotal evidence that research collaborations with EU}

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damage the chances of grant application success.

Half of the respondents mentioned either hearing of or experiencing a reduction in the level of international research collaborations with EU partners due to Brexit. These respondents stated that some EU collaborators do not want to work with UK researchers as there is a perception that has developed that having a UK partner in bidding for funding is will impact the chances of a proposal getting funded. - “UK academics weren’t being chosen to be part of a consortium, because the European partners felt that this would have some detrimental effect”. In relation to these programs there were also reported impacts of Brexit on UK researchers’ ability to successfully apply for research funding from the EU programs since the vote in 2016 and that the levels of interest in applying and the applications had fallen - “people are just not thinking about applying for European funding now… we've seen much less interests I think from the university level in terms of engaging with European colleagues. But in terms of leading bids, I think there's this general perception that if you are a UK PI leading a bid you're probably at a disadvantage”.

The loss of future international research collaboration caused by the exit from the EU was also a major concern of the interviewees and that disengagement between UK and EU researchers would be damaging to the UK biotech sector - “the other thing that I think is negative is (loss of) collaboration, the main programs the EU FP7 programmes, the Horizon 2020 programme”. The interviewees recognised that the EU’s FP programmes were useful for business to build up an international reputation in their field - “we had a couple

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of Eurostars grants and four EU FP7 grants and that developed a lot of our scientific reputation” and any loss of these may have broader network effects on UK firms in the longer term.

6.2.2.2 Research funding

Key finding:_{Exit from EU will be damaging to the biotech ecosystem if EU}

funding for research is not replaced.

All respondents mentioned that a loss of research funding entering the sector would be damaging if caused by Brexit. There was recognition of the importance of EU funding to UK biotech but varying levels of concern over whether future research funding would be replaced by the UK government and some differing views on the importance of the EU Horizon 2020 programme. Academics were concerned about the future of funding once the UK exits, given the lack of clarity from the UK government regarding funding in future. The non-academics were more confident that the funds would be made available given the necessity of maintaining the UK science sector.

Entrepreneurs who had previously used the EU grants as part of the financing of research were critical of the complexities and bureaucracy involved in obtaining them and the difficulties determining who owned what intellectual property emerging from the research - “Horizon 2020, yeah frankly they were a nightmare to manage… no one ever got to the bottom of who owns IP if anything ever comes out of it”. The loss of these grants systems was

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regarded as less of a concern to these businesses. However, one entrepreneur pointed out that at the very early stage his firm benefited a lot from the grants and that some companies may struggle to get off the ground if they are not replaced. The impact of loss of research funding was also discussed in regard to the overall sector stating how the ‘golden triangle’ and the UK as a global biotech hub was not self-sustaining, unlike say Silicon Valley, and that any reduction in funding and support of the project would “if that funding is not replaced by government money then, yes, I think you can expect to see a bit of a brain drain”.

6.2.3 People

Key findings:

● The loss of visa free access to European workers is a major threat to the sector if a new system is not developed to allow at least the same level of openness to European talent.

● Mixed anecdotal evidence of whether attracting foreign workers has already been impacted due to reduction in the attractiveness of the UK as a place to work.

The theme of staff and skilled people was raised by all interviews and highlighted as a primary or the primary concern in regard to Brexit - “the biggest threat to the industry is lack of skilled people”; “the biggest threat for our sector is staff”. These views were shared by academics in regard to research teams and from technology transfer professionals and entrepreneurs

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in regard to staffing generally. All respondents mentioned these points unprompted often as the first issue, either due to concern over access to future staff, concern about attracting new applicants from abroad or due to individuals wanting to leave the UK after the vote.

There was a mixed response in regard to difficulties in hiring EU nationals, with 4/10 interviewees reported either difficulty hiring or knowing of people not taking jobs in the UK due to Brexit. The majority view however, was that it had not materialized as expected - “I was pleasantly surprised, no, I did have a concern about that that we would have fewer international applicants. But no... it hasn't materialized”. One entrepreneur stated they had experienced difficulties attracting high quality applicants for senior positions with Brexit and the perceived hostile environment of the UK was noted as a reason.

The lack of clarity by government on the issue of access to high-skilled workers has led to great uncertainty for all groups interviewed - “we just don't know what impact it's going to have in terms of people”. The research community is highly internationalised as are many biotech companies and “a lot of research groups and spin outs are dependent on European staffing”. The majority of interviewees stated that they had not experienced or heard of large numbers of people leaving - “the Europeans who said at the time of the vote “I’m going to leave”, ‘I’m going somewhere else’, a lot of them haven’t moved because of family ties, or whatever that are keeping them here” Although one entrepreneur noted that three people did leave his company after the vote, citing Brexit as a motivation.

Britain, biotech & brexit - the impact of leaving the EU on the UK biotechnology entrepreneurial ecosystem