Research and development subsidies - report into the £129 million grant funding to BioNTech for the life sciences sector

The SAU report should be of interest particularly to the HE and life sciences sectors because it is the first referral of a subsidy by DSIT and relates to a high value grant for research purposes in the life sciences sector, one of the Government's core areas for growth and investment.

The proposed subsidy relates to £129 million grant funding to BioNTech to set up three hubs within the UK - London, Cambridge and another site to be confirmed, to focus on drug development of new treatments for cancer, research and development into vaccines for high pandemic potential diseases and a centre of expertise for AI.

As the proposed subsidy is over £10 million, it was subject to a mandatory referral to the SAU for assessment under the subsidy control regime. The role of the SAU is to act as a reviewer and comment on whether DSIT as the granting authority has properly considered the subsidy control principles before deciding to give the subsidy.  The SAU does not directly assess if the subsidy is compliant as this is a matter for the Competition Appeal Tribunal to decide if there is a  challenge.

The report was published here and was overall positive of DSIT's assessment of the subsidy's compliance with the subsidy control principles. 

There is a helpful explanation of the risks of research and development (R&D) and the spillover effect in knowledge from R&D which benefits other firms or society which meant that BioNTech would not proceed without the subsidy as it would not be commercially viable.  This is because people can often use knowledge gained from research once it has been made public without having to pay for it.  The SAU felt that the assessment could have benefitted from better explaining how the knowledge spillovers linked to the policy objectives to boost R&D in the UK life sciences sector, grow the economy through the creation of new UK jobs in the life sciences sector and strengthen health resilience in the UK.

The SAU also recognised the assessment clearly explained what would be likely to happen in the market absent the subsidy. There was a real risk that BioNTech would invest in another location and the UK would miss out on cutting edge advances for use in vaccines and therapeutics and the UK life sciences sector would develop at a slower pace and less significant scale.

Despite the high value of the grant funding, it only represents 13% of BioNTech costs of the project in the UK, with BioNTech having to make up the difference. The opportunity for BioNTech however is to participate in the UK's life sciences sector, potential for partnerships with renowned academic institutions and to develop London into a global AI hub. DSIT formed the view that BioNTech is in a unique position to deliver the policy objectives due its technology in a therapeutic product targetted at vaccines and its AI capabilities. 

As has been a theme in many of the SAU reports, one of the recommendations for improvement was for the assessment to better consider any potential negative effects of the subsidy on international trade or investment as well as the domestic market.

We can learn from the report that the amount of information required to be presented to the SAU to justify the four limbs of the subsidy control compatibility test together with supporting information is substantial, including detailed competition analysis of the affected markets and economic evidence. Many of the arguments made in relation to market failures and the need for a subsidy to ensure the UK remains at the cutting edge of technologies and innovation can also be translated to other sectors.

Bidders for grant funding from DSIT can also expect rigorous provisions in grant funding agreements to ensure that any subsidy is proportionate and limited to what is necessary including capping the subsidy, grant recovery provisions, restrictions on eligible costs and performance monitoring against key deliverables.

Please feel free to get in touch if you would like support and assistance with subsidy control queries. Contact Stephanie Rickard in our Public Sector team at 07384 251 896, or complete the form below.