‘Brexit’ – what would it mean for pharma?

better in or better out?

The announcement of June 23rd as the date for the referendum on whether Britain should remain in the EU has fired up the debate on a possible ‘Brexit’, especially as polls are showing that the UK population is almost split down the middle on whether to stay or go.

It’s also becoming heated in other member states, with some calling for their own referenda, in a backlash against what London Mayor Boris Johnson describes as a “lack of proper democratic controls” in the EU. Politicians now fear political contagion, with polls in the Netherlands suggesting that the Dutch want a similar referendum to the British and the Czech Prime Minister warning that, if Britain leaves the EU, a ‘Czexit’ could follow.

Industry opposed

Two major concerns for the pharmaceutical industry are the likely impact of a British exit on research and on drug regulation. EFPIA has come out strongly against a British departure, saying that the UK’s continued membership of the EU is in the best interests of a strong life sciences sector in the UK and Europe.

Pharma leaders in the UK also oppose a British exit. Last week, in a letter to the Financial Times newspaper, senior executives in the life sciences industry urged that Britain remain in the EU. Pointing out that the UK is a net recipient of EU funding for its health research, accessing more funding per capita than any other country, they say that Brexit would leave a significant funding gap.

AstraZeneca’s chief executive Pascal Soriot cites the benefits of EU membership as access to a single trading market, a skilled talent base, and common regulatory and intellectual property (IP) standards. A unitary patent system is being developed, for example, from which the UK could be excluded.

Dr Roger Perlmutter, Merck & Co’s head of R&D believes that coming out of the EU would cause difficulties for the company’s scientists who have benefited from EU grants. And GSK chief executive Sir Andrew Witty GSK has described pan-European regulation as a “big win” for pharma firms.

Better Outside?

Would Brexit be that much of a disaster for companies in the UK? They could still benefit from pan-European regulation in the same way that Norway does as a member of the European Economic Area (EEA). And, even if it had to go it alone, the UK Medicines and Healthcare Regulatory Agency (MHRA) has long been regarded as one of the strongest and more proactive regulatory agencies in Europe, having pushed ahead on its own with initiatives such as early licensing.

Switzerland, which has a number of bilateral accords with the EU covering free movement of people, removal of technical trade barriers, public procurement etc, has its own separate drug agency. This does not seem to have held back its national pharma industry.

As far as trade is concerned, Britain would still have access to a single market for pharmaceuticals if it joined the EEA.

Being outside the EU could also mean fewer restrictions on UK industrial policy. For example, the UK had to amend its ‘patent box’ rule in a concession to German concerns about artificial shifting of profits between European countries.

Losing a Voice

However, while it might gain some flexibility in regulatory and industrial policy by following a Norwegian or Swiss route, the UK would be disadvantaged by losing its voice in key negotiations and decisions, particularly on pharma legislation and regulation. Industry would be bound by the same regulations but have no say in how they were drafted.

Also, joining the EEA would mean that the UK would have to abide by the EU’s free movement of people principles. This could be tricky as immigration is a key concern for those supporting Brexit.

If Britain were to go it completely alone, there would be a significant increase in the regulatory burden on companies and a question mark over whether centralised marketing applications would still apply in a post-Brexit Britain. A British exit would also mean that the European Medicines Agency would have to move its UK base from London to another European country.

R&D Funding

Leaving the EU could jeopardise research funding for UK pharma firms in a number of ways. For example, it could mean loss of grants from collaborative EU research programmes such as Horizon 2020 and the 7th Framework Programme for Research and Technology Development, and the benefits from public-private research partnerships. As well as the potential impact on companies, this could mean a ‘brain drain’ of researchers from the UK.

Recent Swiss experience sounds a warning on what might happen to the UK if it exits the EU. Following a vote by the Swiss population for a constitutional amendment to limit immigration, Switzerland had to reject a free movement agreement with Croatia, resulting in suspension of the Swiss from the H2020 programme, with a resultant cut in funding.

Outside the EU, the UK would be less attractive as a gateway to the single EU market, which has implications for inward investment.

Rest of EU

It could be argued that Brexit would have a more significant impact on the rest of the EU than on Britain, especially with loss of the UK’s regulatory and financial contributions.

The UK is a major contributor to the EU budget. Funding for regulatory and research programmes within the EU would be significantly depleted.

Without Britain, inward and outward investment would be negatively affected and the EU would have reduced clout in negotiating trade as well as investment deals.

The MHRA plays a leading role in EU regulation and would be sorely missed.

Uncertainty

Probably the greatest disincentive for a British exit from the EU is the uncertainty. Prime Minister David Cameron says it would be the “gamble of the century”. Even those in favour of Brexit agree it would be a “leap in the dark”.

The referendum is not really an ‘in/out’ vote. It is likely to take at least two years to negotiate the terms of withdrawal. And Britain would have to decide whether to join the EEA, or the European Free Trade Association (EFTA), or to enter separate agreements with EU countries. This could take years. Also, Britain may have to renegotiate trade agreements with countries outside the EU, such as China, India, and the US. Some commentators suggest it could take up to a decade to resolve the issues.

All this will make the UK an uncomfortable place to do business for the pharma industry.

Outcome of referendum?

I’ve no crystal ball to predict the outcome of June’ referendum. I’d only point out that, while the British are highly Eurosceptic, this could be outweighed by concerns about the impact of withdrawal on the economy and their jobs. Also, there is mistrust of the UK Independence Party (UKIP), which is the loudest voice in the Leave campaign and is riven with internal tensions.

All in all, the deal-breaker could be fear of the unknown, along with that much quoted line from Bill Clinton’s presidential campaign: “It’s the economy stupid”.