Since the world-changing vote on June 23rd, where UK citizens opted to break away from the European Union (EU), countless questions have arisen as to the referendum’s impact on the UK going forward—as well as what this means for the pharmaceutical and biopharmaceutical industries.
The ‘Brexit’ (or British exit) was a result of a referendum, where 30 million people voted—52 percent in favor of leaving the EU.
“Against the backdrop of financial turmoil in EU since 2008 and a growing perception of migrant crisis, UKIP and other supporters of a possible Brexit gained increasing support since 2006,” explained Dr. Stephan Rau, McDermott Will & Emery partner in Munich and the head of the firm’s Health Law Practice Group in Europe. “Between 1995 and 2015, the number of immigrants from other EU countries living in the UK had tripled from 0.9 million to 3.3 million.”
In 2011, David Cameron, former British Prime Minister, suffered a rebellion as 81 Tory MPs revolted and called for the second referendum on Britain’s EU membership in history.
“To save his power among the party,” explained Rau, “Cameron made the referendum a crucial part of his election campaign, underestimating its social explosiveness driven by British nationalism.”
A number of UK citizens expressed their concern regarding immigration and the potential reduction of job opportunities British native have due to more completion for jobs.
“The British Euroscepticism moved from left to right,” said Rau. “Cameron tried to respond with an image of a strong and independent Britain, but failed.
“In his speech in February 2013, he addressed the gap between the EU and its citizens, which has grown dramatically in recent years. In his opinion, British people perceived a lack of democratic accountability within the EU, increasingly complex rules restricting labor markets, and the EU bureaucracy was too inflexible and too strongly dominating Great Britain.”
As a result, public disillusionment with the EU soared to an all-time high.
“After winning reelection in May 2015, Cameron attempted to renegotiate the UK-EU relationship, including changes in migrant welfare payments, financial safeguards, and easier ways for Britain to block EU regulations,” said Rau. “In February 2016, he announced the results of those negotiations and set June 23 as the date of the promised referendum. Many voters concluded that European globalization had only been to the benefit of a small privileged group and were convinced that EU membership was incompatible with parliamentary sovereignty.”
Challenges & Benefits of Being Part of the EU
“In abstract, the challenges for pharma companies associated with Britain’s EU membership were complex regulations, uncertainty over the future of the euro, taxation issues, and restrictive employment laws,” said Rau. “R&D costs increased and the risk appetite for medical science investments in Britain lowered, especially compared to the U.S.”
On the other hand, the greatest benefit of EU membership, according to Rau, was access to a large single market.
Other benefits the UK enjoyed as part of the EU are as follows:
- Avoiding exporter tariffs and red tape
- Obtaining better trade terms because of the EU’s size
- Enhanced trade links and more foreign investment
- Britain was an attractive destination for foreign direct investment in the EU, partly owing to access to the EU internal market
- London is the leading center of global finance
- At international summits, Britain is represented twice—by the foreign secretary and the EU high representative
Furthermore, since the UK wasn’t a part of the European and Monetary Union (EMU), “the British government and the Bank of England always had the possibility to react independently towards financial turmoil by loosening fiscal and monetary policy,” explained Rau.
Impacts of the Brexit on the Pharma Industry
“The Brexit may reduce scientific funding, downsize patient access to innovative medicines, enhance market access barriers to multinational drugmakers, and delay the approvals of medicines,” said Rau. “The EU and Britain will enter negotiations for the continued access to EU R&D funds, but there is a risk that an end to the freedom of movement could lead to a loss of skills in the scientific community.”
In the longer term, however, the Brexit might provide room for some “relaxation of workers’ rights and allow more tax flexibility,” said Rau.
In addition, the pharmaceutical supply chain will be impacted—facing tighter financial conditions and weaker confidence and, after formal exit from the EU, “higher trade barriers and an early impact of restrictions on labor mobility.”
When asked if some of the various processes in the pharma industry will remain the same if the UK officially separates from the EU, Rau said that this depends on the negotiations after Britain exits.
“Even if the UK were free to set its own rules, it is likely to copy those of the EU to avoid disrupting trade,” said Rau. “At this stage, the European Medicines Agency (EMA) can grant pharma companies a single marketing authorization, providing quick access to the EU market. Depending on the negotiated regulatory framework between Britain and EU, this is definitively a process that could change.”
There is also the potential that the UK might try to copy FDA licensing rules or simply accept market authorizations granted by the FDA and to further alienate itself from Europe, Rau explained.
“The greatest regulatory challenge in the near and distant future is, if Article 50 of the Lisbon treaty is actually invoked, the development of a practicable option outside the EU,” said Rau. “The UK could stay a member of the European Economic Area (EEA) or join the European Free Trade Association (EFTA) on individual terms.”
Another possibility are bilateral agreements alone, described as the Swiss model, or a simple WTO membership.
“As a member of the EEA Britain would belong to the single market and be able to negotiate trade deals independently of the EU, but it would be required to implement single market policies and still contribute to the EU budget,” said Rau. “As a member of EFTA, Britain had no obligation to contribute to the EU budget and could still trade goods freely with the EU, but had no freedom of movement of people with the EU or right of access to EU markets for service providers.”
According to sources such as BBC, the UK has two years to come to an agreement with the EU as far as the terms of the separation. This process is expected to begin at the end of 2016.
“Under Article 50 of the Treaty on European Union, a member state that wants to leave has to reach a formal agreement with the European Council, which comprises the heads of state of all EU members, along with the presidents of the Council and the European Commission,” Rau explained. “Once such a deal is finalized, the European Council would have to approve it by a qualified majority.
“To secure market access for all the goods and services that it exports, Britain would have to reach new trade agreements with the EU and many other countries, including the U.S.”
Experts expect at least two years of negotiations regarding the terms of the UK’s future relationship with Europe.
“The British government needs time to work out its negotiating stance and have preliminary talks with Britain’s EU partners before setting the clock ticking,” said Rau. “It will be cautious about an early resort to Article 50 and try to delay it until the end of the year or even into early 2017. Once that is done, it does not only set a two-year deadline, but also hands most of the bargaining power to the EU countries, which get to agree on the terms for Brexit without Britain having a veto over them.”
However, it’s important to note that the referendum is not legally binding.
“Only the UK government could lawfully invoke Article 50 of the Lisbon treaty, which allows a country to leave the European Union, without a formal act of Parliament,” said Rau.
In the meantime, the British government says that travel, movement of goods, and services sold will not be changed initially—but, according to Rau, financial and economic volatility is anticipated.
Filed Under: Drug Discovery