While opinion polls are evenly split in the 'Brexit' referendum, the life sciences industry seems firmly in the Remain camp – and for good reason, writes Ana Nicholls
From the public pronouncements, it appears that the UK pharma and life sciences industry is single-mindedly opposed to the idea of the UK leaving the EU. In February, senior managers of 50 leading life sciences companies, including AstraZeneca and GlaxoSmithKline, wrote to the Financial Times to state the case against a 'Brexit', while in early March academics, researchers and entrepreneurs from the Cambridge biotech cluster added their voices to the Remain campaign.
This is understandable, if only on the level of practicality. Firstly, the European Medicines Agency is based in London and would have to move out (Sweden fancies its chances). Secondly, the UK leads many of the EU's debates on healthcare, partly because of the influence of the National Institute for Health and Care Excellence (NICE) and York University. Thirdly, although the pharma industry is not generally reliant on immigrant labour, the free movement of labour has seen Frenchman Pascal Soriot, head of AstraZeneca, among the many EU citizens to move here.
Perhaps more importantly, the pharma industry has a unique perspective on a key argument in favour of Brexit – that it would free up businesses from EU regulation. The pharma industry is used to regulation, indeed it wouldn't function without it. Intellectual property rights, quality standards, clinical trial rules and strict criteria for product approval underpin the industry's ability to make money from its products and invest in new ones. Given that, it is far more efficient for the pharma industry to function in an environment where rules are harmonised across 27 countries than one where the UK is free to set its own rules.
If Brexit occurred, and the UK was free to set its own rules, the pharma industry would likely lobby for it to copy the EU. Exceptions could include general business rules and taxation; relaxation on issues such as workers' rights would probably be welcomed by business leaders (if not their employees), yet decisions on tax are already mainly within the remit of individual countries. This tax freedom is why the UK was able to introduce the 'patent box' in 2013 to offer tax breaks from earnings on patented products; although this was modified in 2015 to comply with international norms, it was the OECD not the EU that caused the changes. Also, it is worth pointing out that Ireland, for one, has found that
EU membership is no bar to creating pharma-friendly tax regimes.
On the regulation side, Brexit would probably bring more uncertainty than benefits – and the same is true for research funding. As Cambridge University academics noted, the UK is the second-biggest beneficiary of EU funding for research, including into life sciences (behind Germany). More than that, the UK is the EU's main destination for venture capital funding in the industry. According to the UK BioIndustry Association, the country's biotech sector raised £924 million via initial public offerings and US$2.4 billion in venture capital between 2005 and 2015. Brexit campaigners will point out that some of this funding could be made up from the £9bn net contribution that Britain makes to the EU, but even if their sums are correct there will certainly be other calls on that money.
More broadly, investment in UK pharma, and indeed in UK companies generally, is likely to suffer if the nation votes for an EU exit on 23 June. Although both the UK government and EU officials would rush out reassuring statements, at the Economist Intelligence Unit we expect the stock market to fall, along with the value of sterling. Investors could get even more worried if EU exit led to the departure of David Cameron and another call for an independence referendum in Scotland. For those looking to buy, of course, there may be bargains to pick up in the UK, so there will some be some investors willing to take the risk. Markets will eventually stabilise; nevertheless, UK companies looking to float or to raise money for their next venture might head to more stable markets, such as the US.
The final argument in the Brexit debate is over trade. According to the Confederation of Business Industry (which is anti-Brexit), the EU accounts for 56 percent of UK pharma exports, or around £53 billion. Pro-Brexiters counter that it is the non-EU portion that is growing faster and that freeing ourselves to make bilateral trade negotiations would help to support that. However, few in the industry, at least on a business level, appear willing to take the risks that would involve.
Ana Nicholls is chief healthcare analyst at the Economist Intelligence Unit.