Shock U.K. election result creates uncertainty for biotech

The Palace of Westminster
The Palace of Westminster--Courtesy of Diliff [CC BY-SA 2.5]

The British biopharma industry is facing further uncertainty after last week’s general election left the country without a clear ruling party. Early polls suggested Theresa May’s Conservatives would win by a landslide, empowering them to implement a hard Brexit and a biotech-friendly industrial strategy. But such certainties were dashed by a public that yet again threw politicians a curve ball.

May’s Conservatives went into the election holding a narrow majority in the House of Commons. But with polls suggesting the Conservatives would establish a majority of more than 100 seats if an election was called, May tried to strengthen her domestic position ahead of the tricky task of negotiating an exit from the European Union and selling the outcome to the British public and her fellow politicians.

The Conservatives came out of the general election having lost their narrow majority. That led May to seek an alliance with Northern Ireland’s Democratic Unionist Party (DUP) to gain the support she needs to try to push through her policies and Brexit agreement.

Whether May will survive as leader of the Conservatives long enough to try to enact her policies is unclear. And, if she does, there are major doubts about whether divisions in her own party on the best way to handle Brexit and other critical tasks will lead politicians to rebel and vote against her proposals.

The upshot for biopharma is the relative period of certainty May established between sketching out her Brexit vision and calling the general election is over. Back then the industry knew the U.K. would leave the single market, lose unfettered access to talent in the EU and most likely split from the European Medicines Agency. None of these eventualities are certain any more.

May sought to frame the election as a referendum on her vision for Brexit and the public’s belief in her ability to lead the U.K. through the process. Other factors came to dominate the debate during the election. But the result nonetheless leaves May without a clear mandate for the hard Brexit that seemed likely just one week ago.

Given the U.K. is ill-equipped to enter the imminent Brexit negotiations, the possibility of it seeking an off-the-shelf relationship with the EU is on the cards again. This would see the U.K. follow the models established by countries such as Norway and Switzerland, which are outside the EU but allow free movement of people and enjoy other close ties to the political bloc. Biopharma initially pushed for such a relationship in the wake of the Brexit vote before May’s hardline stance drove it to rethink its wish list.

Others think the election result makes a clean split from the EU more likely.

One definite consequence of the election is it is now more likely than before that the Labour party will gain power in the near term, resulting in its leader Jeremy Corbyn replacing May as Prime Minister. That scenario would arise if another election is called to end the power vacuum and Labour’s recent rise takes it past the Conservatives in the poll.

Some biotech execs will feel uneasy about the possibility of one of the more left wing people in British politics taking power. When contesting the leadership of his own party last year, Corbyn said medical research “shouldn’t be farmed out to big pharmaceutical companies.” That raised concerns that Corbyn wanted to nationalize the pharmaceutical sector. Labour dismissed that idea but its tax-and-spend manifesto still contains nuggets to gnaw at the confidence of biotech execs.

Most notably, Labour wants to bring £3.8 billion ($4.8 billion) into government coffers by reviewing the tax breaks it offers to industry. This is likely to target the patent box scheme that acts as special tax regime for revenues generated by intellectual property. The scheme is designed to encourage investment in R&D. But the man who would oversee the economy in a Corbyn government has branded it as a “potential tax loophole with limited impact on research.”

Faced with such uncertainty, the biopharma industry hit the talking points that have guided it through the past 12 months.

“Early agreement on key issues like the regulation of medicines, the regime to enable non-U.K. nationals to work and contribute to the U.K. life science ecosystem, trade, finance support, market and intellectual property rules, will be the best way to ensure speedy and continuing global inward investment into the U.K. and EU,” BIA CEO Steve Bates said in a statement.

The election gave an unintended boost to the attractiveness of the U.K. for inward investment by sinking the value of the pound to a seven-week low against the dollar. The slump in the value of the pound since the Brexit vote has made it comparatively cheap for foreign businesses to invest in the U.K. On the flip side, it has made it harder for British biotechs to hire people from mainland Europe because in Euro terms the wages on offer are lower than in the past.

Currency traders’ response to the result is indicative of how sure observers were that May would win. In a two year period defined by political shocks on both sides of the Atlantic, the rapid reversal of fortunes in the run up to the general election is arguably the most surprising.

Polls run shortly before May called the election put her Conservatives more than 20 percentage points ahead of the rival Labour party. And May was the only leader of a political party with a net positive overall favorability rating. One such favorability poll found close to two-thirds of people held a negative opinion of Corbyn, who was unpopular among every demographic group.