It was a shock result for the U.K. this morning as the public decided by a narrow margin of 52-48 to leave the European Union, in what will have a profound impact on the economy and the life sciences industry--and has already claimed the scalp of the country's leader.
There have already been short-term consequences as the pound has seen its biggest fall in more than 30 years as S&P warns that the U.K. may lose its AAA credit rating. The FTSE opened down 1.4% BST this morning, with £122 billion wiped off the value of the FTSE 100. European and Asian shares also fell sharply on the news.
Scotland, which two years ago held its own referendum to leave the U.K.--but decided 55-45 to stay--is now considering a second vote after the majority of the country voted to stay in the EU. Northern Ireland is said to also be considering its future in the U.K. as it too wanted to remain a part of the EU.
What will happen to the U.K. internally is speculation for now, but the constitutional untangling of the U.K. from the EU will need to start soon. The referendum is the first step in this process, and the ruling government will now need to invoke Article 50 of the European Lisbon Treaty to kick-start the minimum 2-year period of negotiations before it can officially leave the Union.
But this process will not be seen out by the current prime minister, David Cameron, who announced after the election result was finalized that he will be stepping down this summer, with a new prime minister set to be in place by October.
What the post-Brexit landscape will look like, and how life sciences will fit within this new world, will be shaped during this period. Steven Bates, CEO of the U.K. biotech trade group the BIA, told FierceBiotech this week that he was concerned that a Brexit would cause confusion over the regulation of drugs (as this is currently undertaken at a European level for most of the new medicines in the U.K.) and what this will do to venture capital funding flows in and out of Europe. The BIA's job now will be to ensure that life sciences gets the best deal from the Brexit negotiations.
But just what the long-term impact will be on M&A, VC funding and other deals in the coming weeks, months and years is only guesswork. The risk to U.S. companies is little, with Mark Schoenebaum, a biotech analyst at Evercore IS, saying the exposure to the U.K. is small for its group of companies, with most only seeing around 2% to 5% of revenues from the U.K.
But it's a different story for U.K. biotech. Speaking to FierceBiotech today, Bates said the vote “wasn’t the outcome the BIA wanted,” but would now have to work with what the electorate had decided.
Bates was adamant that the U.K. is in a good place and remains so despite the vote, referencing the prolific U.K. investor Neil Woodford (who’s not had the best of weeks as it is), who wrote today that Britain’s long-term economic future “would be largely unaffected by a decision to leave the European Union.” But Woodford would not, of course, be willing to say anything else, given his financial interest in the sector.
Bates remains positive, saying: “We’ve had a lot of discussion about this, including a meeting yesterday while the vote was going on. I was struck--and actually under some heavy questioning--with investors who said they would accept this risk, that it’s a long-term game, and that there is value in U.K. biotech.
“This is one of those things that happen in a global context, but it’s not the only driving force and factor investors will look at when it comes to investment, or disinvestment.”
Bates told me he would be talking to his members, which include much of the U.K. biotech industry, in the coming weeks to reassure them after the Brexit vote.
“This does throw up some issues,” Bates admitted, which are key to the sector. This includes the long-held concern over what the European Medicines Agency (EMA) will do, as in all likelihood it will now leave its current HQ in London, given the vote.
Much thought will also need to be put into how medicines regulation will work in the U.K. when it leaves the EU, and if it leaves the European Economic Area--something that at the moment is highly unclear, but will need sorting out as soon as possible, to minimize the risk of drug approval delays in the future.
The future of the intellectual property regime, which is run on a European level, is also of concern for Bates.
He said clear thinking was now key. “We will now ensure that the details and dispassionate thinking, which was sadly lacking from both sides during the campaign, is done at both a U.K. and a European level.”
He added that it is unlikely that there will be a mass exodus of U.K. biotech into the U.S. or onto the Nasdaq in the wake of the vote. “The U.K. biotech has sought finance from around the globe for many years and will continue to do this.
“Nasdaq offers experts and high levels of liquidity of course, but in the U.K. we do have well-funded public companies that do not need to seek extra funding right now in order to develop, and we also have the same with private biotechs. Markets are just a tool, they are not the be all and end all for the sector, and there remains a number of ways for companies to access capital, so I don’t think we’ll see a jump.”
The minister for life sciences, MP George Freeman, was not immediately available for comment, but tweeted this morning: “It's Brexit. The British people have spoken. The anti-establishment insurgency has broken thru [sic]. Now we need steady heads to implement it.” He said he was now determined today to help reassure British business and science in the wake of the vote.
The Bank of England has moved to help calm the markets, which have reacted badly to the news. In a brief statement, the BoE said it would “take all steps necessary” to ensure financial stability in the U.K. in the wake of the Brexit referendum vote.
“The Bank of England is monitoring developments closely. It has undertaken extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks.”
And then there is the question of Europe. Some fear that this will cause a domino effect in which other member states that have been pushing against the EU in recent years hold their own referendums, with the future of the union now seemingly in the balance on what happens in the coming months. For now, the president of the European Council, Donald Tusk, has said: "We are determined to keep our unity as 27." But the knock-on effect from a Brexit onto European markets will remain a concern.
This is an unprecedented vote and many questions are left unanswered--and the only thing anyone is certain of is uncertainty. But business, especially one built on long timelines and with a typically precarious funding situation such as the biotech industry, does not like uncertainty.
The ABPI, which represents many of the Big Pharma companies in the U.K., released a statement with a nod to the difficulties that are ahead--but with a rallying call for business: “The voice of the British people has been heard. This creates immediate challenges for future investment, research and jobs in our industry in the UK. With that being the case, we are committed to working closely with the government to agree what steps need to be taken to send a strong signal that the UK is open for business.”
In fact, some Big Pharma companies may in the short term have a bounce from the result, with London's GlaxoSmithKline ($GSK) expected by JP Morgan to "significantly outperform both the FTSE 100 index and the Large Cap Pharma Universe" this morning, as well as a smaller benefit for AstraZeneca ($AZN), given the current weakness of the pound.
A weak pound is of course good for exporters and therefore Big Pharma, but this is not the case for most U.K. biotech companies, which typically have little/nothing to export and rely on continual funding from VCs and others to fund research efforts. The big issue for biotech is how its backers now and in the future will deal with the increased risk prompted by a looming Brexit and months of uncertainty.
There are also questions over freedom of movement for EU researchers in the U.K., and U.K. researchers in the EU post-Brexit, as well as what will happen to ongoing European life science research projects. The European Association for the Study of the Liver (EASL) released a statement saying that it is “conscious that hundreds of our non-British EU members live and work in the U.K. as researchers and dedicated healthcare professionals in the National Health Service, and that British members live and work in other EU member states. We also know that many of our members are involved in EU-funded research projects that include UK centres.
“Nobody knows for sure what will happen next. EASL understands that for the next two years the UK will continue to be able to take part in Horizon 2020 and other EU-funded projects as a full member and that non-UK EU nationals will continue to be able to live and work in the UK. Beyond that, we do not know.”
Meanwhile, the vice chancellor of the University of Cambridge, Professor Sir Leszek Borysiewicz, which is deeply involved in the life science R&D space in the U.K., said: “We note this result with disappointment. My position on this issue is well known, but 52% of voters in the referendum disagreed. We will work with our partners in business, research and academia, as well as our European partners and the government, to understand the implications of this outcome.”
The state-run NHS may also come under increasing pressure if the economy suffers long term as a result of the Brexit vote, with some financial analysts concerned that a self-imposed recession could be on the cards. In the run-up to the referendum the head of the NHS, Simon Stevens, said: “When the economy sneezes, the NHS catches a cold.”
U.K. biotech, always on a knife edge and not, despite assurances from trade groups, as robust as it could and should be, has been hit hard by this vote. The dust will settle, new plans and paths forward will be forged, shares and confidence will tick up once again. But whether Brexit will be a good thing in the long term for British biotech or not remains an open question.
This story will be updated throughout the day.
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