Industry experts weigh in on Brexit situation and implications for the life science sector

June 30, 2016 Erin Righetti

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partnering360® recently spoke with Alasdair Stamps, Chairman of the Advisory Board and co-Founder of BioPartner UK, and Dr. Claire Skentelbery, Network Manager of Council of European BioRegions and researcher for Scientists for EU, to get their opinions on Brexit and its potential effects on life science collaborations in the EU. BioPartner UK is an independent, accredited trade organization that promotes international partnering for trade, investment and collaborations with UK life science companies. Council of European BioRegions (CEBR) is a network of clusters across Europe, while Scientists for EU is a group campaigning for UK science during the referendum, with over 136,000 members.

 

p360:    At the Global Entrepreneurship Summit at Stanford recently, President Obama said that the Brexit vote speaks to the ongoing changes and challenges raised by globalization and  “…though Britain’s relationship with the EU will change, extremely stable relationships will continue to exist between the Western nations.” But we have seen an initial reaction in financial markets. Will it get worse before it gets better?

 

AS:      Overall, we’re maintaining a positive outlook, and are fortunate to be in a sector that is very strong. The UK is so enmeshed in the EU financial and knowledge economy, the expectation is currently that this will hold through these political changes. Bear in mind, nothing is going to happen immediately, this has been a strong message put out by all parties. Article 50 of the Lisbon treaty has yet to be actioned, and after which we have two years to negotiate our future relationship with the European Union. Should this happen we will need to use that time to renegotiate to ensure the best of these research and collaborative networks will be maintained.

 

I think the markets are always the indicator, and if you look at the last week or so, the weakened value of the pound, large valuations lost, effects on major and minor market shares worldwide, you can see the immediate effects. We’ve all been through economic downturns such as the 2008 crash, and know that it takes a while to recover. We also know that the market is an indicator of economic trends. Our fundamentals in the UK remain strong. We are starting from a position of strength; 2014–15 was the strongest year yet in terms of biotech investment. So although many people I know are concerned, and unsure of the future, our sector is well placed to take advantage of opportunities.

 

p360:    What repercussions can life science companies, notably startups in need of financing, expect in the coming months?

 

AS:      Small companies are of course more vulnerable to changes in investment sentiment. It is now harder to predict what future valuations are going to be. With regard to valuation, intellectual property (IP) and regulation are key factors that may be affected by Brexit, and it is vital that we continue to work with the EU on these. As a big example, the European Medicines Agency is currently based in London—a relocation could be on the cards. But at this early stage, we have to be absolutely honest and say we don’t know the long-term effects. We need to carry on pushing for harmonized regulation and IP in the European trading block, continued access to EU markets, to maintain positive valuations into the market.

 

p360:    While healthcare sector stocks tumbled in an over-reaction to Brexit, there may be some buying opportunities in some subsectors including contract research organizations (CROs) companies. In your opinion, what opportunities are presented for life science companies as a result of Brexit?

 

AS:     I think that, like the collapse in 2008 where investors were told there were great opportunities, this is true but you have to think long term in a situation like this. This is not just an economic crash but potentially an entire system change. In terms of the effects on valuations and trading conditions later on, we can’t be specific at this stage because tomorrow it could be a whole different ballgame.

 

It is important to go back to the strength of the sector. In the UK it is strong, the sector is anxious to trade, and the EU block is strong. With changes come opportunity. We do have a big devaluation of the pound, but that devaluation may help in the short-term in terms of deals.

 

p360:    Looking back down the chain, what changes might we see in university research, the driver behind the UK’s early stage sector?

 

CS:     The university sector is likely to be hit faster than industry for several reasons. Access to EU programs for both funding and international collaboration is critical to maintain a strong innovation position.  The UK currently performs at the forefront of Europe, alongside Germany, leading over 30% of the projects in which it participates.  If the UK can create an Associate position where it retains full access to H2020, this position can largely be maintained.  However, this is heavily reliant on freedom of movement and this is likely to be the lynchpin for the whole UK relationship with the EU.  The UK is already seeing a response to Brexit with withdrawn partner offers from consortia, mirroring what happened in Switzerland from 2014, when it lost access to H2020 following a vote to restrict mass migration.  Despite regaining partial access, Swiss participation in EU collaborations has declined significantly as uncertainty hovers over its long term participation.

 

If FoM is restricted, the game will change for UK research—H2020 access is likely to be minimal and universities will have to fill a big funding and collaboration gap.  With less maneuverability than industry, e.g., to create legal entities within the EU, the future is harder to predict.  While funding might arguably be replaced at the national level, recreating collaboration on the scale that the EU offers is beyond any national capability, regardless of budget.

 

p360:    What potential impacts might we see on the skills base in the UK?

 

CS:     The FoM issue raises its head again here. Science is, by its nature, a global sector and the UK needs to retain its ability to attract the best international brains. For universities, if its access to H2020 is restricted, ambitious scientists looking to build an international profile are less likely to consider a move there, particularly if a job offer is only three years.  Companies may be less impacted, as long as visa requirements are not onerous and families can integrate fully, but the future lies in the hands of the negotiators.

 

p360:    Any other comments on the UK situation right now?

 

AS:     BioPartner UK is a trade organization, made up of not just emerging companies but also R&D service companies. When you look at the potential effects on R&D companies you have to look also at academic partnerships. Up to now, it has been a big benefit to be able to access EU funding. The UK has been a big recipient. Switzerland recently broke with their EU trade agreement, and the effects on their R&D were very dramatic in that they could no longer be lead on large collaborations, no longer be recipients of EU grants. We hope to see some protection of these collaborations. We are strongly integrated with the EU at the research level, and this should help drive and maintain the level of collaborations and R&D.

 

Don’t forget that it is R&D that drives the market. At the heart of the Brexit debate is the free flow of individuals, the sharing of ideas, the availability of people to go from one country to another to work and share knowledge. This has a big effect on startups. If we are going to maintain a relationship with the EU trading block, that flow is absolutely essential; the ability of people to share research with like-minded people. It is proven that you need this structure to continue innovation. Personally, I don’t think it’s going away but you can’t be complacent. It’s something we need to fight for.

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Erin Righetti

Editor-in-Chief, Insight

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