Vats of ink have already been spilled on the implications of Brexit, and much more will come. As the U.K. unwinds its membership in the European Union, no doubt leading to other cascading moves that we can’t even anticipate today, uncertainty rules the day. But one thing we can be rather sure of is that the rejection of the free movement of labor will damage the pharmaceutical industry.
Thus far, pharmaceutical executives have focused primarily on how the move could impact the regulatory environment given that the European Medicines Agency, which handles all EU-wide approvals, is based in London. Others have talked about how imports between the U.K. and EU member states will be affected. But both of these are likely to be minor inconveniences because, in the long run, reasonable people will find a way to work through both issues.
However, the far bigger problem with Brexit is the way that it affects the free movement of talent. The pharmaceutical industry is truly global. It relies on the contributions of many people with deep expertise, collaborating across borders. EU membership fostered that collaboration by allowing talent to move freely among all 28 member states.
The U.K.’s specific rejection of the labor movement principle—a bedrock of EU membership—is not something that the remaining EU members will respond to favorably. In a different scenario, the U.K. might have been able to negotiate a point system to manage the movement of EU members to the U.K. based on their skills. (That’s the approach used by Canada and Australia.) With the Brexit vote, that’s no longer a realistic option. The U.K. Brexit vote will almost certainly lead to a matching response from the EU, meaning a dam in the free flow of labor. That will have real consequences for pharmaceutical companies, particularly in two areas: R&D and commercial operations.
Regarding R&D, of the top 15 pharmaceutical companies by revenue, 50 R&D facilities are located in the Schengen area. When the Brexit terms are finalized and the free movement of labor ends, U.K. employees in those sites will no longer be welcome. Conversely, those top 15 companies have another 15 R&D sites in the U.K. That’s a testament to the strong university system in the U.K., but at this point, it’s moot. The EU staff at these facilities will be declared unwelcome in some way—if not given a date by which they need to uproot their families and leave the U.K.
As a result, it’s highly possible that Europe experiences a decrease in R&D productivity—meaning fewer new molecular entities from European research labs. Coming on the heels of a long dry spell in R&D productivity, the timing couldn’t be worse.
On the commercial front, the talent implications of Brexit are just as significant. Currently, people in commercial roles rise up through a series of positions, from a front-line sales rep to a sales manager, then on to a variety of roles at headquarters. Without the free movement of labor, it will be hard for EU companies to justify investing in the development of U.K. nationals. The geographic constraints on where those people can be based are simply too high.
Of the top 15 pharmaceutical companies by revenue, four have their regional commercial headquarters in the U.K. And as with R&D talent, EU nationals currently at these facilities will have to go. (And it’s highly possible that those entire facilities will shift back to the EU, where it will be easier for companies to staff them without burdensome restrictions.) The remaining 11 regional headquarters are already within the Schengen area, and all U.K. employees in those facilities will eventually be sent packing.
As with the R&D aspect, the effects are clearly negative even if the scale of the impact is difficult to estimate. Ultimately, companies will probably figure out some way to operate in the new environment, but it will take years, and the heaviest burden will be borne by U.K. nationals. Their career prospects are suddenly much dimmer.
As an American living in Europe, I’ve witnessed the animosity that the vote unleashed. The U.K.’s move isn’t just an administrative step. Many people who supported the “Leave” campaign want Britain to take back full control of its borders and reduce the number of people coming there to work. And the spate of xenophobic attacks on expatriates in the U.K. over the past few weeks hasn’t helped matters. It’s highly possible that some EU governments will resort to a punitive stance that further isolates U.K. workers.
For an industry that relies on the fluid movement of talent, such measures mean that a once-global industry will become a little less so—and less productive as a result.
This post was originally published in PM360 on July 27, 2016.