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How will Brexit effect Multinationals and Pharmaceutical Companies?

Posted on June 30th, 2016 by in Pharma R&D


One of the most stunning upsets to happen in global politics in decades transpired on June 23 when the people of the United Kingdom voted to leave the European Union. In the wee hours of the following morning, as the vote count came in, the whole world began to realize the potential effects of this “Brexit” from the EU. As many Britons took to their computers to frantically Google “What does it mean to leave the EU?” the markets went haywire, with the pound falling to levels it hadn’t seen since 1985.

In today’s global economy, one nation’s choice – especially one as powerful as the UK – can send ripple effects throughout the world. There is no question that many if not most multinational companies will find that that ripple eventually touches them in one way or another. The question remains how?

At this very moment, as UK politicians scramble to figure out what their next move is, what is plaguing multinationals the most is uncertainty. Technically the vote was non-binding, and the UK government still has to trigger the exit process, which may not happen for months. This leaves companies in Britain, and the multinational firms that deal with them, wondering what to do next. While this limbo persists, British companies will be afraid to hire employees or invest in anything new, and any current negotiations involving companies planning to move to the UK are in danger of falling through.

For now, countries and companies alike are left to prepare for different fallout scenarios. CNBC believes that we could see a “massive rebalancing of currencies” as the result of a British exit. Investors are ditching the pound for safer currencies, like the US dollar, and the Euro could be in trouble as well. “While being a safe haven could sound like a boon for the U.S. economy, such a large, sudden currency swing could have significant negative implications for American multinational corporations,” writes Everett Rosenfeld. “The fallout from those currency moves could be another source of short- and medium-term economic tumult.”

One of the biggest concerns of Brexit is what it will mean for jobs. Labor costs could rise if workers are not able to move as freely between countries. British employees of multinationals have to be worried, as some businesses may consider downsizing or closing locations in the UK. Jamie Dimon of JP Morgan has already suggested that thousands of the bank’s jobs there could end up moving elsewhere. Additionally, according to The Guardian, Ford, Toyota, and Airbus have said that they will be reviewing their investments in the UK.

The Guardian also notes that companies are issuing profit warnings. “The owner of British Airways said its profits for the year will now grow less than expected because of the volatility in the market, while Mike Ashley’s Sports Direct warned that the collapse in the value of the pound against the dollar would lead to an increase in the cost of importing goods.”

The pain of the Brexit is sure to be felt across a number of sectors. There will be an immediate move (quite literally) in the pharmaceutical industry, given that the European Medicines Agency (EMA) actually has its headquarters in London and will need to find a new home to serve as Europe’s chief regulatory body for drugs. But, perhaps more consequentially, as Eric Palmer of Fierce Pharma reports, pharmaceutical companies will have to find out what the Brexit means for trade agreements that affect their supply chains. Everything from tariffs to patents are on the list of potential issues to tackle. “Trademark owners that have relied on an EU approval may lose their protection until they can convert to a U.K. trademark, which will come at additional cost,” notes Palmer.

The Financial Times thinks the financial services sector is another area likely to be hit “if the terms of exit end the ‘passporting’ rights that allow banks and other groups headquartered in London to do business freely with the EU.” On the other hand, the FT suggests that both global sectors like defense and local businesses might be more “insulated” from the Brexit fallout because they aren’t very dependent on trade with the EU.

Although the news is not necessarily all doom and gloom, until the United Kingdom officially makes its move to leave the European Union, multinationals will be left to speculate, plan, and prepare for the worst. Part of the uncertainty and worry is not just because of the future of Great Britain, but because their exit could precipitate more exits. Nationalist groups in several EU member states are already talking about wanting similar referendums in their countries.

Multinational corporations also have reason to be concerned about the message that this vote sent. There were plenty of warnings by economic experts that leaving the EU could have negative financial implications, but voters chose to leave anyway. Both Europe and America are seeing populist movements that distrust the ‘business elite’ and globalization, which they feel has been to their detriment while lining the pockets of the wealthy. Multinationals may need to start thinking about what they can do to change this perception before more countries choose to push back against the international cooperation that has made transnational business dealings possible.

All opinions shared in this post are the author’s own.

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