Brexit and Life Sciences Companies
The United Kingdom (UK) government served notice on March 29, 2017, under Article 50 of the Treaty on European Union that it intends to withdraw from the European Union (EU). There is no guide to managing a departure under Article 50 since no EU member has ever left the pact. The EU and UK have up to two (2) years to negotiate the terms of the UK’s departure but certain EU members, including Germany, are pressing for the process to be completed on a faster timeline.
One possible result of this process is that the UK and EU could be in a relationship that preserves the free movement of goods (duty-free) between them (similar to the relationship involving the EU and states in the European Economic Area (“EEA”)), but allows the UK restrict the movement of non-UK persons. Another result is that if the UK and EU are unable to reach any agreement within the relevant two (2) year period, goods could be subject to tariffs, and the movement of persons restricted. And, of course, there are a wide range of possibilities between those alternatives. As of right now, it appears that the result of Brexit may be a ‘hard’ exit that leaves the UK firmly outside of the EU, and whose products and services would not benefit from EEA-like treatment.
U.S. life sciences companies should not panic about what Brexit means for their business, but should plan ahead:
- Many U.S. life sciences companies have their EU headquarters in the UK. Post-Brexit, U.S. life sciences companies should remain in the UK—it is, after all, the fifth largest economy in the world. But, if there is a hard economic border between the UK and EU (as seems likely), U.S. life sciences companies may need to shift their EU headquarters to another EU jurisdiction.
- After Brexit, Ireland will be the only English-speaking nation in the EU and in the Eurozone. These facts augment Ireland’s well-educated, talented, and relatively young workforce, as well as its favorable tax regime. U.S. life sciences businesses should consider Ireland as a headquarters for pan-EU business operations, either in the first instance or in relocation from the UK.
- One option for U.S. life sciences companies may be to have EU headquarters in Ireland, maintain a UK office, but place that UK office (for tax and other reasons) under the Irish office, or have an Irish holding company hold both the UK and Ireland/EU offices.
- Citizens of EU members might, and probably will, lose the automatic right to travel to and work in the UK and to have their home-country credentials recognized in the UK. Similarly, UK citizens could lose these rights in EU member states. For a U.S. lie sciences multinational operating in the EU and UK, the loss of free movement of persons in/out of the UK may complicate staffing decisions, impact certain commercial contracts, and increase immigration compliance costs. Note, however, that notwithstanding Brexit, the Common Travel Area between the UK and Ireland will remain, meaning that people can move freely between those jurisdictions (but that benefit does not extend to non-Irish citizens or residents).
- As a result of Brexit, the European Medicines Agency (EMA) will relocate from London to a to-be-determined location. In addition, Brexit could result in the UK being left outside the EMA’s regulatory and operational scope, potentially complicating, for example, efforts by a U.S. life sciences company to obtain marketing authorization in both the EU and UK.
As noted above, much of Brexit’s impact is unknown. We have highlighted a few issues for current consideration by—not to panic—U.S. life sciences companies.
- Michael E. Burke