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Darwin's Medicine blog

Professor Brian D Smith is an authority on the pharmaceutical industry and works at SDA Bocconi University and Hertfordshire Business School.

Brextinction

Evolution predicts tragic consequences from the UK's choice

This column looks at the life science industry through the lens of evolutionary science, often trying to use recent events to illustrate how Darwin's brilliant idea helps us understand our market. And, as I write, there is one recent event that is dominating both broadcast and social media. I refer of course to the UK's decision to 'Brexit' the European Union. It might not seem obvious how this enormous decision might be understood in evolutionary terms but bear with me while I get to the implications for our sector via a short diversion into the theory.

Darwinian evolution is, of course, an adaptive process. Species adapt to their environment by a variation of genes and thence traits, selection of those variations by environmental pressures and hence amplification of the variant genes. In my work, I study exactly the same process as it manifests itself in the life science sector, the only difference being the labels we give the analogues of genes (routines), traits (strategies and structures) and species (business models). Evolution is an effective process, as evidenced by the wonderful variety of the natural world and, indeed, by the diversity of business models we observe in practice. But it is also a ruthless, uncaring process. In the history of life on earth, more than 99% of species that have ever lived have become extinct. Often, extinction occurs when one species evolves into another but sometimes a species does not pass on its genes and becomes an evolutionary dead end. The dodo bird is synonymous with the latter case and illustrates the mechanism by which extinction happens; sudden environmental change, in this case the arrival of humans on Mauritius, to which the species is unable to adapt fast enough.

From the perspective of someone who studies industry evolution, the Brexit vote is an example of sudden change in the environment, even if it takes two years to execute. Moreover, it is a change in the environment that is geographically localised. It therefore has the same characteristics as when cities expand into the countryside or there is a sudden pollution incident in a river. Native species, well adapted to their existing local environment, suddenly find themselves maladapted to their changed surroundings. Often, this leads to 'extirpation', the localised extinction of the species. In biology, there are many examples of this, such as the grey whale and the eastern wolf.

Despite their global reach, UK-based life science companies such as AstraZeneca and GSK are well adapted to having a home base in the EU. They are more or less adapted to the free, open markets that we associate with that institution. Their survival also depends in part on a prosperous home market, a strong UK research ecosystem and on having significant influence on global and regional institutions. These and other things are all adaptations that have been shaped by the UK's EU membership.

Brexit will change the UK environment significantly ... most ... predict the decline of the UK economy and its international influence

Brexit will change the UK environment significantly, although nobody can predict how. Most informed commentators predict the decline of the UK's economy and its international influence, and it seems very unlikely that labour, capital and goods markets will remain substantially unchanged. If so, UK-based life science companies will have to adapt quite quickly or go the way of the dodo.

If we are uncertain about how the UK environment will change, we cannot be certain about how UK firms might adapt. But the biological analogues of extirpation are not encouraging. Dodos, grey whales and eastern wolves became locally extinct because it was impossible to adapt quickly enough. If the NHS becomes even more cash-strapped, UK research funding withers, bright people cannot come to work in the UK and institutions like the European Medicines Agency relocate, it will be hard for UK- based companies to adapt. They are already endangered species with few surviving examples. In this situation, the mechanism of extirpation is obvious: UK firms will underperform relative to their global rivals and their share prices will fall. They will then very quickly become acquired by foreign life science firms, UK R&D will be 'Sandwiched' (that is, closed a la Pfizer's UK research centre) and the UK will be left with only UK sales and marketing subsidiaries of US, European and Asian firms. The large, research-based life science company will become locally extinct, extirpated from the UK.

These are sombre thoughts for an Englishman. I console myself that, while evolutionary science is the best way to explain our business, our current level of knowledge allows us only limited predictive power. The environment may not change much and UK firms may adapt easily and quickly. UK firms may thrive in the new environment and grey whales and eastern wolves may prove to be poor analogues. I hope so. I do not think so.

Article by
Professor Brian D Smith

is a world-recognised authority on the evolution of the life science industry. He welcomes comments and questions at brian.smith@pragmedic.com

28th July 2016

From: Healthcare

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