How Brexit impacts the pharmaceutical industry, from manufacturer to patient.
The deadline for Brexit, currently set as the 29th of March 2019, is rapidly approaching; however, as the latest talks between Theresa May and the European Union representatives were unsuccessful, a Brexit deal still needs to be negotiated.
The UK pharmaceutical industry plays a significant role both within the UK and across the European Union. It is one of the most important and productive industries within the UK, accounting for a turnover of just under £42 Billion and employing over 62,000 people. Furthermore, the UK’s Medicine and Healthcare Product Regulatory Authority (MHRA) is a globally recognised organisation that plays a central role in assisting the European Medicine Agency (EMA) with the approval of new medicines for use across Europe by having active involvement in both centralised and decentralised approval procedures.
Although a Brexit deal has not yet been finalised, there are different scenarios that are likely to develop based on negotiations with the European Union:
• continue as a European Economic Area (EEA) Member
• enter into a free trade or bilateral agreement
• in the event of a no-deal, the UK would trade under World Trade Organisation (WTO) rules
Although different scenarios will affect the British and European Pharmaceutical Industries in different ways, the impact will be seen in multiple areas once Brexit comes into full force. In this article we cover the likely impact to trade caused by tariff and non-tariff barriers and the possibility of reduced medicine approvals due to increased stresses placed on the MHRA as a result of regulatory mis-alignment.
Under the current system, the UK falls under a European Free trade agreement and can access any other EEA market with no difficulty. This is especially important when raw materials or unauthorised pharmaceutical products need to be sent between different EEA markets for manufacturing. Should the UK remain part of the EU as an EEA member, as is the situation with countries such as Norway, it would still fall under a European Free trade agreement and little would change. However, this is the only scenario where trade barriers would remain of negligible impact to trade. When considering free trade or bilateral agreements, the UK would have to negotiate a free trade agreement with the EU on the one hand or enter in a bilateral agreement with the EU whereby the UK would still be granted access to some areas of the single market should it adopt EU regulation. While these three scenarios would let the UK retain, albeit with varying degrees of influence, access to the single market, the UK has been quite clear that, should it not manage to find a suitable agreement then a “no deal is better than a bad deal”. As such the possibility of a no deal Brexit needs to be weighed into the equation. This would signify that the UK would be considered as a third world country in the eyes of the EU. World Trade Organisation tariffs would apply, and although there are no tariffs on intermediate and final pharmaceutical products, the Pharmaceutical Tariff Elimination Agreement is 9 years out of date with thousands of products that would not currently be covered by these tariffs.
Non-tariff barriers are commonly used in international trade as a method of control. Once the UK leaves the EU, depending on the exit scenario, Non-tariff barriers such as customs borders between the UK and the EU will severely impact both manufacturers and patients. Should an agreement not be reached, and customs borders between the UK and the EU come into effect, the UK government has warned of the possibility of up to 6 months of substantially diminished access at the UK customs border, creating a significant degree of disruption to the pharmaceutical supply chain. The prospect of reduced border access has incentivised manufacturers to increase stockpiles of medicines, with the cost of preparing for Brexit estimated at up to 100 Million USD for some manufacturers. Reduced customs access would also hinder medicines that require special transportation, such as products that are time or temperature dependant. With the potential for these products to be held up at the border, this could increase the risk of improper storage which is likely to increase costs and risk for manufacturers. Furthermore, the presence of customs borders between the UK and the EU may also limit generic product launches in the UK due to the possibility of increased costs and border delays. The impact of a delay in generic product launches and subsequent branded product price drops on an already struggling NHS could be catastrophic.
The European Union has four medicinal product approval procedures:
• National Procedure
• Mutual Recognised Procedure
• Decentralised Procedure
• Centralised Procedure
As mentioned before, the MHRA plays an important role in helping the EMA in both centralised and decentralised drug approval procedures. However, following Brexit, the EMA has excluded the possibility for the UK to remain a member. As such, this makes it very unlikely that the UK will be considered within the remit of centralised procedures making it necessary for manufacturers that wish to launch products in both the EU and the UK to seek approval with both the EMA and the MHRA separately. This would result in an increased workload for the MHRA in the absence of the expertise and resources of the EMA. Thus, an inevitable reduction in the number of the applications that the MHRA is capable of reviewing would impact both the number of new drugs launched in the UK and the likely time to approval, hindering the pharmaceutical industry as well as limiting physician’s ability to treat patients with the latest medicines. Furthermore, as the UK would no longer be used as a Reference price point by other European countries, manufacturers would no longer prioritise the UK but would seek to launch in the EU first as the centralised and decentralised procedure offer multiple EEA markets access via a single approval.
The pharmaceutical sector in the UK is one of the most productive industries within the UK. Although a Brexit agreement has not yet been drafted, time is running out, and the potential impact to the UK pharmaceutical sector could be worth billions.
Both manufacturers and patients are going to feel the impact of the possibility of a ‘no-deal Brexit’ since medicines may not make it into the UK market or will take significantly longer to reach approval. However, some manufacturers, such as the Belgian drug maker UCB, are still willing to take a chance with the UK by potentially investing around one billion pounds over the next five years.
The future of a Brexit UK is uncertain, and with the prospect of a no-deal in sight many manufacturers are spending 100s of millions of pounds to prepare for the worst and leave the UK, however there are still some, that are willing to give the UK a chance.
Fabio De Cristofano
Senior Pricing Analyst