Brexit Sparks Uncertainties

August 1, 2016
Sean Milmo
Sean Milmo

Sean Milmo is a freelance writer based in Essex, UK.

Pharmaceutical Technology, Pharmaceutical Technology-08-02-2016, Volume 40, Issue 8
Page Number: 8-9

The pharmaceutical industry now braces itself for the consequences and complexities that could follow in the wake of the United Kingdom’s decision to leave the European Union.

On 24 June 2016, it was announced that the United Kingdom had voted to leave the European Union. The result of an in-or-out referendum on the country’s EU membership has shaken the UK pharmaceutical industry, which had come out overwhelmingly in favour of remaining in the EU. However, it has also caused tremors of concern among the EU’s 27 other member states about its impact on the Union’s system for medicines regulation and on the long-term future of its pharmaceuticals industry. 

Brexit implications

Opinion polls had predicted a narrow majority in favour of remaining in the EU. But instead, by 16 to 17 million, the country opted for what has been dubbed Brexit. The decision is a setback for the EU’s ambition to build up a closely knit European regulatory network binding together the centralized medicines authorized procedure run by the London-based European Medicines Agency (EMA) and the decentralized systems operated through mutually recognized national approvals.

A five-year Network Strategy (1) published at the end of 2015 outlined a series of measures that would make the EU effectively a single regulatory entity covering a population of 500 million, the third largest in the world after China and India. It is also a reversal of plans for pan-European medicines regulation to underpin the successful development of new medicines in the region through scientific advisory services provided by licensing agencies, particularly to academia, start-ups, and small and medium-sized enterprises (SMEs).

Once the UK leaves the EU, a large proportion of Europe’s leading research-based pharmaceutical companies will be based outside the Union. GlaxoSmithKline (GSK) and AstraZeneca both have their headquarters in the country, while Novartis and Roche are in Switzerland, a non-EU state. Both countries make up approximately a third of Europe’s pharmaceutical exports and a sizeable amount of the region’s R&D expenditure. 

The UK’s pharmaceutical sector accounts for approximately 25% of the country’s spending on R&D. Due to its considerable knowledge of new medicines, the UK medicines authority-the Medicines and Healthcare products Regulatory Agency (MHRA)-has a pool of experts who are more involved in helping to assess applications for marketing authorizations at the EMA level than those from most other EU national agencies. 

Uncertainties ahead

The UK pharmaceutical industry now faces a period of uncertainty as it endeavours to establish a new position in both the European and global medicines markets. Much depends on the outcome of the negotiations on a withdrawal agreement between the UK and the EU. These negotiations will start, probably in early 2017, after the UK has officially notified the EU Council, representing EU governments, of its intention to leave under Article 50 of the 2007 Lisbon Treaty, which allows member states to pull out of the Union. 

Once Article 50 has been invoked, the Brexit negotiations have to be completed within two years unless the 27 member states agree unanimously to extend the period. Because the UK is the first country to make use of Article 50, the EU will be entering unchartered territory. It is unclear, for example, whether a departing country can start negotiating, before withdrawal, its own free-trade deals not only with the EU itself but also with non-EU countries. 

Under the present rules, no EU countries can reach trade deals with other member states nor with non-EU countries with which trade by individual EU states is covered by EU-negotiated free-trade agreements. Officially, the UK ceases to be an EU member only when an exit agreement has been approved by the EU Council, representing the governments of member states, and the European Parliament. As a result, regulatory authorities, trade associations, and other organizations have been stressing that nothing will change until the UK is formally no longer a member. Even with a Brexit deal, there will still be many unresolved issues, which has prompted some projections that the complete departure could take several years.

“It’s now up to the UK government to decide how to act upon the outcome of the referendum,” said EMA in a statement (2). 

“EMA would like to underline that its procedures and work streams are not affected by the outcome of the referendum.” 
For the MHRA, it is also business as usual. “MHRA continues to play a full, active role in European regulatory procedures,” an agency spokesman told 
Pharmaceutical Technology Europe.
“We continue to contribute significantly in both the centralized and decentralized regulatory procedures.”

Relocation of EMA 

One certainty is that EMA, after starting its existence in London 21 years ago, will have to be transferred to an EU country. How and where the agency, now with a staff of 890, will be relocated is unlikely to be decided until a Brexit agreement has been reached. Plans to make London the home of the pharmaceuticals division of the Unified Patent Court, an EU institution for settling EU-wide intellectual property disputes, will also have to be abandoned. The division, due to come into operation next year, will have to be set up in another EU city, probably after a delay.

The relocation of EMA will be a blow to the UK strategy of becoming a global centre for the development of new medicines and pharmaceutical production processes, particularly of advanced therapies. The UK pharmaceutical industry has benefited from moves by EMA to expand its scientific advisory activities to stimulate more research into new drugs and processes, especially those for the treatment of life-threatening conditions and rare diseases. The MHRA also operates its own scientific guidance schemes, which have links with the EMA’s advisory services. 

The country’s pharmaceutical trade associations, led by the Association of the British Pharmaceutical Industry (ABPI), representing the research-based sector, and individual drug companies such as GSK, AstraZeneca, and Pfizer are, for example, involved in Medicines Manufacturing Industry Partnership (MMIP), a UK public-private body, which encourages research into new processes in areas like advanced therapies. It liaises closely with the MHRA, which acts as a channel of communication of information on MMIP’s work to EMA. The UK agency has a leadership role in EMA in dealing with the regulatory implications of new manufacturing processes. 

Negotiating the UK’s relationships

The UK government’s objective in the Brexit negotiations is likely to be an agreement that allows the country access to the EU’s single market without tariff and above all non-tariff barriers. This approach is called the Norway option because Norway, with the two other non-EU states of Iceland and Liechtenstein, is a part of the single market and, consequently, an EMA member.

The attraction of the EU single market is that it is one of the world’s most advanced free-trade areas with tariffs not only being eliminated but also non-tariff barriers through the harmonization of national health, safety, and environmental regulations and standards. Remaining in the single market has the support of the vast majority of the more than 500 pharmaceutical companies in the UK and also the rest of the European pharmaceuticals sector because it would cause the least disruption and be the least costly.

But it has major drawbacks because the conditions of single market membership would be contrary to two key issues that swung the referendum vote in favour of Brexit--control of immigration and national sovereignty. Non-EU states in the single market have to accept a basic EU principle of free movement of people across borders and comply with EU regulations in whose approval they would not be able to participate. They also have to contribute to the EU budget.

Another option for the UK is a relationship such as that between the EU and Switzerland, which enjoys the equivalent of open access to the single market through a series of mutual recognition agreements and deals on information exchange in areas such as GMP inspections. But such a deal could take years to negotiate.

It could also take many years to thrash out the less appealing alternative of a UK-EU free-trade agreement. This basic free-trade agreement would mean that exporters of pharmaceuticals from the country into the EU and from the EU into the UK would be confronted with tariff and non-tariff barriers. Exports of APIs from the UK, for example, could have to provide proof of GMP compliance in ways that Indian and Chinese API importers into the EU are obliged to do at the moment.

A free-trade deal would give the UK the most freedom to draw up its own pharmaceutical regulations. But then, the UK government faces a series of dilemmas. How much can it risk introducing new regulations without undermining its trading position with a neighbouring market of 420 million? Instead of being, as at present, one of the most popular first-launch markets in Europe for non-European drug companies, will it become one of the least appealing?

The more independent the UK becomes of the EU, the greater the threat of an exodus of pharmaceutical companies from the country into the EU. Even UK-owned drug producers may decide to focus on building a base in an EU country as the hub for a European supply chain. The UK is lucky to have two years to negotiate a withdrawal deal. It will take at least that long to sort out all the complexities of Brexit, particularly in the pharmaceuticals sector.

References

1. European Medicines Agency and Heads of Medicines Agencies,  EU Medicines Agencies Network Strategy to 2020-Working Together to Improve Health, EMA/MB/151414/2015 (London, 17 Dec. 2015).
2. EMA, “Statement on the outcome of the UK referendum,” Press Release (London, 7 July 2016).

Article Details

Pharmaceutical Technology Europe
Vol. 28, No. 8
Pages: 8-9

Citation

When referring to this article, please cite it as S. Milmo, "Brexit Sparks Uncertainties," Pharmaceutical Technology Europe 28 (8) 2016.