The British Government submitted Article 50 in March 2017, formerly giving giving notice its intent to leave the EU. Since the ‘Brexit’ referendum last June, there has been much confusion and heated debate about what this actually means. The recent White Paper has helped to clarify the initial parameters for negotiation, but there are still a lot of unknowns. The only ‘fact’ is that ‘Brexit means Brexit’… so the Government tell us.
What is known is that Brexit will mean the biggest change to the UK in 70 years; impacting all aspects of the UK and its economy. This includes the Pharma industry, which generates over £60bn a year (approximately £15bn from EU exports) and directly employs over 75,000 people. The UK is a leader within the EU for science and innovation. Two of the top 10 biopharma companies (GSK and AstraZeneca) have UK HQs and nearly 10% of the top 100 drugs available today originated from UK-based research. As Teresa May said, before Brexit and her premiership, “It’s hard to think of an industry of greater strategic importance to Britain…”.
In the ‘phoney war’ since the referendum there appears to have been little impact to Pharma. Indeed, there has been a short-term boost to GSK and AstraZeneca reported profits (in USD) due to the lower value of the GBP. However, longer term, Brexit presents the industry with challenges across four main areas:
- R&D funding
- The drug regulatory system and alignment with the EMA
- Trade and single market access
- Migration and foreign employee talent
Britain receives more funding from the European Research Council than any other country – some €8.8bn between 2007-13. The UK is likely to lose access to Horizon 2020 (the EU Research and Innovation programme). Moreover, it has been estimated that a further €10.0bn of funding is at risk by 2020. The UK government has only said that it will cover any loss of funding from Horizon 2020, but it has made no statement regarding wider or future funding.
The EMA is currently based in London, but with the current expectation that Britain will also leave the single market, we know several EU countries are vying to house the new HQ. This creates three potential problems:
- Pharma will have to deal with two regulatory systems – the EMA and a new UK system
- The need for a separate UK approval system
- More distant collaboration with the EMA for UK-based companies
This could cause a delay in new drugs being approved in the UK, as companies prioritise the 435 million people in the EU, rather than the 65 million in the UK. “The comparatively small size of the UK market and the extra cost of engaging with a separate regulatory system could mean the UK becomes less of a priority”, as Sir Alasdair Breckenridge, the former head of the MHRA, said recently.
But, like most things associated with Brexit, not everyone agrees. There may be an opportunity for more liberal regulatory structures and quicker drug approval than with the EMA. The NHS is a large and attractive market for pharmaceutical companies. It is also likely that the UK system will align closely with the EMA. Two post-referendum announcements have boosted the UK Government. GSK announced a £275 million investment in its UK manufacturing sites and Alnylam, a US biotech worth $6.5bn, said it would establish its European HQ in the UK.
In terms of trade, there is less uncertainty for Pharma. The worst case scenario is that the UK leaves with no formal trade agreement. In this case the WTO rules apply, which state a 0% tariff for finished medicine products.
Immigration and the freedom of movement was one of the key points of the Brexit debate. Gaining ‘control of our borders’ was an important reason why many people voted leave. However, it is doubtful whether these same people had in mind highly trained, and paid, Pharma scientists and executives. Post-Brexit, it will be harder for EU nationals to work in the UK (and vice versa). For those EU and UK nationals already working abroad it is almost unthinkable that permanent residency will not be mutually agreed. But this has not yet been formally agreed.
With negotiations due to begin in Q2 2017, the consequences for the Pharma industry must be a priority for the UK government. If Brexit is now the committed direction, the UK Government must make the positive case, one that showcases a vision of the UK as a confident, outward-looking, world-class player in terms of pharmaceutical research and innovation.
