Deal or No Deal Brexit? – What’s Next for the Pharmaceutical Industry

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Brexit

It’s been almost 3 years since the British voted 52-48% to leave the EU on 23rd June 2016.12 Given the lack of clarity and ensuing uncertainty, the pharmaceutical companies have been planning for a worst-case scenario i.e. no-deal. We will look at the most important (subjectively assessed) implications of a no-deal Brexit scenario for Pharmaceutical industry.

Before I discuss the potential consequences of a no-deal Brexit, here are some metrics that reflect the importance of the bond with EU to the UK´s economy8:

  • The Pharma sector has an annual revenue of £41.8B and employs > 113,000 people
  • The mix of large pharma, SMEs, Manufacturing and R&D units for EU (and global) companies are fully reliant on the friction-free transfer of medical/chemical/biological goods within the EU
  • The sector provides 8.2% of UK goods exports and 5.3% of imports to the UK
  • The wider life sciences sector cumulatively accounts for 233,400 jobs across 5,142 companies and annual turnover of £63.5B

According to ABPI, every month, 45 Mio. packs of medicines move from the UK to Europe, and 37 Mio. packs go in the opposite direction. Clearly, exiting the EU will have a significant impact on both markets. While multiple Brexit scenarios have been predicted, I will highlight the impact of a “no-Brexit” scenario on the pharmaceutical industry.

First, a quick recap

On March 29, 2017, the UK notified the European Council that it will withdraw from the EU by March 29, 2019. However, unable to do so for several reasons, the UK requested and received an extension from the Council (in April 2019) for a new withdrawal date of October 31, 2019.1,2

A “no-deal” Brexit scenario essentially means that UK would leave the EU without specific agreements in place about what UK-EU industrial/business relationships would look like, going forward. Below are the key implications (as I see it) of a no-deal Brexit.

Stockpiling on a rolling basis

In August 2018, pharmaceutical companies were asked to develop six-week stockpiles for some drugs (~7000 essential medicines) to ensure a continuous supply in the event of a no-deal Brexit. However, on April 26, 2019, DHSC has asked the Pharmaceutical companies to keep their six-week stockpiles of medicines “in place but on hold” until further notice.3

Stockpiling on a rolling basis increases the financial burden on the manufacturers and creates costly inefficiencies specially for medicines with short shelf-life. Warehousing the medical stocks creates an additional cost burden. The uncertainty of the situation hinders the companies´ ability to plan ahead.

In the short term, many UK companies e.g. GSK are building new laboratories for parallel product testing and shift licences outside of UK, to ensure their products can still be sold in the EU. Similarly, some like AZ have taken the position of halting all spends on stockpiling and risk the wrath of regulators in case of shortage due to no-deal Brexit.6,7,13

Access to Public and Private Capital

UK stands to lose access to EU (public) funds: A no-deal Brexit would reduce UK’s funding from the EU’s Horizon 2020 programme (a £70B pot aimed at cutting-edge science) by ~50%. UK´s access to EU funding beyond Horizon 2020 is still uncertain.4,5,10

Access to private capital will also get adversely affected: non-UK based Venture Capital and Private Equity funds will tighten their criteria of funding UK based biopharmaceutical companies since the entry barriers to EU markets will increase in case of a no-deal Brexit.4

Costly marketing approvals

In case of a no-deal Brexit, the UK’s MHRA will take over the regulatory functions currently performed by EMA, including managing regulatory applications for medicines.9

This implies that UK companies will have to partner and/or set up legal base(s) in EU to develop and commercialize their products for the EU market.11 The same holds true for EU companies as they try to access the UK market.These stipulations will necessarily hurt the bottom lines of the companies with cross border ambitions.

To conclude

The pharmaceutical industry (like all others) is in a ‘wait-and-watch’ mode as the UK tries to make an exit plan from the EU. The prospects of clarity seem distant as trade negotiations are expected to go on for several years. In the meantime, the increased cost of business and restricted access to capital is likely to adversely impact the UK´s pharma industry.

So, what does the future hold for Britain’s pharmaceutical industry? We will have to wait and see… and prepare for Brexit….deal or no-deal!

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Preeti Parikh
Preeti Parikh
Preeti has been with RAS since its inception in 2014. She has worked on several projects involving strategy development, competitive intelligence and market analysis. She is passionate about data which she combines with her natural knack for visualisation and creating engaging content. Preeti began her career with a Masters Degree in Biotechnology from University of Abertay

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