Brexit: alea iacta est

In a free and democratic process, the British people have expressed their wish to leave the European Union

Speaking ahead of the referendum vote, Sean Hu, Senior Vice President and Head of Consulting at GlobalData, said: 'If the UK exits the European Union (EU), pharmaceutical companies could even exclude the UK when assessing commercial potential of drugs because of the much higher access hurdle. Instead, they might choose to focus more on the remaining EU, and treat the UK as an isolated country.'

And although the exit of the UK from the EU undoubtedly creates significant issues for the UK pharmaceutical and medical device industries in ensuring highly regulated European markets remain open to business, opportunities remain for these sectors to thrive, he added.

The company believes that the vote to leave — also known as Brexit — will have significant consequences for the pharmaceutical and medical device industries in five key areas, namely: regulatory impacts, research and development, access to talent, intellectual property rights, and market access.

For manufacturers, the most immediate impact will be on the area of drug and device regulation, as a Brexit vote will be followed by a series of negotiations lasting 2 years. However, as the UK government has chosen to delay invoking Article 50 until at least the autumn of 2016, and possibly beyond, in principle this would suggest UK-EU relations would continue as normal until that point.

David Shaw, GlobalData’s Chief Operating Officer, commented: 'Given the time scales in which the life sciences operate, to suddenly enter a 2-year negotiation process doesn’t sound like a long time, and that uncertainty makes the monetizing of investments appear more risky.' Life science, including pharmaceuticals and medical devices, is a critical element of the UK economy, accounting for more than 180,000 jobs and revenue of $80bn, according to UK Trade and Investment; 51% of medicinal and pharmaceutical products are exported to the EU.

There are numerous ramifications of Brexit for the healthcare sector. For example, the European Medicines Agency (EMA), which is headquartered in the UK, is likely to be swiftly relocated to the EU. There also may be immediate disruption of the regulation of existing medicines, let alone drugs in development. Despite the drawbacks of a Brexit vote, though, GlobalData believes the pharmaceutical industry could still thrive. However, the UK would need to follow a different path from the likes of Switzerland, Canada and Israel, and establish a uniquely British solution.

The vote revealed a deeply fractured country, with Scotland resoundingly supporting 'Remain,' Northern Ireland narrowly supporting 'Remain' and the remainder of the country supporting Brexit. As the major life sciences industry clusters in the UK are in the south east of England, south Wales and the central belt of Scotland, allowing regions of the UK to vary corporation tax could firm up and expand these regions of excellence.

At a national level, freed from the EU, a UK government may be able to employ state aid, to greater strategic effect, both as a means to draw in investment, and as a way to shore up the viability of the United Kingdom as a unitary state. However, besides providing a low tax environment, with flexible labour laws, GlobalData believes it is critical that the UK maintains the excellence of its science research and development base, through direct UK government funding, or through participation in external funding programmes such as Horizon 2020.

Silver lining in the long-term

As a consequence of the United Kingdom’s vote to leave the EU, Frost & Sullivan sees tremendous challenges to the National Health Service’s (NHS) goal to combine savings while maintaining continuous or improved healthcare quality outcomes. There is an increasing gap in personnel as the major threat to the UK’s NHS. Shortages in primary and long-term care will force hospitals to continue to bear a disproportionate burden of care provision. The leave decision will have far reaching implications on the recruitment of skilled doctors and nurses from the EU. This will invariably lead to longer waiting times and delayed care provision.

Says Senior Research Analyst, Transformational Health, Tanvir Jaikishen: 'The NHS has an ambitious goal to deliver £22bn in efficiency savings by 2020. These efficiency savings are contingent on the successful transition of care away from hospitals and towards primary care and long-term care providers. With the NHS currently spending the overwhelming majority of around 78% of its budget on hospital-based care, only 15% on primary care and 5% on continuing healthcare and social care, efficiency savings can only be realized by a gradual shift in spending away from hospitals and towards primary and social care provision. This transition will be hampered by continued manpower and funding shortages. Combined with rising healthcare costs, this will most certainly result in lower quality of care provision.'

However, in the long run, both the EU’s as well as the UK’s healthcare systems could benefit from a higher willingness to adapt new technologies, business models and innovations. An example of a new business model which could see increased acceptance, is the concept of risk-based partnerships between hospitals and suppliers, as care providers strive to make financial savings by using innovative services/solutions.

Just as the recession in the US in 2008 triggered an increase in investment in technologies that supported care co-ordination and accountable care, this disruption in Europe, and its temporary financial impact, can be expected to accelerate the adoption of outcomes-based technologies in healthcare in Europe as well. Moreover, the approval processes for new drugs or medical devices as well as the co-operation between the public and the private sector (PPP, private public partnership) is expected to increase in Europe, as the private sector takes on a bigger service provision role.

With the planned care transition thrown in jeopardy, the NHS will need to plug personnel gaps and delivery efficiency savings with reduced budgets. The approach to care provision thus far has been reactionary. With the given situation, this is expected to change. To create viable integrated care solutions, there will be a greater need for adoption of information technology to more efficiently manage care provision with fewer resources. This presents a silver lining for companies with products and services that aid in improving institutional or departmental workflow efficiencies, managing increasing patient volumes and eliminating redundancies. This sentinel event could be seen as the spark that ignites a much needed healthcare service revolution.

Staffing issues

Daniel Kirkpatrick, Team Manager for Scientific and Medical at JAM Recruitment, also commented on the recruitment and staffing implications of Britain opting to leave the EU. 'The consequences of the UK leaving the European Union are vast and wide ranging, with an impact expected to be seen across a whole host of areas,” he said. “We’ve all heard of the changes that a breakaway will have on topics such as the economy and immigration, however the decision will now lead to the UK suffering from an even greater skills shortage.'

'When recruiting staff within this sector, again we’re seeing heavy reliance being placed in recruiting not only from the UK, but also from European nations. Within biotechnology, a high level of importance, especially for entry level roles, is placed in ensuring candidates have experience of operating within a working laboratory environment. This is something that candidates from mainland Europe are often in a good position to offer, often making them more attractive than their UK counterparts. Like other sectors, the industry is not in a position where we have the trained home-grown workforce that would allow us to continue operating at the cutting edge of scientific development,' he warned.

Industry feedback

Perhaps more positively, Mike Thompson, CEO of the Association of the British Pharmaceutical Industry (ABPI) has said: 'The voice of the British people has been heard. This creates immediate challenges for future investment, research and jobs in our industry in the UK. With that being the case, we are committed to working closely with the government to agree what steps need to be taken to send a strong signal that the UK is open for business.'

Likewise, Warwick Smith, Director General of the British Generic Manufacturers Association and the British Biosimilars Association, said: 'The existence of a single European marketing authorisation for medicines has generated considerable benefits for patients, the NHS and the industry. The single European marketing authorisation reduces cost and complexity for manufacturers, facilitating the production and regulation of high quality medicines and their availability to patients.'

'The UK generic and biosimilar medicines industry therefore urges the government to do everything possible to maintain this European marketing authorisation system in the forthcoming negotiations with the European Union.'

And, commenting in reaction to the EU Referendum vote, BIA CEO Steve Bates said: 'This is not the outcome that the BIA wanted, but we accept the views of the UK people. The life sciences sector is a resilient community, unfazed by new challenges and staffed by great management teams used to working in a global environment. The fundamentals of UK bioscience remain strong. In terms of potential new therapies in the pipeline, the UK is by far the strongest in Europe. But several key issues for our sector are now in flux.'

'Key questions about the regulation of medicine, access to the single market and talent, intellectual property and the precise nature of the future relationship of the UK with Europe are now upon us. This will require detailed and dispassionate thinking and the BIA will make its and its members’ expertise available to the government and its key agencies in the coming weeks and months as we work through these complex issues,' he added. 'The BIA remains committed to making the UK the third global cluster for life sciences and we will work closely with government and relevant agencies to see how this ambition can be delivered in the new political context we now find ourselves in as a country.'

The die is cast

European Parliament President, Martin Schulz, European Council President Donald Tusk and Dutch Prime Minister Mark Rutte met on Friday morning in Brussels at the invitation of EU Commission President Jean-Claude Juncker. They discussed the outcome of the United Kingdom referendum and made the following joint statement: 'In a free and democratic process, the British people have expressed their wish to leave the European Union. We regret this decision but respect it.'

'This is an unprecedented situation but we are united in our response. We will stand strong and uphold the EU's core values of promoting peace and the well-being of its peoples. The Union of 27 Member States will continue. The Union is the framework of our common political future. We are bound together by history, geography and common interests and will develop our co-operation on this basis. Together we will address our common challenge to generate growth, increase prosperity and ensure a safe and secure environment for our citizens. The institutions will play their full role in this endeavour.'

'We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be. Any delay would unnecessarily prolong uncertainty. We have rules to deal with this in an orderly way. Article 50 of the Treaty on European Union sets out the procedure to be followed if a Member State decides to leave the European Union. We stand ready to launch negotiations swiftly with the United Kingdom regarding the terms and conditions of its withdrawal from the European Union. Until this process of negotiations is over, the United Kingdom remains a member of the European Union, with all the rights and obligations that derive from this. According to the Treaties which the United Kingdom has ratified, EU law continues to apply to the full to and in the United Kingdom until it is no longer a Member.'

The 'New Settlement for the United Kingdom within the European Union,' reached at the European Council on 18–19 February 2016, will now not take effect and ceases to exist. There will be no renegotiation.

'As regards the United Kingdom, we hope to have it as a close partner of the European Union also in the future. We expect the United Kingdom to formulate its proposals in this respect. Any agreement, which will be concluded with the United Kingdom as a third country, will have to reflect the interests of both sides and be balanced in terms of rights and obligations.'

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