To go or not to go: the question the UK must answer

Published: 21-Apr-2016

The prospect of the UK voting on 23 June to leave the European Union is a cause for deep concern among companies in the pharmaceutical sector

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On 23 June the UK electorate will make the vital decision about whether the country should stay within the European Union (EU) or leave it, and if one thing is clear it is that the pharmaceutical industry – largely – wants the UK to stay put.

While the Association of the British Pharmaceutical Industry (ABPI), by 1 April, had not taken a definitive stance – officials said it was still consulting with company members – the European Federation of Pharmaceutical Industries and Associations (EFPIA) has released a statement stressing that ‘the UK’s continued membership of the EU is in the best interests of the pharmaceutical industry in the UK and across Europe.’

It said that as part of the EU, British pharma companies would continue to benefit from pan-European collaborations in R&D, EU markets, the EU’s advocacy on global trade issues and harmonised European regulations. And it highlighted what is probably the biggest concern within the pharma sector faced with the uncertainty of a ‘Brexit’ vote: what happens next, and what would be the shape of the UK’s final relations with the 27 countries remaining in the EU?

Brexit has the potential to impact on regulation, the status of the EMA, finance, employment, the transfer of personal data and the European research ecosystem

‘Pharmaceutical companies across Europe face considerable uncertainty at the prospect of the UK leaving the EU. Brexit has the potential to impact on regulation, the status of the EMA, finance, employment, the transfer of personal data and the European research ecosystem,’ said the EFPIA, which represents 19 national full member pharma industry associations, including the ABPI.

For now, the ABPI is saying: ‘We support measures that can be taken to reform the EU, simplify bureaucracy and enhance its competitiveness. In an industry that has significant lead times, where it often takes 12 years for a molecule to travel from bench to bedside, regulatory stability and predictability are important. We hope the referendum will provide that stability.’

Certainly, there is a lot of money at stake here. According to trade data service Trading Economics, exports of UK-made pharmaceutical products to the rest of the EU in November 2015 alone were worth £916.53m (US$1.3bn), up from £810.08m ($1.14bn) in October. November exports of UK-made pharma products were worth £1bn ($1.4bn), said Trading Economics. The extent to which this flourishing trade with other EU countries would be restricted following a decision to leave is of course unclear, and would depend to a significant extent on any post-Brexit settlement.

Should the UK decide to request and was granted membership of the European Economic Area (EEA), the re-imposition of trade barriers could be minimised. This is a halfway house membership used by Norway, Iceland and Liechtenstein that extends significant elements of EU law to these countries, without them having a say in how this legislation is drafted.

Critically, EU pharma legislation would continue to apply if Britain chose this route, with marketing authorisations made by the European Medicines Agency (EMA) continuing to apply within the UK. The same would apply to EU laws on pharmacovigilance, inspections and sanctions. EEA membership would also mean that EU chemical control system REACH would continue to apply in the UK – so existing chemical registrations and authorisations would remain unchanged. Also, the EU and UK would not impose tariffs on pharmaceutical products traded between them.

Should the UK decide it does not want or is denied EEA membership, it would have to negotiate a new trade deal across all the policy areas covered by EU membership, or risk being locked out of trading with its neighbours

All these guarantees would go out of the window, however, should the UK decide it does not want EEA membership, or is denied membership by former EU partners angry about a Brexit. It would then have to negotiate a new trade deal with the EU across all the policy areas covered by EU membership, or risk being locked out of trading with its neighbours. The model here would probably be the Swiss route, which is a member of the European Free Trade Association (EFTA) bringing some trade advantages in Europe and elsewhere, but not the EEA. This could see the UK left outside the EU medicine market authorisation system, quitting REACH, and potentially (although this is not likely), the imposition of tariffs on UK pharma exports to the EU.

This lack of predictability is unnerving many pharma companies and they are calling publicly for Britain to remain in the EU. GSK and AstraZeneca leaders signed a letter published in The Times backed by almost 200 companies, which said: ‘Business needs unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs. We believe that leaving the EU would deter investment and threaten jobs. It would put the economy at risk.’

And in another letter to The Times, more than 150 senior academics from the Royal Society, including Prof. Stephen Hawking and protein science pioneer Prof. Sir Alan Fersht, warned that science would be threatened by Britain leaving the EU. This would restrict EU immigration and exchanges of academics between British continental universities, it warned. ‘If the UK leaves the EU and there is a loss of freedom of movement of scientists between the UK and Europe it will be a disaster for UK science and universities.’

EU funding has raised greatly the level of European science as a whole and of the UK in particular

It added that EU funding has ‘raised greatly the level of European science as a whole and of the UK in particular because we have a competitive edge’. It pointed out that many of Britain’s best researchers come from continental Europe, ‘including younger ones who have obtained EU grants and have chosen to move with them here’.

Furthermore, it said that immigration restrictions approved by the Swiss government in 2013 had led to the EU reducing Swiss participation in EU research programmes such as the €80bn Horizon 2020 scheme. It had also prevented Switzerland from recruiting scientific talent to its companies and universities.

The biopharma sector is another segment that has made its views clear. Indeed, 50 leaders of the industry within Britain and continental Europe signed a letter in the Financial Times warning against Brexit, stressing that EU membership ‘offers various advantages to the life sciences sector’.

Signatories included Steve Bates, CEO of the BioIndustry Association (BIA); Pascal Soriot, CEO of AstraZeneca UK; Dr Patrick Vallance, GlaxoSmithKline’s President Pharmaceuticals R&D; senior executives from Imanova; Peptinnovate; Redx Pharma; Syncona Partners, and more. They wrote: ‘Not only would an exit from the EU negatively impact on the life sciences sector…but would pose significant risks to the UK's attractiveness for inward investment and as a location for the world-leading talent the life sciences sector depends upon.’

The letter stressed that the UK is a net recipient of EU funding for health research, accessing more funding per capita than any other EU country. ‘Many biotech companies have benefited from Horizon 2020 and its predecessors, and leaving the EU would leave a significant research funding gap,’ warned the letter.

The EU’s pharma regulatory system is cornerstoned in the UK, and has significant UK input

It added that regulators and legislators have built up an integrated European regulatory framework for clinical research and developing new, innovative medicines. The letter said the EU’s pharma regulatory system is ‘cornerstoned in the UK, and has significant UK input’, stressing the development of an integrated unitary patent system using a London-based Unified Patent Court; this would almost certainly be based in another country following a Brexit.

And, of course, London is the home of the European Medicines Agency (EMA), which would probably have to leave the UK following a Brexit because EU institutions are required to be domiciled in member countries. EMA is not commenting on the referendum directly. ‘The referendum and the related campaigns are a matter for the British government and the British people. We would not speculate on the result of the referendum and its potential consequences on the UK and the EU as a whole,’ said a spokesperson.

But continental regulators are already eyeing a bid to host EMA, should the UK vote to leave the EU. ‘We will put pressure on the government to do everything it can to attract the European agency to Denmark,’ Ida Sofie Jensen, Director General of the Danish Association of the Pharmaceutical Industry (Lif – Lægemiddelindustri-foreningen), has said. She explained: ‘When a biotech company or a company in the pharma sector has to decide where to place its headquarters, the preferred places as it is now are Boston, the UK, Switzerland, and Denmark. If the UK leaves the EU and EMA has to move, the obvious location would be Denmark.’

There is no guarantee that a Brexit would lead to major pharma manufacturers leaving Britain, although it might make them question future investments

All these aside, there is no guarantee of course that a Brexit would lead to major pharma manufacturers leaving Britain, although it might make them question future investments. Moving manufacturing bases and their employees may well be just too disruptive, whatever trading and financing problems are caused by the UK leaving the EU.

Japanese major Otsuka Pharmaceutical Co., for example, wants Britain to stay within the EU, but says it will not quit the UK if it leaves. Otsuka joined executives sending the open letter to the Financial Times in February, with Otsuka spokesperson Jeff Gilbert saying: ‘Otsuka favours the UK remaining part of the EU due to the common regulatory framework and access to a large, single market as well as to a mobile talent pool’.

Otsuka’s UK pharmaceutical operations employ nearly 400 people in commercial and research activities, but it would stay in Britain, even after a vote to leave the EU. ‘First, our employees are highly satisfied working in the UK and a move to mainland Europe would be highly disruptive for many of them,’ Gilbert said.

‘Nonetheless, over the long run, the issue for any life sciences-related business is ensuring that it has unhindered access to resources, especially highly talented staff in areas such as the sciences, but also capital – especially for biotech companies – in what is a capital-intensive field.

‘Second, the UK has a critical mass of pharmaceutical and biotechnology companies, leading universities in the sciences, and other centres of academic medicine, making the country a hospitable environment for drug discovery and drug development,’ he said.

Finally, there is concern about the potential impact of EU manufacturers wanting to tap UK markets, should Britain quit. Matt Morin, Director of Biopharmachem Ireland, the country’s industry association told Manufacturing Chemist of his concern about regulatory hurdles being erected impeding Irish pharma exports to Britain: ‘We think there would be challenges we would have to deal with. We would strongly support the UK staying within the EU.’

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