‘Brexit’ – into the unknown

“there is no plan”

In the current political and economic turmoil after the ‘Leavers’ won victory in the UK referendum on whether Britain should remain in the EU, both major political parties (Tory and Labour) are in disarray and ironically two of the Leave leaders – Tory MP Boris Johnson and Nigel Farage of the UK Independence Party (UKIP) – have themselves ‘Brexited’ the scene.

Looking at the bigger picture, this referendum could achieve what several hundred years of (often bloody) dispute could not achieve – a break-up of the UK, with Scotland looking again at independence and, if the Irish Republican party Sinn Fein have their way, a united Ireland.

Plan … what plan?

Now the only certainty is uncertainty. One of the more memorable images in the wake of the referendum was a video widely circulated on social media showing the shock and disbelief of a Sky News reporter when told by a leading Brexiteer “there is no plan” for Britain’s exit from the EU.

Amid the uncertainty, pharma/biotech manufacturers, which overwhelmingly favour remaining in the EU, have to formulate a strategy. Accounting for about a quarter of all UK business research expenditure, they will have the support of the government, which wants to encourage a strong life sciences industry and make the UK the third leading biotech cluster in the world.

Last week, it was announced that drug industry and UK government officials have set up a task force to address regulatory and other problems facing the pharmaceutical sector following Britain’s decision to leave the EU. The group is co-chaired by GlaxoSmithKline chief executive Andrew Witty, AstraZeneca CEO Pascal Soriot and UK life sciences minister George Freeman.

At its first meeting, the group agreed to examine issues relating to drug regulation, intellectual property, trade, and access to skilled workers. It will have to do this against a background of a range of possible options if Britain is outside the EU.

Main options

1. The Norwegian approach. As a member of the European Economic Area (EEA), Norway has access to the single market for pharmaceuticals and can benefit from pan-European drug regulation.

2. The Swiss approach. Switzerland has a number of bilateral accords with the EU and, like Norway, can benefit from pan-European drug regulation.

However, if Britain negotiated a similar deal to Norway or Switzerland, it would have to accept free movement of people. This could be a sticking point given that immigration was a major factor in the Leave victory. Also, as I commented in my March/April column, while it might gain some flexibility in regulatory and industrial policy by following a Norwegian or Swiss route, the UK would lose its voice in key negotiations and decisions, particularly on pharma legislation and regulation. Industry would be bound by the same rules but have no say in how they were drafted.

1. Full withdrawal from the EU. This would mean the UK coming under World Trade Organisation (WTO) rules, raising the spectre of import tariffs. Also, the US and the EU are currently negotiating the Transatlantic Trade and Investment Partnership (TTIP) so leaving the EU could put Britain outside both the European single market and a new EU-US market. British goods exported to the US could face tariffs and British firms could be at a disadvantage to EU-based competitors. Britain could negotiate a new trade deal with Europe, as Canada has done, but this could take years.

Drug regulation

Pharma companies have warned that Brexit would add to the complexity of, and potentially delay, new drug approvals.

The first impact of Britain leaving the EU is likely to be the exit of the European Medicines Agency from its base in London. This would be a loss for both the EMA and the UK Medicines & Healthcare products Regulatory Agency (MHRA). While the MHRA would have to beef up its operations to make up for absence of the EMA, the latter would also lose out as UK regulators play a leading role in EU regulation, especially in the area of patient safety. The EMA’s presence also makes the UK attractive for pharma firms in terms of investment and as an early launch market.

In respect of drug approvals, pharma firms would still want harmonisation. However, this would imply new rules and, outside the EU, the UK would have no say in how these are drafted. Questions will arise over drugs centrally approved in the EU – would the UK have to have a new mechanism for recognising EU approvals? It is suggested that, if the UK has to develop its own regulatory system, this would add an extra layer of regulation and British patients could lose out if companies prioritise the larger EU market over the UK.

The regulation of clinical trials is also an issue. The new EU Clinical Trials Regulation, due to be introduced in 2018, offers a much simpler system for conducting CTs and a database with ease of access to CT data. Would the UK be able to participate? If not, it risks losing its attraction as a location for CTs.

Research

The impact of Brexit on UK pharmaceutical and life sciences research in terms of funding as well as regulation is a major concern. The UK is a net recipient of EU funding for health research, accessing more funding per capita than any other country. Brexit would leave a major funding gap.

It could mean loss of grants from collaborative EU research programmes such as Horizon 2020 and the 7th Framework Programme for Research and Technology Development, and the benefits from public-private research partnerships. As well as the potential impact on companies, this could mean a ‘brain drain’ of researchers from the UK.

Intellectual property

A unitary patent system for pan-EU protection is being developed from which the UK could be excluded. There are also questions over existing IP schemes such as supplementary protection certificates (SPCs), market exclusivity and, regulatory data protection. The generics industry is suggesting a manufacturing waiver, for example, which would allow, before expiry of the SPC, the manufacture and stockpiling in the EU of generics for export to and sale in non-EU countries where the originator’s drug is no longer protected by a patent or patent restoration.

Trade

The EU accounts for over half of UK pharmaceutical exports. This could be threatened by import tariffs if Britain is no longer in the EU. Also, for foreign companies, the UK is often an entry point to the EU. If Britain exited or had limited access to the EU single market, these companies could look elsewhere when launching new products. And, as noted above, if Britain were totally outside the EU, this could involve lengthy negotiations on bilateral agreements, with the possibility of penalising import tariffs in the interim.

On the other hand, if there were no longer free movement of goods, one thorn in the flesh of many multinational research-based companies – parallel importing – would probably disappear.

Pricing and reimbursement

One area that will remain unaffected by Brexit is pricing and reimbursement of medicines as this is a matter of national competence, although EU governments have been showing signs of wanting to collaborate on pricing information for expensive new drugs (see Column of February/March 2015 on Sovaldi - a Triple P Game Changer).

What now?

The answer has to be no-one knows?

There is considerable anger in the UK about the arguments put forward by the Leave campaign, with many of its assertions having been recanted. There is pressure for second referendum, given that the majority of 52% to 48% was quite narrow, although at present another referendum doesn’t look likely.

Much will depend on who becomes Prime Minister. At the time of writing there were two contenders – Home Secretary Theresa May, who favours Remain, and Andrea Leadson, an MP who is pro-Leave.

Article 50 of the Lisbon Treaty must be invoked before the Brexit negotiations can begin. The next PM could refuse to trigger Article 50 immediately and try to begin negotiating a reform of the free movement of people rules. However, this would meet resistance from EU member states, although there is also pressure within the EU for reform and the possibility of more national referenda – a Nexit (Dutch withdrawal) or Czechzit (Czech withdrawal) has been suggested.

The UK referendum is not legally binding and Parliament would have to approve legislation on Brexit. Given that most MPs want to remain in the EU, this could be tricky.

No immediate exit

The only thing that is certain is that Britain will not leave immediately. Extricating itself from the EU will be extremely complex, and the process could take longer than two years. No country has ever invoked Article 50. Nor can Britain be forced to invoke it.

When (if?) Article 50 is invoked, there would be two years for negotiations with the remaining 27 members, which must ultimately give approval by qualified majority. The European Parliament has a veto over any new agreement formalising the relationship between the UK and the EU. The two years for negotiation can be extended but only if all 27 countries agree. If there is no agreement the UK has to leave the EU.

Loss to EU

At the moment all the emphasis is on the negative impact of Brexit on the UK. But the EU would also lose out. In the pharma arena, the MHRA is a highly active and respected participant in EU drug legislation and regulation. Through it, the UK undertakes about 30% of work on new drug marketing authorisations. On a wider scale, the UK’s financial contribution and its role in areas such as foreign policy would be missed. Once the dust has settled and the perceived desire of some in the EU to “punish” Britain has abated, we may get a clearer picture of how the negotiations will pan out.

However, for the next two years or possibly longer, it looks like the pharmaceutical industry, as well as all other industries in the UK, will face a highly uncertain climate in which to do business.