Brexit: A bitter pill to swallow? Part 2

Last week, Moorhouse discussed the implications Brexit could have on the UK’s pharmaceutical Research and Development operations. This is part of a series of blogs in which we discuss the potential impact of Brexit on the sector.

Back in January, Prime Minister Theresa May gave details of her industrial plan for the UK. Listed among the 10 strategic pillars of this strategy was ‘investing in science, research and innovation’, something that the ABPI (the UK’s pharmaceutical association) and BIA (biotechnology sector organisation) will hope the government sees through. The strategy was accompanied by the announcement of a new £10 million investment in the Greater Manchester and Cheshire Life Sciences Fund, which will provide capital to local small and medium businesses to drive the growth of innovative young life sciences businesses. From an internal perspective, it’s heartening to see the industry is clearly a priority for the Prime Minister and the news has been welcomed by industry leaders. Looking further afield, however, the UK will need to negotiate its future trading relationship with the EU, which is the focus for this week’s topic: the impact of Brexit on the pharmaceutical Supply Chain.

Movement of products

The single market has made it relatively easy to move pharmaceutical products around the EU. If a Brexit deal results in the UK’s withdrawal from the free market, the pharmaceutical supply chain will become more complex and require redesign. A wide range of supply chain operations will need to be amended; a prominent example being the use of single storage depots. As it stands, legislation allows pharmaceutical companies to have one storage depot for the entire EU. In the event of a hard Brexit, it is likely that companies that have their storage depot located in the UK will need to organise relocation of the depot to within the newly demarcated EU zone, a feat that will need to consider job losses, product movement and redesigning the supply chain network.

Withdrawal from the single market does offer some potential benefits, however. Brexit primes the UK with the opportunity to design a more favourable business environment by way of a competitive tax regime and incentives that encourage innovation. The UK is already held in high esteem in this respect with the lowest corporation tax rate in the G7 and with their patent box regime, which offers even lower corporation tax (10%) on income derived from patented products.

Security of products

On 9th February 2016, the Delegated Regulation to the Falsified Medicines Directive (FMD) was published with an implementation deadline of February 2019. The new regulation was levied to increase the security of the manufacturing and delivery of medicines in ​Europe and provide protection to patients from falsified medicines in the legal supply chain of pharmaceuticals.

The current regulations following the FMD are unlikely to change before Brexit is complete, but during the transition phase there may be changes and developments between the UK and the various European regulators. Having seats in a range of EU bodies and committees, Britain has a heavy influence on the shape of the pharmaceutical industry; a position that is likely to be lost in the result of a hard Brexit. If Brexit brings about bespoke supply chain processes for the UK, which result in changes to requirements regarding serialization, coding and aggregation of products, pharmaceutical companies and Contract Manufacturing Organisations would need extra manpower to adapt to and implement an additional (and potentially just as complex) legislation whilst ensuring they meet the 2019 FMD deadlines.

As expected, the potential implications for the pharmaceutical supply chain pose more questions than respond to them. Pharmaceutical companies will need to stay close to Brexit negotiation talks pertaining to trade agreements and begin necessary reorganisation as early as possible to avoid disruption. What might a new trade deal look like though? The following four trade scenarios are likely to dominate Brexit negotiation talks:

  • Membership in the European Economic Area (EEA) and continued support of the EU’s four freedoms of labour, capital, goods and services
  • The establishment of a limited free trade agreement with the EU
  • Entrance into a bilateral integration treaty with the EU
  • A new trade agreement with the EU, membership in the World Trade Organization as a “most favoured nation.”

The UK may opt for a solution that comprises qualities from some, or all, of the above.

Next week, Moorhouse discusses pharmaceutical commercial operations and how Brexit may impact them.

Infographic designed by James Hemson.

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