UK’s decision to quit the EU will impact the country’s pharma industry, creating uncertainty around drug approvals, intellectual property, funding and investments, trade, and talent.
The pharma industry is trying to evaluate the impact Brexit will have on overall revenue and growth. Typically, compared with other industries, pharma is usually relatively immune to macroeconomic turmoil as people do not stop buying drugs as a result of a stock market crash, for example. This is valid in the case of Brexit as well, and perhaps more so considering Big Pharma generates a majority of its revenues from the US (for example, Novo Nordisk, J&J, and Pfizer generated ~53%, ~51%, and ~45% of their 2015 sales, respectively, from the US).
However, Brexit raises other questions for the UK pharma industry, as the country is one of the largest recipients of research grants from the EU. Further, the UK opens the door to the EU pharma market for many companies. In this article, The Smart Cube evaluates the potential impact of Brexit on the pharma industry—primarily the UK.
Drug Approvals and Intellectual Property
The European Medicines Agency (EMA), headquartered in the UK, approves drugs and provides market authorisation for all EU markets at present. Brexit, however, has raised the probability of a separate drug approval process for the UK, and increased the possibility that the EMA will look for a new home within the sans-Britain EU. The above processes could take time—some months or probably years. However, as the EMA delegates its work to national health bodies, approvals for drugs in pipeline may not get severely delayed, while overhead costs for pharma companies could also increase.
Brexit has also caused uncertainties over the soon-to-be-implemented European Unitary Patent system that allows EU-wide implementation of a patent granted by the European Patents Office (EPO)—presently, the EPO grants patents for only the countries selected by the applicant. It does not mean that the system cannot be implemented; but with the UK being one of the most active countries in the EU’s patent landscape, it may not make sense to proceed without it.
Funding and Investments
The UK is one of the largest receivers of funding and grants from the European Research Council (ERC). In 2015, the country received the highest number of grants—both at an overall level and in the life sciences domain—from the ERC. Further, during 2007–2013, the country was the second largest (securing ~$8.7 billion), after Germany, to receive funding under the “FP7” program. It is also expected to be one of the highest fundraisers in “Horizon 2020”, a similar program with a budget of $100 billion to be granted over a period of seven years (beginning 2014). However, post Brexit, it is likely to be difficult for the UK to access this funding.
The country is also a part of the Innovation Medicines Initiative, a pan-EU effort to drive innovation in the life sciences domain. As the initiative is partly funded by the EU, there will be questions on the UK’s role within this initiative. Private funding is also likely to take be impacted, as investors wait to assess the situation before pouring in more money.
According to the UK’s Confederation of Business Industry, the EU accounts for ~56% (~$67 billion) of the country’s pharma exports. While Brexit supporters say that growth is expected primarily in the remaining 44%, opponents argue that the industry cannot altogether ignore the majority export partner.
Once Article 50 is officially invoked, the UK will have to negotiate a separate trade agreement with the EU (in all likelihood as a single entity). However, considering that existing trade relations are beneficial to both the UK and the EU, a favorable trade agreement is expected to be likely. The complicating factor will be the political winds, where some politicians have argued that the UK cannot be given equivalent terms (to what it would have received had it remained within the EU) once it is outside the common market.
Brexit is also likely to impact the UK’s access to pharma talent, which is already facing a shortage. In a September 2015report, the Office for Life Sciences (UK) estimated a shortage of ~24,000 life sciences professionals in the country. Subsequently, the Association of the British Pharmaceutical Industry (ABPI) warned of talent shortage in the country’s pharma sector; many experts argue that Brexit will only worsen the situation. With no R&D grants and private investments flowing in the industry, it is expected to be difficult to produce and retain life sciences professionals in the country.
The Way Forward
While the industry is busy figuring out Brexit’s precise impact, the UK government has brought in Andrew Witty and Pascal Soriot, CEOs of GSK and AstraZeneca, respectively, on July 6, 2016, to co-chair a working group led by life sciences minister George Freeman. The group will look into a wide range of issues, from regulatory to intellectual property and trade, concerning the UK’s pharma and biotech industries. UK pharma industry professionals have already indicated their willingness to have continued common market access with the EU. However, this will require the UK to make certain compromises with the EU once ‘Brexit’ is realized.
Note: 1) All currency conversions are at GBP 1 = USD 1.25545 as of July 8, 2016