Brexit’s Impact on Pharma: Possible effects on the geography of pharmaceutical R&D and the availability of drugs in the UK

September 4, 2018 – Claudia Cortez and Martin Kovach

With the June 2016 British vote to leave the EU (so-called “Brexit”), by the end of March 2019 the United Kingdom (UK) will no longer be a part of the European Union (EU) single market, which allows for the free movement of people, goods, services, and capital among its Member States.[1] This will likely affect the economic geography of pharmaceutical research and development, as the European Medicines Agency (“EMA”), the EU agency responsible for the scientific evaluation, supervision, and safety monitoring of medicines, will be relocated from London to Amsterdam.[2] It may also have an impact on pharmaceutical availability and prices in the UK, since pharmaceutical products moving between the UK and EU Member States will be treated as regular imports and exports, and since the UK and EU will have separate drug approval regimes.

Impacts on pharmaceutical research and development in the UK

Because of Brexit, the UK will lose the benefits it has garnered from serving as the host country for the EMA.

Although the UK’s pharmaceutical consumption accounted for only 2.4% of global pharmaceutical sales dollars in 2016,[3] over the years it has become an important hub for the pharmaceutical industry partly because it hosts the EMA’s headquarters. London was selected as the EMA’s seat in October 29, 1993, through a decision taken by common agreement between the representatives of the governments of the EU Member States.[4] The UK was selected in part because of its historical involvement in pharmaceutical development which dates back to the 19^th century. In 1993 it was the home base of the major pharmaceutical companies SmithKline Beecham, Glaxo, Wellcome, and Zeneca, which have since merged into the drug giants GlaxoSmithKline and AstraZeneca.[5]

The selection of London as the host of the EMA enhanced the UK’s status as a center of drug development and regulation. The EMA directly supports €118 million of gross value added, and contributes 2,151 full-time jobs to the UK.[6] The EMA has also brought indirect benefits to the UK life sciences sector. It has attracted a highly specialized work force for the pharmaceutical industry.[7] It has also attracted companies involved in drug development and regulation.[8] According to a report analyzing the effects of EMA’s relocation to Amsterdam, “The presence of the EMA in London has added to the critical mass of LSH [life sciences and healthcare] activity that already exists in the UK, and is likely to have been one of a number of ‘pull-factors’ for companies deciding to locate in the UK.”[9]

This concentration of expertise has created ecosystem benefits such as improved knowledge sharing and increased influence on the European healthcare sector.[10]

The EMA’s location in London also enhanced the global status of the Medicines and Healthcare products Regulatory Agency (MHRA), the national UK agency in charge of evaluating applications for UK drug licenses.  Because of its proximity to the EMA headquarters, MHRA was often asked to take the lead in decentralized and mutual recognition procedures filed with the EMA.[11] Moreover, because holders of Marketing Authorizations issued by the EMA have to be based in an EU Member State, it is believed that many regulatory teams might have been attracted to the UK due to EMA’s headquarters’ location.[12]

For all these reasons, EMA’s location in London has contributed to the growth of life sciences industrial activity in the UK.[13]

The economic impact of all of this activity is hard to measure, but in the years since 1993, the UK pharmaceutical industry has thrived. Pharma R&D spending in the UK has increased every year since it started being tracked by PwC in 2005.[14] In 2011, the UK had the fifth highest business expenditure on pharma R&D as a proportion of GDP.[15]  In 2016, almost half of the all R&D spending in the UK had been carried out by the pharmaceutical and healthcare industry.[16]

EMA relocation

Because of Brexit, EMA will relocate to Amsterdam. The EU Member States selected Amsterdam in November 2017 out of a crowded field of 19 applicants.[17] The European Commission received bids from Austria (Vienna), Belgium (Brussels), Bulgaria (Sofia), Croatia (Zagreb), Denmark, Finland (Helsinki), France (Lille), Germany (Bonn), Greece (Athens), Ireland (Dublin), Italy (Milan), Malta (Malta), Netherlands (Amsterdam), Poland (Warsaw), Portugal (Porto), Romania (Bucharest), Slovakia (Bratislava), Spain (Barcelona) and Sweden (Stockholm).[18]

The European Commission assessed each bid, considering factors such as the available structures and accommodations, accessibility (flights from and to that location), education facilities (for the children of EMA’s staff), the labor market, social security, medical care, geographical spread (whether that location hosts other EU agencies), and business continuity. [19]

In addition, a survey was performed with EMA’s employees to determine which of the bidding locations would generate the least loss of staff. According to the EMA, staff were asked to indicate “whether they were very likely, likely, unlikely or very unlikely to move with the agency to each of the 19 candidate host cities, based on the official Member State offers and the extent to which they fulfil their (and their family’s) needs and expectations to settle in a new location.”[20]

The survey indicates that the majority of EMA’s staff will transfer to Amsterdam,[21] meaning that hundreds of experts will be leaving the UK with their families. It is expected that EMA’s relocation will generate millions of euros in extra income for the Dutch economy.[22] It has been reported that when the EMA moves to Amsterdam it will take with it about 900 jobs, a budget of $322 million, and about 40,000 visits a year from people who have business with the agency.[23]

Back in the UK, there is a concern among pharma companies that this move will impair their ability to hire qualified staff, especially to fill more senior positions. AstraZeneca stated, “Continuing uncertainty around Brexit is impacting recruitment for skilled roles, and we anticipate that some international applicants may go elsewhere until they know more about their future employment and security for their families in the UK.”[24]

There is also concern about Brexit’s impact on the UK clinical trial industry, which is worth about £3.4 billion annually.[25] With Brexit, clinical trials in the UK will likely require a separate application to the MHRA.[26] In an attempt to prevent a reduction in UK drug trials, the UK Government will implement the new EU Clinical Trials Regulation (EU) 534/2014 (“EU CTR”) into UK law post-Brexit.[27] This new regulation allows clinical trials sponsors to submit a single application when conducting trials in multiple EU member states.[28]

Effects on pharmaceutical availability and prices in the UK

Brexit may also affect the availability and prices of pharmaceuticals in the UK. Analysts have raised concerns about tariffs, regulatory barriers, and reduced availability of new medicines in the UK.

• Tariffs: The UK’s exit from the EU will mean that drugs coming to and from the UK will be treated as regular imports and exports. According to the UK government, in 2016 the UK exported £24.9 billion of pharmaceutical products (of which 48% went to the EU) and imported £24.8 billion of pharmaceutical products (73% from the EU).[29] The industry is concerned that Brexit could lead to the imposition of tariffs on certain pharmaceutical products.[30] Higher tariffs could disrupt the supply of pharmaceutical products in the UK, with companies prioritizing larger markets.[31]
• Regulatory barriers and hassles: Brexit is likely to create regulatory barriers and hassles that will increase the costs and effort required to sell drugs in the UK. First, unless a new agreement is reached, separate applications, tests, and approvals will likely be required for drugs sold in the UK and the EU.[32] Second, UK pharmaceutical companies would have to be inspected by EU authorities, and vice versa.[33] Third, companies in the UK that hold centralized marketing authorizations (MAs) issued by the EMA will have to transfer these to a MA holder established in a Member State in order to market their products in the EU after March 30, 2019.[34] It is estimated that at least 1,000 centralized MAs will be impacted by Brexit. The EMA has issued a guidance to companies on how to transfer their MAs before the UK leaves the EU.[35] National MAs held by UK-based companies will also have to be transferred or duplicated to a MA holder in the EU.[36]
• Reduced availability of new medicines in the UK: Because of the potential tariffs and regulatory burdens, if the UK operates as a standalone market, manufacturers will likely delay drug applications in the UK, while prioritizing larger markets.[37] Johnson and Johnson said that it is “unlikely whether globally minded businesses would see it as a viable option to make this investment for a UK-only market authorisation.” Lilly said “that companies will focus on larger markets, with the UK becoming a less attractive proposition.”[38]

There is still uncertainty about how all of this will play out. Some of the concerns described above may not materialize, and the UK and EU may ultimately enter into agreements that will mitigate the effects. Nonetheless, it is almost certain that Brexit will impose significant stresses on the healthcare sector in the UK, and this may shift the geography of the sector worldwide.

[1] Steven Erlanger, “Britain Votes to Leave E.U.; Cameron Plans to Step Down,” New York Times (June 23, 2016), accessed on June 4, 2018 at

https://www.nytimes.com/2016/06/25/world/europe/britain-brexit-european-union-referendum.html

[2] EMA, “EMA to relocate to Amsterdam, the Netherlands,” (November 20, 2017), accessed on June 4, 2018 at http://www.ema.europa.eu/ema/index.jsp?curl=pages/news_and_events/news/2017/11/news_detail_002857.jsp; EMA, “EMA tracking tool: Relocation to Amsterdam, Main milestones,” (6/25/2018) at http://www.ema.europa.eu/docs/en_GB/document_library/Other/2018/03/WC500244941.pdf.

[3] QuintilesIMS, Outlook for Global Medicines through 2021: Balancing Cost and Value, Dec. 2016, at 9.

[4] “Decision Taken by Common Agreement Between the Representatives of the Governments of the Member States, Meeting at Head of State and Government Level, on the Location of the Seats of Certain Bodies and Departments of the European Communities and of EUROPOL,” (93/C 323/01), Official Journal of the European Communities, No C 323 (11/30/1993), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:41993D1130&from=EN.

[5] T.A.B. Corley, “The British Pharmaceutical Industry since 1851,” (2004), Centre for International Business History, University of Reading, www.reading.ac.uk/Econ/Econ/workingpapers/emdp40.pdf.

[6] ICF Consulting Services Limited. “Analysis of effects in case of relocation of the European Medicines Agency (EMA) to the Netherlands”, report submitted to The Dutch Ministry of Health, Welfare and Sport, April 7, 2017, p. 9. Accessed June 27, 2018 at https://www.rijksoverheid.nl/documenten/rapporten/2017/04/07/analysis-of-effects-in-case-of-relocation-of-the-european-medicines-agency-ema-to-the-netherlands

[7] ICF Consulting Services Limited. “Analysis of effects in case of relocation of the European Medicines Agency (EMA) to the Netherlands”, report submitted to The Dutch Ministry of Health, Welfare and Sport, April 7, 2017, p. 13. Accessed June 27, 2018 at https://www.rijksoverheid.nl/documenten/rapporten/2017/04/07/analysis-of-effects-in-case-of-relocation-of-the-european-medicines-agency-ema-to-the-netherlands

[8] ICF Consulting Services Limited. “Analysis of effects in case of relocation of the European Medicines Agency (EMA) to the Netherlands”, report submitted to The Dutch Ministry of Health, Welfare and Sport, April 7, 2017, p. 13. Accessed June 27, 2018 at https://www.rijksoverheid.nl/documenten/rapporten/2017/04/07/analysis-of-effects-in-case-of-relocation-of-the-european-medicines-agency-ema-to-the-netherlands

[9] ICF Consulting Services Limited. “Analysis of effects in case of relocation of the European Medicines Agency (EMA) to the Netherlands”, report submitted to The Dutch Ministry of Health, Welfare and Sport, April 7, 2017, p. 14. Accessed June 27, 2018 at https://www.rijksoverheid.nl/documenten/rapporten/2017/04/07/analysis-of-effects-in-case-of-relocation-of-the-european-medicines-agency-ema-to-the-netherlands

[10] ICF Consulting Services Limited. “Analysis of effects in case of relocation of the European Medicines Agency (EMA) to the Netherlands”, report submitted to The Dutch Ministry of Health, Welfare and Sport, April 7, 2017, p. 13. Accessed June 27, 2018 at https://www.rijksoverheid.nl/documenten/rapporten/2017/04/07/analysis-of-effects-in-case-of-relocation-of-the-european-medicines-agency-ema-to-the-netherlands

[11] U.K. Medicines and Healthcare Products Regulatory Agency (MHRA), “Medicines & Medical Devices Regulation: What You Need to Know,” 2012, http://www.mhra.gov.uk/home/groups/commsic/documents/websiteresources/con2031677.pdf, at 6.  For more information on the four procedures available in EU member countries to obtain a drug marketing authorization, please see the book authored by OnPoint staff “Empirical Challenges in Pharma Litigation” at pp. 330-332. An electronic copy of the book can be ordered via email (Info@OnPointAnalytics.Com).

[12] ICF Consulting Services Limited. “Analysis of effects in case of relocation of the European Medicines Agency (EMA) to the Netherlands”, report submitted to The Dutch Ministry of Health, Welfare and Sport, April 7, 2017, p. 14. Accessed June 27, 2018 at https://www.rijksoverheid.nl/documenten/rapporten/2017/04/07/analysis-of-effects-in-case-of-relocation-of-the-european-medicines-agency-ema-to-the-netherlands

[13] ICF Consulting Services Limited. “Analysis of effects in case of relocation of the European Medicines Agency (EMA) to the Netherlands”, report submitted to The Dutch Ministry of Health, Welfare and Sport, April 7, 2017, p. 14. Accessed June 27, 2018 at https://www.rijksoverheid.nl/documenten/rapporten/2017/04/07/analysis-of-effects-in-case-of-relocation-of-the-european-medicines-agency-ema-to-the-netherlands

[14] Financial Times. “Pharma makes up half of UK’s £16.5bn R&D spending, survey says”, October 26, 2016 Accessed on June 25, 2018 at https://www.ft.com/content/4eb0e046-9b6a-11e6-b8c6-568a43813464

[15] OECD Indicators. “Health at a Glance 2015”, pp. 188-189. Accessed on June 25, 2018 at https://www.oecd-ilibrary.org/docserver/health_glance-2015-70-en.pdf?expires=1529963373&id=id&accname=guest&checksum=2C486B80AC70032B712294992990402B

[16] Financial Times. “Pharma makes up half of UK’s £16.5bn R&D spending, survey says”, October 26, 2016 Accessed on June 25, 2018 at https://www.ft.com/content/4eb0e046-9b6a-11e6-b8c6-568a43813464

[17] European Commission. European Medicines Agency Relocation – General Assessment Summary, October 12, 2017. Accessed on June 5, 2018 at https://ec.europa.eu/info/sites/info/files/ema-relocation-general-assessment-summary.pdf; EMA.

EMA business continuity planning and impact of staff retention scenarios from the EMA staff survey, September 26, 2017. Accessed on June 5, 2018 at http://www.ema.europa.eu/docs/en_GB/document_library/Other/2017/09/WC500235516.pdf

[18] European Commission. “European Medicines Agency Relocation – General Assessment Summary”, October 12, 2017. Accessed on June 25, 2018 at https://ec.europa.eu/info/sites/info/files/ema-relocation-general-assessment-summary.pdf

[19] European Commission. “European Medicines Agency Relocation – General Assessment Summary”, October 12, 2017. Accessed on June 25, 2018 at https://ec.europa.eu/info/sites/info/files/ema-relocation-general-assessment-summary.pdf

[20] EMA. “EMA business continuity planning and impact of staff retention scenarios from the EMA staff survey”, September 26, 2017. Accessed June 25, 2018 at http://www.ema.europa.eu/docs/en_GB/document_library/Other/2017/09/WC500235516.pdf

[21] UK House of Commons. Business, Energy and Industrial Strategy Committee. “The impact of Brexit on the pharmaceutical sector”, May 8, 2018 at p. 23.

[22] Dutch News. “European Medicines agency will bring jobs, generate millions of euros”, November 22, 2017. Accessed on June 5, 2018 at https://www.dutchnews.nl/news/2017/11/european-medicines-agency-will-bring-jobs-generate-millions-of-euros/

[23] Bloomberg. “Why Brexit Keeps Drugmakers Up At Night”, December 27, 2017. Accessed on June 25, 2018 at https://www.bloomberg.com/graphics/2017-brexit-drugmakers/

[24] The Telegraph. “Pharma firms encounter overseas talent shortages amid Brexit vote”, January 7, 2018. Accessed June 25, 2018 at

https://www.telegraph.co.uk/business/2018/01/07/pharma-firms-encounter-overseas-talent-shortages-amid-brexit/

[25] Bloomberg. “Why Brexit Keeps Drugmakers Up At Night”, December 27, 2017. Accessed on June 25, 2018 at https://www.bloomberg.com/graphics/2017-brexit-drugmakers/

[26] SHEA, Katheryn; THOMPSON, Maria. “The impact of Brexit on life sciences”, European Pharmaceutical Review, December 19, 2017. Accessed on June 25, 2018 at https://www.europeanpharmaceuticalreview.com/article/70708/impact-brexit-life-sciences/

[27] RAPS – Regulatory Affairs Professionals Society. “EU Regulatory Roundup: UK Reassures Industry it Will Adopt EU Clinical Trial Regulation”, April 26, 2018. Accessed on June 25, 2018 at

https://www.raps.org/news-and-articles/news-articles/2018/4/eu-regulatory-roundup-uk-reassures-industry-it-wi

[28] See https://ec.europa.eu/health/sites/health/files/files/eudralex/vol-1/reg_2014_536/reg_2014_536_en.pdf, accessed on June 25, 2018. Note: “Although the Regulation entered into force on 16 June 2014 the timing of its application depends on the development of a fully functional EU clinical trials portal and database, which will be confirmed by an independent audit. The Regulation becomes applicable six months after the European Commission publishes a notice of this confirmation. The entry into application of the Regulation is currently estimated to occur in 2019.” (https://ec.europa.eu/health/human-use/clinical-trials/regulation_en)

[29] UK House of Commons. Business, Energy and Industrial Strategy Committee. “The impact of Brexit on the pharmaceutical sector”, May 8, 2018 at p. 8.

[30] Johnson & Johnson has stated that “the imposition of tariffs with the EU would lead to a ‘double charge’ being

placed on imports and exports, disproportionately affecting companies that use the UK as a hub within their global supply chain.” (UK House of Commons. Business, Energy and Industrial Strategy Committee. “The impact of Brexit on the pharmaceutical sector”, May 8, 2018 at p. 9)

[31] UK House of Commons. Business, Energy and Industrial Strategy Committee. “The impact of Brexit on the pharmaceutical sector”, May 8, 2018 at p. 10.

[32] European Pharmaceutical Manufacturer. “Potential impacts of Brexit on the pharma regulatory landscape”, February 7, 2018. Accessed June 5, 2018 at https://www.epmmagazine.com/opinion/potential-impacts-of-brexit-on-pharma/

[33] European Pharmaceutical Manufacturer. “Potential impacts of Brexit on the pharma regulatory landscape”, February 7, 2018. Accessed June 5, 2018 at https://www.epmmagazine.com/opinion/potential-impacts-of-brexit-on-pharma/

[34] Centralized Marketing Authorizations are valid throughout the EU, and they are approved by the EMA. (EMA. Q&A, January 29, 2018, at p. 2. Accessed on June 5, 2018 at http://www.ema.europa.eu/docs/en_GB/document_library/Other/2017/05/WC500228739.pdf; EMA. “Practical guidance for procedures related to Brexit for medicinal products for human and veterinary use within the framework of the centralised procedure”, January 29, 2018. Accessed June 5, 2018 at http://www.ema.europa.eu/docs/en_GB/document_library/Regulatory_and_procedural_guideline/2017/11/WC500239369.pdf).

[35] EMA. “Practical guidance for procedures related to Brexit for medicinal products for human and veterinary use within the framework of the centralised procedure”, January 29, 2018. Accessed June 5, 2018 at http://www.ema.europa.eu/docs/en_GB/document_library/Regulatory_and_procedural_guideline/2017/11/WC500239369.pdf

[36] PharmTech.com. “Pharma Braces Itself for Post-Brexit Regulatory Changes”, January 02, 2018. Accessed on June 5, 2208 at http://www.pharmtech.com/pharma-braces-itself-post-brexit-regulatory-changes. National Marketing Authorities are approved by an individual EU Member State and are valid only for that state.

[37] UK House of Commons. Business, Energy and Industrial Strategy Committee. “The impact of Brexit on the pharmaceutical sector”, May 8, 2018 at p. 17.

[38] UK House of Commons. Business, Energy and Industrial Strategy Committee. “The impact of Brexit on the pharmaceutical sector”, May 8, 2018 at p. 17.