Guest Column | August 25, 2017

Brexit & The Biopharma Industry: 3 Important Developments To Watch

By Yulia Privolnev, principal analyst, Global Market Access Insight, Decision Resources Group

Brexit & The Biopharma Industry: 3 Important Developments To Watch

In April 2017, full of optimism, I wrote that for the pharmaceutical industry’s interest in Brexit, June 2017 would be as exciting as June 2016 — the month when the Brexit referendum was actually held. I concluded this because a general election was to be held in the U.K. and the new European Medicines’ Agency headquarters location was to be announced. The election would perhaps tell us more about what kind of Brexit the industry would have to contend with, and the new EMA headquarters location would start the transition of the agency out of the U.K. and to its new home. It turns out I was only half-right.

The election was indeed surprising and exciting. However, instead of revealing the new EMA headquarters location, European Council leaders announced that choosing the location would be delayed. The procedure for the location selection was adopted on June 22, and it was decided that interior ministers would vote on the location at the November meeting of the European Commission's General Affairs Council. Industry, unsurprisingly, was very critical of the delay, fearing that it will compromise a smooth transition and affect the timely market authorization of new drugs.

However, despite this unfortunate delay, there have still been considerable updates in the Brexit situation since April 2017, including, as I mentioned, the surprising result of the U.K. general election. If anything, news regarding Brexit and the biopharma industry has started to heat up in recent months, and there have been a number of relevant developments that manufacturers must keep their eye on.

The U.K. Election And Brexit Strategy

The election itself was a surprising U-turn from Prime Minister Theresa May, who took over when former Prime Minister David Cameron resigned following the shocking verdict of the Brexit referendum. At the start of the campaign, some polls had the May’s Conservative Party with almost double the vote share of the Labour Party, seemingly predicting a landslide victory, and it was clear that May believed she would be solidifying her majority in Parliament as the country entered into Brexit negotiations. That did not end up the ultimate result, and the Conservative Party instead suffered a humiliatingly narrow victory, exposing a clear lack of public mandate for the party’s Brexit strategy.

Brexit was one of the major issues of the election. Neither of the major parties had any plans to go against the June 2016 referendum results (although the Liberal Democrats did put the option on the table), but there were stark differences in how the Conservative Party and Labour Party believe that the exit negotiations should be handled, and what a future relationship with the EU could look like. Although the U.K.’s regulatory body, the Medicines and Healthcare products Regulatory Agency (MHRA), has expressed a desire to continue cooperating with the European Medicines Agency, it is unclear whether that would be politically viable, either in the UK or on the continent. It was clear that Labour was favoring a much softer Brexit, and it seemed that many UK voters felt the same way. May remained prime minister, but not without some doubts about her leadership.

In an effort to assuage the pharmaceutical industry, U.K. Secretary of State for Health Jeremy Hunt and U.K. Secretary of State for Business Greg Clark used a July 2017 open letter to the Financial Times to unveil the government’s strategy for the regulation of medicines after the exit from the European Union, emphasizing that the U.K. government is committed to collaborating with the EU on medicines regulation.

The ministers specifically said that they want “deep, broad and dynamic co-operation and in this context, the U.K. would like to find a way to continue to collaborate with the EU, in the interests of public health and safety.” Many in industry and politics have been concerned that it would be difficult to maintain the regulatory advantages of the EU after Brexit, and they remained concerned after the letter. According to Hunt and Clark, the current plan is for the MHRA to continue to participate in EMA scientific assessments. Then, when a recommendation has been agreed upon, separate but identical proposals could be sent to Brussels and London for authorization.

However, it is unclear whether this plan would be politically viable to the remainder of the EU. It would certainly look like the UK has been allowed to keep the advantages of being in the EU without the commitment that it requires, such as being governed by decisions from the European Court of Justice. It is very possible – likely, even — that this post-Brexit vision will be rejected by the 27 other EU countries during negotiations. However, that is unlikely to deter the U.K. from trying to find a workaround.

Industry was naturally very receptive to the news, however, as securing an agreement with the EU will allow for British-based firms to operate more smoothly in the U.K. and the EU. However, there does remain doubt about whether the letter is a true representation of the thoughts of May and Brexit Secretary David Davis. Hunt and Clark both campaigned for the U.K. to remain in the EU and are thought to be in favor of a “soft” Brexit that maintains considerable ties to the EU. Meanwhile, May and Davis have expressed their desire for a “hard” Brexit, which will result in little to no formal ties between the U.K. and EU. Whether this letter represented a change of tone from May and Davis remains to be seen, but industry is certainly optimistic.

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The EMA Puts Manufacturers On Notice

Industry optimism was particularly low after the European Commission got the Brexit train rolling in May 2017 by publishing a “Notice to Marketing Authorisation Holders of Centrally Authorised Medicinal Products” — those manufacturers who received regulatory approval through the EMA itself and not through the mutual-recognition procedure in an EU member state. The notice was intended to alert manufacturers to the implications of Brexit and what steps will need to be taken in order to avoid EU supply disruptions. Since European legislation will cease to apply to the U.K. beginning on March 30, 2019, unless another date is set (in the withdrawal agreement or by the European Council), this is the magical date that will have important implications for companies holding so-called "union marketing authorizations" – i.e., drugs that underwent regulatory authorization through the centralized procedure.

The notice specifically reminds those manufacturers of the legal implications of Brexit, in particular those arising out of obligations with a territorial component, such as the obligation for the marketing authorization holder to be established in the EU or in the European Economic Area (EEA) or to perform certain activities in the EU or EEA (for example, their pharmacovigilance or batch release). Such companies will be required to relocate to an EU or EEA location by April 2019, as the U.K. will no longer be part of the EU.

The EMA also published a paper advising U.K. pharmaceutical companies on how to prepare for Brexit. In the paper, the regulator advised U.K.-based pharma companies to move hundreds of roles and functions to an EU member state ahead of Brexit in order to maintain their existing rights to sell medicines in the common market. It highlighted that EMA-approved medicine batching facilities and 153 U.K.-based EMA-approved experts that monitor the safety of European drugs will have to move to an EU member state in order to continue their functions. Furthermore, the paper warned that companies in the U.K. will face increases in regulation and stringent checks on exports into the EU starting in April 2019. It has been estimated that this restructuring will cost “hundreds of millions of pounds.” The paper is meant to prepare companies for a “hard” Brexit, but a “soft” Brexit would still result in some disruption for U.K. pharmaceutical manufacturers.

Going forward, the European Commission and the European Medicines Agency will regularly provide updates with further practical information and relevant Q&As on their websites. However, this new directive sets the stage for a potential pharmaceutical exodus from the U.K. to the EU.

But What About The EMA Headquarters?

As governments and regulatory bodies concern themselves with Brexit strategies and the bureaucracy related to the exit, the competition for the new location of the EMA has evolved into what some analysts have called a “Eurovision-style contest”.

When the European Council delayed the vote for the new location of the EMA headquarters, it also set out a document outlining six criteria that will be used to judge bids. Crucially, the new EMA headquarters must be fully operational at the time the U.K. leaves the EU, with the necessary offices, meeting rooms, archiving, and telecoms equipment. The new host must be easily accessible by air with good public transport to airports, must be able to support education of the children of EMA staff, and must have access to educational and career opportunities. The council also wants different EU agencies to be spread around different member states, although this requirement is reportedly not as high a priority by most.

July 31 was the deadline for bids to host the EMA. Various cities have been bidding to host the agency, and 19 countries submitted their bids to take on the agency, from tiny Malta to powerhouses like Italy, France, Germany, and Spain. The proposals vary, and include things such as language classes for families of employees (Poland) and touting the iconic buildings the agency would be located in (Italy).

On paper, the decision should be merit-based. The criteria are clear, the bids are in, and the EC will now vet each bid and will present its findings in October to the Committee of Permanent Representatives in the EU. The decision will be made in a complex multi-stage voting process of up to three rounds in November, and this is where the wheeling and dealing will come out. There are already rumors swirling about joint agreements between France and Germany to support each other for EMA and European Banking Association bids. Observers and EMA enthusiasts have speculated about a number of possible strategic deals that may have already taken place. The Council has strongly denied any pre-voting deals, but the rumors serve to show who is already taking diplomatic lobbying seriously.

The voting itself is a complicated and fraught process. Countries can abstain if they wish, and they can even vote for themselves. In the first round, each country has six points. They must give three points to their preferred bid, two to their second choice and one to their third. If no single country secures 14 first-preference ballots, they then move onto the second round. In the second round, countries vote for one of the three bids with the highest votes from the first round. Each country has one vote, which they must issue to their preferred bid. If no single offer receives 14 or more votes, it moves onto the last round, where countries vote for one of the two remaining bids with the highest votes. The bid with the most votes wins. If there is a tie, they will draw lots.

Like Eurovision, I expect many people will be watching the voting with bated breath – except it will be behind closed doors, and the best we can hope for is leaks until the results are available. As I argued back in April, the new EMA location is a crucial decision that will affect the pharmaceutical industry considerably, as well as the country hosting it.

Conclusion

While I was not entirely right about June 2017 being as exciting as June 2016, Brexit news has been nonstop since I made that proclamation, and it shows no signs of slowing down. When it comes to the pharmaceutical industry, there have been a number of crucial developments, and there are more to anticipate in the near future. Both sides are starting to show their hand when it comes to Brexit strategy, and there is some reason for hope – hope for a smoother, softer Brexit that causes less disruption to supply lines and less disruption to the pharmaceutical industry. I have learned my lesson about making predictions about the future of Brexit, but I maintain that the signs are as positive as they could be when it comes to its impact on industry.

About The Author:

Yulia Privolnev is a principal analyst on the Global Market Access Insights team at Decision Resources Group (DRG). She is responsible for monitoring, analyzing, and reporting on global market access through the production of DRG’s Global Market Access Solution (GMAS) and Access & Reimbursement (A&R) products. Yulia’s specific focus is on all aspects of market access in Western and Eastern Europe, as well as international reference pricing (IRP) and managed entry agreements (MEAs) on a global scale.