Three Brexit deadlines have come and gone, and the UK is still a member of the European Union. It will remain so until it agrees a withdrawal deal or leaves without one at the end of January 2020. Alternatively, it could secure yet another extension to the Article 50 period beyond January 31. Or it could decide not to leave at all.
For the life sciences industry, the latest delay to the Brexit process spells a further period of regulatory and trade uncertainty. Companies poured time, energy and money into preparing for the possibility of a no-deal exit on 31 October, only to see that date pass uneventfully by when prime minister Boris Johnson reluctantly requested another extension, this time to January 31, 2020.
The industry certainly does not want a no-deal outcome, but it does crave some form of stability. The feeling was summed up by Steve Bates, CEO of the UK BioIndustry Association: “The UK life sciences sector has spent significant time, effort and resource in preparing for a no-deal Brexit,” Bates told In Vivo. “Companies have faced considerable costs in finding and securing space at warehouses, understanding the impact of the possible new regulatory environment the UK will operate in, and securing freight on new supply routes.”
“We should be under no illusions,” Bates added. “Despite assurances from government, Brexit has meant extra red tape and cost to British business.” It had seemed that some sort of resolution might be in the offing when prime minister Johnson’s Withdrawal Agreement Bill passed its second reading on October 23, but Johnson unleashed yet more disruption when he plumped instead for a general election on December 12, 2019. Given that the electorate will have to juggle their Brexit preferences alongside the political parties’ positions on policies like the National Health Service, the outcome of the election is nigh impossible to call.
Amid the confusion, it’s important to remember that a no-deal Brexit remains the legal default, and will only be avoided on January 31 if a withdrawal deal is ratified or another extension granted.
Carry On Preparing
In the meantime, businesses have been advised by the government to assume the worst and maintain their no-deal readiness as the clock ticks away towards yet another potential Brexit cliff edge.
Companies based in the UK have already made substantial preparations, such as transferring centrally authorized products to marketing authorization holders in the EU, a process that is now all but complete. They have also had to ensure that they have a Qualified Person for batch release, QP for pharmacovigilance and pharmacovigilance safety master safety file in the EEA, which in many cases has required the creation of new facilities.
At the behest of the government, companies built up an extra six weeks’ worth of buffer stock to avoid shortages, and in many cases had to buy more warehousing space to house it.
They were also urged to book places on new freight routes organized by the government away from the Channel ports, where supply blockages were widely expected in the event of a no-deal Brexit.
All this, of course, comes at a cost. Companies are reluctant to reveal specifics, but it is generally accepted that for a large pharma firm the price of preparing for Brexit will already have run into millions of pounds.
The question is, what happens now? Such is the unpredictability of the Brexit trajectory that nothing is certain, including the outcome of the general election. A number of possible scenarios could emerge from that, including a withdrawal deal, a no-deal exit on January 31, another Article 50 extension, a “people’s vote” on deal versus remain, or revocation of the Article 50 notification.
If the Conservatives win the election, the prime minister should be able to reintroduce his withdrawal deal and push it through the parliamentary process without too many problems. This would avoid a no-deal Brexit in January by implementing a transition period to the end of 2020.
Should Labour win, a whole new Brexit chapter could open up. There could be another extension to the Article 50 period while Labour attempted to begin another re-negotiation of the withdrawal deal, featuring some sort of customs arrangement and a closer relationship with the EU than foreseen in Johnson’s deal. Labour might also try to engineer a confirmatory referendum, or “people’s vote,” asking voters to choose their deal or to remain in the EU.
Benefits Of A Withdrawal Deal
For a highly regulated industry like life sciences, the advantage of a withdrawal deal and the accompanying transition period for businesses is that, trade and regulation-wise, things would pretty much stay as they are.
The UK would no longer be a member of the EU, but it would still have to abide by its rules and would make to make its contribution to the budget and other financial commitments during the transition period. It would remain part of the customs union and single market, so trade with EU countries would be unaffected. EU centralized marketing authorizations would still be valid in the UK, and companies could continue to use the EU centralized and decentralized approval procedures.
Mutual recognition of manufacturing and distribution licenses and good practice inspections would continue, and the UK would be treated as an EU member state for the purposes of international agreements such as MRAs during the transition period.
However, during the transition period the UK could not act as rapporteur for EU procedures, and although representatives of the Medicines and Healthcare Products Regulatory Agency (MHRA) could continue to attend EU committee meetings, the UK would have no voting rights.
Moreover, ratification of the withdrawal deal could bring regulatory complications because it includes special arrangements for Northern Ireland. Under the deal UK would leave the EU customs union, while Northern Ireland would remain aligned with the EU’s rules on goods and to some extent on customs. This would effectively place a customs border down the Irish Sea, rather than along the border with the Republic of Ireland.
Bates pointed out that because the MHRA is the medicines regulator for both Northern Ireland and Great Britain, under the withdrawal deal the agency would have to “operate two sets of rules: EU rules in Northern Ireland, and GB rules in GB.”
He said it was “hard to see that the UK would be a pure third country to the European Union in term of medicine regulation, so there now needs to be a detailed technical discussion on how this would operate.”
The Future Relationship
The agreement of a deal and the triggering of a transition period would also see talks kick off on the future UK-EU relationship. In the life sciences sector, industry has always insisted on the importance of having a close trading and regulatory relationship in order to avoid possible barriers to trade and divergences in UK and EU standards that could impact innovation, the science base and trade in pharmaceuticals between the UK and its nearest neighbors.
Bates said that “for the UK to stay at the frontier of global innovations and treatments, we must ensure the UK’s health and care sector is in the strongest possible position once the UK leaves the EU. Maintaining regulatory and customs cooperation on medical devices and medicines as well as ensuring maximum levels of participation in European research is a must.”
A framework for the negotiations is outlined in the Political Declaration that accompanies the withdrawal deal. This calls for “an ambitious, wide-ranging future economic partnership” but leaves many details to be decided during the negotiations and keeps a range of options open.
The BIA says that priorities for the negotiators should include continued participation in, and cooperation with, EU regulatory regimes, bodies and networks, as well as the preservation of a “level playing field” with EU member states. This would ensure that the UK industry is not faced with undue regulatory barriers to R&D, marketing, manufacturing, distribution, import, export and vigilance requirements, or any weakening of intellectual property rights.
It is likely that the life sciences industry will want to press for a sector-specific annex or protocol in the Political Declaration that ensures maximum alignment between UK and EU pharmaceutical legislation, while allowing the UK to adopt new laws where appropriate. There is no desire among UK companies for adding costly regulations that duplicate those of the EU.
Industry would also like the MHRA to be given as big a role as possible in the EU regulatory network, saying that the lack of input from the agency and other UK bodies would significantly impair the EU’s ability to be competitive at a global level in this sector.
The Association of the British Pharmaceutical Industry said that because of the complexity of customs declarations and inspections and the highly integrated nature of medicine supply chains, it was vital for companies to be able to continue moving pharmaceuticals and medical supplies, as well as capital, across borders with the EU.
As well as continued regulatory alignment, it wants to see continued UK access to long-term EU funding and collaborative science programs, and agreements that make it easy for highly skilled life science personnel to move between the UK and the EU.
No-Deal Still The Default
The alternative to a deal-based Brexit, of course, is a no-deal Brexit, a prospect that industry wants to avoid at any cost. A no-deal scenario was again averted in October, but it remains the legal default. And a no-deal exit could happen in two ways.
If the Withdrawal Agreement Bill is not ratified by January 31 and there is no further extension period, the UK will leave the EU on World Trade Organization terms. The implications of this for the life science sector are well known. Existing ties with the EU would be cut overnight, and the UK’s participation in trade deals negotiated by the EU would fall away. The UK would have to set up its own freestanding drug regulatory, marketing authorization and pharmacovigilance system, and would play no further part in the EU regulatory network. Trade in medicines between the UK and the EU could be hit by customs and tariff barriers, with many predicting widespread supply disruptions at Channel ports.
But a different type of no-deal Brexit could happen if a withdrawal deal is agreed but negotiations on the future UK-EU relationship are not completed by the end of the transition period. Again, the UK’s relationship with the EU would fall onto WTO terms.
The transition period is currently set to last until the end of 2020, but the value of that period has been gradually eroded as the deadline was originally set on the basis that the UK would have left the EU on March 29, 2019. If the UK exits on January 31, a bare 11 months will remain in which to negotiate the entire future relationship, which in practice is likely to take many years.
Michel Barnier, who was the EU’s chief Brexit negotiator and has now been given the job of negotiating the future relationship, suggested in early November that an extension of the transition period beyond December 2020 would be necessary to allow talks to conclude.
The UK government replied, though, that MPs would not be given a vote on an extension, thereby going back on a pledge it had made the month before. A spokesman for Johnson said: “We aren’t extending the implementation period. There is no reason whatsoever why we will not secure a deal by that date.”
Critics, though, have pointed to the repeated extensions of the Article 50 period, most notably Johnson’s failure to honor his “do-or-die” pledge to “get Brexit done” by 31 October. In any case, the UK does have the option of extending the transition period by up to two years to allow negotiations to be completed, although any such extension would have to be agreed by the UK and the EU before July 1, 2020.
In the meantime, the government has said that registration for the no-deal freight services will remain open and civil servants will remain in readiness mode. The “Be Prepared for Brexit” campaign is likely to kick off again in January.
Bates said the government would probably ask industry to continue its own no-deal planning, including stockpiling, supply rerouting and planning for new customs and border arrangements. He also advised companies that if they had any warning signs of supply disruptions that might appear inJanuary they should share them as early as possible.
According to Tim Sarson of KPMG, companies should not be tempted to rest easy following this latest extension. He points out that there could be another “cliff edge” in January, and that companies should continue to do all they can to prepare for it.
Sarson said in October that he had worked with a wide range of life science companies over the past few years and that “every single one” had a no-deal Brexit as its “core scenario.” This is mainly because while such an eventuality obviously brings many uncertainties, there is much that is predictable, particularly for highly regulated industries like the life sciences.
“You know what the paperwork changes will be and you can get yourself prepared. No deal remains the default outcome, it means changes happens on day one, and in my view it is the only viable scenario.” Until there is the certainty of a withdrawal deal, he said companies “should be planning for an unmitigated no-deal scenario, and if things turn out better than that, then great.”
In the meantime, Sarson had some advice for companies wanting to reduce their exposure to a no-deal scenario, such as verifying the security of their supply chains. The smaller those companies are, the less likely they are to have done any serious no-deal planning and “the more financially vulnerable they are going to be.”
If companies manufacture in the UK, for example, they need to understand what is happening at the level of their suppliers, he said. “The first thing you need to do is really understand the environment you are working in and which suppliers you are dependent on. It is incredible the extent to which many companies, including multinationals, have outscored responsibility for their supply chain to companies of which they know very little.”
“I can’t emphasise enough the importance of mapping out your supply chain in detail and really understanding who owns what, where they move it from and to, where stuff is stored, and which third parties you are relying on.”
The BIA’s Brexit Lead, Michael Warren, said, rather worryingly, that there were many life science companies that were still not ready for a sudden exit. He said many businesses were “either partly prepared or not at all prepared,” and that many still had questions in areas like batch testing, regulation, clinical trials, people and employment, and potential border arrangements.
A US Free Trade Deal?
Whenever Brexit happens, and whatever form it takes, the UK will also need to negotiate its future relationships with other countries that have trade or other arrangements with the EU. Government ministers and other Brexit supporters have made much of the opportunities that pulling out of the EU customs union could bring, in particular the UK’s ability to strike its own independent trade deals.
The government has depicted a US trade deal as a glittering Brexit prize, pointing to the close ties between the two countries, although the image was sullied somewhat by President Donald Trump’s declaration in November that the deal negotiated by Johnson might hinder a UK-US trade deal.
Negotiating a trade agreement with the US, particularly in a no-deal scenario where the UK is on the back foot, will in any case be no walk in the park. The smaller partner is likely to come under strong pressure to lower some regulatory standards and concern has been expressed that it may have to make other concessions such as higher drug prices, changes to the role of the HTA body NICE, and wider access to the NHS by US health care corporations.
Certainly, the US favors change in the area of pricing, reimbursement and access to the UK drugs market. In its final negotiating objectives released in February, the US Trade Representative said it planned to “seek standards to ensure that government regulatory reimbursement regimes are transparent, provide procedural fairness, are non-discriminatory, and provide full market access for US products.”
In its submission to the USTR, the US pharmaceutical industry body PhRMA said UK market access policies were characterized by “rigid health technology assessments, government price controls, insufficient health care budgets, and increasingly punitive and proactive national procurement initiatives and local barriers to uptake.”
It said the UK system “significantly undervalues innovative medicines and restricts patient access to those medicines” and that drugs should be priced “either through a market-based system… or some type of equivalent system.”
These, of course, are opening positions, and whether the NHS will be “on the table” of the trade negotiations with the US, as Labour and many others claim, remains to be seen. The government insists it will not, and has also denied reports of “secret” meetings between UK trade officials and US pharma firms to negotiate higher NHS prices for US drugs.
But with the chaos and polarization wrought by Brexit, and the high level of distrust in politicians it has generated, it is difficult to take any such reassurances at face value. We will just have to wait and see. Perhaps the December 12 general election will finally produce a clear path out of the political morass in which the UK is mired. Then again, perhaps not.