In Vivo: strategic insights for life sciences decision-maker...
By Ashley Yeo 24 Nov 2021
The operating environment for medical technology companies becomes more complex, competitive and costly every year. There is no expectation that...
General elections are one thing: an opportunity every four or five years to remove the people who have contrived to mess up foreign or domestic policy or something else and/or put the country deeper into debt. Whether earned or not, blame of some sort is normally laid at their door, and it pretty much goes with the territory.
A referendum, and its prospects of major change for an indefinite period, is all the more seismic and yet harder for the public to grasp (except if you live in Switzerland, where the voters get to cast a vote on an average of nine referendum topics per year – and that is just at national level). UK-wide referendums are very rare.
Back in 1975, the UK held a vote on membership of the European Economic Community, as the European Union was then known. The result was more or less a 2:1 majority in favor of staying. And here, in 2016, was the UK doing the same again. Except in 1975, a two-year membership of a club of nine could have been torn up with mere weeks’ worth of internal wrangling.
41 years later, the UK voting intentions had all along been harder to call, right up to and even some hours after vote time. But the stakes were much higher this time. That the Leave group secured 52% of the vote was a surprise, as surveys in the run-up had rarely predicted that outcome. But as the news unfolded, International markets spluttered and sterling crashed by 10% to $1.33. Newscasters and anchors were clearly having trouble assimilating what has been a shock outcome to a referendum many said should have never been called.
Aside from the markets in turmoil, the UK will now have to tear up trading agreements used for four decades, a costly and ostensibly needless task that will take several years – many of them spent in wrangling – and will have to set new arrangements with the rump EU 27 and indeed every other global trading country, region and partner.
To recap, the 2016 referendum was called by UK Prime Minister David Cameron (who today gave notice of his resignation in October) after his general election victory in May 2015. Many – most in fact – did not welcome the alacrity with which Cameron sought to appease, smoke out and ultimately expunge anti-EU sentiment from his own Conservative party by calling a referendum on EU membership. It was seen then as a dangerous ploy, given the rise of the “Brexiteers”, particularly under the UK Independence Party (UKIP) and its charismatic “man of the people” leader, Nigel Farage.
UK business in general, and health care in particular, was slow to react to the challenge, while the anti-EU movement (represented officially by the Leave group), exploited the opportunity at every turn – leaving observers near and far to infer that half of the UK voting population was more concerned about reliving past glories and staving off “the immigrant threat” than building a globally-oriented economy for the future as part of the EU 28.
There had been no mistaking the financial markets’ views of what was at stake. Sterling had been falling – at times dramatically – since Leave started to gain in volume, hitting a foot-stamping seam of popularity two weeks before vote after the best read of the UK redtops, the Sun newspaper (Rupert Murdoch’s, News International), printed a signature front page story exhorting its 1.8 million readers to “BeLeave”.
Those newspapers are declaring victory today, but they cannot say convincingly what the prize is. Meantime pundits say sterling could fall further, maybe to as low as $1.15.
“Uncertainty” had been the go-to word for the Remain campaign in its description of the only thing it saw the Leave campaign as achieving. Remain seemed to have all of the serious arguments, but lacked the impact and pizazz of Leave. It was almost a case of choosing between sugar candy and fruit: short-term sugar boost or long-term health benefits?
The Leave campaign puzzlingly exploited use of the word “cynical”, rejoiced in slamming the views of “experts”, and stirred the pot of immigration discontent whenever possible. Its messages seemed to pick up most support in non-metropolitan regions of England. By contrast, London, Scotland, and North Ireland voted to remain in the EU.
One upshot is that the UK now faces more internal division than ever, with Scotland expected to hold a second referendum on its membership of the UK. There has even been talk today over whether Northern Ireland’s best interests lie outside the UK.
So much for the economic fortunes and future of the country. The UK Association of British Healthcare Industries (ABHI), the organization that represents 70% of medtech sales to the NHS, made the industry’s views plain in a survey six weeks ago. Half of respondents had an established company position and they had been convincingly in favor of EU membership (98% believed that the UK should remain a member of the EU).
Even among the respondents that had no established position, none saw leaving the EU as advantageous to their businesses. At macro level, 72% of ABHI respondents thought it was beneficial for the UK to remain in the EU, while just 3% thought the opposite. The ABHI has a membership of 250 among an industry of some 3,000 medtech companies active in the UK.
These responses were influenced by major uncertainties over what would happen in the UK in the wake of an EU exit, currency instabilities and weakening of sterling significantly against the US dollar and Euro, the associated rise in the cost of raw materials and manufacturing, and a reduction in the value of sales.
It is a view at odds with the UK public’s vote, and UK manufacturers are now wondering what their immediate and long-term futures are.
Free trade across Europe in general works, or rather, worked well, and UK manufacturers see this as being jeopardized. There is a real fear that MNCs will alter their UK investment strategies, and transfer their bases away from the UK and back into the EU, now that the UK is no longer their useful and principal gateway to Europe.
Regulatory market access – in the UK, wider EU and in many non-EU countries besides – is achieved via compliance with EU directives and other EU regulatory instruments that the UK has played a major role in developing and stewarding. The use of these structures by the UK has suddenly become more complicated.
The UK government was clear about the lost opportunity. UK life sciences minister George Freeman MP said in an earlier statement, “As the world stands at the dawn of a new age of science — in medicines, food and industry — the UK has a huge opportunity to be part of a European scientific superpower.” His view was that appropriate EU reform is only possible by leading it from the inside.
That opportunity has been frittered away during a night of what some would see as opportunism and blind hysteria.
The loss of the positive role that the UK plays as a decision-maker and opinion leader at the heart of the EU will be felt keenly by stakeholders across the EU.
Now that UK companies will be outside the EU, they will be open to regulatory divergence with the Union. The possibility now arises of the need to duplicate regulatory processes and procedures.
A spokesman for Johnson & Johnson ’s UK operation summed it up neatly early in the debate. J&J’s view was that the UK’s strong tradition of trade liberalization is good for business in the UK and EU markets. Furthermore, having the UK within the EU contributes to the EU actually being a good place to do business in.
But now, the UK’s strongly science-based contribution to EU policy-making – seen in the ways the Medicines and Healthcare products Regulatory Agency (MHRA) and European Medicines Agency (EMA) function – has, strictly speaking, been lost. Indeed, the MHRA has contributed in a major way to efforts to secure proportionate EU rules for devices.
Companies like J&J will also be concerned about new restrictions on the free movement of talent around the EU. In countries such as the US, there is a need to apply for a so-called “genius visa”, costing time and money. This EU free movement advantage will no longer be available to the UK.
Nothing happens immediately, although the currency and market falls and threat of recession may hasten the need to address these issues as the UK adjusts to its future status as a non-EU member.
UK access to EU markets also will probably not be affected immediately. Reimbursement is a country-by-country affair in the Europe, so there should be no dramatic shifts there. But new trade deals will have to be set up – an impediment, and one that is hard to assess just how big at this early stage.
In the past, the UK had multilateral global trade agreements: these would take several years to re-establish, but they could happen again.
With EU tariffs, it’s equally hard to predict outcomes. It depends how much hardball the EU wants to play, and if it wants to make an example of the UK.
67% of UK IVD companies were opposed to leaving the EU, according to a recent survey by the British In Vitro Diagnostics Association (BIVDA). Leaving will affect their trading conditions, cost bases and market access pathways in ways yet unknown.
But as there are relatively few large multinational IVD firms working out of the UK, the Leave vote will not mean a lot of companies having to relocate their headquarters back to within EU borders. The big issue for UK IVDs is trade agreements – the great unknown in these early hours of self-inflicted isolation.
The Association of the British Pharmaceutical Industry (ABPI) also formally supported the UK’s continued membership of the EU, fearing that a Leave vote would delay access to new drugs, harm collaborative EU drug research, and discourage inward investment by international drug firms.
Initial industry reactions to the Leave vote were in short supply, and the tone of European umbrella pharma industry association (EFPIA) was typical. Today, it merely said, “As everyone involved in European health care considers the implications of the UK’s decision to leave the EU, EFPIA underscores the importance of ensuring that the patient is at the center of all subsequent decisions.”
In medtech regulatory terms, the UK’s exit from the EU leaves open many scenarios, chiefly a period of uncertainty possibly lasting several years. The UK will certainly lose its influence over EU policy and legislation in all areas – including medtech. The MHRA will no longer be a competent authority in the EU. By way of example, Norway, also a non-EU member, has a cooperation deal with the EU. It has no say in shaping EU legislation, but must abide by it. It must also pay not insignificant contributions.
The possible industry consequences extend to UK-based companies’ costs increasing as a function of the EU cross-border trade they do. Smaller companies with a limited UK market strategy may see some upside of the vote to quit, but in the global industry of today, few if any companies source all their materials and components from one country and work in that same country market exclusively.
Other imponderables include UK-based manufacturers having to broach the new task of appointing authorized representatives (ARs) within the EU; and manufacturers having to review their UK notified body arrangements.
The UK leave vote triggers a two-year transition period (negotiable), as prescribed by Article 50 of the EU Treaty of Lisbon. What happens during this phase and how fast is largely out of the UK’s hands and under the control of its former EU neighbors and fellow members. The Canada/EU deal has been referenced as a model for the UK, but it is claimed to have been seven years in the negotiating.
UK negotiators will also have to have to hammer out new trade deals with 60 or more countries and myriad other deals. The London-based EMA may suddenly find itself outside the UK. This will have a major impact on the UK pharma economy, and would significantly diminish the UK’s position in Europe and in the eyes of the US FDA.
There is no shortage of willing EMA hosts should it transfer to a country within the EU, which is an odds-on probability.
On the legal side, the UK will probably also be outside the EU trademark; its participation in the EU UDI system for medtech products is up in the air; and there will likely be difficulties in terms of sending data between the UK the EU.
UK academics and researchers will generally view the UK exit as catastrophic in terms of the UK’s ability to recruit talent. The free UK-EU movement of researchers will become a real problem, as alluded to by J&J. UK science will suffer impaired access to the EU’s Horizon 2020 research and innovation program.
Until June 23, the UK received the highest EU funding for health research per capita among the EU 28, and had secured 15% of the amount available under Seventh Framework Programme (FP7). Outside the EU, the UK will not be able to apply for those levels of funding.
Communicable disease surveillance and control need collaboration to guarantee early and effective intervention. The EU’s ability to coordinate tightly in areas such as antimicrobial resistance (AMR) and infectious disease control has been a key asset. Indeed, there is no way the UK can deal with AMR on its own.
The shared regulations and systems that have developed in the EU, and the ability to exchange and analyze data, promote faster access to innovative medicines. These mechanisms for coordination and the soft infrastructure of shared learning/climate for easy collaboration have always been seen as significant strengths, but the UK vote puts local access in doubt.
Health care is just one business sector that will need to restructure as the UK embarks on a future in far from splendid isolation. And a business sector that already has more than enough compliance, regulatory and trading hurdles to deal with has just been given a load more. On the plus side, most companies will have factored the risks of an adverse vote into their business planning.
The Brexit vote might be perceived by some as a new start, but it would be foolish to assume that economic life outside the EU will be fresh green pastures where all is suddenly possible and everything instantly less bureaucratic for the UK. The essential question is, will the UK’s industry be able leverage the benefits it had in the EU, now that it is on its own, outside the EU? There is no evidence to say that it will.
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