The medical industry has been a primary industry for Polymermedics for more than 40 years, so it’s crucial for us to understand how Brexit will affect different market players. While researching this, we focused mostly on medicines and medical devices, since the biggest part of our clients operate on these markets. Continue reading to find out which tariffs and non-tariff barriers medical industry should expect.
In the light of the latest events, the time leading up to Brexit becomes more and more intense. This week EU27 agreed to delay Brexit until 12th of April or if MPs approve the withdrawal deal to 22th of May. So far, we have no certain information on how our future relations with the EU will be settled, so there is no understanding of what tariffs we could face, which new regulations we should consider and what we should expect from the market players. Let’s go through all of these step by step and start from the pre-Brexit industry overlook.
According to the annual Strength and Opportunity report that was published in May 2018, there are currently 5,649 the UK’s life sciences businesses, generating approximately £70.3bn in annual turnover and employing nearly 241,000 people. Biopharma (mostly pharmaceutical products) and med tech (mostly medical devices) each account for half of industry employment. Biopharma generates 68% of turnover, whilst med tech comprises 63% of businesses.
As stated in the same report, life science (or “medical”) industry is divided into 4 sectors:
The House of Commons Committee report states that in 2016, the pharmaceutical sector alone provided 8.2 % of all goods exported from the UK. At the same time, 5.3 % of goods imported to the UK were pharmaceuticals. 48 % of exported pharmaceutical products went to the EU and 73 % of all imported products came from the EU, giving a trade deficit of £6.3 billion. Therefore, leaving the EU without a decent deal could bring damaging consequences both for businesses and consumers. But what are these consequences?
In case no new agreement will be in place in time, the UK would have to bounce back to the WTO (World Trade Organization) tariffs. Due to the Pharmaceutical Tariff Elimination Agreement, the tariffs on medical products are largely wiped out. However, there are tariffs between one and fifteen per cent for some states (e.g. China). The UK will continue to benefit from zero tariffs on pharmaceutical products which are covered by the Agreement, but not all of them are. The Agreement contains a list of finished products and ingredients, which should be revised every three years. However, the last time it was updated report was in 2010. According to the British Pharmaceutical Industry Association, there are over 1000 products and around 700 ingredients awaiting to be included to the list, therefore they will be subjected to the WTO tariffs, which will obviously increase the costs. For example, as reported by AstraZeneca, the company could still face the tariffs between 4 % and 5.6 % for certain products, which in total could cost up to $5 million in duties. This will put the UK in a position of a noticeable disadvantage in any future supply chain planning. And the tariffs are not even the worst: non-tariff barriers could affect the medical industry way more.
To market pharmaceutical products to the EU the marketing authorisation holder (MAH, basically any company that has been granted a marketing authorisation) must be located within the EU, therefore the UK companies will have to transfer to the European marketing authorization holder to be able to continue their export trade operations. The House of Commons Committee report states that in a case of hard Brexit the cost of bringing new medicines to the market will increase by £45,000 for market authorization, which could make the UK “an unattractive small market for specialised medicines”. For those companies who would like to supply for a local market, the Medicines & Healthcare products Regulatory Agency (MHRA) would take on the functions currently undertaken by the EU, for example, by European Medicines Agency (EMA), which completely moved to the Netherlands not so long ago. Companies whose products were approved by EMA will have to provide MHRA with baseline data for those products, so they could gain the UK marketing authorization.
The prospect is quite similar for medical devices. From the moment Britain leaves the EU, any medical device or an in vitro diagnostic device (IVD) placed on the UK market must be registered with the MHRA. If the supplying company wants to continue export trade with the EU, the same device must have a valid CE mark issued by the EU notified bodies. The TUV (German Notified Body) estimates that manufacturers will need to recertify around 500,000 medical devices to comply with upcoming regulations.
When the UK leaves the European Union, all medical products produced in the UK will be treated by the EU as imported products and will be required to be certified by the MHRA to prove they comply with the EU’s Good Manufacturing Practices (GMP) standards. The finished products “will be required to be subject to batch control testing and batch release from a site within the EEA”. At the same time, for the products that are marketed both for the EU and the UK, it will still be required to complete batch control testing and batch release in the UK. Batch testing and batch release require also an appointment of Qualified Persons (QPs), who are trained to ensure that every batch complies with its specification. Those experts must be appointed both for the EU and the UK sites. According to the Guardian, big market players are already building batch release sites in the EU (e.g. GSK or AstraZeneca).
The requirements for medical industry look quite similar to the Sisyphean task: every company that works both for the UK and the EU markets will have to perform exactly the same actions twice to comply with each sides’ regulations that are also essentially the same.
According to Mike Thompson, the Association of the British Pharmaceutical Industry’s chief executive, Brexit is the biggest logistical challenge ever faced by the medical industry. As the Brexit Health Alliance estimates, 82 million packs of medical products move between the UK and the EU every month. The fact that the majority of all imported medical products currently reach the UK through only two ports – Dover and Folkestone – adds massively to the difficulty of supplying. To prevent a medicines deficit as a consequence of the borders delays (caused by the rise in bureaucracy), the government told the medical industry to increase its supplies by an additional six weeks of stock on top. Some companies, like Eli Lilly, claim that due to Brexit, their own medicine stockpiling significantly exceeds government guidance.
The issue with border delays becomes even more problematic when considering time- or temperature-sensitive products since those types of products might simply not be able to reach the patients. For example, according to Merck, the oligonucleotides that they produce should reach patients within 24 hours, otherwise the delays “will prevent our customers from undertaking their [oligonucleotides] work”.
Britain is a fairly attractive market with 2.3 % of the global medical market. But when we consider the EU with a share of more than 22 %, it becomes clear that it would be more reasonable to focus on the European Union as a primary market rather than Britain. Brexit could instantly affect not only the launch of new products but also day-to-day operations. Britain’s future attraction for highly skilled scientists is under question, EU-funded research collaborations could be frozen, companies are also forced to concentrate on stockpiling, licensing and logistics’ rebuilding instead of new projects that could drive their business.
Of course, a big part of noticeable investments is currently in limbo. For example, AstraZeneca decided to put on hold further investments at its Macclesfield site and at the same time – build a batch release site in Europe. GSK also publicly announced that they will build batch release sites in Europe since it’s required under the EU law. Phil Thomson, the GSK’s senior vice president of global communications, said, that GSK’s latest estimate for hard-Brexit costs is between £60 million and £70 million, and to implement the European laboratories will take at least 18 months. According to the Guardian, David Jefferys, a senior executive at the EU arm of Eisai, stated that they are “not making any new investments in the UK until there is clarity”.
Other companies like Novartis and Pfizer announced that they are closing their UK sites, but added that this decision is unrelated to Brexit, which could be the case or they could be simply concerned about the potential public response, which we consider to be fair enough.
In the last week of March, there is still zero clarity on anything. We can only guess what the post-Brexit future will bring, but we could say right now that Europe is, and definitely will be, our main trade partner. Therefore we hope that the Government will reach a consensus that will keep the UK from excessive isolation.