2 BULKDISTRIBUTOR Sector in Focus : Pharmaceuticals January / February 2018
2 BULKDISTRIBUTOR Sector in Focus : Pharmaceuticals January / February 2018
A bitter pill ?
Europe ’ s pharmaceutical industry is at risk from Brexit , on both sides of the English Channel
Although less in the headlines than sectors like the manufacturing supply chain and financial services , pharmaceuticals is one of the European Union ’ s ( EU ) most important and fastest-growing industries , and hugely benefits from EU integration . The sector in the EU has increased from € 125 billion to € 225 billion over the past 15 years . Employment also grew dramatically from 535,000 to 725,000 . Over the same period exports of pharmacy products have more than tripled , with most of these gains obtained from extra-EU transactions . By some criteria it is also the third largest industry in the UK , contributing 10 percent of the country ’ s GDP , with an employment of 73,000 people and a trade surplus of € 3.3 billion . The rapid advance of the pharmaceutical sector over the past decade can be closely associated with the integration of the EU trade chain , points out Jianwei Xu , a visiting scholar at Brussels-based think tank Bruegel and an associate professor at Beijing Normal University . In 2016 , around 67 percent of the EU ’ s exports of its products were intra-EU and 52 percent of imports were intra-EU . According to figures from the European Federation of Pharmaceutical Industries and Associations ( EFPIA ), among EU member states the UK is undoubtedly a key player , constituting 10 percent of the Union ’ s total production and employment . Moreover , the UK runs a trade deficit against the other EU27 countries , implying that it is a major destination for EU pharmaceutical products . Fortunately , the EU has long adopted zero mostfavoured-nation tariffs even for international extra- EU transactions for pharmaceutical products . So the worst scenario , even in a hard Brexit where the EU and UK treat each other in the WTO multilateral framework , would not add a specific tariff burden on pharmaceutical trade . However , tariffs are not the only barrier to trade , says Xu . There is also a possibility that other types of non-tariff barriers could be created to hamper pharmaceutical trade . In particular , with the strengthening of immigration control , border checks might be resumed which could create delays in transferring pharmaceutical products to and from the UK . Longer lead times and increased paperwork caused by customs bottlenecks could affect service levels and margins – especially for pharma products , which have a short shelf life . Evidence has shown that , for time-sensitive industries , every 1 hour of customs delay adds 0.8 percentage points to the ad valorem trade-cost rate and leads to 5 percent less trade . This means that perishable pharmaceutical products are likely to cost more for UK residents , especially in the case of emergency . The establishment of a physical border also matters particularly for Ireland , the only country that shares a land border with the UK . Although it is hard to say what will eventually happen until the final post-Brexit model is determined , the UK government ’ s contradictory flip-flopping between a hard Brexit and a frictionless border in Ireland risks destabilising the industry .
Borderlands
Establishing an Irish-Irish border would mean that Irish pharmaceutical products need to go across the UK border twice before entering the rest of the EU . The Irish question also has big implications for the start of the supply chain , in which raw materials are shipped in bulk to pharma manufacturers for processing into medications and other products . Many drugs sold in continental Europe are primarily made in Ireland and then sent through Britain , where they are packed , tested , given marketing authorisation and released . IDA Ireland , which promotes foreign investment in the country , believes that this British ‘ bridge ’ to Europe could collapse if no deal is struck .
Companies with manufacturing sites in Ireland could also look to sidestep the UK , post-Brexit , both for inbound raw materials and exports of finished products . This could be a boon for Irish ports handling short-sea shipping direct from the Continent for inbound raw materials and for air cargo ex-Ireland , given the sometimes short shelf life of certain medications .
Duplication
No wonder that big pharma firms in the UK – like AstraZeneca and Japan ’ s Eisai - have already begun duplicating testing and approval procedures elsewhere in Europe , in order to ensure access to the EU market after 2019 . GlaxoSmithKline , Britain ’ s largest pharma company , is also reportedly putting contingency plans in place . One of the first concrete examples of the Brexit impact came on 20 November when the European Medicines Agency ( EMA ) announced it was relocating its headquarters from London to Amsterdam , the Netherlands . Catherine Drew , a life sciences expert at law firm Pinsent Masons , argues that beyond their production and packaging facilities pharmaceutical companies based in the UK should carry out a review of their entire supply chain relevant to all the marketing authorisations they hold for their medicines before deciding what action to take to ready themselves for Brexit . A first guidance issued by the EMA and European Commission confirmed that UK-based pharma companies will be required to transfer their marketing authorisations for their medicines to entities located in another EU country when Brexit takes effect . According to the guidance , UK-based pharmaceutical companies must ensure that they transfer orphan designations for medicinal products to EU-based entities . They must also ensure that the person responsible for ensuring product safety standards are met – known as a qualified person for pharmacovigilance ( QPPV ) – lives and works within the European Economic Area ( EEA ), it said . The guidance confirmed that the document pharmaceutical companies are obliged to maintain setting out their product safety measures – the pharmacovigilance system master file ( PSMF ) – is kept within the EEA . The EMA and Commission explained that , post-Brexit , pharmaceutical companies wishing to import components of biological medicines into the EU from the UK will need to obtain written certification from the UK ’ s Medicines and Healthcare products Regulatory Agency ( MHRA ) that the standards of UK manufacturing ‘ are equivalent ’ to the standards required in the EU . In addition , it was made clear that pharmaceutical companies will need to obtain authorisation from EU-based regulators to import medicinal products made in the UK into the EU . The imported products will be subject to EU testing procedures , according to the guide . “ The marketing authorisation holder will need to specify a site of batch control in the Union ( EEA ) where each production batch can undergo upon importation a full qualitative analysis , a quantitative analysis of at least all the active substances and all the other tests or checks necessary to ensure the quality of medicinal products in accordance with the requirements of the marketing authorisation ,” the guidance said . It further confirmed that UK-based batch release sites will need to be transferred to a location within the EU . “ The guidance illustrates that while companies need to think about the more obvious questions around where their marketing authorisations are held and where their QPPV resides , they will also need to consider manufacturing sites , batch control and batch release sites ,” Drew said . “ In
Brexit poses big questions at both ends of the pharma supply chain . Photo : Astra-Zeneca
short this is not a simple process , but one which will likely be time consuming and potentially complex . “ Practically speaking , to hope to complete the required activities by the date on which the UK leaves Europe , companies need to start thinking now about what marketing authorisations are held , and where , and map these in addition to their full manufacturing and supply chain . Once that activity is complete then the task of moving the pieces of the jigsaw puzzle can commence ,” said Drew .
Pharma trade greatly benefits from EU integration : Photo : GlaxoSmithKline
In short , pharmaceutical supply chains display the same complexities as other industrial sectors that have evolved over decades of gradual EU integration . The likelihood that suitable alternatives will be found by the March 2019 deadline for Brexit look slim , even if the UK government manages to agree a transition period with the other 27 Member States . The end result could well be firms with substantial facilities in Britain may decide that it will be easier all round to up sticks and relocate to somewhere else in the Union .