Brexit: What Can The Life Sciences Industry Do About It?

With the UK seemingly heading towards an exit from the European Union in just two and a half years’ time, restrictions on the free movement of people, products and finance will impact the life science sector as much as, if not more than, many others.

Brexit means that access to research networks and funding could be impaired, and the mobility of scientists, researchers and company staff limited. Moreover, the relocation of the European Medicines Agency will bring its own staffing and recruitment problems, and the possibility of regulatory divergences between the UK and the EU threatens to delay new drug approvals and clinical trials.

While the life science sector is well accustomed to adapting to rapidly changing circumstances, the upheavals and uncertainties brought by Brexit are so fundamental and wide-reaching that it is difficult to know how best to mitigate the effects of these changes and make the most of any opportunities that might arise.

The problem is that no one yet knows what kind of relationship the UK government is planning to negotiate with the EU after Article 50 is triggered, probably in spring 2017, and this makes it very difficult to plan ahead.

Prime minister Theresa May insists she is seeking the “best possible deal” for the UK in its relations with Europe, but if she is adamant about curbing the free movement of EU citizens into the UK, and the EU sticks by its insistence that the “four freedoms” are indivisible, the result is likely to be some sort of “hard Brexit” with all that entails in terms of trade, legislation, regulation, migration and so on.

In the meantime, life science businesses are left wondering: should we invest in the UK, wait, or decide now to go somewhere else to avoid the continuing uncertainty?

Life Sciences Steering Group

In an attempt to come up with some answers in the wake of the vote, the biopharmaceutical industry and the government set up a “UK EU Life Sciences Transition Programme” led by the UK EU Life Sciences Steering Group, a joint industry-government task force co-headed by Andrew Witty, Pascal Soriot and Neil Mesher, respectively CEOs of GlaxoSmithKline PLC, AstraZeneca PLC and Philips Electronics UK.

On Sept. 6, the group presented a report to ministers outlining the key issues facing the sector as well as a range of options for preserving the competitiveness of the life science sector once the UK departs the EU. The report identified four priority areas:

• The ability to trade and move goods and capital across borders. Industry wants free trade with the EU to continue, ideally on the same terms as a full member of the customs union and the common EU VAT system, with no tariff or non-tariff barriers such as inspections and import/export declarations, which the report said would cause “significant disruption and increased costs.”
• Ensuring long-term, predictable funding for scientific research, and continued ability to collaborate at scale. The group wants to convince ministers of the need for continued long-term access to EU funding and collaboration programs, particularly Horizon 2020, possibly through associate member status.
• Access to the best talent: unrestricted movement of researchers and industry staff would be key to maintaining access to the best scientific talent in the UK.
• The need for a unique cooperation agreement on the regulation of medicines in Europe.

This last point is probably the area of most immediate concern to industry. Brexit means the EMA will have to relocate out of the UK, with all that means for its staff and its experts, not to mention the input from the UK’s Medicines and Healthcare products Regulatory Agency, which has been the lead or co-lead regulator for a quarter of the 900-plus medicines approved through the EU centralized procedure so far.

Following Brexit, EU drug approvals would no longer be automatically valid in the UK, while EU incentives like regulatory data protection and orphan drug rewards could be lost and co-operation in pharmacovigilance and other areas impaired.

Some fear the country would as a result become a “second priority” launch market that was less attractive to investments in drug development and manufacture, particularly if the UK chose not to implement the provisions of the new EU Clinical Trial Regulation with its streamlined trial approval system, which is due to come into effect in 2018.

It is clearly in the interests of the life sciences industry to stress the importance of keeping regulations aligned as far as possible, and industry has made much of the need for some sort of regulatory cooperation agreement where the UK could continue to play a part in future EU policy, guidance and legislation, including EU approval procedures and pharmacovigilance systems.

But the government is sending out mixed messages about how far it is prepared to go to protect the interests of the life sciences sector. The prime minister may have said she considers it of great strategic importance to the country, but it’s not clear how far ministers were impressed by the concerns outlined in the steering group’s report.

UK prime minister Theresa May is "seeking the best possible deal" for the country

And while David Davis, secretary of state for exiting the EU, has said recently that regulation is “one of the things that we will seek to get standardized,” his colleague, international trade secretary Liam Fox, appears to be of the opposite view. (Also see "Brexit Minister Says ‘No’ To UK Staying In EU Drug Regulatory Framework" - Pink Sheet, 15 Nov, 2016.)

In any case, even if the government did support a regulatory cooperation agreement in principle, this would still have to be negotiated with the rest of the EU, with the outcome far from certain.

So life science firms are understandably uneasy about what the future holds, and there are signs that the uncertainty is already making the UK look less attractive as a place to invest in the longer term.

Holding Off On Decisions

Recent research by pharma strategy consultancy Novasecta found, for example, that many firms are holding off on key decisions in areas like R&D (particularly clinical research), manufacturing and the supply chain. (Also see "What Pharma Can Do About Brexit: Views From The C-Suite" - In Vivo, 30 Oct, 2016.)

Similar concerns were expressed at a round table organized by Scrip and PricewaterhouseCoopers in September. Jo Pisani, partner in the UK pharma and life sciences consulting practice at PwC, said: “Unfortunately, we have seen some foreign direct investment decisions being reversed at the last minute; we've seen some collaboration agreements being dismantled, and clinical trials locations changed.”

There is also anxiety over aspects of recruitment to life science firms. Novasecta cited some CEOs as saying that several senior level people had decided not to apply to work in their companies. The “uncertainty and risk of the UK as a potential non-EU country is adding a negative weighting to business cases that involve investing in it,” it commented. “The whole talent pool and system of MHRA, EMA and clinical trials in the UK requires a strong network, close relationships and a hub location. Our research reveals that executives do not view the UK as favorably as they used to.”

Moreover, Brexit is taking up a great deal of companies’ time and resources, and is a huge distraction from the day to day business of building up companies and will remain so for many years, according to Harren Jhoti, CEO of Astex Pharmaceuticals Inc.

“We also need to remind ourselves that we are working in a ferociously competitive sector,” Jhoti said at the round table discussion. “So while the executives running the companies are distracted by this huge issue, they’re not building the company. All our competitors around the world are building their companies. There’s no answer to that, it is what it is, but we all know the EU doesn’t move very fast.”

Novasecta also found some executives were concerned that the EU itself would “become weakened as a pharmaceutical hub compared with an increase in the strength of the US and Asia.” One said that an Asian company had postponed its planned European entry because of the Brexit vote.

Of course, Brexit may also give rise to new opportunities, and industry is doing its best not to paint too bleak a picture. As the BioIndustry Association pointed out in a Nov. 21 discussion document, the upsides could include greater freedom to design innovation-friendly regulations in areas such as genetic modification and cell-based therapies, and better targeting of tax incentives to key industry sectors.

There was another ray of optimism when the government said on Nov. 28 that it plans to ratify the agreement on Europe’s future Unified Patent Court after all, although this was tinged with doubts as to whether the UK could stay in the new patent system post-Brexit.

And in his autumn statement, Chancellor Philip Hammond announced measures for funding and promoting R&D and innovation, including additional R&D spending via a new National Productivity Investment Fund, a review of the R&D tax credit and a patient capital review intended to tackle obstacles to getting long-term investment into innovative firms. The BIA said it was “fantastic to see this government showing an understanding of what is important to life science companies.” (Also see "UK Industry Welcomes R&D Measures In Chancellor’s Autumn Statement" - Pink Sheet, 24 Nov, 2016.)

What More Can Be Done?

But with the cloud of uncertainty still hanging over the sector, what more can the industry do to shore up its future prospects as a non-EU country?

As part of an ongoing process, the life sciences steering group held its second meeting on Nov. 23. Little has been revealed publicly about what was discussed although it seems that industry is taking a two-pronged approach in its talks with ministers.

One is to highlight the specific Brexit-related impacts on the sector – regulatory, trade, people and so on – in an attempt to ensure that the future UK-EU relationship provides a stable environment allowing timely access to innovative medicines in the UK, mobility of staff between the UK and the EU, and so on.

The other aim is to build on the financial and R&D support promised by the prime minister and the Chancellor in November as the first steps in a “modern, ambitious Industrial Strategy,” and to ensure that the strategy is conceived in such a way as to strengthen the UK life science sector and make it better able to face the challenges ahead, whatever happens on the Brexit front.

It is understood the government will now release the Industrial Strategy in early 2017, and will then invite the various industry sectors to comment on it before the next Budget, which is expected to take place in March or April 2017 – around the time that the prime minister has said she expects to trigger Article 50 and begin negotiations over the future relationship of the UK and the EU. It looks like spring 2017 will be an interesting time in more ways than one.