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  1. Analysis
September 16, 2015

UK pharma: getting ahead of the Brexit debate

As the UK's EU membership referendum looms on the horizon, what could a British exit mean for UK pharma companies? Law firm Hogan Lovells has warned that heavily regulated sectors such as pharmaceuticals could face serious implications, and advises that the industry should make its views clear before the debate kicks off in earnest.

By Chris Lo

EU parliament

In July, the Independent on Sunday reported that UK Prime Minister David Cameron has pencilled in June 2016 as the target date for the country’s upcoming in/out referendum on EU membership, with the announcement set to form the lynchpin on Cameron’s speech at the Conservative Party conference in October.

If the source is correct, that leaves less than a year before the UK goes to the polls to make a decision that could have tremendous implications across the country and the continent.

From a business perspective, a potential British exit from the EU would affect different industries in different ways, both positive and negative. International law firm Hogan Lovells is in the midst a ‘Brexit’ advice campaign to inform its clients about the potential repercussions of non-membership and encourage discussion at an early stage, before the rhetoric of the debate really starts to ramp up.

"What we saw with the Scottish referendum is that it was only really in the last three or four weeks that interest picked up and people started trying to think about the issues, and perhaps to some extent that doesn’t really give enough time when these issues are quite complex," says Hogan Lovells senior associate Jane Summerfield, who advises clients in the pharma sector, among others.

"It’s just making sure the pharma industry is thinking about these things in advance so it doesn’t disadvantage itself when it comes to the increase in interest in the issue that will no doubt come in the weeks leading up to any referendum."


The ability to proactively contribute to the debate on the UK’s future in Europe is particularly important for the pharma sector, which, as a highly regulated industry that is closely integrated with EU legislation, stands to be more dramatically affected by a UK exit than many other industries.

Among the nuances that are likely to be overlooked by many as the referendum draws nearer is the fact that it isn’t really an in/out vote. Even if the referendum yields a ‘No’ vote, the UK would still have to decide whether to remain part of the European Economic Area (EEA) or join the European Free Trade Association, which allows participation in the EU single market.

The European Commission’s Falsified Medicines Directive (FMD) marks that latest step in the bid to rid Europe of dangerous medicines.

One of the most compelling arguments against leaving the EU from a pharmaceutical perspective is that an exit would likely leave the UK pharma industry bound by the same EU legislation but with far less input on the future development of that legislation. It’s highly likely that the UK would choose one of those two options to maintain vital access to the single market, a key driver for the country’s economic growth. As Richard Bergström, director general of the European Federation of Pharmaceutical Industries and Associations, wrote in a 2013 editorial, participating in the single market would essentially mean agreeing to play by the same rules as everyone else.

"It is very difficult to see other EU members states allowing the UK to cherry pick what they like and do not, while they stomach all of it," he wrote.

Regulation without representation

If the UK retained its membership of the EEA without being a full EU member, as in the case of Norway, Iceland and Liechtenstein, it would have access to the single market but the regulatory requirements would be as much tied to EU legislation as if it had remained a full member state, except it would only have the right to comment on new rules after EU members have already had the discussion and made the decision.

"You’re not really dealing with those issues while they’re in the process of being discussed," says Summerfield. "What influence do you really have, even though you’ve got this right to comment?"

In a 2014 editorial for the Pharmaceutical Journal, former secretary general of the Pharmaceutical Group of the European Union John Chave gave an example of this disadvantage. "[In Norway] pharmacists will soon have to go about the task of electronically authenticating medicines (like every country in the EU), as a consequence of the Falsified Medicines Directive," he wrote. "Whatever the merits and demerits of that, Norway had no say in the legislation."

"It is very difficult to see other EU members states allowing the UK to cherry pick what they like and do not, while they stomach all of it."

If the UK decided to follow the Swiss route and opt for EFTA membership outside of the EEA, access to the European market would still require, for the most part, harmonisation with EU pharma standards and internal market rules, as Switzerland has arranged through a number of bilateral treaties with the EU.

"If we followed a Swiss model, it would be not be that dissimilar, to be honest, to being in the position of somewhere like Norway, where there may be slight differences in the detail, but in effect you are following what the EU does to have the benefit of easier access to that market," says Summerfield.

Could UK pharma go it alone?

It’s clear that ramping down the UK’s role in the EU while remaining connected enough to participate in the single market would likely be a bad deal for the British pharma sector. But what if the country goes all the way and fully exits the EU? Could the UK develop its own pharma legislation, independent of Europe?

Of course it could, but placing a clear demarcation between UK pharma laws and those that apply in the world’s largest single market hardly sounds like a wise move. For a start, it would essentially double the regulatory burden for the many pharma companies looking to market their products across the UK and Europe.

Britain is currently an attractive environment for pharma investment with its beneficial pricing regime and relatively speedy reimbursement authorisation process, but that attractiveness would likely diminish significantly outside of the European legislative landscape, possibly to the disadvantage of British patients.

"You can imagine a scenario if the UK were to leave the EU, where [drug developers] think, ‘Why would we comply with separate requirements in the UK, when actually we could go to Germany, for example, get a marketing authorisation and if the product does well, then it’s very easy to also have that authorisation recognised in other European markets,’" Summerfield explains. "So why would you come to the UK as a first stop if the rules here are slightly different to those in Europe?"

A host of regulatory and market obstacles stand in the way of this promising field achieving its potential.

Total separation from the European system would also have implications for British and European research. The UK might well lose access to the many well-funded cross-Europe scientific research programmes, which would be a blow to research in the country and across the continent.

"Before making any rash decisions the UK should look into how much its researchers and SMEs benefit from EU research programmes, such as those in FP7 [or Horizon 2020 today], joint programming or PPPs like IMI [Innovative Medicines Initiative]," wrote Bergström in his 2013 blog.

Summerfield, meanwhile, points to the EU Clinical Trials Regulation, set to come into effect in 2016, which will provide a centralised portal for multi-site clinical trial applications. If the UK loses access to that system, companies looking to run trials would have to choose between the UK and a several different European countries that could be accessed with a single application. As multi-site trials are becoming an increasingly important part of the drug testing process, it’s unlikely that Britain would come out on top in many of those calculations.

Argue for the best, plan for the worst

So there’s little argument that from the pharmaceutical industry’s perspective, retaining the UK’s full EU membership would be the best route forward, as it would maintain the best balance of legislative influence and market access while also allowing British companies to benefit from 50 years of harmonisation and one of the most respected regulatory regimes in the world.

"There are significant advantages to being able to say we are up there with the highest standards in the world," says Summerfield. "I think most people would regard the EU and US systems as some of the highest standards and the most robust systems in terms of things like pharmacovigilance. So any change to that system would take time, and you’d have to consider very carefully the rationale for deviating from the EU standards, particularly in the pharma industry."

"There are significant advantages to being able to say we are up there with the highest standards in the world."

But as Summerfield maintains, the fact that the picture is relatively clear cut in the pharma sector doesn’t mean companies should be absent from the debate. Referenda are unpredictable by nature, and other sectors and industries might stand to gain from Brexit in ways that pharma companies won’t. That’s why Hogan Lovells is encouraging its clients to speak up now, and start working on a plan B so they’re not caught out by an unexpected decision.

"If the message is too strongly that there aren’t clear advantages for the pharma industry of the UK leaving the EU, that may make the industry think, ‘Why should we worry about it?’," Summerfield says. "But it is that wider context – if you’ve got, for example, the financial sector really pushing for [Brexit], that’s all the more reason for the pharma industry to be saying, ‘We don’t think this is the right approach for our industry’ and coming up with a back-up plan for if the UK does leave the EU.

"What you don’t want is to be in a position where the UK leaves the EU and needs to put in place new legislation to deal with the consequences or to work out what exit should look like, and the pharma industry isn’t well represented and looking after its interests."

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