Brexit: What Does It Mean for Pharma?

By Patricia Van Arnum - DCAT Editorial Director

June 29, 2016

The United Kingdom's decision to exit the European Union (EU) via a majority vote in a public referendum has created a plethora of questions for global commerce. DCAT Value Chain Insights (VCI) looks at the possible implications for the pharmaceutical industry.

Brexit raises several key questions for the global pharma industry. The UK is ranked as the eighth largest pharmaceutical market globally, and it is the fourth largest market among developed EU nations behind Germany, France, and Italy. London is also home to the European Medicines Agency (EMA), the EU's pharmaceutical regulatory authority. DCAT Value Chain Insights (VCI) examines the business and regulatory implications for Brexit.

Regulatory implications
The regulatory process for the approval of medicines as well as the inspection process of manufacturing sites and clinical trial sites will be key issues to be addressed by the UK as it separates from the EU. The EMA, an EU agency based in London, is responsible for marketing authorization of medicines in the EU. In the EU, there are two ways of getting a marketing authorization for a medicine: the centralized procedure, via the EMA, which results in a single marketing authorization valid throughout the EU, and national authorization procedures, where individual EU member states authorize medicines for use in their own territory.

Under the centralized authorization procedure, pharmaceutical companies submit a single marketing-authorization application to the EMA. This allows the marketing-authorization holder to market the medicine and make it available to patients and healthcare professionals throughout the EU on the basis of a single marketing authorization. EMA's Committee for Medicinal products for Human Use (CHMP) or Committee for Medicinal products for Veterinary Use (CVMP) carry out a scientific assessment of the application and give a recommendation on whether the medicine should be marketed or not. Once granted by the European Commission, the centralized marketing authorization is valid in all EU member states as well as in the European Economic Area (EEA) countries of Iceland, Liechtenstein, and Norway.

The second route is where individual EU member states authorize medicines for use in their own territory. The majority of medicines available in the EU were authorized at a national level, either because they were authorized before the EMA's creation or they were not in the scope of the centralized procedure. Each EU member state has its own national authorization procedures. If a company wishes to request marketing authorization in several EU member states for a medicine that is outside the scope of the centralized procedure, it may use one of the following routes: (1) the mutual-recognition procedure, whereby a marketing authorization granted in one member state can be recognized in other EU countries or (2) the decentralized procedure, whereby a medicine that has not yet been authorized in the EU can be simultaneously authorized in several EU member states.

Certain pharmaceutical industry groups are urging that the UK retain the single European marketing authorization process as the UK negotiates with the EU post separation. The British Generic Manufacturers Association and the British Biosimilar Association, which represent UK-based manufacturers and suppliers to the generic drug industry, urged that a single European marketing authorization be maintained and included as part of any deal that the UK may work out with the EU. In a prepared statement, British Generic Manufacturers Association and the British Biosimilars Association Director General Warwick Smith said: "The existence of a single European marketing authorization for medicines has generated considerable benefits for patients, the NHS [National Health Service] and the industry. The single European marketing authorization reduces cost and complexity for manufacturers, facilitating the production and regulation of high quality medicines and their availability to patients. The UK generic and biosimilar medicines industry, therefore, urges the Government to do everything possible to maintain this European marketing authorization system in the forthcoming negotiations with the European Union."

The Medicines and Healthcare products Regulatory Agency (MHRA), the UK pharmaceutical regulatory authority, has not offered specifics on what it would seek for the UK in a negotiated deal other than to say it will continue its regulatory oversight. "Following the result of the referendum on the UK's membership of the European Union, the focus of the Medicines and Healthcare products Regulatory Agency continues to be on our public health role," said the MHRA in a prepared statement. "We will continue to work to the highest levels of excellence and quality, working with and supporting our customers, partners and stakeholders to protect health and improve lives. Working closely with government, we will consider the implications for the work of the Agency. We will continue to make a major contribution globally to improving public health through the effective regulation of medicines and medical devices, underpinned by science and research."

Other industry groups offer few specifics on what measures may or may not be included as part of any negotiations between the UK and the EU. In a statement, the European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents 33 European national pharmaceutical industry associations as well as 41 pharmaceutical companies undertaking research, development and the manufacture in Europe of medicinal products for human use, offered a general view. "As everyone involved in European healthcare considers the implications of the UK's decision to leave the European Union, EFPIA underscores the importance of ensuring that the patient is at the center of all subsequent decisions," said EFPIA in a statement. "EFPIA shares the common goal of ensuring rapid access to innovative medicines for patients across Europe, as well developing a regulatory and policy environment that fosters innovation and supports the research and development of new medicines to meet the needs of patients, healthcare systems and society. As an industry, over the coming months, we are committed to engaging with stakeholders both in Europe and in the UK to support these objectives."

A possible model for the UK is Switzerland, which is neither part of the EU or the EEA, and which regulates and approves drugs for the Swiss market through its national regulatory authority, the Swiss Agency for Therapeutic Products (Swissmedic). There is a confidentiality arrangement in place between the EMA, the European Commission's Directorate General for Health and Food Safety (DG SANTE), Swissmedic, and the Swiss Federal Department of Home Affairs since July 2015. The arrangement supports efforts by European and Swiss regulators to improve the oversight of medicines for human and animal health. It is valid for five years and may be renewed. The agreement covers non-public information on the safety, quality, and efficacy of medicines, already authorized or under review, both in Switzerland and in the EU, in order to enhance public health protection. This complements ongoing activities in the area of quality and manufacturing under the mutual recognition agreement between the EU and Switzerland signed in 2002.

The EMA, itself, will also face a decision on where to locate following the UK's separation from the EU. The EMA is now based in London, and it would seem unlikely that the agency would continue to operate there when the UK is no longer part of the EU. 

Table I: Pharmaceutical Developed Markets,
Compound Annual Growth Rate 2015-2019
*
United States 6%-9%
Japan 0%-3%
Germany 2%-5%
UK* 4%-7%
France (-2)%-1%
Italy 3%-6%
Canada 3%-6%
Spain 2%-5%
Developed Markets 4%-7%
*Based on ex-manufacturer price levels, not including rebates and discounts. Contains audited and unaudited data. Note: UK is subject to clawback.

Source: IMS Market Prognosis (September 2015)

Business implications
What the business implications are for the UK's decision to withdraw for the EU remains to be seen. Industry groups, such as the Association of the British Pharmaceutical Industry (ABPI), which represents large, medium, and small research-based pharmaceutical and biopharmaceutical companies, had supported the UK staying in the EU and offered a cautionary note on the business impact following the UK's decision to leave the EU. ABPI CEO Mike Thompson said in a prepared statement: "The voice of the British people has been heard. This creates immediate challenges for future investment, research and jobs in our industry in the UK. With that being the case, we are committed to working closely with the government to agree what steps need to be taken to send a strong signal that the UK is open for business."

The UK, as a pharmaceutical market, was projected to see moderate growth and outpace growth in certain other European developed markets based on projections prior to Brexit. Led by the US, the global pharmaceutical market is expected to increase at a compound annual growth rate (CAGR) of 4-7% through 2019, when the global pharmaceutical market is projected to reach $1.3 trillion (based on estimates as of September 2015), according to IMS Health. The continued resurgence of the US pharmaceutical market with projected CAGR of 6-9% from 2015 to 2019 will lead CAGR in developed markets, which is projected at 4-7% CAGR to 2019 (see Table I ), only slightly below the CAGR of 5-8% for pharmerging markets, defined by IMS as the most promising emerging markets, in the forecast period of 2015 to 2019. A slowing of growth in pharmerging markets and the rise of the US pharmaceutical market will lead the US to account for 45% of global pharmaceutical growth from 2016 to 2020 and for the US to retain its number one global position with a 41% market share of the global pharmaceutical market by 2020, according to IMS.

Table II: Top Pharmaceutical Markets, 2014 and Forecasted 2019
Rank 2014 Forecast Rank 2019
1. US 1. US
2. China 2. China
3. Japan 3. Japan
4. Germany 4. Germany
5. France 5. Brazil
6. Brazil 6. France
7. Italy 7. Italy
8. UK 8. UK
9. Spain 9. India
10. Canada 10. Canada
11. Russia 11. Spain
12. India 12. Russia
13. South Korea 13. South Korea
14. Australia 14. Australia
15. Venezuela 15. Mexico
16. Mexico 16. Venezuela
17. Turkey 17. Turkey
18. Poland 18. Poland
19. Argentina 19. Saudi Arabia
20. Belgium 20. Argentina
Data based on ex-manufacturer price levels, not including rebates and discounts. Contains audited and unaudited data. Rank based on $US. $US used for Argentina and Venezuela due to hyperinflation.

Source: IMS Market Prognosis, September 2015

Growth in the five major markets of the EU(France, Germany, Italy, Spain, and the United Kingdom) is mixed. The UK is expected to have the strongest growth with a projected CAGR through 2019 of 4% to 7% although clawback will significantly reduce the actual growth. Italy follows with a projected CAGR of 2% to 5% through 2019, and the pharmaceutical markets in Germany and Spain are each expected in increase at a CAGR of 2% to 5% through 2019. The weakest performance is projected for the French pharmaceutical market, which is projected to see a decline of 2% to only 1% CAGR through 2019 (see Table I).

The UK is ranked as the eighth largest pharmaceutical globally, and it is the fourth largest market among developed EU nations behind Germany, France, and Italy (see Table II ) While the US will still be the dominant pharmaceutical market in 2020, accounting for 41% of the global market, second place is contested with the EU5 (Germany, France, Italy, UK, and Spain) and China each projected to hold a 12% share, according to IMS. Brazil, Russia, and India will collectively hold 7%, other pharmerging markets (Tier 3 and Tier 4 markets) 8%, Japan 6%, Canada 2%, and the rest of world 13%. Table II outlines the global rankings of the top pharmaceutical markets in 2014 and projected for 2019 (based on data as of September 2015). The US, China, Japan, and Germany keep their top positions in 2014 and 2019 although Brazil overtakes France for the number five spot. Spain is projected as the only EU5 country to fall out of the top 10, declining from nine in 2014 to a projected spot of eleven in 2019. Among the BRIC countries, China, Brazil, and India are projected to be in the top 10 in 2019, with only Russia left out of the top 10, which falls from number eleven in 2014 to a projected twelfth in 2019. Saudi Arabia also becomes the only Middle Eastern country to move into the global top 20 and is projected to take the number nineteen spot by 2019, supplanting Belgium, which is projected to fall out of the top 20.