Brexit and beyond: the challenges ahead for pharma

Brexit, and the political fallout from approving any deal, will continue to dominate British politics in 2019. It will shape some of the biggest decisions the UK has made since 1945. Pharma knows what it wants; how deliverable are the industry’s aims?

As one of the sectors most heavily impacted, pharma has done what it can – ‘taken back control’, in a phrase – to define what it wants from the Brexit process: frictionless trade; a single set of rules and approvals used by the EU and UK; ongoing participation of the UK regulator in managing the Europe-wide standards; continuing integration of UK-based R&D in Europe-wide clinical trials and other innovation.

What does the Brexit Withdrawal Agreement mean for pharma?

These industry priorities are only deliverable in certain Brexit scenarios – essentially through a very close future EU-UK trade deal, closer than the government is currently prepared to accept. As a first step, how well does the draft Withdrawal Agreement protect pharma’s interests?

The key provision of the draft Withdrawal Agreement (WA) for pharma is the triggering of a standstill transition period to at least end 2020, which could be extended up to 2022 by agreement between the EU and UK. This provides certainty during the transition period, under one set of – EU – rules.

The other main win for pharma companies is the protecting the rights of EU and EEA/Swiss nationals in the UK, who are heavily represented in areas like R&D. For those nationals who legally arrive in the UK before the end of the transition period, almost all of their existing rights (including rights to reside, work, and access government services and benefits) would be ring-fenced in law, for their lifetimes and for those of their children.

If a new trade deal is not concluded before the end of the transition period, the UK automatically enters the ‘backstop’. It has not been sufficiently appreciated how disruptive this would be to pharma manufacture in the UK and Ireland. Great Britain would be in a de facto customs union with the EU, but not in the Single Market, so there would be checks for a variety of compliance issues, notably checks at the border for animals and animal products. Northern Ireland, uniquely, would escape these checks, by remaining fully integrated in the Single Market for goods, as well as the customs union.

Pharma companies therefore have a vital interest in the UK choosing to extend the transition period as far as possible (2022). That decision must be made by 1 July 2020. It would be hard to maintain Conservative Party unity around that decision, for example, if they are still the government at that stage.  So securing an extension will require engagement by pharma companies at the centre of government – No10, the Treasury and BEIS as well as the Department of Health.

 Is pharma communicating no deal risks effectively to its customers?

On the way to Parliament passing a deal which secures the transition period, companies face prolonged uncertainty and the risk of a short period of ‘no deal’. Passing any deal will likely split the main parties, and the government could fall. In any event, there is an effective Commons majority against ‘no deal’ becoming government policy. However, if a cross-party majority cannot be formed to pass a deal, a short period (one-two weeks) of no deal is possible if the EU thinks, by March, that this is the only way to force a decision in Westminster.  While the EU will agree an extension to the article 50 process so that the UK can pass the necessary implementing legislation, it will probably only do so once Parliament has decided on a deal. Whatever happens now, it is very unlikely that the UK will formally leave the EU on 29 March.

Are pharma companies communicating their no deal preparedness to corporate customers, investors, staff and the public? Have companies prepared for and communicated an extended period of Brexit uncertainty?

Post-Brexit: who can govern?

Even if the government holds together to deliver a deal – almost certainly a softer Brexit following the government’s historic defeat on Tuesday night – it will be hard to put a governing majority back together afterwards. There is a serious risk of an early election once the deal is ratified.  Now, Pharma companies should:

• start framing the priorities for a competitive Life Sciences sector in post-Brexit Britain, including for the first post-Brexit budget and the Spending Review due this year;
• engage as individual companies with leading Labour figures and the main Conservative challengers to succeed Mrs May on their priorities in the sector; and
• engage as individual companies with key backbenchers across Parliament – as we may well end up with a hung Parliament.

A new regulatory agenda for medicines

A post-Brexit government of whatever political complexion will need to start making choices this year about the regulation of key sectors where powers are returning from Brussels. The pharma industry wants the MHRA to continue to be part of the EU regulatory ‘ecosystem’; but, outside the Single Market, the EU will impose limitations on that.  Given the time pressures and likely lack of a clear majority for any party, legislation risks being rushed and business-hostile (e.g. on migration).  The industry should continue engaging on both sides of the Channel to encourage as close a practical cooperation as possible between the beefed-up MHRA and the EMEA.

Preparing the long-term EU-UK trade deal: what does the UK want?

The UK must also prepare its position for future trade talks with the EU this year. Likely populist gains across Europe in the European Parliament elections in May-June will make EU capitals feel they have even less room to give trade concessions to a UK which has left. The appointment of a new European Commission – in November at the very earliest – mean that the trade talks will only start in earnest at the end of 2019. The government lacks trade expertise, and any sense of how it will manage the trade-offs between sovereignty (e.g. on migration) and market access. There are lessons from the Brexit negotiations, however.  Politics will trump economics in key areas. The government will try to make trade-offs at the centre, with limited transparency and a relatively minor role for policy Departments. The EU will set objectives early, and these will frame negotiations. And political and public understanding will lag behind the necessity of big trade-offs, increasing political uncertainty.

The industry needs to develop its existing position into accessible priorities for the trade talks. Companies need to think about how far they want to engage as individual businesses, rather than through trade bodies such as the ABPI, to engage and support government e.g. through seconding staff to Whitehall. And both need effective engagement strategies with the EU and UK sides, including with the Whitehall officials who will – probably through the Cabinet Office – broker the inevitable trade-offs.

This year, the government will make decisions on some of the biggest choices the UK has faced since 1945. Pharma needs to prepare and fully engage, as an industry and at company level.

About the author

Paul McGrade provides senior counsel on Brexit at Lexington Communications. Previously, he worked at the Foreign Office, the European Commission in Brussels and the Cabinet Office as an advisor on EU treaty negotiations.