Brexit's impact on pharmas
Life Sciences As an island nation, trade is essential for Ireland; with the UK being our longest standing trade partner, and one of our most important.
Following the UK referendum on EU Membership, there was a somewhat surprising result to exit the EU albeit on a very tight margin – 51.9% (Leave) to 48.1% (Remain). Below are some of the key dates:
EU Membership Referendum - 23rd June 2016
Article 50 invoked - 29th March 2017
UK scheduled to leave the EU - 29th March 2019
Transition period likely to last until - 31st December 2020
The UK will be able to strike its own trade deals - 1st January 2021
What do we know for sure?
Well, in honesty – not a huge amount!
Negotiations continue to move very slowly on all sides. We still don’t have visibility on how things will work in the long term. The discussions concerning future relations between the UK and the EU will start only if and when the transitional phase has been agreed.
However, a baby step forward was made on March 19th with The Irish Times reporting that the “backstop” solution for the Border treaty had been agreed. This means that failing another solution the guarantees in the draft Brexit document preventing a hard border would stand.
What we can be certain of, is the possible impact for pharma is potentially huge. As an island nation, trade is essential for us; with the UK being our longest standing trade partner, and one of our most important. According to the CSO, in 2015 we exported €112.4bn of goods with €15.6bn (13.9%) of these going to the UK. The top categories of goods exported to the UK were meat & meat preparations (€1.9bn), with Medical & pharmaceutical products taking the second position (€1.5bn).
The main concerns with Brexit are relating to the supply of medicines, and it’s timely movement around the EU with the additional customs processes now required, along with regulatory alignment. Speaking at a PMI breakfast on February 1st, Danny McCoy, CEO with Ibec said that “regulatory alignment on non-tariff barriers will be the most significant issue for medicines and products”.
We’re now looking at increased customs processes, and we simply don’t have the structure for these here in Ireland – can the ports cope with these possible new procedures? Is there warehousing available at the ports to cope? With over 45bn packs leaving the UK to various EU countries each month, and 70% of EU Investigational Medicinal Product released from the UK it’s easy to see how quickly this will stockpile if there are delays due to the possible new customs procedures.
There are VAT implications with Brexit too. UK companies will have to pay VAT for products coming in from EU – at a rate of between 15-20%. How will this be passed through the supply chain? There will also be VAT implications for creams and injectables of approx. 23% - again these will lead to increased COG – where will this be reflected? Does the manufacture absorb it? The wholesaler/distributor? Or will it be passed onto the end consumer?
The questions continue, answers unfortunately are not so easily found!
Local concerns regarding Brexit are clear: supply chain disruption – delays in medicinal goods getting into and out of UK; a real fear of shortages in the supply of medicinal products as articulated by Dr. Lorraine Nolan, CEO with the HPRA (Health Products Regulatory Authority); VAT implications ; transport and customs infrastructure; the impact on the cost of goods – who is paying for this?
Just now, the only real certainty is continued uncertainty. The “backstop” agreement this week is a good step in the right direction, and we have to hope that these steps continue. While Brexit is a certainty, the details of the transition period and the ultimate deal remains unclear. The UK is likely to remain a major trading partner of Ireland, so we need to work with the EU to get them the best possible deal, as this is in our interests too.