The impact of Brexit on the pharmaceutical sector Contents

3Non-tariff barriers

18.Whilst the interests of both the UK and EU would benefit from an agreement that enables the avoidance of tariffs at World Trade Organisation or national levels as we continue to trade, there are challenges relating to border delays that are of greater concern to industry.44 Alongside regulation—covered in the next chapter—the need for what the Prime Minister described in her Mansion House speech “as frictionless a border as possible” at both an administrative and physical level is of vital importance for the continued success of the sector and for continued UK and EU access to medicines.45

19.In its policy document ‘Future customs arrangements - a future partnership paper’, the Government has set out two options for a customs arrangement: a highly-streamlined customs arrangement that combines the maintenance of some existing arrangements combined with “new innovative facilitations” including an undefined technology-based solution; or a new customs partnership with the EU, an “unprecedented approach” that removes the need for a customs border.46 Other committees continue to scrutinise proposals for border customs arrangements as they progress,47 but whatever approach is followed, it is inevitable that there will be some additional costs.48 The Draft Agreement between the EU and the UK on 19 March 2018 provides clarity on the continuation of current customs arrangements during the transition period; however, industry currently still faces significant uncertainty beyond the end of the transition period in December 2020.49

Border delays

20.Delays at the border to and from the European Union are of significant concern to companies in the pharmaceutical sector.50 We received evidence from companies, industry bodies and charities that highlighted the importance of rapid supply of medicines across border for the benefit of patients.51 In the most serious cases, time and temperature specific products, such as oligonucleotides, are required to be delivered to EU destinations from manufacture in the UK in as little as 24 hours, becoming unusable if delayed.52 Mike Thompson, Chief Executive of the ABPI confirmed that while the industry works to ensure the supply of medicines, including for urgent and emergency cases, overcoming barriers such as border friction have limited options:

We do absolutely everything we can to get medicines to patients; I have seen us charter planes and people work thorough weekends. We do whatever we need to do to get a medicine to a patient. If we legally cannot get through borders or we are delayed in getting through, there is nothing we can do about it. We have been imploring people to understand that medicines are different.53

21.Companies such as Merck have identified the specific challenges with time and temperature limited products and the potential need for new solutions if a frictionless border is not delivered:

A number of our products must be kept cold, with the refrigeration system for transportation maintained by the running engine of the vehicle in which they are transported. If delays at ports become consistent, the whole sector will have to develop new ways of transporting and storing goods and medicines to mitigate the risk of a product overheating and becoming unusable.54

However, we heard of no appetite from the sector for either reducing the markets that they supply, which would potentially limit access to lifesaving medicines, or for developing new transport or storage solutions with associated additional costs to business.

22.For more routine customs transactions, there is still significant concern from the sector, due to complex supply chains with multiple border crossings for materials, part-finished components and finished medicines as they are manufactured and released.55 Roche expressed concerns that “all goods due to be moved between the UK and EU could be held either at border checks, in warehouses or manufacturing”.56 With efficient European-wide supply chains there is limited need for warehousing on either side of the UK-EU border at present. Any changes to this would lead to increased costs for companies, or the potential for supply disruptions, which Roche argue can only be solved by prioritising frictionless trade.57 AstraZeneca, responsible for the export of £4.7 billion of goods from the UK in 2015, have been less optimistic about the opportunity for fully frictionless trade.58 Instead they support mitigations to reduce border delays, such as the use of Authorised Economic Operator status to fast-track shipments, or following UK proposals for an advance shipping authorisation system, albeit aware of the challenges with other systems current in use.59

23.Much of the evidence submitted to the Committee focused on the branded pharmaceuticals market. We also received written and oral evidence from industry groups representing generic products, which account for around 75 per cent of medicines used in the National Health Service, and from over-the-counter manufacturers responsible for consumer healthcare products. Their views on tariff and non-tariff barriers were broadly aligned with the branded medicines industry, but acknowledged specific risks to their parts of the sector. For consumer products, border friction has the potential to reduce the number of new over-the-counter medicines manufactured overseas being made available in the UK, or being reclassified from being prescription medicine.60 For generic products, increased costs and border delays would also risk the attractiveness of the UK for the launch of new generic medicines in the UK, “putting at risk the onset of NHS securing the savings it achieves from generic medicines as soon as the originator loses its patent protections.”61

Other non-tariff barriers

24.All witnesses sought an approach to frictionless trade that ensured a deal as close as possible to the status quo.62 In both oral and written evidence, we received concerns about customs clearance costs, the requirement for new IT and administrative systems to manage any new processes, and the delays that will be caused by any potential lack of harmonisation across the UK and EU.63 Johnson and Johnson told us that these non-tariff barriers were likely to have the most significant impact on their businesses,64 while the American Pharmaceutical Group, the trade body for US pharmaceutical businesses in the UK, warned of “extremely high restructuring costs aimed at accommodating a new regulatory and trade framework that restricts trade in practice, especially in the short- and mid-term.”65

25.While some UK businesses, such as AstraZeneca and GSK, are beginning to build new sites in EU states to ensure that they can continue to operate in Europe following the UK leaving the EU,66 we have received no evidence of EU based companies undertaking the reverse. We explored with the ABPI the potential for increased manufacturing in the UK to reduce the need for cross-border working and supply chains; however, their view was that this did not make economic sense, noting

We do not have the process capability in the UK to manufacture all medicines in the UK. We do not have the plants. These plants cost tens, sometimes hundreds, of millions of pounds to invest in. Nobody is going to build it in the UK; at current values, with the devaluation of the pound, the UK is 2.3 per cent of the global market. People are not going to build manufacturing plants to supply all of the medicines for the UK.67

26.With any significant friction at the border, it is possible that the UK could become a ‘second tier’ state for pharmaceutical imports, reducing access to new and innovative medicines.68 The Office of Health Economics have estimated that should the UK lose its free trade agreements and in the absence of customs arrangements with the EU, a typical pharmaceutical company could expect estimated costs of £23.5 million per year to cover changes to the supply chain, tariff and non-tariffs measures costs, irrecoverable value added tax, and brokers’ fees.69

27.Burdensome customs procedures would diminish the highly productive nature of the pharmaceutical industry, act as a disincentive for further investment for manufacturing facilities in the UK, and diminish access to medicines for patients in the UK and the EU. We support the Government in seeking as frictionless a border as possible; they must prioritise the absolute minimum additional costs and bureaucracy for the pharmaceutical sector.

28.The Government should ensure that, in addition to achieving as frictionless border as possible to protect the competitiveness of British pharmaceutical businesses, arrangements are put in place to ensure the cross-border transfer of short-life pharmaceutical products for emergency treatments and public health cases, in the mutual interest to patients in the UK and the EU.

44 Q25 [Mr Thompson]

48 Q66 [Mr Ballard]

50 Q79 [Mr Hicken]; Johnson & Johnson, BRP0015; MSD BRP0009; PAGB BRP0007; Roche BRP0004

51 Q17 [Mr Thompson]; The Association of the British Pharmaceutical Industry and the Bio-Industry Association BRP0001; American Pharmaceutical Group BRP0010; APPG on Brain Tumours BRP0021; Johnson & Johnson, BRP0015

52 Merck BRP0005

53 Q17 [Mr Thompson]

54 Merck BRP0005

55 AstraZeneca, BRP0019; Johnson & Johnson, BRP0015

56 Roche BRP0004

57 As above.

58 AstraZeneca BRP0019

59 As above.

60 PAGB BRP0007

61 British Generic Manufacturers Association (BGMA) BRP0008

62 American Pharmaceutical Group BRP0010; The Association of the British Pharmaceutical Industry and the Bio-Industry Association BRP0001; British Generic Manufacturers Association (BGMA) BRP0008; PAGB BRP0007

63 Q20 [Mr Thompson]; American Pharmaceutical Group BRP0010; Johnson & Johnson BRP0015

64 Johnson & Johnson BRP0015

65 American Pharmaceutical Group BRP0010;

66 Qq11–12 [Mr Thompson]

67 Q20 [Mr Thompson]

68The pharmaceutical industry is at risk from Brexit” London School of Economics Brexit Blog, 17 July 2017 (accessed 17 April 2018)

Published: 17 May 2018