John Leyden shares his basic steps for how pharma can prepare for Brexit.
I realise that most of us, including me, are getting tired of the Brexit issue. However, I am an optimist – I firmly believe that whatever happens there will be big opportunities for all sectors. If you think about, it some of the most successful businesses have been born out of challenges – whether economic, political or other; here are a few examples:
- Microsoft was set up in the middle of one of the worst recessions since WWII.
- The Pony Express was started because the US Postal Service stopped delivering mail beyond certain States in 1858.
- Burberry, that iconic fashion brand, was having serious marketing issues and image problems when ‘chavs’ adopted the brand. It re-invented itself by taking all design work back to the UK and re-launching the brand to what it is today.
- The Body Shop was almost put out of business in its early days because two neighbours who ran funerals parlours nearby objected to the name.
So, whilst I have no doubt the pharmaceutical sector will see huge opportunities whatever happens, the fact is that Brexit is still a big issue for many businesses and those in the pharmaceutical sector are probably facing a more uncertain future than many others; here’s why.
At present, pharmaceutical businesses can move products within the EU freely. The EU requires that all drugs be tested within the EU and that the paperwork relating to those tests is held within the EU. This places the pharmaceutical sector in a significantly different position to those businesses who are merely moving unregulated goods across borders. Recent stories include the stockpiling of Magnum ice creams in the UK as they are made in France and the stockpiling of deodorant by the rest of the EU as much of it is manufactured in Britain. One of my clients makes most of the snake venom antidote in the UK that is used in Europe – so if Brexit goes badly, my advice is to avoid getting bitten by a snake this summer if you are travelling to Europe – and also take plenty of deodorant.
In the immediate aftermath of Brexit, the UK and EU laws on drugs and pharmaceuticals will be exactly the same as each other – this will remain the case until one side or the other changes their rules – so it should be a simple matter of maintaining a mutual recognition – shouldn’t it? The UK Government is being pragmatic and has announced that it intends to do just that – it will permit EU pharmaceutical companies to continue to act as they currently do until there is a divergence of regulations between the UK and EU, which could be a few years away – it will recognise that EU-based testing of drugs will be up to the same standard as that conducted in the UK.
The EU on the other hand has said it has no intention of reciprocating that concession from the UK. So the EU will require all UK-based pharmaceutical businesses to have a physical presence in the EEA (which is the EU plus Norway, Iceland and Lichtenstein), with an office/laboratory where tests are conducted to confirm standards have been complied with and where the paperwork will be securely kept for the European Medical Agency (EMA) to be able to go in and inspect. For information, the EMA has recently moved its headquarters from the UK to The Netherlands in preparation for Brexit.
The large pharmaceutical companies will be able to cope with these changes, however much trouble it causes, because they have the resources and the infrastructure to cope. Smaller players will face bigger challenges.
How pharma can prepare for Brexit
So, what should SME pharmaceutical companies be doing? Here are a few pointers on potential actions to take.
Firstly, look at opening an EU-based subsidiary. Opening a company varies from country to country but in my experience, it is probably best to choose either Ireland or The Netherlands as both are fairly easily to deal. Ireland has the advantage of language and fairly similar corporate culture. Having an EU subsidiary is the most basic first step and the cost is minimal, less than a thousand Euros. It will at least provide a framework for whatever Brexit might bring.
Next, look at where you can find an easily accessible location from which to do business. Again, Ireland and The Netherlands are both easy to get to from the UK. It is possible you could find a pharmaceutical-serviced business – basically a third-party company which will maintain an office and keep all the paperwork for the EMA inspectors. All you have to do is fly a member of your team there to conduct the relevant tests within the EU or employ someone based there to do it if there is enough volume of work.
Next, you need to consider the logistics of getting your product from your location in the EU to where the market is. If the product is easy to air-freight, then Ireland will not necessarily cause an issue – but clearly The Netherlands may have an advantage on this measure as it is at the heart of the European mainland.
Lastly, you need to consider ongoing compliance – doing the subsidiary payroll, accounts and tax returns as well as VAT returns in the jurisdiction you choose.
If you have buried your head in the sand so far, I really don’t blame you, but I believe the time has now come to put the basic things in place to make sure you have the best chance of getting through whatever Brexit brings.