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Brexit could mean big changes for EMA
July 2016
by Jeffrey Bouley  |  Email the author
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LONDON—The recent referendum vote in the United Kingdom to exit the European Union (EU), colloquially referred to as “Brexit,” stirred up a lot of financial turmoil in the days following the vote and cast a shadow over the near-term future of many sectors in the United Kingdom, pharma and biotech among them. But the pharmaceutical implications go to something more central as well—the European Medicines Agency (EMA) itself. Post-Brexit, it is almost a certainty that the EMA would have to move from its current London home, and the United Kingdom’s ability to get drug approvals may be inhibited once it leaves the EU, and perhaps before then.
 
That’s a potentially big hit, given that somewhere between 70,000 and 222,000 people in the United Kingdom are said to be employed by the pharma and biotech sector—depending on whose numbers you go with—and that industry makes up about a quarter of UK business-related research and development spending. Also, about 16 percent of the money that UK life-sciences entities put into R&D is from EU grants; whether Brexit will constrict that money or not remains to be seen.
 
UK-based pharma giants GlaxoSmithKline and AstraZeneca were both against leaving the EU, as were many global companies with a significant presence in the United Kingdom.
 
As Poltico put it, “The result [of Brexit] means the EMA will no longer be able to continue its operations from London, and medicines will need an additional, costly regulatory process to launch their products in Britain as well as in EU member countries.”
 
“Industry executives fear upheaval at the EMA could snarl the EU's drug approval process and Britain may have to develop its own domestic regulatory system, leading to further confusion,” noted Reuters.
 
An EMA spokesperson has said that comment on the future of the EMA was premature, noting, “It is too early to foresee the implications of this decision, and at this stage we are waiting for further guidance from the European Commission.”
 
It is also worth noting that the exit from the EU is a two-year process and can possibly be extended another two years beyond that, so a move is not likely to happen immediately, and perhaps not until the departure from the EU is official and final.
 
But the fact remains that Italy, Germany, Sweden and Denmark have already expressed interest in being the EMA’s new home, in part because drug companies in those nations would like close proximity to Europe’s drug-regulating body.
 
Theoretically, the United Kingdom could remain in the EMA system if it continues to be a part of the European Economic Area, as is the case with Norway, but many supporters of Brexit are against that option as well, and several European nations are stinging from the Brexit vote. This could mean that UK companies are pushed back in terms of regulatory priority for new therapeutics if the EMA decides, post-Brexit, to put a priority on companies still within the EU.
 
Needham analyst Alan Carr wrote in a client note that there won’t be significant near-term effects on drug candidates under review by the EMA right now, but looking to the future, he noted “Brexit will lead to a less efficient, and potentially lengthier, regulatory process for companies seeking approval in the EU and UK.”
 
In any case, if the EMA leaves London, it takes at least 600 and as many as 840 jobs with it (again, depending on whose numbers you go with). Those job losses might not be the biggest hit, as only a small minority of the regulatory and scientific workforce of the EMA comes from the United Kingdom itself. However, the country would still lose the largest EU body within its borders and the prestige and access that go with that. Also, the EMA has had a close relationship with the UK’s Medicines and Healthcare products Regulatory Agency; post-Brexit, the MHRA will have to figure out how to more or less go it alone.
 
Pharma/biotech investment specialist and venture capitalist Neil Woodford was more upbeat than many, saying in a statement that “in our view, it is not as negative a development as the market's initial react appears to imply.” He admitted there will be very real challenges in the near term, but noted on his website the day of the Brexit vote that “the trajectory of the UK economy, and more importantly the world economy, will not be influenced significantly by today’s outcome.”
 
McDermott Will & Emery partners Dr. Stephan Rau and Emmanuelle Trombe—who represent companies and investors in the pharmaceutical, medical device, biotech and healthcare sector—also noted that Brexit isn’t necessarily a done deal yet, writing in a paper titled “The Brexit vote is not the Brexit yet…” that “Despite [the vote] on Brexit, it is not clear yet whether (and if so, how and when) Brexit will really take place.”
 
Departure from the EU would only happen if the UK government terminated its membership to the EU by giving notice, and the government would under UK law not necessarily be obliged to execute the outcome of the vote.
 
“Should the UK government give notice to the EU, then a two-year deadline would be triggered, within which the EU and the UK would have to negotiate terms of the termination of UK membership to the EU. Should the EU and the UK not be able to find an agreement, then two years after the date when the UK has given notice to the EU, UK membership would expire, which would mean that no EU rules would further apply to the UK,” they wrote. “Thus, as long as the UK does not give notice to terminate EU membership, the UK can put pressure on the EU to agree on arrangements regarding the terms of Brexit, as the EU has a big interest to achieve quick clarity in order not to be destabilized by uncertainty as to Brexit.”
 
Still, Rau and Trombe noted that “The uncertainty created by the Brexit vote is generally bad for the economy but might be particularly tough for the biotech industry, given its financing needs and its risk profile highly dependent on financial markets making it very volatile. This should certainly be true for biotech companies located in the UK. As to whether this will also be true for biotech companies located outside the UK very much depends as to whether markets believe that the EU will remain stable, function well without the UK and being able to manage separatist motions in some member states.”
 
However, large UK pharmaceutical companies would be less affected in the short term than companies in other industries, they maintain, in part because the main European pharmaceutical markets are Germany and France, “and they lag far beyond the largest pharmaceutical market, the United States. Most of the European pharmaceutical companies have operations in the United States and derive significant revenues from there.”
 
Code: E071628

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