08/01/2018
It was almost a year ago that I first warned about the implications of Brexit for the
pharmaceutical industry. A review of EU law indicated that medicines which had gained their market authorisation in the UK could no longer be marketed in EU (or EEA) Member States after Brexit, putting at risk a £20 billion annual export trade.
Fortunately, from the point of view of safeguarding the business, the industry has been ahead of the game, with many enterprises seeking to transfer UK market authorisations to subsidiaries based in the EU-27, thus obviating the need to seek new authorisations.
Companies are also,
we learn, setting up duplicate quality control release processes in in Europe, and transferring key technical personnel, who must be resident in the territories of EU Member States.
But, although such pre-emptive action avoids the "cliff-edge" prospect of disrupting valuable exports, the
Guardian is now conveying the news that this will not be without cost.
According to GlaxoSmithKline, Britain's biggest maker of pharmaceuticals, preparing for Brexit will cost the company about £70 million which, they say, will have to be diverted from developing new cancer drugs.
This came from Phil Thomson, president of global affairs at GlaxoSmithKline (GSK), in evidence to the Commons health select committee. Crucially, he advises that something approaching the figure would have to be spent whatever the outcome of trade talks â an inevitable consequence of leaving the Single Market.
Thomson says the company has estimated that 1,700 of its products would be directly affected by a "chaotic Brexit", with new regulation processes, labs and approval systems costing "somewhere between £60m and £70m". But, he adds, "Even if we have a smooth and orderly Brexit process, and we work through with a new [free trade agreement] or a new arrangement, there are going to be costs of that magnitude anyway, but they will probably be more phased".
With a company
reporting a group turnover of £27.9 billion (2016), I somehow doubt that a mere £70 million will have that much effect on GSK's overall research and development budget.
Nevertheless, it cannot be denied that this is a real cost and is only what one company has to find. For the UK industry as a whole, I estimated that the costs could reach £750 million which, even for the drugs trade is a significant amount of money and it has to come from somewhere.
A further point is that the costs being discussed are those which affect just one industry, and there will be
many more. And while it suits the likes of the
Telegraph to mock "project fear" predictions as "wildly wrong", such mockery neglects the steady build-up of real costs and lost opportunities.
For GlaxoSmithKline, Thomson says that his company is "going to do everything we can to minimise disruption" and that will apply across the board. Thus some of the wilder estimates of costs will not come to pass and even some expected costs may not transpire as businesses discover innovative ways to mitigate the unwelcome expenditure brought about by Brexit.
Yet, even now, some costs are speculative. Currently, the
Observer is reporting that UK companies "will face" a huge new VAT burden after Brexit.
This, we are told, will affect more than 130,000 UK firms, which will be forced to pay VAT up front for the first time on all goods imported from the EU. Currently, the tax only has to be paid on goods imported from outside the EU but, with Brexit, a uniform regime will apply to all imports.
The British Retail Consortium notes that: "Liability for upfront import VAT will create additional cashflow burdens for companies, as well as additional processing time at ports and border entry points attached to the customs process".
However, it acknowledges that there are mitigation measures. These could include companies instituting a revolving credit facility, or utilising import VAT deferment. But, says the BRC, "Both measures require companies having to take out costly bank or insurance-backed guarantees, so would increase the costs of importing goods from the EU".
Then, Nicky Morgan, chair of the Treasury select committee puts things in perspective. "One of the things that has not been explored fully is the implications for tax from Brexit. As Brexit comes closer we are beginning to see the reality of how it will bite. The same businesses that are going to be hit by new customs arrangements also face being affected by new VAT rules".
The very pertinent point she makes is that the financial costs become better understood "as Brexit comes closer". This means that it will become progressively more difficult to dismiss business complaints as "project fear". As I remarked in my piece yesterday, the "ultras" in particular will increasingly be on the back foot.
The big mistake, of course, was to frame the leave campaign in terms of financial savings, with the absurd £350 million painted on the side of the battle bus. Now expectations have been raised, the fact that Brexit â in the short term, at least â incurs substantial costs â is coming as a rude awakening to some.
An obvious antidote to the gloom and doom is to look at Brexit as an opportunity. One of the great absurdities of the global trade in pharmaceuticals is that the two great giants, the EU and the United States, both require products to be submitted to their own, unique approval systems â massively increasing the costs of bringing new drugs onto the market.
But, as I report
in Flexcit, removing non-tariff barriers from medicines could deliver annual savings in the order of $50 billion without fundamental changes in the regulatory system.
Elsewhere in the healthcare industry, there is $0.5 trillion tied up in inventory. Common standards applied globally could reduce obsolescence and inventory redundancy, cutting the amount of cash tied up in unnecessary stock and attendant storage costs, potentially saving $90-135 billion (USD) annually.
A concerted attempt to get agreed a single, global approval system for medicines (with regional adaptations) could save much more that this. An independent UK, as a major pharmaceutical producer, would be in an ideal position as an honest broker, to promote a global system along the lines of GHS as applied to the marketing of dangerous chemicals.
Equally, a concerted, globally-coordinated attempt to tackle the scourge of counterfeiting and product fraud could yield dividends which would more than cover the relatively minor costs of delivering Brexit. And again, an independent UK could be in the forefront of the fight.
That such benefits are not being widely aired again points to the uninspired leave campaign, with its obsession on free trade agreements â which continues to this day. Many are of dubious value and financial benefits are often unrealised. And even the most ambitious deals pale into insignificance compared with the potential savings from global agreements.
This, over the coming months and years, is where the Brexit campaign must take us. Lacking a grand vision, it will otherwise fall prey to a death from a thousand cuts, as the bad news on costs accumulates. But a vision of the future, where trillions of pounds is cut from the costs of doing business on a global scale is well-worth the short-term costs of redefining our relationship with the EU-27.
On Saturday, we had "ultras"
talking in terms of a display of Churchillian "iron will". Rather, we might be talking of "blood, toil, tears and sweat", as the price of our passage to the sunlit uplands.
Small losses for no gain may be treated as unacceptable, but huge gains in prospect can make even substantial investments worthwhile. Thus, if there are major gains to be had, the unavoidable costs of Brexit can be treated as an investment.
Failing that, as the man said, we end up in tiers.
