The Brexit effect

Brexit is finally a reality and though India Pharma Inc expects some glitches in the short-term, it is optimistic about its impact in the long term and is looking forward to lucrative trade agreements for further growth in both, the UK and the EU markets

By Usha Sharma On Feb 11, 2021

Movement of products from the UK to EU and back may create some supply chain issues

The UK is the second destination for India in doing export of formulations and APIs. Post-Brexit, I do not see much impact on exports, but it may create some hurdles in regulatory approvals. UK MHRA approval was either accepted or there used to be a smoother process in getting EU regulatory approvals in the majority of EU regions and vice versa. The movement of products from the UK to the EU and back may create some supply chain issues for Indian exporters. Brexit has been announced long back and only the implementation is pending. Most of the Indian exporters already have a strategy in place considering the long lead time available for Brexit to happen.

There will be not much effect on exports to the UK or the EU

From a merchant exporter perspective, there will be not much effect on exports to the UK or the EU. In fact, with additional investments expected in the UK as well as the EU, we are looking ahead to a positive impact on the overall Indian pharma industry.

The Indian pharma majors are relatively less dependent on revenue from the EU or the UK, so it will not have a major impact on revenue, but yes, supply chain management and regulatory compliance, will be a challenge in the short run. This may cause short term impact on revenues of the companies which are heavily dependent on the EU or the UK if they do not have a trade deal in place. The relationship between suppliers, distributors and third party customers need to be revisited, and a fresh regulatory policy between India-UK and India-EU regarding marketing authorisation for pharma products may be required. On the other hand, if a conducive deal is done, we look forward to a great opportunity for the Indian pharma industry, both in the UK as well as the EU.

Post-Brexit, partnership between India and UK will strengthen on various fronts

As per our understanding of Brexit, we do not expect any adverse impact on the business. The UK is one of the epicentres for technology and innovation and this can benefit the companies, where the UK would be now able to have its own strategic alliances and partnerships.

The UK has always been a strategic partner and Indian companies, both pharma and nonpharma firms have played a key role in those markets. Post-Brexit, the partnership will strengthen on various fronts and pharma would benefit too over a period of time. Though the finer details need to be worked out in the deals, Pronto Consult feels that the outcomes would positive and not detrimental. Regulatory approval is a key to trade agreements, which may get simpler and probably quicker too.

India can be an important strategic partner of the UK for accessibility of affordable medicines

India is a dependable partner providing safe, effective, and quality drugs to patients in the UK and fulfilling UK’s healthcare needs today and for years to come.

The UK is an important market for the Indian pharma industry as every fourth tablet sold in the UK is from India. Diversifying the supply chain is important for healthcare security and India and the UK can work together for consistent availability of medicines. India can be an important strategic partner of the UK for improved accessibility of affordable medicines. We are still examining the trade deal between the UK and EU as it is just out and yet to be ratified by these countries.

Post Brexit- India UK relationship

India enjoyed a 20 per cent tariff preference in the EU under its Generalised Scheme of Preferences (GSP) programme. EU’s GSP removes import duties from products coming into the EU market from vulnerable developing countries. It is to be seen how this gets impacted after Brexit, for exports to the UK. It would also be interesting to see how the competition unfolds in the EU, with countries with zero duty benefit in the EU (like Bangladesh, Pakistan, Philippines) also losing out with Britain’s exit.

Post-Brexit, complementarities between India and UK will rise exponentially

Post-Brexit, India and the UK may finalise trade agreements in areas like pharma, fintech, chemicals, defence manufacturing, petroleum and food products by 2021, as the two countries are keen on early harvest deals while continuing negotiations for a comprehensive free trade agreement (FTA).

The UK is a big economy has depended on Europe, China and India for its imports. India enjoys a favourable balance of trade with the UK. When it comes to investments, the UK is ranked as the fourth largest inward investor in India, after Mauritius, Singapore and Japan, accounting for around six per cent of all foreign direct investment into India. India also is a major investor in the UK (4th largest).

Around 800 Indian companies, with total consolidated revenue of ~ GBP 50 billion, have created over 105,000 jobs in the UK. The technology and telecom sector account for 31 per cent of these revenues, with the pharmaceuticals and chemical sector accounting for 24 per cent. The UK imports more than it exports.

Let’s look at the impact on pharma on four major aspects:

Revenue: The European markets account for 10–12 per cent of the total pharma industry revenue. Because of GBP devaluation, the country’s drug exporters may incur some losses

Currency devaluation: The majority of top Indian pharma companies have low revenue dependence on the EU, especially from the UK; in fact, the US is the key market for the majority of them. As a result, these companies are unlikely to face a significant impact of the currency devaluation following the Brexit.

M&A: Uncertainties offer opportunities too. Indian companies, for instance, can look at M&A activity in the UK. M&As, especially at a time when the GBP is on a depreciating trajectory, offer an effective strategy to enhance footprint.

Regulatory: The Brexit could trigger the need for a fresh regulatory policy between India, UK and EU regarding marketing authorisation for medicinal products in the UK and EU. There may be concerns about the new product development process. London-based European Medicines Agency (EMA) which approves treatments for all EU countries will have to relocate to a country within the EU. This will increase uncertainty around the drug approval process, leading to regulatory delays.

Most industry leaders feel that post-Brexit, the complementarities between the two dynamic economies, India and the UK will rise exponentially.

UK MHRA and CDSCO can work together to reduce administrative hassles, if any

Having got the Brexit deal under his belt, Boris Johnson the UK Prime Minister is in high spirits and it’s good time to make an initial start to discuss Free Trade Agreement with the UK. Many Indian pharma companies such as Aurobindo, Lupin, Glenmark, Wockhardt, DRL etc. have their operations in the UK for many years. Since Brexit was first drafted in 2016, these companies had sufficient time to rethink their post Brexit strategy.

One of the key challenges is the regulatory process. As the EU regulatory agency EMA would be shifting from London to Amsterdam, UK-based pharma companies no longer have the luxury of getting their drug approved in the 27 nations block once approved by EMA. A separate approval may be required from the MHRA UK to market the product in the UK and another approval from EMA to market it in the EU.

This is a priority issue, the EMA and MHRA should sit down together and explore how the administrative and bureaucratic delays in the drug approval process can be avoided.

Also, the UK MHRA and our CDSCO can work together in a collaborative way to reduce administrative hassles, if any. Indian pharma companies should also critically examine their IP portfolio, if any, for its geographic validity. Since close to 800 companies in the UK have Indian ownership, having an FTA with the UK would be the top priority.

Now that the UK is no longer gateway to the EU market, alternative destinations should be explored. Ireland, with its progressive economic policies and a corporate tax rate of only 12.5 per cent, looks quite attractive.

On the whole, Brexit appears to be positive for the Indian pharma sector, although it may take a couple of years for the benefits to start showing results.

Products directly going from Indian pharma industry may have an upper hand

As such, India has been exporting pharma products to the UK from their UK MHRA approved facilities. This is not going to change because of Brexit.

Before Brexit, there has been free movement of goods between the UK and European countries and this will now be subjected to regulatory approval between the countries.

Indian companies who have been supplying to Europe from their MHRA approved facilities now should have the approval of EU-GMP after Brexit.

There have been instances of free movement of products from European pharma companies to the UK and they may have to register themselves for the same now. Due to these restrictions, products directly going from Indian pharma industry may have an upper hand.

FMD serialisation will have temporary uploading into EMVO server for six months. After six months, this has to be uploaded into the UK Server.

Parallel importation will be hit in between the UK and the EU countries. The same products will be analysed twice. All these may work to benefit Indian companies since many of them have separate EU and UK MHRA approvals.

The impact may be minimal for most pharma firms as the US is their bigger market

Pharma companies depend on high-quality research facilities to develop the drugs and treatments on which their future sale depends. The UK is an international hub for such facilities, boasting three of the 17 most important clusters of life sciences research facilities in Europe. These facilities have an impressive track record of collaboration with pharma companies. These life sciences clusters have a long and impressive track record of working with commercial businesses to develop drugs that make it to market. Examples include Humira, co-developed in Cambridge, and now the best-selling drug worldwide and the COVID-19 vaccine developed by UK AstraZeneca and the University of Oxford which got emergency use approval recently in UK and India.

The impact of Brexit on the pharma industry is a diverse subject that is placed at the conjunction of economics, politics and science. The impact may be minimal for most pharma firms as the US is their bigger market, not Europe. Apart from the currency volatility that will have a bearing on company financials, trade agreements between countries and whether the UK would now have a set of separate regulatory approvals, even if EU approvals are in place, have given rise to uncertainties.

The UK has traditionally been among India’s closest friends in Europe among the Western countries and has been a traditional jumping pad for Indian companies entering Europe. Alongside, the UK’s exit from the EU could trigger the need for a fresh regulatory policy between India, UK and EU regarding the marketing authorisation for medicinal products in the UK and the EU.

The EU accounts for 10-13 per cent of India’s total pharma exports. The share of UK in India’s pharma exports is about three to four per cent.

The pharma companies do not expect a big hit following the Brexit and have indicated a limited impact of pound depreciation. The pharma companies reported having hedged their exposure to the Euro. Further, the companies pointed out that the rules, regulations and product registrations are already different for the UK and EU and hence any adverse impact on the sector can be ruled out. The impact will be minimal on early-stage investments.

Overall Indian start-up will not get hit from Brexit due to 100 per cent FDI in India. The rate of success that start-ups get after entering the European market through Britain will slow down.

The UK and the EU are losing trading partners in this process. So, both will be looking for replacements. Here, India can play a crucial role. Moreover, India may get more attention with regard to investments made by the UK to take part in the Indian growth story. As negotiations for a post-Brexit would take shape, the UK’s pharma industry has perhaps more at stake than any other industry owing to the complex nature of its current regulatory, funding and research structures.

India might emerge as the largest exporter to the UK by 2022

Effective from January 1, 2021, EU Brexit Agreement has been signed which provides for certain relaxations for bilateral trade between the UK and the EU in future.

In the normal course, it was certain that the UK will have multiple bilateral trade agreements with a lot of potential partner countries in a comprehensive manner wherein India figures prominently.

All expectations were a pointer to the positive direction as Prime Minister of UK, Boris Johnson was supposed to be the Chief Guest for the Republic Day Parade on January 26, 2021, wherein a lot of agreements could have been discussed, finalised and signed. However, on account of the third wave of the coronavirus in the UK leading to a nationwide UK lockdown till mid-February, 2021, PM Johnson has cancelled his visit and therefore both the nations will have to wait for the same during the G7 meeting in London hosted by the UK, the date for which is yet to be finalised.

In view of deteriorating UK-China relationships Indo- UK bilateral trade will get a tremendous boost, particularly in the life sciences sector.

The UK is the second-largest importing country from India for pharma after Germany and with a strong bilateral trade agreement; India might emerge as the largest exporter to the UK by 2022.

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