Examination of witnesses
Dr Virginia Acha and Steve Elliott.
Q1 The Chairman: Good morning. Thank you for coming. Before we start taking evidence, I would just like to inform the Committee and witnesses, Dr Acha and Mr Elliott, that the evidence will be in public, it will be broadcast and it will be transcribed. We obviously circulated the questions in advance so you have had sight of them. It may well be that the Committee decides not to run with those questions or come back with supplementaries. When the session is finished we will make sure that the transcripts are sent to you.
I would like to start by asking you to give us a broad overview of how you see the importance of trade with the EU to your industry.
Dr Virginia Acha: Thank you very much. First of all, a big thank you the Committee for the chance to present evidence on this discussion. As I said, I represent the Association of the British Pharmaceutical Industry. My members are research-based pharmaceutical companies. We have a range of important and vital medicines for patients. We also represent organisations that contribute to clinical research, as well as a number of organisations that help foster the life sciences work. Over the summertime we followed a programme of work to prepare ourselves for these important changes together with our colleagues across life sciences, including the associations representing medtech: Association of British Healthcare Industries (ABHI); diagnostics, British In Vitro Diagnostics Association (BIVDA); and clinical research, the Clinical & Contract Research Association (CCRA) and Advisory Committee on Resource Allocation organisations (ACRA), as well as animal health, which you may not realise has similar features to the way our medicines are evaluated. We do this in partnership with the BIA, the BioIndustry Association, because we wanted representation from a whole range of companies, from the large global pharmaceutical companies to SME biotech. It is important to the UK given the importance of the life sciences sector, which the Prime Minister was kind enough to note in her comments earlier this summer. The evidence on statistics demonstrates the contribution we make in trade. Trade for the UK from UK pharma exports is worth about £30 billion, and we have a trade surplus of £3 billion. Needless to say, in number terms at least, trade is extraordinarily important to us, and a lot of that trade is related to the European Union.
After 40 years of being part of the Single Market and the customs union, our supply chains are highly integrated within the EU. We are exchanging not only finished products, that is medicines, but raw materials, clinical material, Active Pharmaceutical Ingredients (API)—which you will hear more about from Mr Elliott—the basic material supporting manufacture, and we are even trading and sharing samples, so we have a whole suite of support we provide from medicines alone, and that is not counting my colleagues in medical technologies and devices and other diagnostics. In medicines alone we make a sizeable contribution. This is why we signalled it in the work we carried out over the summertime as one of our four key priorities.
Steve Elliott: Good morning, everybody. We go by the very helpful acronym of the CIA, the Chemical Industries Association, and just for clarity, that is essentially the chemical manufacturing base of the UK and the pharmaceutical manufacturing base around the active pharmaceutical ingredients piece. Those two constituencies represent the UK’s largest manufacturing export earner. We contribute something like £60 million a day to the UK economy and the investment of capital expenditure is around £4.5 billion a year; £5 billion on R&D. Basically, everything from the plastic in the cups sitting in front of you through to the active ingredients in household detergents, personal care items, to the material in your new five pound note comes from the chemical sector.
Why is this important to us? We were pretty quickly off the blocks immediately after the referendum vote. There is clearly the interest around 500 million consumers. My colleague has mentioned the complexity of modern manufacturing supply chains: 60% of our exports go to the European Union. Looking at the remaining 40%, some of that will ultimately end up in the European Union because we are providing building blocks for final products. One example is the quite significant trade for us with Switzerland and its pharmaceutical base, and some of those products end up in the European Union. Some 75% of our chemical imports come from the European Union—essentially raw materials, and increasingly raw materials. If we go back to the days when manufacturing share of GDP was 20% plus, there was less concern there, but as that manufacturing contribution has declined over the last couple of decades, that has also left us with some difficulty around having a domestic supply of essential raw materials. This is very significant.
If I look beyond the direct implication, and the content within finished goods, if you think of any family car bound for the European Union, that contains roughly £2,000 worth of chemistry or chemicals: the engineering plastics, the coolants, and the pigments for coatings. This is significant, directly and indirectly. On top of that there are something like 150,000 direct jobs for the constituency we represent, and you multiply that probably by about three times for the indirect dependency. I am not saying how many of those jobs are at risk from a difficult and tortuous exit from the European Union, but if you look at the import and export statistics and the job dependency, there is obviously a concern there.
The Chairman: Thank you very much. Could I come back on a couple of areas? I think it would be helpful for us as a Committee to know about your challenges or perhaps your opportunities for looking at R&D away from being a member of the European Union, and where you feel there may be challenges or opportunities again for a wider set of people with different skills either coming or being missed out in this change.
Dr Virginia Acha: I mentioned earlier that we had four key priorities. One was clearly the ability to be able to freely trade and encourage that as we progress with life sciences. The other three really related to the other things that matter to the way we research, develop, manufacture and provide medicines. They are related to the way we can secure that R&D point that you mentioned. There is the question of having predictable funding for research so people can engage with our research in my field, which tends to have very long horizons. We need sustained funding to really make progress in some of the very challenging areas of biology and disease biology that we are exploring.
We also need collaboration in scientific research to continue. It is not just about the money; it is about the networks in which these researchers are able to participate. Clearly, the advantage of being part of the European Union for researchers here in the UK has been something that groups like Wellcome, the Royal Society and the Academy of Medical Sciences have also put out as being very important to them, and we would agree. That is a key priority of how we negotiate any future relationship with the European Union: can we ensure that the research that matters for life sciences here in the UK continues? That matters to the British public; that matters, critically, to the British patient, as much as it does to my members, who are disproportionately—for the size of the country— involved in research here in the UK.
We also asked for co-operation on regulation of medicines, and I know we will speak to that later; that is a principal part of the way we need to progress our agenda for life sciences here in the UK.
The third point comes to the second matter you raised, which was being able to secure access to best talent. Our industry is a knowledge-based industry. The clue is in the name; we need to be able to access the best and most appropriate talent, wherever it is in the world, and bring it here. One of the greatest strengths of the UK over centuries has been as a hub for the best and brightest minds to be able to work and progress science, industry, innovation, and that is again a high priority for us in our future relationship with Europe. We would like to think about how we progress that. We are also thinking about the opportunities we might avail of being able to encourage that participation of talent, again, from wherever it exists on the planet. There are opportunities there to think about how we can encourage the UK to be the best place to do whatever career you are pursuing, and in my field it would be in life sciences. I hope Steve would agree.
Q2 Baroness Symons of Vernham Dean: Can I go back to what Mr Elliott was saying a moment or two ago? You gave some pretty impressive figures—£60 million a day, and 60% of our exports going to the EU. Are we the biggest exporter within the European Union to each other? What about France and Germany? Where do they stand in relation to us?
Steve Elliott: In the chemicals space?
Baroness Symons of Vernham Dean: Yes.
Steve Elliott: I think we are pretty much the most export-intensive chemicals sector. In the European context we are the fourth largest chemical industry, behind Germany, France and Italy. I would say the Germans would be ahead of us regarding export intensity but we will not be far behind.
Baroness Symons of Vernham Dean: But the French and Italians you think would be behind us in export?
Steve Elliott: I do not have the figures to hand. We can supply them afterwards.
Baroness Symons of Vernham Dean: I just need to know where we are in the hierarchy.
Steve Elliott: Fourth largest regarding industry and we are fourth,[1] certainly behind the Germans, regarding export intensity.
Baroness Symons of Vernham Dean: A similar question to you, then, on the medical side. You said we were disproportionate in the amount of R&D. Is that disproportionate to our colleagues within the EU?
Dr Virginia Acha: Yes.
Baroness Symons of Vernham Dean: Again, where do we stand in that hierarchy? These questions are obviously important when you are thinking about your negotiating strength.
Dr Virginia Acha: Absolutely. We have an investment of just about £4 billion in business R&D here in the UK related to pharmaceuticals. That is the highest R&D investment of any business sector in the UK. Compared to the size of the marketplace here for pharmaceuticals and the population, that is a very high share relative to our global spend on R&D, which is of course much larger, but especially across the European countries we are the leading country for R&D in pharmaceuticals, and that is also evidenced in biotech. We are the third largest bio-cluster in the world behind the US.
Baroness Symons of Vernham Dean: We are the largest—who is our closest rival?
Dr Virginia Acha: In Europe? Per capita, that would probably be Switzerland. In investment in R&D, the Germans also have a very strong cluster of biotech that is growing, and significant investment. The UK has made a preeminent contribution in life sciences for a long time because of the heritage of that research we have here. I am trying to see where we can not only preserve that heritage as best we can, but continue to build on it.
Q3 Lord Stirrup: Mr Elliott, the Chemical Industries Association has identified access to the single market as one of its three key priorities for the success of the sector. I presume the ideal would be to retain all the arrangements that we have now as a member of the EU, but assuming that is not going to happen and we are going to have to retreat from that, what characteristics of access to the single market would you consider to be most important for the sector? Where would you want to draw the line, as it were, if one had to retreat from that, and what would be the costs to the sector of having to withdraw to those successive rearward positions?
Steve Elliott: This is what we are wrestling with right now. You are right; the key priority that we identified was tariff-free access to the Single Market. It is one of the four priorities that sit behind the manifesto we are launching today, Exiting the European Union. If you look at the tariff element, we face essentially three tariff levels: 0%, 5.5% or 6.5%. We represent a very broad range of businesses across that whole supply chain, from a heavy end petrochemical facility through to what we call a final speciality chemical company that provides low-volume, high-margin building blocks for the likes of the pharmaceutical industry and others. Some attract 0% tariffs, and some attract 5.5% or 6.5%. That is for both the import potential of a raw material, because our industry’s biggest customer is itself, and the export, so there is a potential double whammy if you sit at the 6.5% end. I accept some of the discussion right now that you set that against a 13% or 14% depreciation in sterling. There is that to consider, but if in the longer term we are facing that tariff implication, that could be significant for some.
What might we be looking for realistically as a deal going forward? We could look at membership of a customs union. That is an option. Given how export intensive we are, that would avoid the need to rewrite, for example, the customs code, and recruit and retrain customs officers. It would also enable us to retain the same inward and outward processing relief regimes, and so on. It would not enable us as a country to negotiate independently our own bilateral trade deals.
If we looked at a bilateral free trade agreement, we would have to look at the origin of exported goods. That would have to be addressed for ourselves. We would also have to look at the extent to which customs controls would need to be reintroduced; do we want to look at a single administrative document with 54 questions and 8 sections: goods, movement of goods, commodity codes, customs procedures, rules of origin, duty administration, et cetera? We have not yet quantified—we are in the process of doing that by way of a survey of our members just to understand, when we talk about non-tariff barriers, the financial size of that challenge we are facing. That is work we are currently doing, so I am afraid I cannot give you a straightforward answer yet. You are right; we would like the existing regime but we accept it is very likely to change.
Lord Stirrup: Could you say when this work is likely to be complete?
Steve Elliott: There is a survey out now, and we are aiming to conclude that within the next seven to 10 days. If that meets the Committee’s timetable, we would be happy to share what we can.
Lord Stirrup: Thank you very much indeed.
Q4 Baroness Armstrong of Hill Top: Some of my points have been answered there. However, maybe we can move to Dr Acha. The UK EU Life Sciences Transition Programme report identifies customs duties as a particular concern relating to Brexit. We wonder, first, how significant an issue for this sector the imposition of tariff barriers between the UK and the EU would be, and what effect might be felt in the industry’s supply chain. Are you able to identify which duties are of particular concern to pharmaceutical industry because they have mainly been zero-rated within the EU?
Dr Virginia Acha: Thank you again for the chance to contribute, and I think you will hear a lot of similarities. There are concerns, and we have had many conversations in life sciences about how customs duty affects us, but it really does go to the detail of how our supply chains are structured now. Customs duties would affect us, as Steve has described, in a similar way, given that, again, we have a lot of intra-company trade, but even outside of that we have the added challenge of the administrative burden. I want to add that HMRC might also be a bit burdened by the change. We have done a simple estimate, which is that we expect the need to go through declarations will jump to about 350 million declarations per annum. At the moment they are only geared up for about 100 million. This is a sizeable change. The image of the Single Market and the customs union is to take that friction out of the system, so we are putting it back in.
If we have that challenge, the zero-for-zero rating that comes through via the WTO special arrangements—it is framed by the WTO—depends again on first of all making sure the UK representation at the WTO is established, because right now, as I understand it, we are represented by the EU, so the first thing is whether we can clear that and confirm that zero-for-zero will continue. Beyond that, what was interesting in our process over the summertime, that long-named transition programme[2], which was really a process for us to get to grips with these details, which we continue to do, because it is a complicated issue. As I understand it, the zero–for-zero is for a named list of medicines and some of the manufacturing components. That list has not been updated for seven years. There are a number of products that are not reflected in the zero for zero rating right now, so obviously we would like to see the list brought up to date. Beyond that, there are a number of products—and particularly their elements related to manufacturing raw materials on some R&D components—that are not on the list at all and are not subject to duty, so we would have an increase in duties. We do not know how big that will be but we know the increase will be significant. It depends on how it is applied. We would like to see that managed straightforwardly, as far as possible.
There is no doubt that the administrative burden and the cost is a challenge for the industry. What worries me, with my background in a regulatory policy position, is that the minute we introduce these frictions, we are probably also introducing time into the process, and for medicine supply that is a critical piece. I am very concerned that we do not introduce not only costs but delays into the process that may mean that medicines coming to a British patient are delayed in any way.
Q5 Baroness Armstrong of Hill Top: Rules of origin have come up in a number of different sectors. We wondered how significant they would be in these sectors.
Dr Virginia Acha: In a non-preferential arrangement there is complication again related to being able to generate the files and support for that process, to support trade to identify point of origin. Again, I am going to hark back to my previous role. That is a considerable amount of work, particularly if you think about global destinations for those products. You are talking about regulatory filing changes that will need to be updated to reflect those point of origin changes. With the systems changes alone, a colleague was telling me the scale of products we are thinking of, and they are in the thousands. That is a phenomenal number of changes, which would be a burden to all the world’s regulatory systems. I hope we can find a simple way to do it, because it is not an inconsequential piece of work.
On preferential, again, this goes back to free trade arrangements, and I understand the EU now has over 35 free trade agreements, which are very important, and several more are still under negotiation. If we are outside of the customs union the UK will obviously lose the benefits of those free trade agreements. If you are based in the UK and taking things in and out through trade, that would obviously potentially lead to higher duties on imports as well as in those destination countries, with the impact you have heard my CIA colleague describe. That is the position around rules of origin for us.
Steve Elliott: I think I would echo much of that. Free trade agreements require the origin of exported goods to be proven so as to benefit from duty-free trading arrangements. That adds a substantial level of bureaucracy, especially in the chemical sector, that is not required under the Single Market arrangement we have now. In many instances, the cost of providing the technical proof that a chemical or any other manufactured product originates from the EU or the UK, bearing in mind that in our case there could be several stages of synthesis involved, without putting a number on it, would clearly outweigh the benefit of duty-free sales.
Q6 Baroness Armstrong of Hill Top: Are there any other implications of being outside the customs union that we should be thinking about?
Dr Virginia Acha: Outside of the issues related to duties in themselves, I think, again, the arrangements that we have under regulation are critical. They are our standards for how we produce medicines and how we ensure safety for patients. Those standards have been contributed to heavily by the UK; the Medicines and Healthcare products Regulatory Agency (MHRA) has been an important voice in ensuring the progress of regulatory science to meet the needs of our new technologies and to ensure patient safety in that process. Those are globally converging, so science is trying to harmonise these things, and it is incredibly important for the way we can do that, so again, in any conversations about departure from the EU, when we are thinking about how we are part of a global industry and a global supply and provision of these important goods, be they medicines or elements contributing to medicines or other products, we need to think about how we are going to align with the standards that have been arranged after so many years of careful thought. That is always paramount in our view.
Q7 The Chairman: To follow up on what you have just said, given that we need to be in the best position to negotiate, what would you see as opportunities where the Government, going forward with the negotiations, really need to be pushing hard, so that there is not a massive burden of financial instruments and regulatory pressures on the industry? Which areas on your wish list for the Government are key areas that we need less of?
Dr Virginia Acha: Part of the negotiation will also be refining points of commonality. It is as much in the interests of European, EU 27 patients as it is for British patients for us to get this right with respect to medicines. I think there is a shared goal here that we should be able to include in whatever negotiation stance we take. I would first claim that as a priority, because patients are counting on us to get this right. As for opportunities, the negotiation itself will identify where complementarities may be useful, and I think there are actions where sometimes the UK has a very clear role in continuing to push that horizon of science. I am thinking, for example, of cell and gene therapies, even regulatory science and the way we think about adaptive approaches, where it could be of interest to have the UK as a complementary voice to not only the European partners but globally, as a country that has a leading voice in that space. But patients first and foremost.
Steve Elliott: It may be outside the scope of this Committee but the one thing I would plead is that we are still in the European Union, and the UK, in our world, at government and regulator level, continues to play a very strong, risk-based, proportionate, pragmatic role. I would just make the plea that we continue to do that for the next couple of years, because we are increasingly becoming a lone voice in the regulatory space, and I think that is potentially a loss.
If I look ahead, to respond to your question about where the opportunities are—and maybe the threats but I think opportunity—there are some areas where a simple transposition of what we currently face in the regulatory space, sitting here now, would probably be okay and we would accept, particularly in the health and safety arena. For our industry, we would not argue with COMAH (Control of Major Accident Hazards regulations) and the Seveso-driven directive[3] and its UK implementation. I do not think we would argue much on the overall skills and HR, the people and employment agenda. There are some opportunities looking beyond the two-year period, and for us it would be in the area of the emissions trading regime and the industrial emissions directive, and REACH (Registration, Evaluation, Authorisation and restriction of Chemicals regulation) looms large in our world; it is the biggest piece of environmental regulation.
Depending on where your business is exposed, there will be some businesses whose trade is increasingly with non-EU—Switzerland, North America and beyond—which would be looking, I would think, for a more pragmatic, risk-based regime than they feel REACH currently is. That does not mean we would not comply with REACH; we would need to continue doing that. At the other end of the spectrum, you would have big multinational companies that for efficiency’s sake, and in the light of the comments Virginia has made, would want to see REACH continue as is. There are some tensions there but I think there are some opportunities, as well as the need for government and regulators to stay the course over the next couple of years.
Q8 Lord Horam: Can we come on to the issue of taxation, and particularly VAT? I noted that in your life sciences transition programme you isolated this as a particular issue. What exactly is the problem and what can be done about it?
Dr Virginia Acha: Again, it is a frictional cost issue more than anything else. In the work we did over the summertime we were trying to be as comprehensive as we could, looking at all the aspects of business that we as companies have to change, amend, do differently, and again, with respect to import VAT, for example, obviously there is the initial outlay; you have to come up with the funds to begin with to cover your VAT charges. As I mentioned earlier, we were talking to a range of companies involved in life sciences, and that is a challenge, particularly for small companies. That is a cash flow impact that will be of note. Also, there is the challenge of being able to reclaim that VAT where appropriate, which is not as simple or straightforward as you might hope it would be, particularly in some Member States in Europe. It can be an extremely cumbersome process. It is no doubt going to introduce a friction cost to the process, but I would not want to overstate it. The primary concerns we have are largely on regulation and customs duties but the VAT regime will be a problem, particularly for some companies.
Lord Horam: This boils down to poor administration in places like Italy, for example?
Dr Virginia Acha: I would not hasten to point fingers at any member state, but cumbersome processes, wherever they occur, are a challenge.
Q9 Lord Dubs: Presumably we could go on complying with EU rules for trade in pharmaceutical and chemical products between the UK and EU even if we are out of the Single Market. How important would that be? Would we gain from doing this, staying completely in line, or would there be some advantages if we departed from them, from the point of view of your industries? Lastly, what role does the recognition of equivalence, mutual recognition and/or acceptance of conformity assessments, play?
Steve Elliott: I maybe started to answer part of that question in my previous answer. If I look at REACH as an example there, for some businesses, for efficiency’s sake, a continuation of REACH more or less as is, beyond the period when we leave the European Union, could be and probably would be advantageous. For companies that are less exposed to trading with the European Union in my sector, and increasingly exposed to parts of the world such as Switzerland and North America, there will be an interest in looking at something those businesses would feel would be more risk-based, more proportionate, and more pragmatic. If you look at the US equivalent of REACH, they might argue that their system responds to those desires. There is a potential opportunity for some but not for others within the chemicals space.
On the second part of your question, who knows whether we will conclude a TTIP agreement? From a chemicals point of view, had we stayed the course within the European Union, there were three priorities that we were looking at, and one was access to cheap, affordable energy and the security around that. We were looking to do some work around tariff elimination, although a lot of that is really at the level of a nuisance tariff now, but the third area was to your point, which was the ability for us to increasingly mutually recognise each other’s testing regimes. That, linked to the previous policy issue around REACH, might be an opportunity, but if we are going it alone, there is obviously a much bigger challenge in securing a trading agreement with the United States.
Dr Virginia Acha: I think in the pharmaceutical industry it is the same challenge. I mentioned earlier that global convergence around regulation in particular is very much a feature. The reason is that it makes it a lot easier to be able to develop and have alignment around the science supporting any given new medicine or technology that you are approaching. That is something patients expect us to do—the number of times I hear people saying, “Why did they accept it in the US and not in the EU?” That is always a good question, and one that we have increasingly. We will always have divergence of opinion but if we can at least have convergence in standards, it helps people plan and develop and put together the right innovation investment and regulatory data to support a view.
If you want to say where divergence makes sense, in that case, if your convergence story is telling you that we all want to align around these scientific principles, it does not make a lot of sense to go in a totally different direction. That would not only make it difficult for people to supply to your particular market but would raise some serious questions, I am sure, among doctors and patients about why you are coming to a very different approach to this than the global field. I think that is what has been behind a lot of the conversations we have had with the MHRA and others about the need to have continued alignment, as far as possible, with the global process, to which the European Medicines Agency (EMA) has been a significant contributor.
As I mentioned earlier as well, the MHRA has been an important voice within the EMA, and within our international groups such as International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH), on harmonisation. We would like the role the MHRA plays in the future to be no smaller than in the past. We would like to see, as Mr Elliott talked about earlier, the British voice continue to weigh importantly in the scientific developments on standards and the approach to the way we will deliver medicines to patients in the future.
If there is divergence, that will in any case always cause a problem but we do not want to diverge from the science. That matters most of all, and in that case we would hope that in the future the UK continues to be an important guiding voice and, again, we would look to the Government to ensure that in the future, as we might be represented at the WTO, we are also represented directly at the ICH and other relevant bodies within medicines standards.
Lord Dubs: One follow-up to Mr Elliott. You were saying that some companies would look to the United States and therefore would not be so interested in this compared to companies that look more towards Europe. Would such a dual approach weaken the position of the industry as a whole?
Steve Elliott: We have some interesting challenges ahead, given the broad span of membership profile and geographical trading exposure as well. I did not mention at the outset that 75% of our membership is headquartered outside the UK, so the businesses that I was describing which see more of that greater opportunity opposite the non-EU markets tend to be the UK-domiciled, smaller companies with high-value products, which are increasingly taking a bigger share of the business outside of the EU. A significant proportion of our membership has a different view on that. That is a challenge we will have to deal with.
Q10 The Chairman: Mr Elliott, could I just come back and take your views on your vision of the cost implications for the pharmaceutical industry from the emerging, new markets—China, India? You have mentioned the States quite a lot but what is your take around those countries and their growing pharmaceutical sectors?
Steve Elliott: Yes, chemicals and pharmaceuticals I will take together in the answer, if that is okay. We have in our world the International Council of Chemical Associations. If we went back five years, that tended to be dominated by Europe, North America and Japan. Within that space of time we have the Gulf as a formal member, we have China as a formal member, we have India as observers, and we have Latin America in as well. That tells you something about the rate of change and engagement in our world. That group looks at the regulatory playing field around the world. We play our part currently as a UK voice in the European delegation, but we would want to continue and support the focus on those key markets for us that sit outside the European Union. You are right: it is not only North America; it is Brazil, the Gulf, Switzerland, China and South Korea. I would say they are the key markets, both regarding the opportunity to sell our products wherever, and the opportunity to access competitive, high-quality raw materials inputs as well. Those would be the markets I would identify.
Q11 Baroness Brown of Cambridge: Can I follow up quickly with Dr Acha what you were saying about the European Medicines Agency and its relationship with the MHRA? Is there anything you would like to expand on concerning the importance of our participation in the EMA?
Dr Virginia Acha: Thank you for the chance to do that, because I think the EMA has been a wonderful organisation to have here in London for the years we have had it. It has made it much easier for the MHRA and the EMA to meet and to engage, and for MHRA colleagues to make the most out of participating in EMA conversations and workshops as they progress.
As we look to the changes that will happen next, the critical piece, again, is how we make sure that, in whatever transition happens, we do not introduce delays that will disrupt the way medicines are going to patients in an effective way. My members are particularly concerned that, whatever this process is, it is extremely well managed and is done with the minimum additional time, because we need to recognise that any changing of the EMA, which is of course a network—I think a lot of people think of it as an entity of itself; the European Medicines Agency of course has its own direct employees but the work of the evaluation is shared in the network of agencies across the member states, and the MHRA has been a significant contributor to that work.
Baroness Brown of Cambridge: Are we a disproportionately significant contributor?
Dr Virginia Acha: Yes. Of our 28 members, the UK has at least 15% of new filings alone, and if you take the whole lot together, it is picking up, as MHRA told me themselves, something like a third of the work. There is a lot of contribution. On opportunities going forward, what we want to make sure is that that capacity to do the work effectively and in a timely way is maintained, as far as humanly possible, and that we find practical measures to arrive at that, recognising that at any time moves of any sort are going to be disruptive—think about moving an office; it is a challenge in itself. Moving an organisation and changing the way that organisation is supported will be a significant amount of work for all involved, and we want to make sure it is done in the best way possible for all the stakeholders.
Baroness Brown of Cambridge: Can I ask a couple of quick follow-ups? If you were in the EMA and you thought you might be losing the UK, what would you be worried about? What would that mean to you?
Dr Virginia Acha: There may be some aspects of therapeutic excellence which you may not be able to call upon as easily. In some cases, with rapporteurships, as they are referred to, when you are given the leadership to progress the work on a file, they are looking to the Member State where somebody has developed a particular interest, specialty areas where they are particularly strong. The MHRA has many of those, and you will now be looking to try to see where else in Europe you will be able to source that.
Baroness Brown of Cambridge: So there would be some significant gaps?
Dr Virginia Acha: Potentially, but it depends on whether they can source somebody to take that role. To be very plain, the EMA is not the fastest of the large regulators at present. The US Food and Drug Administration (FDA) has quicker review times; the Japanese agency, PMDA, has quicker review times. The EMA is already starting from a position where they are not the quickest to get things done. We would not like to see that worsening in the process because either there is not capacity in the system or there is not the right capacity in the system.
Baroness Brown of Cambridge: They would see it as a problem as well as us seeing it as a problem?
Dr Virginia Acha: I am sure that will be part of their planning.
Baroness Brown of Cambridge: Can I just ask you a quick follow-up? Would this also affect the ability to do cross-EU drug trials, for example, or for the UK to participate or obtain data?
Dr Virginia Acha: We have spent a lot of time discussing this. You may be aware that the clinical trials regulation is due for implementation in 2018. Preparation for the regulation (CTR) has been going on for a long time. In fact, the UK has been, again, a leading voice in that regulation development, including the implementation portal. As far as possible, we would love to see an opportunity for the UK to benefit from the work they have invested in. The CTR, particularly the implementation portal, I am sure will help facilitate clinical research extension. However, if you are outside of the EU and if we have different arrangements—clinical research is undertaken in any number of countries around the world, and in a given trial you will have them in different regulatory jurisdictions, so it is not impossible to do it separately, outside of the EU, but obviously it would be ideal if we could have continued access to the wonderful facilities we have been trying to establish under the clinical trials regulation.
Baroness Brown of Cambridge: Do any non-EU countries participate in the EMA?
Dr Virginia Acha: They can participate under the EEA arrangements, but they do not have voting rights and they do not lead on policy.
Q12 Baroness Armstrong of Hill Top: This is coming at this from a very different angle, just so that I understand it better. As I understand it, the NHS is the biggest customer in the world, and therefore the UK has an important effect on how drugs are used, which ones become popular and whatever, and has an influence beyond the UK on that, and our regulatory organisation the National Institute for Clinical Excellence (NICE) is quite important in all of this. How does all of that affect what you are talking about?
Dr Virginia Acha: NICE as an Health Technology Assessment body (HTA) is obviously globally referential. It has NICE Global, its external arm, for example. It is separate to a licensing decision; that is a different approach, and, again, many of the countries that reference NICE work are not even in the EU. I imagine NICE will have its own plans on how it wants to continue that international engagement, and I do not think I would tie that in to the regulatory piece. The NHS however is also an important contributor to the clinical research piece, so I think it refers to the last point we were discussing.
If we are talking about advancement of innovation in medicines, thought leadership, it is really the clinical and research expertise in the UK that is critical to that process—so the individuals, the clinicians and academics who are highly important in life sciences around the world, who are material to that process. That brings me back to the point we spoke about earlier on research: that those individuals need to be able to continue to have the resources, support and co-operation arrangements to help them continue to play those roles internationally. That will obviously be important to my members but critically important to the future of life sciences in the UK.
Q13 Lord Risby: Given the enormous importance of your two industries, I wonder if I could take you on to the specific area of quality assurance and product protection. For example, we have a common EU trademark standard; there is a court to test all of this. I wonder if you could just give us some sense of what would be necessary for this country, given that we are leaving the EU and therefore we will not have this arrangement, and whether we could work towards a mutual trademark or initial patent protection. What would be the most efficacious way of protecting this hugely significant aspect of the life of your industries?
Steve Elliott: We would not have a particular view on that at this stage.
Dr Virginia Acha: Obviously, we live in the world of patents, in particular with life sciences. Part of the challenge—and you may be referring to some of the challenging timing we have now with respect to the Unified Patent Court (UPC) arrangements. Obviously, we do not have a ratification in the UK yet of the UPC. Obviously, it was due to have a significant presence here in London and was going to be valuable, particularly with respect to the life sciences sector. Whether or not we do that obviously depends on how the Government intend to resolve sovereignty of law, because that court would have to be reflective of European structures for sovereignty, but it is important, whatever we do at the minute, that we look at what will be the least disruptive for planning for the future, because obviously these are decisions made over some time. Instead of doing a quick ratification, and then flipping back, it might make more sense to think through how we want to get to the point that you describe—whether we want mutual arrangements and under what terms those might exist. At the minute it is still subsidiary to our concerns around regulation, frankly, but I think there would obviously be questions to take us more into the quality space, which are more related to that regulation aspect and our assurance around manufacturing and qualified persons, et cetera.
Mr Elliott mentioned earlier the mutual recognition procedures that have been discussed already under TTIP. I think there are great opportunities for that, as long as we are arriving at those international standards for assurance around quality control and, again, protection of the product, and especially thinking about the Falsified Medicines Directive, if we can stay as aligned as possible on those measures, that would be advantageous for our industry here in the UK.
Steve Elliott: Lord Risby, I have one thing to add there. The past few years have seen, in our case, an increasing amount of evidence of onshoring, opposite some of our key customers, and that is particularly around the issues not just of reliability of third-country alternative supply, but increasingly around purity and quality, and now cost in some markets such as China—it is not a cheap place to do business, and increasingly so. The industry that has seen some of the benefit of that opposite a customer base, whether it is in the agrichemicals sector or the pharmaceuticals sector, has been my membership in providing some of those building blocks for pharmaceuticals and agrichemicals. The UK has moved up to being, as a supply base, at least a secondary source, and quite often a primary source now. We have seen evidence of onshoring, and obviously we would want to try to strengthen that as we go through the process of Brexit.
Lord Risby: It seems to me to be fundamentally important. You said you had not come to a conclusion. I understand why, but I think that, given the critical importance of your industries, I hope you can advance your thinking and help the Government to come to some sort of conclusions along the lines that you have been talking about. This is crucial for our country. Thank you.
Q14 Baroness Suttie: You spelt out this morning many of the reasons why the United Kingdom is currently an attractive place for the global pharmaceutical and international chemical industry to be based in. Do you think Brexit will have a significant impact on the choice of location, and, if they are currently based in the UK, do you think it will be tempting for some of your industries to relocate post Brexit?
Steve Elliott: I said earlier that three-quarters of our membership is headquartered somewhere else, so there has always been a challenge about trying to secure the investment here in the UK. The good news is that, increasingly over the past three years or so, that argument has been easier to make, frankly, given the fiscal regime and the tax incentive regime; whether it is corporation tax, R&D tax credits, the new version of the patent box, and so on, the quality of our labour force, the flexibility of our marketplace, the quality of our academic institutions, all of those things have helped. If I look back, we spent between us as pharmaceuticals and chemicals around £5 billion a year on R&D and about £4.5 billion on capital expenditure.
We surveyed our members pretty swiftly after Brexit and what I can say, and I can probably still say now, is that there has been no reverse on committed spend. You have seen some quite high-profile examples, admittedly essentially decided before Brexit, but if you look at the £500 million of investment in UK manufacturing and UK R&D between GlaxoSmithKline and AstraZeneca, if you look at the very recent arrival of shale gas economics with the import of ethane to Grangemouth—and we are looking to something similar at Teeside by year end—those things have clearly not been reversed.
The question is obviously: what next? I think at the moment—and, again, our third quarter survey results will be in in a couple of weeks’ time—there is a lot on hold.
On what we look to do around that, a lot of good work has gone on, certainly over the past five years, in industry-government collaboration for key sectors of the economy, and I would include ours in that. We have a chemistry growth partnership with government looking at long-term ambition. I think the Secretary of State for BEIS is looking to kick-start that again. There is an opportunity, and we have already started to make a difference, regarding our spend and commitment on innovation and turning ideas into money. That has been reflected back to continental Europe in what we are doing collaboratively here, and we would not want to lose that. The message that has gone back from our sector, and others, I am sure, to BEIS is we must continue to do the work around industrial strategy. It may be explicit now, but it has been more than implicit over the past five years or so. Now more than ever, I think there is an urgency to deliver on that. If you look at our sector, it tends to provide high-quality jobs in parts of the country that, frankly, need those jobs: for example, north of the M62. Again, it begins to play to some of the things the BEIS Secretary of State has talked about not just on skills, innovation, access to funding, and energy, but the importance of geography and of people feeling engaged.
Dr Virginia Acha: I would strongly endorse what Mr Elliott has said. I think that summarises a lot of why you have also seen an increased interest in investment and the comments on the recent investments by GSK and AZ. There are other companies who have also been advancing not only the contribution in bricks and mortar but investments in collaborations with our key universities and investment in significant programmes of exploration, such as the Dementia Discovery Fund and the Apollo Therapeutics Fund. But this is really about how we ensure that companies that we both represent feel they have confidence that the Government are clear about their industrial policy, and pulling that together and making it very plain why the UK still wants them to be here, why that is a valuable outcome for all concerned and why this is still the best place to think about your new investments going forward.
Baroness Armstrong made the very important point about the asset that the NHS can be in this circumstance. Again, we would hope to see the NHS play that role as fully as possible, to really make an environment where companies feel this is the place where innovation will be valued and used, and where it can be almost a pathfinder for the world on how new medicines will get to patients and deliver. That is a core part of the industrial policy challenge that the Government have set themselves and we look forward to helping them with that process, but we need to have that because, at the minute, recognising that, as we have discussed this morning, there are so many questions yet to be answered, and details to be finalised, and we will not have any answer before Christmas. We will not have an answer any time soon. We need to at least give points where companies feel they are being welcomed and assured that the welcome in the UK is not going anywhere. The famous “open for business”, and I would add open for innovation, is with us, and moreover, there is an intent by Government to do the best they can to create the environment according to the needs that not only our sectors but I am sure many others have put forward.
Q15 Baroness Symons of Vernham Dean: I think it was you, Dr Acha, who said earlier on in answering a question that there were 35 FTAs between the EU and other countries. Which of those FTAs would you say was the most important to your sector? How important would continued or equivalent access to the arrangements the FTAs currently provide be to your particular sector? Which are the most important, and in what particular ways would you want to see them continue?
Dr Virginia Acha: I would hasten to say that would be a difficult question to answer for the industry as a whole. There are over 35, and they are growing in number. The free trade arrangements that they provide are really facilitating our ability to be co-ordinated globally in the way we both engage suppliers and distribute within our manufacturing structure. It depends on the nature of the company you would pick as to which countries would be of a particular importance to them. It depends on how they are trading and where their medicines are directed or where their manufacturing arrangements are. In some of the companies I have worked for, their manufacturing footprint is unique. They may have, as in Amgen’s case, not very many manufacturing plants around the world; you are probably talking about two or maybe three, but those will be in certain countries; other countries may be more important, and historically so, so you are not going to develop a new plant every year.
These are difficult questions on why we want the broadest possible free trade arrangements that we can have, because ultimately we want to be as flexible as we can, not only to reflect the investments of the past but more critically the investments of the future. I noted the comments around China and Brazil for chemicals, which is, I think, probably mirrored in most sectors, but there is no doubt that China is a very important partner country for the UK, as the Government have recognised. In the pharmaceutical industry it is a very significant, growing market. However, if free trade arrangements are not possible via the UK, whatever happens the global programme for supply and trade will have to accommodate. For global companies it is achievable. For companies which, as Mr Elliott has described, are based only in the UK, that is much more challenging.
Baroness Symons of Vernham Dean: Thank you. Mr Elliott, do you have anything to add to that?
Steve Elliott: Of course. Thank you. If you look at the EU’s agreements with third countries, or in the process of negotiating or agreeing new arrangements, should life be different for us in the UK, the chemical sector would clearly identify Switzerland and South Korea as pretty important. I do not want that to be completely exclusive but those two I think would be important, given the extent of our export and import performance and potential. Beyond that, certainly looking at Canada, Brazil and the United States, should the UK remain within the customs union, they would be particularly significant for us.
Q16 Baroness Brown of Cambridge: Could I just ask a provocative question? My background is in the aerospace industry. Aerospace is an international, safety-critical business, so it has some things in common with pharmaceuticals. We worked to Civil Aviation Authority (CAA) standards and to Federal Aviation Administration (FAA) standards. Nobody else audited us. If we met those, our engines could operate anywhere in the world. Do we really need all this European regulation? If we meet our own standards and US standards, is anything else necessary?
Dr Virginia Acha: In the case of medicines, I think you would be hard-pressed to find agreement across the global community, and the WHO, that they would be willing to take over any approvals by the UK or the US. Saying that, the questions around mutual recognition possibilities are certainly there. Again, reflecting on my experience in regulation, most third party countries will take a reference from the EMA or the FDA, and that will continue until they also start thinking about other regulators that will become increasingly vocal and important. Again, it is about where you go to make things as simple as possible, and countries are looking to see standards met but in the most efficient way possible. We have the regulation that we have because of the way the science has been concluding how medicine should be judged and assessed, and it is never an easy process. The ICH was established for that very reason, and the ICH is not just the EMA and the FDA but the PMDA, and it has observer contributions from Swiss Medic and Health Canada and, by the way, that association is no longer seen as sufficient for global convergence. So we have other groups—the International Pharmaceutical Regulators Forum, which is increasingly important—and other agencies. If anything, more people want a seat at the table, not fewer.
Q17 Lord Horam: Just following up that question, supposing we ended up outside the customs union and outside the Single Market and so forth, and that, although we were shut out of the Single Market, we had freedoms that went with that; for example, we could have more state aid than we have now under the regulations inside the Single Market. You mentioned the importance of having a proper industrial strategy, and this is one of the things which has attracted to the UK quite a sizeable industry. If we decide to go for it in pharmaceuticals and chemicals, and make the most of what we already have, what should the Government be doing in that new situation, which has more freedom than it has now?
Dr Virginia Acha: You mentioned state aid, which we talked about over the summer. That is certainly an opportunity, and would fit very nicely with the innovation incentives that Mr Elliott described earlier and the support around fiscal support. All of those things promote the UK as being a very attractive market in which to do your development, your research, your investment in market growth. What you would be doing, though, is developing medicines not only for that British market but for the world. We always do. The issue would really be, with that support, we would still need to be able to ensure that whatever we are producing here meets the standards that others have agreed to. As long as you have that alignment, that support for industrial policy that really generates appetite for investment and greater activity in the UK could work very well, but it does need, critically, that interface with alignment around regulation.
Steve Elliott: I would echo that. What would be top of the wish list if we were really going it alone and we had the magic wand to control some of our significant cost elements? Energy is a huge cost element in any chemicals company’s operations, and we see an opportunity here, looking out beyond 2018, for not just the shale gas economics, which provides you with a transition solution to a low-carbon future, but for addressing the vagaries of the European Union’s emissions trading regime. I think we have the potential there to do something independently of that which would help British business.
I come back to Virginia’s point that we still have to trade. You have heard the level of intensity opposite the rest of the European Union from my sector. We still have to respond to that. As much as a small company might be very interested in having a different version of REACH to trade with Switzerland and North America, every time it trades with Europe it has to respond to the REACH regulation. I think industrial strategy can help, but there will be a huge capacity issue here to be developing our own regime as well as having to respond to the international regime around us, which we are dependent on. If we achieve mutual recognition, great, but, again, that is a long step.
The Chairman: Thank you very much, Dr Acha and Mr Elliott. It has been very helpful to have this very candid and wide discussion. The transcripts will be sent to you. If you feel there are errors, it will be an opportunity for them to be corrected. Thank you very much for coming this morning and giving your observations on the future post-Brexit.
Dr Virginia Acha: Thank you for the opportunity.
Steve Elliott: Thank you for the invitation.
