Brexit and How it will impact IT in Life Sciences
The UK has voted to leave the European Union, and this will have a huge impact on businesses across Europe. This document looks at the Life Sciences industry in the UK and the likely impacts for Information Technology.
The Life Sciences Industry in the UK
The UK Life Sciences Industry is a major component of the UK Economy with a revenue of over £60bn and a direct contribution to UK GDP of £30bn. Approximately 50% of that revenue is generated by Pharmaceuticals with 40% coming from medical devices and the remainder coming from research and development. These revenues result in almost $40bn of exports and a net contribution of £8.5bn to UK Taxation.
It is one of the key pillars of the Government's industrial strategy alongside the artificial intelligence, automotive and construction sectors. The life sciences sector directly employs more than 225,000 people across 400 pharma and medical technologies companies and 1000+ biotech companies. The sector also supports an additional 250,000 jobs in supporting industries.
It is clear that whatever happens in a final Brexit deal will have a significant impact on the sector as a whole in the UK.
So where are we now?
The EU and UK are deep in negotiations. Significant progress has been made on the "divorce" deal and EU and UK residents rights in each other's territories. However, there is still a long way to go.
Brexit comes into effect at the end of March 2019. The UK will enter into a transition period that will end in December 2020. This means that companies need to use this time to effect whatever changes are required in their businesses to be fully compliant with the new world order in January 2021.
Many of the changes required to be compliant will have a significant impact on the supply chain and financial processes. At this point a significant amount of doubt on how processes will be affected still exists. This will be the case until the exact state of the EU/UK border has been agreed along with the nature of the trading arrangements across this border.
What are the direct impacts of Brexit on the Life Sciences sector?
The first immediate impact on the UK will be the relocation of the European Medicines Agency(EMA) from London to Amsterdam. This will mean that as a third country the UK will need to manage separate Marketing Authorisations (MAs) for products. This, in turn, may have a knock-on impact in product documentation and therefore require separate products for EU and UK. Hopefully, this can be avoided, and the UK will negotiate a deal which allows existing MAs to be used. However, this is a doubt until the trading arrangements are agreed. The movement of the EMA may also result in a movement of very highly skilled resources from London to Amsterdam.
The UK Medicines and Healthcare Regulatory Agency (MHRA) currently has a very close relationship with the EMA. In fact, the MHRA performs approximately 30% of the casework on its behalf. The movement of the EMA to Amsterdam will inevitably impact this work being done in the UK.
There is the potential impact on the funding of research. Currently, almost 50% of overseas pharma investment into the EU comes to the UK. Foreign investors will increasingly target funding at a market of over 500 million patients rather than one of 60 million. Also, there is funding from sources such as the European Investment Bank (EIB) and the European Investment Fund (EIF). It is highly likely that those sources of funding will diminish over time.
There are also the direct impacts on companies because of whatever trading arrangements are agreed by the EU/UK. It is these that will largely impact ERP, MES and LIMS solutions being managed by UK Life Sciences companies. These impacts will come from increased supply chain complexity and the consequential higher cost of process associated with it, increased taxation and customs costs, increased inventory costs and the loss of access to free trade deals such as those that exist between the EU and places like South Africa and Israel. These impacts will require life sciences companies to make changes in their existing ERP, MES and LIMS systems.
What is required to be done in existing IT systems?
Some of the potential changes that will need to be implemented in companies’ IT solutions are:
- Reconfiguration of existing supply chain flows to avoid potential customs costs
- Movement of stocks from the UK to EU domiciled warehouses and vice versa
- Increased volumes of stocks held across UK/EU to prevent delays in the supply chain due to increased customs delays
- Creation/Modification of customs documentation to support the new supply chain
- Changes to packaging, labeling, and patient safety information
- Additional QA/QC steps in manufacturing processes for products on EU/UK transition
- Changes to Intrastat reporting
- Impacts on contract manufacturing processes if CMOs are on the other side of the EU/UK border
- Impacts on Tax-efficient supply chain (plants abroad functionality), ownership of title in the supply chain and revenue recognition
- Additional Customs Duties/Taxes/Tariffs, new VAT Codes, and VAT Reporting
- Additional/Modified Sales and Logistics reporting requirements
- Impact on profitability analysis and additional requirements regarding increased supply chain costs
So what can be done now?
With the level of doubt in the negotiations, it is currently very hard to plan for the future. Many of the potential impacts listed above may or may not occur depending on the outcome of the negotiations. Indeed, others may become apparent over time, and companies need to be thinking ahead to what that means for them.
Something will need to be done, and that we won’t know for real what that is until later in 2018. Whatever needs to be done will need to be done in a very distinct window of opportunity (before the end of 2020). This means that demand for resources is going to be high through 2019 and 2020 as companies address these issues. Companies need to ensure they are thinking ahead to where they are going to find an appropriate resource to support the transition.
Companies should be taking steps to ensure that they are prepared to run a Brexit project within their IT organizations:
- Each company should have a specific Brexit Project Manager identified as part of their IT organization by Q1 2019
- Companies should establish either a specific project or a workstream within an existing programme to define and deliver their company's requirements for the Brexit transition
- Companies should be liaising with existing support providers to establish whether they have the skills to support the Brexit transition and if not engaging with third parties for these
How can Tenthpin help you?
With the current state of Brexit and the doubt that it presents having a team that can react quickly to a rapidly unfolding situation is key. Our consultants all have a unique ‘Tenthpin’ DNA: tech-savvy with a deep understanding of the intricacies of the Life Sciences industry.
This understanding will enable Life Sciences companies to rapidly understand the requirements driven by Brexit and plan the changes to meet these requirements within their existing ERP, MES and LIMS solutions.
Contact our industry experts at Tenthpin Management Consultants if you would like to learn more.
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