There are two things the Brexit event has made clear. One is that pharmaceutical regulation, including market approvals and sales, will be changing. Also, forecasting has once again taken a hit for being less than accurate.

The changing pharma landscape after Brexit

With the divorce of Britain from the EU—perhaps it’s more accurate to call it a ‘conscious uncoupling’—the financial markets have been in flux, including Britain’s credit rating being downgraded. This is a condition to be expected. Another component that we should expect is that pharmaceutical regulation will also change as a result. How the Medicines and Healthcare Products Regulatory Agency (MHRA) fits into the decision-making of worldwide regulatory approvals, how the European Medicines Agency (EMA) is substantiated in Britain after the uncoupling, and what this means for manufacturers and patients are the three top factors in the industry.

As far as regulatory effects, the most critical components are how to ensure a well-regulated pipeline of drug therapies for patients who need them, and to not let bureaucracy slow the vetting of effective and safe pharmaceutical products to market. And also on the other side of the equation, to not let unsafe and/or non-efficacious therapies slip through during this time of political flux.

It’s important to consider what this means in practice for the MHRA and EMA, specifically that certain EU Directives, such as Directive 2001/83/EC governing healthcare and medicinal products, would require the UK to implement relevant legislation. This is done by reference to the European Communities Act of 1972 and through the implementation of the Human Medicines Regulation of 2012.

Changes to Britain’s status post-Brexit would mean these laws remain in place unless the British government decides to amend them. Currently, the MHRA and EMA work closely together on inspections of manufacturing facilities. The future state could be that MHRA independently authorizes drug products while still working with EMA under shared agreements.

The decision for Brexit to be enacted was one not taken lightly, but represented a favorable situation for those who ultimately made the decision. Otherwise, the simple economics of the situation would have led them to not make that decision. After invoking Article 50 of the EU treaty, Britain has 2 years to exit the EU. With its execution, there is now a scramble to shore-up all of the components that were tethered to the EU so that they can minimize collateral effects.

This also applies to pharma. I recently spoke with someone close to the Brexit decision-making in the industry, and there are plans being enacted to tie up as many loose ends as possible, as quickly as can be reasonably done. However, there are many ‘unknown unknowns’ and unanticipated effects that are part of the systemic shift of this magnitude. There are undoubtedly many issues that will arise, but we will only learn of them once they become salient issues for patients or the market.

The anti-value of forecasting

There are clearly diametrically opposed viewpoints as to the necessity and value of Brexit, but there is almost no better example of the subjectivity and low precision of forecasting than the comments made by Britain’s very own Chancellor George Osborne in response to the referendum on Brexit.

Before it was a reality, Mr. Osborne said, “The exit would be a profound economic shock,” and that “a vote to leave would touch off an economic crisis that would require the government to adopt an emergency budget with spending cuts and tax increases.”

The morning after Brexit, the very same prognosticator opined, “…we were prepared for whatever the future held. And thank goodness we did. As a result, our economy is about as strong as it could be to confront the challenge our country now faces.”

So what’s going on here?

On the curiosity of predicting weather and financial markets

When predicting weather, doing so out beyond about 5 to 6 days becomes an almost equiprobable situation (50/50), even when done on Cray supercomputers. There are some derivative effects in this forecasting that relate to Edward Lorenz’s formulation of Chaos theory¹, and how very small initial conditions can lead to vastly different consequential outcomes. In this case meaning very different weather than planned, or very different financial consequences (see Figure 1).
 

Similarly with financial analysts, they all tend over time to perform no better than chance when predicting return on investments.^2,3 And in fact, when looking at buying into a Vanguard fund, for example, the performance of such a diversified portfolio is almost identical to the market’s overall performance—meaning not returning great sums to its investors relative to the overall market—because the Vanguard fund as a strategy buys up most of the market to diversify. This is empirical evidence showing the value, which in some cases is almost none, of forecasting (see Figure 2). For more on the sense and nonsense of forecasting, check out the references listed below.



So if we dissect Mr. Osborne’s comments above, we can see that he was irrationally opposed to Brexit before it happened, and then perhaps unnecessarily optimistic about it after it was enacted.

Similarly, people in the industry will tend to overly worry, or not be concerned enough, with the changes coming to the pharmaceutical landscape as a result of Brexit. But what we can all do as an industry in order to insulate ourselves from overly adverse outcomes is to be more agile and adaptable in how we respond to the changes that are coming.

Standing immutable behind hardline policies can make the necessary operational changes difficult to absorb and lead to more variance and extended costs in the long run. This concept is known as anti-fragility, where the idea isn’t to become more impervious to change and market forces, but to be more adaptable to these changes.⁴

The ancient philosopher Heraclitus of Ephesus said, “Change is the only constant.” This is true in pharma as well. Closing our eyes, covering our ears and hoping the changes will pass us over are not viable strategies. However, expecting the change and being adaptable and resilient to its effects are strategies for success. Just ask Charles Darwin. CP

References
1. Gleick, J. (2008). Chaos: Making a new science. Penguin Books.
2. Mlodinow, L. (2009). The drunkard’s walk: How randomness rules our lives. Vintage.
3. Malkiel, B.G. (2016). A random walk down wall street. W.W. Norton & Co.
4. Taleb, N.N. (2014). Antifragile: Things that gain from disorder. Random House Trade Paperbacks.

Ben Locwin is president of Healthcare Science Advisors and an author of a wide variety of scientific articles for books and magazines, as well as an acclaimed speaker. He is an expert media contact for the American Association of Pharmaceutical Scientists (AAPS) and a committee member for the American Statistical Association (ASA). He also provides advisement to many organizations and boards for a range of business, healthcare, clinical and patient concerns. He can be reached at ben.locwin@healthcarescienceadvisors.com.