THE PENNSYLVANIA STATE UNIVERSITY SCHREYER HONORS COLLEGE
DEPARTMENT OF ACCOUNTING
Assessing the Cost Implications of Brexit Upon the U.K. Pharmaceutical Industry
ANN PUTHUMANA FALL 2020
A thesis submitted in partial fulfillment of the requirements for a baccalaureate degree in Accounting with honors in Accounting
Reviewed and approved* by the following:
Jed Neilson Assistant Professor of Accounting Thesis Supervisor
Orie Barron Professor of Accounting Honors Adviser
* Electronic approvals are on file. i
ABSTRACT
This thesis explores the potential financial impact of “Soft Brexit” conditions upon the British pharmaceutical industry, including an analysis of the cost effectiveness of pharmaceutical companies continuing operations within the United Kingdom versus relocating and purchasing new facilities in the
European Union. If the Brexit deal is passed, pharmaceutical products could drastically increase in price, citizens of the United Kingdom could face more difficulty obtaining new pharmaceutical products, and current European Union citizens who work within the United Kingdom may lose professional certificate acknowledgement, likely creating a significant impact upon the United Kingdom’s pharmaceutical industry. I explore each of these components, quantifying the potential financial impact within the supply chain and regulation of the pharmaceutical industry, and assessing which option would be more cost effective for U.K. pharmaceutical companies under “Soft Brexit” conditions. After analyzing E.U. regulatory agencies, past trade agreements, immigration laws, the cost of discontinued operations, and capital cost of purchasing manufacturing facilities, the results of this study suggest that the excessive capital costs involved in purchasing new facilities in the European Union would far exceed the potential tariff implications accompanying the continuation of operations in the United Kingdom under “Soft
Brexit” conditions.
ii
TABLE OF CONTENTS
LIST OF FIGURES ...... iii
LIST OF TABLES...... iv
ACKNOWLEDGEMENTS ...... v
Chapter 1 Introduction ...... 1
The European Union ...... 1 The United Kingdom ...... 4 A “Soft Brexit” ...... 6
Chapter 2 Comparative European Union Foreign Policy Relationships ...... 9
Iceland...... 9 Norway ...... 10 Canada ...... 11
Chapter 3 How will the pharmaceutical industry be impacted?...... 12
Regulation ...... 12 Trade ...... 13 Labor ...... 16 Relocation ...... 17
Chapter 4 Major Players in the United Kingdom Pharmaceutical Industry ...... 18
AstraZeneca ...... 18 GlaxoSmithKline ...... 20
Chapter 5 Literature Review ...... 22
Chapter 6 Forecasting Assumptions ...... 24
Regulation ...... 24 Trade ...... 25 Labor ...... 31 Relocation ...... 31
Chapter 7 Results ...... 35
Limitations of Study ...... 35 “Soft Brexit” Cost Impact on U.K. Pharmaceutical Industry ...... 35 Relocation Cost Impact ...... 36
iii
Chapter 8 Conclusions ...... 37
Appendix A AstraZeneca Tariff Cost Impact ...... 38
Appendix B GlaxoSmithKline Tariff Cost Impact ...... 39
Appendix C Calculation of Percentage of United Kingdom Operations ...... 40
Appendix D Relocation Cost Impact Calculations ...... 41
BIBLIOGRAPHY ...... 43
ACADEMIC VITA ...... 50
iv
LIST OF FIGURES
Figure 1. The European Union, 2020 ...... 3
Figure 2. The United Kingdom ...... 5
Figure 3. EU-U.K. Pharmaceutical Trade, 2018 ...... 15
Figure 4. Global AstraZeneca Locations ...... 19
Figure 5. GlaxoSmithKline Manufacturing and Supply Chain Locations ...... 21
Figure 6. Calculation of Total Annual U.K. WTO Tariff Figure ...... 30
Figure 7. Calculation of Annual GlaxoSmithKline Tariff Cost Impact ...... 30
Figure 8. Computation of European Operations Percentage ...... 32
Figure 9. Computation of U.K. Operations in Europe Percentage ...... 32
Figure 10. Computation of Percentage of U.K. Operations ...... 32
Figure 11. Components of Discontinued Operations Calculation ...... 33
Figure 12. Impairment Loss Calculation ...... 33
Figure 13. Calculation of U.K. Company Net Income ...... 33
Figure 14. Calculation of Selling Price ...... 33
Figure 15. Calculation of Gain/Loss on Disposal ...... 34
Figure 16. AstraZeneca Tariff Cost Impact Calculation ...... 38
Figure 17. GlaxoSmithKline Tariff Cost Impact Calculation ...... 39
Figure 18. Calculation of Percentage of U.K. Operations ...... 40
Figure 19. Total Selling Price Calculation ...... 41
Figure 20. 2016 Net U.K. PP&E or Book Value Calculation ...... 41
Figure 21. 2016 U.K. Net Income/Loss Calculation ...... 41
Figure 22. Loss on Disposal of Component Calculation ...... 42
Figure 23. Total Relocation Cost Calculation...... 42
v
LIST OF TABLES
Table 1. Trade Agreement Negotiations...... 26
Table 2. Country Economic Information in Euros (at Year of Trade Agreement) ...... 27
Table 3. Calculation of United Kingdom WTO Tariff ...... 28
Table 4. Calculation of Segment of U.K. Pharmaceutical Industry WTO Tariff ...... 29
Table 5. Calculation of Company Segment of WTO Tariff ...... 29
vi
ACKNOWLEDGEMENTS
I would like to thank my Thesis Supervisor, Jed Neilson, for his instruction and feedback throughout this process, as well as my Honors Adviser, Orrie Barron, for his guidance on how to properly conduct quality research and display my findings in my thesis. I would also like to thank Ed Babcock for his constant support these past three years. I am truly grateful for the immense guidance and opportunities which the Integrated MAcc program has provided me. Additionally, I would like to extend my gratitude to my fellow Smeal scholar classmates and friends for constantly inspiring me during my time at Penn
State. Lastly, I want to express how thankful I am for my family, who have always provided me with endless love throughout all my endeavors. I am so grateful for the opportunity to have attended Penn State and the Schreyer Honors College, and would not have been able to achieve this without my family’s steadfast support and advice.
1
Chapter 1
Introduction
Brexit is an abbreviated form of the term “British Exit”, which is in regards to the United
Kingdom (U.K.)’s 2016 vote to leave the European Union (EU) (Kenton, 2020). Although this referendum took place several years ago, the past four years have consisted of various bouts of political unrest within the United Kingdom, in addition to many modifications to the U.K.’s exit terms (Sandford,
2020). After many years of negotiation, the Brexit deal was passed on January 31, 2020, and the U.K. was no longer considered a member of the EU (Edgington, 2020). However, this deal has not settled the terms of the current relationship between the U.K. and EU. In fact, it only decided the exit process for the U.K., and touched upon matters such as financial obligations, citizen rights, and the Irish border. The U.K. and
EU are currently in a “transition period” in which they are attempting to create a deal regarding their future relationship, which is a deal that many businesses and industries are nervously anticipating. The impact of this decision could be vast and affect individuals, companies, and industries alike.
Through this thesis, I will be assessing the different areas of a Soft Brexit’s impact upon the
United Kingdom’s pharmaceutical industry, quantifying these factors, and answering whether it is more cost-effective for pharmaceutical companies to continue operations within the United Kingdom or relocate and purchase facilities within the European Union under “Soft Brexit” circumstances.
The European Union
Following the destruction of World War II, Europe was attempting to recover and rebuild towards a peaceful and successful united future (Trumbull, 2003). This resulted in various coalitions and treaties, such as the Treaty of Paris and European Coal and Steel Community (ECSC), the Treaty of Rome, along
2 with the European Economic Community (EEC) and Euratom, as well as the Common Agricultural
Policy (CAP). Eventually, in 1965, these four organizations were combined underneath an overarching organization named the European Community (EC). The purpose of the EC was creating European policies, hosting forums of national leaders representing different countries within Europe, and holding court to hear cases regarding member-nation breaches of EC laws. The judicial powers within the EC set the precedent for establishing trade laws within the coalition, opening the door for future advancements.
As time progressed, unity within Europe progressed as well. The Single European Act was passed in 1986, enhancing the power of the European Parliament within the European Community. This encouraged unity within the continent, and eventually led to the 1992 Treaty of European Union. This treaty would “create a common currency, a European citizenship, a single European border policy, and rename the European Community the European Union” (Trumbull, 2003). A common military and foreign policy was pursued, and the powers of the European Parliament were expanded within the role of
EU governance. The first member nations to sign the Treaty of European Union (also known as the
Maastricht Treaty) were Great Britain, France, Germany, the Irish Republic, Spain, Portugal, Italy,
Greece, Denmark, Luxembourg, Belgium, and the Netherlands (History.com Editors, 2010).
To this date, the European Union consists of 27 member nations (European Union, 2020). There are several countries currently in the process of transitioning into the European Union by incorporating
EU governance into their own, and other countries who are potential candidates for EU membership, but do not yet meet the requirements necessary to pursue membership status.
3
Figure 1. The European Union, 2020
Today, the European Union consists of seven institutions which are responsible for ensuring the success and well-being of its member countries – the European Commission, European Parliament,
European Council, Council of the European Union, Court of Justice of the European Union, the European
Central Bank, and the Court of Auditors (European Union, 2020).
The European Commission is responsible for discussing and proposing policies within the EU and consists of 27 commissioners, all who serve a five-year term and focus on different governmental topics, such as the European Economy, the European Green Deal, and more. The European Parliament serves as the legislative branch of the EU. It consists of 705 members who are all elected every five years.
Aside from deciding upon legislation, the European Parliament is also responsible for deciding the
4 European Union’s annual budget. The European Council is responsible for setting the political goals for the EU, and consists of leaders from all EU Member states. The Council of the European Union, also known as the Council, serves the role of coordinating and developing foreign policy within the European
Union. The Court of Justice of the European Union is responsible for interpreting and enforcing EU law.
It is separated into two courts, the Court of Justice and the General Court. Both courts are responsible for engaging in different court proceedings. The European Central Bank’s main purpose is to serve as the central bank and developer of monetary policy for all 19 EU Member states who have adopted the Euro as their form of currency (European Central Bank, 2020). Lastly, the European Court of Auditors serves as the external auditor for the European Union, auditing the EU’s revenues and expenses, as well as investigating any potential fraud or corruption. The role of the Court of Auditors is to protect the interests of EU taxpayers, by pursuing ethical accuracy within the financial operations of the European Union.
The United Kingdom
The United Kingdom (U.K.) is an island located in the Northwest region of Europe (Gilbert,
2020). The U.K. consists of England, Wales, Scotland, and Northern Ireland. Through the January’s
Brexit deal, which only included the U.K.’s terms of exit, it was negotiated that there would not be a hard border on the island of Ireland (Colchester, 2020).
5
Figure 2. The United Kingdom
The United Kingdom is considered to be a constitutional monarchy, which is defined as when a monarch shares governmental power with a constitutionally organized government (McKenna, 2020). In the case of the U.K., the monarch is either a king or queen (currently, Queen Elizabeth) and the constitutionally organized government is led by the prime minister, who is the leader of the majority political party in the House of Commons, which is the lower house of the U.K. Parliament. Parliament is built of three sections – the monarch, the House of Lords, and the House of Commons. The House of
Lords mainly consists of appointed officials and the House of Commons consists of elected officials.
6 There is no formal separation of powers; however, there are three branches of the government.
They are the executive, legislative, and judicial branches. Majority of the governmental power lies within the Prime Minister and his cabinet, and the monarch must follow the decisions which the Prime Minister decides upon. Therefore, as the Prime Minister is the leader of the majority political party in the House of
Commons, Parliament holds a majority of the power behind the direction of United Kingdom political decisions.
Currently, Boris Johnson, a member of the Conservative Party, serves as the United Kingdom
Prime Minister. He has held this title since July 2019, and previously served as the Mayor of London, as well as the Secretary of State of Foreign Affairs.
A “Soft Brexit”
The term “Brexit” is in reference to the decision that came after anti-European Union sentiment started to rise within the United Kingdom around 2013. During this time, many believed that the
European Union (EU) was moving in a different political direction compared to when the U.K. had initially joined the European Union, and that the EU was no longer prioritizing the “single market” motives which had been promoted upon establishment. Many in the U.K. believed that EU membership was restricting and detrimental to the U.K.’s economy and state, especially following the European
Union’s response to changing immigration policies and the Greek Deficit crisis. The EU decided to partner with the International Monetary Fund to provide Greece with an aid package of $110 billion – $80 billion deriving from European countries, and the remaining $30 billion promised deriving from the
International Monetary Fund. The United Kingdom, however, did not agree with providing aid to Greece, and did not contribute to the $80 billion relief (Roscini, Schlefer & Dimitriou, 2017).
7 In 2015, the United Kingdom held a referendum to vote on the issue of leaving the European
Union. Sentiment towards leaving the EU was pretty evenly split; however, 52 percent of British voters voted in favor of Brexit, therefore sparking the exit of the United Kingdom from the EU.
The term “Soft Brexit” refers to the potential nature of the relationship that the United Kingdom and European Union (EU) will hold after the United Kingdom leaves, or as popularly phrased, “divorces”, the European Union (Liberto, 2019). Currently, membership within the EU provides many benefits, such as tariff-free trade, non-existent border controls, and the ability to practice various certifiable occupations across all member states (Amadeo, 2020). Under the circumstance of “Brexit”, the United Kingdom may not have the ability to maintain partnerships and agreements with the European Union in regards to different matters, such as regulation agencies, free trade agreements, and immigration. The United
Kingdom may no longer be a part of the single market that the European Union was built upon, could be subjected to tariffs when engaging in European trade, lose membership and access to different EU regulation agencies, and face labor issues due to immigration and certification restrictions. However, experts believe that the United Kingdom will maintain a relationship with the European Union to a certain extent under the circumstances of a “Soft Brexit”, as opposed to a “Hard Brexit”. A “Hard Brexit” refers to a strict separation of the United Kingdom from the European Union (Kenton, 2020). In this scenario, a
“Hard Brexit” would result in a complete disbanding of the EU and U.K.’s relationship, and both entities would have to build their relationship from scratch. However, the much more realistic direction that
“Brexit” will take is a “Soft Brexit”. “Soft Brexit” conditions would likely result in a situation in which the United Kingdom had increased sovereignty than what existed prior to Brexit, but would continue to maintain membership and inclusion in several pre-existing European Union initiatives. After all, the
United Kingdom and the European Union have operated together for decades, and as both entities’ operations are somewhat dependent and mutually beneficial to each other, it is likely that their post-
“Brexit” relationship will continue in a somewhat similar manner to its pre-“Brexit” relationship. Overall,
8 whichever “Brexit” decision is made will greatly impact the United Kingdom’s economy, as well as numerous company operations.
9 Chapter 2
Comparative European Union Foreign Policy Relationships
When assessing the potential nature of the European Union and United Kingdom’s future relationship, several other countries will be frequently referred to in comparison. The most prominent countries that will be mentioned in comparison are Iceland, Norway, and Canada, as they have similar geographic, political, and economic attributes to the United Kingdom, which will provide a more evidence-based foundation when building a hypothesis regarding the effect of a “Soft Brexit” on the regulatory, trade, and labor factors of the United Kingdom’s pharmaceutical industry.
Iceland
Iceland is an island located within Europe, holding a population of over 330,000 people ("Iceland
Population", 2020). Although the discussion has arisen several times over the past two decades, Iceland is not a member of the European Union (“Iceland | Culture, History, Maps, & Flag”, 2020). There is a conflicted sentiment among the leaders and citizens of Iceland regarding applying for membership.
Although Iceland does not fall under the jurisdiction of the European Union, many of its laws align with those of the EU, resulting in Iceland subsequently receiving various benefits that accompany EU membership.
However, the country does partake in the European Free Trade Association, which is responsible for regulating the economies of its four member nations and serves as the intergovernmental organization of Iceland, Norway, Liechtenstein, and Switzerland ("The European Free Trade Association", 2020).
Additionally, Iceland is a part of the European Economic Area (EEA) Agreement, which creates a single market between the European Union and Iceland, along with Norway and Liechtenstein ("Free Trade
Agreements", 2020).
10 One area of corresponding Iceland-European Union legislation lies among pharmaceutical regulation. Iceland has its own pharmaceutical regulatory agency, the Icelandic Medicines Agency (IMA)
("About Icelandic Medicines Agency", 2020). The IMA is responsible for ensuring safety and product marketing regulation within Iceland’s pharmaceutical industry. Additionally, the IMA meets the EU requirements of research and testing products, and aligns its requirements with the EU’s European
Medicines Agency (EMA). As Iceland complies with EMA regulations and falls within the EEA, it receives the right of free movement of medicine across the EEA.
In regards to how EU-Iceland immigration is managed, Iceland gains EEA immigration benefits.
Any citizen of the EEA gains the right of free movement, which allows workers to reside and work in any
EU country ("Free movement - EU nationals - Employment, Social Affairs & Inclusion", 2020).
Norway
Norway primarily follows the lead of the EMA’s regulation. However, the country holds its own
Medicines Agency too, named the Statens legemiddelverk (Kizzazi, 2017). Norway integrated EU and
EMA law into its own regulatory standards. This allows Norway to have some element of its own sovereignty in regards to pharmaceutical regulation, but also reap the benefits of falling under the EMA regulatory umbrella. As Norway complies with EMA regulations, the Norwegian pharmaceutical industry does not face additional regulatory limitations. Instead, Norway receives the same regulatory treatment which EU member states currently face.
Norway is a member of the EEA, and receives the same tariff benefits of those within the
European Union. As a result, Norway is considered a part of the EU’s single market, and Norwegian pharmaceutical products, along with toys, machinery, and medical devices, do not face tariff implications on imports from the EU. While many experts believe that the most ideal action for the U.K. pharmaceutical industry would be for the United Kingdom to join the EEA treaty agreement, it is unlikely
11 that this will happen. A driving force behind the sentiment of many “pro-leavers” (those in support of the
United Kingdom leaving the European Union) was to receive more autonomy from the EU and have some element of increased self-rule, especially in regards to the U.K. economy.
As Norway is also a member of the EEA, its citizens also benefit from free movement of persons, in which they are able freely to work and live in EU member states.
Canada
The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is a trade agreement that was created with the purpose of reducing tariff barriers between the two entities
(Government of Canada, 2020). Within this trade agreement, the percentage of EU-Canada traded goods which faced tariffs reduced from 75% to 2%. This trade agreement promoted trade and prosperity between the two entities, and is a good model of comparison as its GDP is on a similar scale to the United
Kingdom, as opposed to Norway and Iceland, which have far smaller GDP levels.
12 Chapter 3
How will the pharmaceutical industry be impacted?
The most realistic result of the Brexit decision is that the United Kingdom will maintain some, but not all, relationships with the European Union, resulting in a “Soft Brexit”. Although it will probably take many years for the U.K. and EU to properly draft agreements which define the aspects of their new, post-“Brexit” relationship, it is possible to hypothesize the conditions of their future agreements based off
EU agreements with other countries, the current political climate of the United Kingdom, and past agreements which the EU and U.K. have operated with in the past.
Regulation
One of the most prominent questions surrounding Brexit and the pharmaceutical industry is in regards to how the United Kingdom will handle regulation post-Brexit. Currently, the European Union’s pharmaceutical industry is regulated by the European Medicines Agency, or EMA (European Medicines
Agency, 2020). The EMA is a subdivision of the European Union and is responsible for “monitoring the safety of medicines across Europe”. Its mission is to increase transparency between pharmaceutical companies and the consumer. Prior to the 2016 referendum, the EMA Headquarters was located in the
United Kingdom (Enterprise Ireland, 2019). As Brexit proceedings have continued, the EMA
Headquarters relocated to Amsterdam. Following Brexit, many are concerned for the impact of the divorce as they worry that the U.K. will have delays in drug approval and therefore delays in U.K. residents receiving new products, resulting in discouraged attitudes from pharmaceutical companies towards continuing to manufacture within the United Kingdom.
Two countries to be observed in regards to their very unique relationship with the European
Union are Norway and Iceland. As Norway and Iceland are European countries, but not members of the
13 European Union, they can be used as a comparison and form of reference as the United Kingdom continues to develop their future relationship with the European Union. In fact, both countries’ relationship with the EU greatly resemble the regulatory relationship pictured in a “Soft Brexit”, as both countries’ pharmaceutical regulatory agencies comply with EMA standards.
The United Kingdom also has its own pharmaceutical regulatory agency, named the Medicines &
Healthcare products Regulatory Agency (MHRA) (Gov.UK, 2020). The MHRA holds the responsibility of regulating medicine, medical devices, and blood transfusion within the United Kingdom. Prior to
Brexit, the MHRA worked in alliance with the EMA, ensuring compliance under EU standards. Under the circumstances of a “Soft Brexit”, the U.K. would need to ensure that the regulations which the MHRA enforces remain aligned with the regulations of the EMA, similar to how Norway’s Statens legemiddelverk and Iceland’s Icelandic Medicines Agency incorporate EMA regulations into their own.
By doing this, the United Kingdom will maintain their current pharmaceutical regulatory operations with minimal impact, if anything, as it will receive the same treatment that EU member states, Iceland, and
Norway receive.
Trade
Tariffs are taxes which are placed on goods as they are traded across the borders of different countries ("Tariff - Import duties", 2020). They are typically decided through multilateral trade agreements between countries. Tariffs can be utilized for political reasons, either to promote or discourage international trade and sale of international goods. When countries want to promote trade with other nations, they will typically negotiate trade agreements which lower tariff barriers. On the other hand, if a country is attempting to protect certain industries of its own from the products of other countries, they may increase tariffs for items sold within the specific industry, discouraging international trade and promoting domestic sales.
14 The European Economic Area (EEA) consists of all 27 European Union member states, as well as three EEA European Free Trade Association (EFTA) states (EFTA, 2020). Norway is a member of the
EEA, and receives the same tariff benefits of those within the European Union. As a result, Norway is considered a part of the EU’s single market, and engages in zero tariff pharmaceutical EU trade. While some suggest that the U.K. join the EEA post-“Brexit”, joining the EEA treaty would require the United
Kingdom to surrender a significant portion of its own jurisdiction to the European Union, which would result in moving in the opposite political direction from what is universally desired. Additionally, the
United Kingdom has a history of not complying fully with higher authorities when acting as a member of a separate entity. For example, when the European Union established laws requiring acceptance of refugees, or establishing the Euro as the official currency of the European Union, the United Kingdom refused to comply.
The more likely action that will be taken is the United Kingdom will attempt to negotiate an individual trade agreement with the European Union. To achieve this, the United Kingdom will revert to having World Trade Organization (WTO) status during the negotiation period while both entities draft an agreement to build their new future relationship. Membership to the World Trade Organization does not provide the same benefits that membership to the EEA and EU give, but instead bears impositions such as certain tariffs. Although this is not ideal, it very likely may be the U.K.’s temporary status until a new agreement is negotiated.
An example of a trade agreement scenario which is similar to what a “Soft Brexit” might entail is the agreement established between the European Union and Canada. Canada previously had WTO status and about 75% of products traded with the European Union were burdened with tariffs (Government of
Canada, 2020). After seven years of negotiating with the European Union, both entities drafted a trade agreement which provided several trade benefits, namely, a reduction of 73% in goods imposed with tariffs resulting in 2% of goods imposed with tariffs. Additionally, Canada and the European Union drafted agreements regarding customs, regulation, and rules of origin. It is reasonable to hypothesize that
15 the United Kingdom may act similarly when establishing their future trade relationship with the European
Union, as this option will give the U.K. more autonomy and the power to decide certain trade decisions without having to comply with every segment of European Union legislation.
However, on the contrary to Canada, it is likely that the United Kingdom will attempt to negotiate a zero tariff pharmaceutical trade agreement, similar to its trade rules prior to Brexit. The European Union and United Kingdom have a highly interdependent relationship in regards to the pharmaceutical industry.
As of 2018, it was stated that monthly, there were 45 million pharmaceutical products imported into the
European Union from the United Kingdom and 37 million pharmaceutical products imported into the
United Kingdom from the European Union (Garel, 2018). On an annual basis, this is equivalent to 540 million EU imports, and 444 million EU exports.
EU-U.K. Pharmaceutical Trade, 2018
444,000,000 45% 540,000,000 55%
EU Imports EU Exports
Figure 3. EU-U.K. Pharmaceutical Trade, 2018
As there are many details that will need to be negotiated in order to differentiate the post-Brexit trade relationship from the pre-Brexit trade relationship, trade agreement discussions could likely take several years to draft. Under these circumstances, pharmaceutical companies within the United Kingdom
16 may need to prepare for at least several years of operation underneath WTO trade conditions, until the
United Kingdom and European Union eventually came to terms with an acceptable trade agreement.
Labor
Regarding the impact of “Brexit” upon the pharmaceutical industry, the question of labor is directly dependent on how the United Kingdom and European Union decide to handle immigration.
Currently within the European Union and United Kingdom, the border policy allows free movement of persons (“Free Movement of Persons | EFTA”, n.d.). This allows all citizens who live within the
European Economic Area (EEA), which consists of the European Union and three EEA EFTA states
(Iceland, Liechtenstein, and Norway), the right to travel, seek employment, study, and live in all EEA member states with ease. However, by losing member state status within the EU, the U.K. will also lose its membership status to the EEA at the time of divorce (Lovegrove, 2020). Therefore, its citizens will no longer have the right to traverse across borders as easily. This could potentially cause EU or U.K. citizens who gained certifications in various EU member states to lose official recognition of their qualifications, whether they are EU or U.K. citizens. This is a large concern for the pharmaceutical industry, as the U.K. attracts many researchers and professionals within the sector (Kazzazi, 2017).
In fact, in 2016, it was reported that about 2.9 million European Union citizens were living in the
United Kingdom, and about 1.2 million United Kingdom citizens were living in the European Union
(“Reality Check: How many EU nationals live in the UK?”, 2016). As displayed in this statistic, this would cause great inconvenience and disruption amongst European Union citizens, especially within the pharmaceutical industry. In fact, a Parliament report stated that “We understand that the Government is not yet able to offer firmer guarantees regarding future immigration rules for researchers but remind them that this is essential in order to continue to attract top-quality researchers to the UK… There is clear agreement that researcher mobility is a crucial component of the UK’s successful research and science
17 sector” (Kazzazi, 2017). This proves the reliance which the EU and U.K. have upon each other in regards to pharmaceutical industry labor. As a result of this co-dependence, it is unlikely that the United Kingdom and European Union will enforce a strict border for its citizens and remove recognition of qualifications.
Instead, it is very likely that in regards to immigration, the United Kingdom may adopt a model similar to
Norway and the other EEA EFTA nations. With this model, the United Kingdom will not greatly disrupt the pharmaceutical industry as a whole, as both the EU and U.K. would face great consequences from a strict border. The most realistic and beneficial path of action for both parties is to continue permitting a free movement of persons law.
Relocation
During the period of political unrest surrounding the “Brexit” referendum, many companies, especially those within the pharmaceutical industry faced an immense amount of concern for the future.
As the terms and conditions of “Brexit” are still up in the air, there are many questions regarding whether
United Kingdom-based pharmaceutical companies can still be profitable post-Brexit while continuing operations within the United Kingdom due to the potential impact on regulations, trade, and labor. As a result, the discussion of relocating operations and purchasing new facilities in a country within the
European Union member came to be. Another element to focus on when assessing the cost impact of this are the costs associated with shutting down currently-operating facilities, which would result in discontinued operations.
18 Chapter 4
Major Players in the United Kingdom Pharmaceutical Industry
While many international pharmaceutical companies operate within the United Kingdom, the two most prominent companies which are headquartered within the United Kingdom and part of the world’s
“Top 15 pharmaceutical companies” are AstraZeneca and GlaxoSmithKline (Enterprise Ireland, 2019).
Both companies have physical headquarters and significant manufacturing operations within the U.K.
(“Astrazeneca in the UK”, n.d.) ("GSK today: 2000 – present", n.d.). The competitive landscape within the United Kingdom’s pharmaceutical industry is vast, with many other prominent international companies, such as Pfizer, Novartis, and Bayer having significant portions of market share within the
U.K. (Stewart, 2020). However, AstraZeneca and GlaxoSmithKline are likely to be the most heavily impacted, as both companies have a significant segment of operations located within the U.K., as opposed to the other competition, which have significant headquarters and manufacturing facilities elsewhere.
AstraZeneca
AstraZeneca is a United Kingdom – originated pharmaceutical company located in Cambridge,
England. AstraZeneca originally functioned as two separate companies, Sweden-based Astra AB, which had previous success in gastroenterology treatment, and United Kingdom-based Zeneca Group plc, which primarily specialized in oncology, surrounding cancer-centered treatments. After Astra AB decided to take the strategic initiative to expand its expertise and offerings, it merged with Zeneca Group plc on
April 6th, 1999 to create AstraZeneca. Since then, AstraZeneca has expanded and delegated its focus to the areas of oncology, cardiovascular, renal, metabolism, and respiratory health. The company headquarters initially relocated to London, England, and is currently residing in Cambridge, England. 16 sites are located in Europe, and there are five sites in the United Kingdom. The sites consist of the
19 corporate headquarters in Cambridge, the Oncology Innovative Medicines and Global Medicines development function in Alderley Park, the AstraZeneca UK Marketing Company in Luton, the manufacturing and packing site at Macclesfield, and the vaccine and biologics team in Speke
(“Astrazeneca in the UK”, n.d.). In 2018, Astrazeneca held a 3% market share in all pharmaceutical companies operating within the United Kingdom (Stewart, 2020).
Figure 4. Global AstraZeneca Locations
Amongst all pharmaceutical companies which operate within the United Kingdom, AstraZeneca holds a 3% market share (Stewart, 2020). However, as one of the largest U.K.-based pharmaceutical companies, the decision of “Brexit” will impact its operations greater than the companies which primarily operate in EU member states.
20 GlaxoSmithKline
GlaxoSmithKline is a United Kingdom-based pharmaceutical company located in London,
England ("GSK today: 2000 – present", n.d.). GlaxoSmithKline originated as two separate pharmaceutical companies, SmithKline Beecham plc and GlaxoWellcome plc. The companies merged in 2000 to form
GlaxoSmithKline plc and became one of Europe’s leading pharmaceutical companies, specializing in pharmaceuticals, vaccines, and consumer healthcare. GlaxoSmithKline has 10 facilities in the United
Kingdom, and they are Slough and Maidenhead, which are both consumer healthcare sites, Ulverston, which is a primary manufacturing site, Montrose, which is an analytical chemistry focused manufacturing site, Ware GMS, which is both a manufacturing and research and development site, Worthing and Irvine, which are both antibiotic-focused manufacturing sites, Barnard Castle, which is a products and global supply site, and the GSK House in London, England, which is the location of GlaxoSmithKline’s global headquarters. GlaxoSmithKline also has 36 sites in Europe ("Worldwide", 2020). In 2018,
GlaxoSmithKline held a 5.3% market share among all pharmaceutical companies operating within the
United Kingdom (Stewart, 2020).
21
Figure 5. GlaxoSmithKline Manufacturing and Supply Chain Locations
22 Chapter 5
Literature Review
Since the “Brexit” referendum took place in 2016, many scholars have discussed the potential impact of the decision of the United Kingdom to divorce the European Union. Over the past few years, many pieces of literature have been published discussing potential impacts, or important segments of the deal to pay attention to in the midst of the proceedings. Many of the factors built in the basis of the assumptions from this thesis derive from “Evaluating the impact of Brexit on the pharmaceutical industry”, as published in the Journal of Pharmaceutical Policy and Practice. In this article, the authors analyze the potential impact of Britain leaving the European Union, and focus on which areas of the
“Brexit” negotiation should be handled with care in order to avoid a negative departure. Overall, the authors believed the factors that were most important to the Brexit deal in terms of the pharmaceutical industry were maintaining positive trade relations, protection of the British labor force involved in the pharmaceutical field, and maintenance of the current European pharmaceutical agencies. This information served as the groundwork of this thesis, as it provided valuable information regarding which “Brexit” consequences would have the largest influence on U.K. pharmaceutical operations.
“The pharmaceutical industry is at risk from Brexit”, as published for the London School of
Economics and Political Science was also used for supplemental information when building this study.
This article touched upon the different impacts that could derive from “Brexit”; namely, the regulatory impacts, immigration impact, and trade impact. An interesting insight from this article discussed the potential result of a change in border legislation. The author mentioned the effect it could have on immigration and labor, but also discussed the potential cost impact it could have on pharmaceutical products being traded. Additional time in customs can result in an increased shipping cost, thereby increasing the cost impact of Brexit.
23 The article “Brexit and shortages”, as published in the European Journal of Hospital Pharmacy provides an interesting insight into the supply chain logistics that go into European pharmaceutical product distribution. Not only does it give perspective into exactly how much of European pharmaceutical products are manufactured within Britain, but it also mentions how many pharmaceutical imports and exports are involved with Britain as well. This provided many useful data points, especially when creating the hypothetical tariffs for the United Kingdom underneath “Soft Brexit” circumstances.
24 Chapter 6
Forecasting Assumptions
Below, I will describe the assumptions and methodology that I am applying to the financial models of AstraZeneca and GlaxoSmithKline. As the terms and conditions of a post-Brexit United
Kingdom and European Union are not yet in place, and will likely be in negotiations for years to come, it is difficult to pinpoint the exact circumstances which both entities will decide upon. However, due to the available research surrounding Brexit and the pharmaceutical industry, it is possible to create several hypotheses regarding how the factors of regulation, trade, and immigration will be impacted.
Additionally, due to the actions of other countries, past European Union actions, United Kingdom political sentiment, and treaties which have been drafted in the past, it is possible to draw comparisons and build assumptions.
Regulation
After assessing the United Kingdom’s sentiment towards European Union relations, I will be applying the assumption that the United Kingdom establishes a regulatory agreement similar to Norway and Iceland. Both countries currently benefit from falling under the EMA’s regulatory umbrella; however,
Norway and Iceland are capable of its own regulatory sovereignty regarding pricing and public funding evaluation (“Public funding and pricing”, n.d.). As the core incentive for the United Kingdom’s initial entrance into the European Union was the proposed single market, it is realistic to expect that the regulatory relationship established will remain similar to how it is currently maintained. In 2016, the U.K. accounted for 51% of EU imports and 43% of EU exports (Ward, 2020). This is an extremely interdependent relationship, and by upheaving it, both the companies and consumers would face drastic
25 consequences. Companies would not remain as competitive due to delays in regulatory approval, and
U.K. consumers could potentially lose access to new, life-saving medication due to regulatory barriers.
For the financial projections, I will not be applying a cost impact which derives from regulatory changes to AstraZeneca and GlaxoSmithKline’s financial statements. As the United Kingdom’s MHRA already incorporates EMA regulations into its law, similar to how Norway’s Statens legemiddelverk and
Iceland’s Icelandic Medicines Agency are in compliance with EMA regulations, pharmaceutical cost and operations will likely not be impacted under these “Soft Brexit” circumstances.
Trade
Brexit’s impact on trade will likely be more substantial. As United Kingdom “pro-leavers” want more independence, it is likely their current trade policy will be reflected in the United Kingdom’s overarching trade negotiations but not necessarily provided as many qualitative benefits, as the European
Union would not want to encourage other member states to divorce the EU. If the U.K. received all the same trade benefits and gained the capabilities of governing independently, European Union member states would not see the benefits of joining the EU, and would instead potentially attempt to establish independent trade agreements of their own. However, as the United Kingdom and European Union have an interdependent relationship within pharmaceutical trade, it is likely that the current zero-tariff rates regarding pharmaceutical trade will continue post-negotiations. Additionally, the European Union provides zero-tariff agreements to the EEA states, so it is likely that the EU would provide similar tariff benefits to additional countries which it engages in heavy trade activity with, such as the United
Kingdom.
In order to reflect the factors of the potential EU-United Kingdom trade agreement, I will be modeling the “Soft Brexit” trade agreement negotiations similarly to Canada’s trade agreement with the
26 European Union, the Comprehensive Economic and Trade Agreement (CETA) (Government of Canada,
2020).
Table 1. Trade Agreement Negotiations
Trade Country Period of WTO - % Post- Agreement Negotiation Goods with Negotiation Tariff - % Goods with Tariff EU-Vietnam Vietnam 3 years 35% 1% Free Trade Agreement EU-Singapore Singapore 7 years 16% 10% Free Trade and Investment Agreement Comprehensive Canada 7 years 75% 2% Economic and Trade Agreement
However, as it took seven years of negotiations to establish CETA, I have decided to include the years of trade under WTO conditions in my projections. After assessing the CETA deal, as well as other various trade deals which the European Union has negotiated, I have extracted various pieces of information and used this to construct a hypothesis for the potential EU trade agreement negotiations which will happen with the United Kingdom. In order to estimate this predicted period of negotiation time, I compared the length of negotiation periods for other countries in which the European Union has trade relations with. The trade agreements with Vietnam and Singapore took 3 and 7 years, respectively
(“Vietnam Trade and Investment Agreements”, 2019) (“EU-Singapore Trade and Investment
Agreement”, n.d.). The United Kingdom’s GDP far exceeds both countries, so the hypothesis for period of negotiation was drawn from the CETA agreement instead as Canada’s GDP during the time of CETA
27 negotiations was in a more comparable range. As the U.K. has been operating in extensive trade with the
EU for many decades and therefore has an existing prior understanding of both parties’ trading operations, I will assume that the United Kingdom and European Union negotiations will take 6 years to complete.
The projections will start in 2020, as the Brexit referendum took place in late 2016 and the divorce is set to happen in 2020. Therefore, three of the projected six years of negotiations will be included in the pre-divorce time period, and not reflected in the projections. The remaining three years of negotiations will be reflected in the projections. As a result, the cost impact projections will display three years of WTO tariff imposition and three years of post-negotiation tariffs, which will begin in 2023.
Table 2. Country Economic Information in Euros (at Year of Trade Agreement)
Country EU Imports EU Exports Country
GDP
Vietnam 31.3 bil 8.98 bil 189.24 bil
Singapore 20 bil 33 bil 250 bil
Canada 16.7 bil 29.6 bil 1.29 tril
Under the WTO’s Pharmaceutical Tariff Elimination Agreement, countries such as the United
States, Canada, and member states of the European Union are subject to zero percent tariff rates on certain goods within the pharmaceutical industry, specifically finished products and certain components
("The impact of Brexit on the pharmaceutical sector - Business, Energy & Industrial Strategy - House of
Commons", 2018). Under WTO conditions, Canada had 75% of its EU-related trade imposed with tariffs.
I will predict tariffs for the United Kingdom by first assessing the percent of goods which were imposed with tariffs under the WTO regarding similar status countries. However, after assessing the
WTO tariffs imposed upon Canada, which is a EU-trading country with a GDP in closest proximity of the
United Kingdom GDP, the 75% of goods imposed with tariffs from EU-Canada trade seemed too drastic
28 and unrealistic of a change to impose on EU-United Kingdom trade, especially as the United Kingdom has been trading with the European Union with no tariff impositions prior to Brexit in their past trading relationship. After assessing the trading relationships established in the EU’s other trade agreements, it became apparent that the country which had the most similar trade patterns to the United Kingdom is
Vietnam. Vietnam is the only other EU-trade agreement country to handle more EU imports than exports
(“Vietnam Trade and Investment Agreements”, 2019). However, the Vietnamese EU import to EU export ratio is 2.81x more than the United Kingdom’s EU import to EU export ratio. In order to create a more realistic WTO tariff rate calculation, I divided Vietnam’s percentage of goods imposed with tariffs underneath WTO law (35%) by the 2.81 difference, resulting in a percentage of 12.45% of goods imposed with WTO tariffs in the U.K..
Table 3. Calculation of United Kingdom WTO Tariff
Imports to WTO - % Goods Country EU Imports EU Exports Exports with Tariff Ratio
Vietnam 35% 31,300,000,000 8,980,000,000 3.49
United 12.45% 1.24 Kingdom 212,040,000,000 171,000,000,000
In order to calculate the impact of the WTO tariff on the pharmaceutical industry, I divided the sum of the United Kingdom-European Union pharmaceutical imports and exports by the sum of United
Kingdom-European Union imports and exports, resulting in a percentage of 0.26%. After multiplying the percentage of 0.26% by the overall EU-U.K. percentage of goods receiving the WTO tariff, a percentage of 0.03% was calculated, representing the segment of traded goods receiving the WTO tariff which derived from the U.K. Pharmaceutical Industry. Afterwards, both market shares of AstraZeneca and
GlaxoSmithKline were multiplied by the Segment of U.K. Pharmaceutical Industry WTO Tariff
29 percentage, to calculate the segment of the United Kingdom’s WTO tariff which is allocated to
AstraZeneca and GlaxoSmithKline goods.
Table 4. Calculation of Segment of U.K. Pharmaceutical Industry WTO Tariff
Sum of EU % EU-U.K. Segment of U.K. Sum of EU-U.K. Imports/Exports | Pharmaceutical Pharmaceutical Imports/Exports Pharmaceutical Trade Industry WTO Tariff Industry
383,040,000,000 984,000,000 0.26% 0.03%
Table 5. Calculation of Company Segment of WTO Tariff
Segment of Company Market Share WTO Tariff
AstraZeneca 3% 0.001%
GlaxoSmithKline 5.3% 0.0017%
To calculate the cost impact of the WTO tariff on both companies, I will analyze AstraZeneca first. In a statement jointly made with the Business, Energy and Industrial Strategy Committee of
Parliament in response to Brexit, AstraZeneca stated that the company’s projected annual cost impact of
WTO tariffs is 25,685,618 euros ("Written Evidence from AstraZeneca", 2017). As the segment of the annual WTO tariff that will be allocated towards AstraZeneca has already been calculated to equal .001%,
I divided the projected annual cost of WTO tariffs by the percentage of .001% to result in what the presumed total annual United Kingdom WTO tariff figure would be.
This total annual United Kingdom WTO tariff figure was then multiplied by GlaxoSmithKline’s percentage of the annual WTO tariff to find the annual cost impact for GlaxoSmithKline under WTO tariff conditions.
30
Figure 6. Calculation of Total Annual U.K. WTO Tariff Figure
Figure 7. Calculation of Annual GlaxoSmithKline Tariff Cost Impact
Following the six years of trade agreement negotiation and WTO trade treatment, the pharmaceutical company tariff costs will be adjusted to reflect the predictions for the future United
Kingdom and European Union pharmaceutical product tariff. This will be displayed after three years of projections post-Brexit, in 2023.
However, as mentioned previously, the United Kingdom was previously included in the WTO’s
Pharmaceutical Tariff Elimination Agreement, which eliminated tariffs on pharmaceutical trade. It is reasonable to assume that the United Kingdom will pursue inclusion in this agreement, or a similar agreement, after separation from the European Union, as it would provide vast benefits to both the United
Kingdom and the European Union. As both parties are highly interdependent upon each other, specifically within the pharmaceutical industry, it would be beneficial to pursue a zero tariff agreement regarding
U.K. pharmaceutical trade. Therefore, for the last three years of the projection, it is projected that there will be no cost implications upon AstraZeneca and GlaxoSmithKline in regards to pharmaceutical trade tariffs.
31 Labor
Due to the statements made by Parliament in regards to attempting to preserve U.K. pharmaceutical research talent within the EU, as well as the apparent consequences that would result from non-preferential immigration law treatment, it is very likely that the European Union will allow the
United Kingdom to continue to have free movement of persons. This decision would be beneficial to both parties involved, as both parties are dependent on the talent of both EU and U.K. citizens. As a result, I will not be reflecting any changes in regards to labor and immigration when creating AstraZeneca and
GlaxoSmithKline’s financial projections.
Relocation
In order to calculate Discontinued Operations, it must be possible to separate a particular component within a business (Tardi, 2019). As both companies, AstraZeneca and GlaxoSmithKline, are likely to have access to information regarding regional sales, their internal projections and computation of
Discontinued Operations will be far more accurate. However, as this information is not made available to the public, I need to make several assumptions in order to calculate the Discontinued Operations value of
United Kingdom-based AstraZeneca and GlaxoSmithKline facilities.
The first assumption that needs to be made is a valuation of the component that will be
“discontinued”. In the case of Brexit, the discontinued operations are AstraZeneca and
GlaxoSmithKline’s United Kingdom facilities. As the value of these facilities are not made public, and not listed as separate components on public financial statements, various assumptions need to be made to attempt to accurately display the value of the Discontinued Operations. To do this, I will assess the percentage of 2016 sales for both companies separately, and then the percentage of 2016 sales deriving from Europe will also be noted. After computing the percent of European company sales to worldwide sales, the percentage of United Kingdom facilities to overall European facilities will then be computed for
32 each company. This percentage will be utilized as a measure to represent the segment of U.K. operations for each company compared to the total of all European operations. Afterwards, the percent of European sales to overall sales (used as a measure to represent Europe’s percent of operations globally) will be multiplied by the percent of U.K. operations to overall European operations, to compute a percentage that reflects the percentage of U.K. operations within each company. While this will not 100% accurately reflect the percentage of U.K. operations, especially when applied to each line item in the companies’ balance sheets, it is an attempt at computing a reflective depiction of it.
Figure 8. Computation of European Operations Percentage
Figure 9. Computation of U.K. Operations in Europe Percentage
Figure 10. Computation of Percentage of U.K. Operations
After the percentage of United Kingdom operations is computed, I multiplied this percentage by each companies’ 2016 Net PP&E value. The resulting value represents the portion of Net PP&E that is associated with the company’s United Kingdom sales. It also will represent the book value for the component of operations that is being discontinued.
33
Figure 11. Components of Discontinued Operations Calculation
Figure 12. Impairment Loss Calculation
To address the calculation of impairment loss, for this particular computation, it will be assumed that fair value is equal to book value, as no fair value is provided. As a result, there is no impairment loss.
Figure 13. Calculation of U.K. Company Net Income
The second component of discontinued operations consists of calculating the gain or loss on operations. For the sake of this calculation, it will be assumed that the sale of the U.K. facilities will take place in 2016, thereby making the component “Available-for-Sale”. The gain or loss from operations will be computed by multiplying the previously calculated percentage of U.K. operations by the 2016 company net income or loss.
Figure 14. Calculation of Selling Price
34
Figure 15. Calculation of Gain/Loss on Disposal
Lastly, to calculate the gain or loss on disposal, I will subtract the selling price of the number of facilities being sold by the previously calculated Discontinued Operations Net PP&E book value. An approximate sales price per facility is 3132803 euros, so this price will be multiplied by the number of
U.K. facilities each company holds (Dodelet, 2008). The total selling price will then be subtracted by the book value, resulting in the disposal gain or loss.
After computing all three components of Discontinued Operations, the three components are summed up to reflect the cost of discontinuing the operations of this specific component, namely, the
AstraZeneca and GlaxoSmithKline facilities located within the United Kingdom.
To calculate the price of purchasing new facilities, the amount of facilities sold in the United
Kingdom for each company will be multiplied by the approximate sales price of the facilities.
The total relocation price will then be reflected by the summation of the EU facility purchase prices for each company, as well as the income or loss from Discontinuing Operations.
35 Chapter 7
Results
Limitations of Study
In this study, there were several limitations in regards to building the hypotheses behind the projection assumptions. As the Brexit deal, as well as the regulatory, trade, and immigration negotiations were still in progress during the research and writing process of this thesis, there are likely several more recent Brexit deal decisions that have not been reflected in the creation of the projections. The projections were created with the mindset of an analyst who was setting the conditions of a potential, and likely, “Soft
Brexit”. Due to the uncertainty of the time period, several of the assumptions utilized qualitative data, in addition to the comparative country quantitative data, to form the hypotheses as displayed in Chapter 5 –
Assumptions. The actual financial data displayed in this study reflects information throughout 2019 to accurately depict the financial state of AstraZeneca and GlaxoSmithKline leading up to the 2020 “Brexit” divorce. Additionally, when building the projected costs for relocation, the measure representing the
United Kingdom segment of operations was built from the percentage of European sales, and then from the percentage of United Kingdom facilities located in Europe.
“Soft Brexit” Cost Impact on U.K. Pharmaceutical Industry
After calculating the cost impact of “Soft Brexit” conditions on the United Kingdom’s pharmaceutical industry, namely, AstraZeneca and GlaxoSmithKline, two of the largest U.K.- headquartered pharmaceutical companies in the world, the tariff implications were calculated to sum a total of 77,056,854 euros over the years of WTO conditions for AstraZeneca, and 136,133,775.40 euros over the years of WTO conditions for GlaxoSmithKline. As it is hypothesized that the United Kingdom
36 will revert to not having pharmaceutical industry tariff impositions at the conclusion of trade agreement negotiations, there was a zero percent tariff impact for the last three years of the projection.
Relocation Cost Impact
After computing the cost of Discontinuing Operations of the United Kingdom-located facilities of
AstraZeneca and GlaxoSmithKline and summating the totals to the approximated purchase price of new facilities within the European Union, the total relocation cost for AstraZeneca was 182,246,089.69 euros, and the total relocation cost for GlaxoSmithKline was 423,072,325.98 euros.
37 Chapter 8
Conclusions
The goal of this thesis was to discover whether it would be more cost effective for pharmaceutical companies within the United Kingdom to continue operations under “Soft Brexit” conditions or to relocate to European Union member states. In order to do this, the potential cost impact of changes in regulations, trade, and immigration were researched, quantified, and assessed, and then the results were compared to the potential cost of relocating facilities to the European Union. These projections were applied to the financial statements of AstraZeneca and GlaxoSmithKline, two of the leading pharmaceutical companies located within the United Kingdom.
After assessing both projections, continuing operations within the United Kingdom under “Soft
Brexit” circumstances is the most cost-effective decision for pharmaceutical companies to take. While the thought of new regulations and tariffs may sound intimidating, after studying the regulatory, trade, and immigration relationships which the European Union and United Kingdom already hold, context hints that the post-divorce relationship with the United Kingdom may not be as severe as predicted. The capital costs of discontinuing operations and relocating far exceed the future WTO EU-U.K. tariff costs.
Therefore, it is more cost-effective for pharmaceutical companies, namely, AstraZeneca and
GlaxoSmithKline, to continue operations within the United Kingdom under the circumstances of a “Soft
Brexit”.
38 Appendix A
AstraZeneca Tariff Cost Impact
Figure 16. AstraZeneca Tariff Cost Impact Calculation
39 Appendix B
GlaxoSmithKline Tariff Cost Impact
Figure 17. GlaxoSmithKline Tariff Cost Impact Calculation
40 Appendix C
Calculation of Percentage of United Kingdom Operations
Figure 18. Calculation of Percentage of U.K. Operations
41 Appendix D
Relocation Cost Impact Calculations
Figure 19. Total Selling Price Calculation
Figure 20. 2016 Net U.K. PP&E or Book Value Calculation
Figure 21. 2016 U.K. Net Income/Loss Calculation
42
Figure 22. Loss on Disposal of Component Calculation
Figure 23. Total Relocation Cost Calculation
43 BIBLIOGRAPHY
About Icelandic Medicines Agency. (2020). Retrieved from https://www.ima.is/ima/about_ima/
Amadeo. (2020). How Europe Became an Economic Powerhouse. Retrieved from
https://www.thebalance.com/what-is-the-european-union-how-it-works-and-history-3306356
AstraZeneca. Retrieved from https://www.forbes.com/companies/astrazeneca/#796f25af6866
Astrazeneca in the UK. (2020). Retrieved from https://www.astrazeneca.co.uk/about-us.html
AstraZeneca PLC (AZNCF) Financials. (2020). Retrieved from
https://www.morningstar.com/stocks/pinx/azncf/financials
Bates, Ellingworth, Thompson & Williams. (2017). Retrieved from
https://www.abpi.org.uk/media/1371/the_economic_contribution_of_the_uk_life_sciences_indust
ry.pdf (Bates, Ellingworth, Thompson & Williams, 2017)
Canada-EU - international trade in goods statistics - Statistics Explained. Retrieved from
https://ec.europa.eu/eurostat/statistics-explained/index.php/Canada-EU_-
_international_trade_in_goods_statistics
Canada’s Merchandise Trade Performance with the EU after the Entry into Force of CETA. (2020).
Retrieved from https://www.international.gc.ca/trade-commerce/economist-economiste/statistics-
statistiques/eu-marchandise-ue.aspx?lang=eng
CETA explained. (2020). Retrieved from https://www.international.gc.ca/trade-commerce/trade-
agreements-accords-commerciaux/agr-acc/ceta-aecg/ceta_explained-aecg_apercu.aspx?lang=eng
Colchester, M. (2020). Brexit Divorce Deal Clears U.K. Parliament. Retrieved from
https://www.wsj.com/articles/brexit-divorce-deal-clears-parliament-
11579733889?mod=searchresults&page=1&pos=8 (Colchester, 2020)
Colson, T. (2020). The 6 possible models for Theresa May's Brexit Britain. Retrieved from
https://www.businessinsider.com/single-market-hard-brexit-possible-models-for-theresa-may-
brexit-britain
44 Constitutional Monarchy | Characteristics & Definition. (2020). Retrieved from
https://www.britannica.com/topic/constitutional-monarchy
Council of the European Union | European Union. (2020). Retrieved from https://europa.eu/european-
union/about-eu/institutions-bodies/council-eu_en
Countries | European Union. (2020). Retrieved from https://europa.eu/european-union/about-
eu/countries_en
Court of Justice of the European Union (CJEU) | European Union. (2020). Retrieved from
https://europa.eu/european-union/about-eu/institutions-bodies/court-justice_en
Cowell, A. (1998). Zeneca Buying Astra as Europe Consolidates (Published 1998). Retrieved from
https://www.nytimes.com/1998/12/10/business/zeneca-buying-astra-as-europe-consolidates.html
Decision-making during weekly meetings. (2020). Retrieved from https://ec.europa.eu/info/political-
leadership/decision-making-during-weekly-meetings_en
Dodelet, J. (2008). Construction and Start-Up Costs for Biomanufacturing Plants from
https://bioprocessintl.com/manufacturing/facility-design-engineering/construction-and-start-up-
costs-for-biomanufacturing-plants-182238/
Doing business - Tariffs and regulations – Norway – For Australian exporters - Austrade. (2020).
Retrieved from https://www.austrade.gov.au/Australian/Export/Export-
markets/Countries/Norway/Doing-business/Tariffs-and-regulations
Edgington. (2020). Brexit: All you need to know about the UK leaving the EU. Retrieved from
https://www.bbc.com/news/uk-politics-32810887 (Edgington, 2020)
EEA Agreement | European Free Trade Association. (2020). Retrieved from https://www.efta.int/eea/eea-
agreement
European Central Bank (2020). Retrieved from https://www.ecb.europa.eu/ecb/html/index.en.html
The European Council. (2020). Retrieved from https://www.consilium.europa.eu/en/european-council/
45 European Court of Auditors (ECA) | European Union. (2020). Retrieved from https://europa.eu/european-
union/about-eu/institutions-bodies/european-court-auditors_en
The European Free Trade Association. (2020). Retrieved from https://www.efta.int/about-efta/european-
free-trade-association
European Parliament. (2018). Single European Act. Retrieved from
https://www.europarl.europa.eu/about-parliament/en/in-the-past/the-parliament-and-the-
treaties/single-european-act
The European Union. (2020). Retrieved from https://europa.eu/european-union/about-eu/easy-to-read_en
European Union treaty signed. (2010). Retrieved from https://www.history.com/this-day-in-
history/european-union-treaty-signed
EU-Vietnam free trade agreement. (2018). Retrieved from
https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/628248/EPRS_BRI(2018)628248_E
N.pdf
EU-Singapore Trade and Investment Agreement. Retrieved from
https://trade.ec.europa.eu/doclib/docs/2019/february/tradoc_157684.pdf
The EU's trade and investment relationship with Singapore. Retrieved from
https://trade.ec.europa.eu/doclib/docs/2018/april/tradoc_156712.pdf
EU-Vietnam Trade and Investment Agreements. (2020). Retrieved from
https://trade.ec.europa.eu/doclib/docs/2016/june/tradoc_154622.pdf
Free movement - EU nationals - Employment, Social Affairs & Inclusion. (2020). Retrieved from
https://ec.europa.eu/social/main.jsp?catId=457&langId=en
Free Movement of Persons | European Free Trade Association. Retrieved from
https://www.efta.int/eea/policy-areas/persons
Free Trade Agreements. (2020). Retrieved from https://www.government.is/topics/foreign-
affairs/external-trade/free-trade-agreements/
46 From A to Z: A map for Selling to AstraZeneca. (2018). Retrieved from
https://blog.zymewire.com/post/from-a-to-z-a-map-for-selling-to-astrazeneca
Garel, Pascal. "Brexit and shortages." (2018): 291-291.
Gilbert. (2020). United Kingdom | History, Population, Map, Flag, Capital, & Facts. Retrieved from
https://www.britannica.com/place/United-Kingdom
GlaxoSmithKline PLC ADR (GSK) Financials. (2020). Retrieved from
https://www.morningstar.com/stocks/xnys/gsk/financials
Glossary of summaries - EUR-Lex. (2020). Retrieved from https://eur-
lex.europa.eu/summary/glossary/eu_institutions.html
A History of AstraZeneca. Retrieved from https://pharmaphorum.com/views-analysis-sales-
marketing/a_history_of-_astrazeneca/
Iceland | Culture, History, Maps, & Flag. (2020). Retrieved from
https://www.britannica.com/place/Iceland
Iceland Population (2020). (2020). Retrieved from https://www.worldometers.info/world-
population/iceland-
population/#:~:text=Iceland%202020%20population%20is%20estimated,(and%20dependencies)
%20by%20population
The impact of Brexit on the pharmaceutical sector - Business, Energy & Industrial Strategy - House of
Commons. (2018). Retrieved from
https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/382/38205.htm#footnote-171
Kazzazi, Fawz, et al. "Evaluating the impact of Brexit on the pharmaceutical industry." Journal
Kenton. (2020). Brexit Definition. Retrieved from https://www.investopedia.com/terms/b/brexit.asp
(Kenton, 2020)
Legislative Train Schedule | European Parliament. (2020). Retrieved from
https://www.europarl.europa.eu/legislative-train/theme-a-stronger-europe-in-the-world/file-eu-
47 vietnam-free-trade-
agreement#:~:text=Vietnam%2C%20a%20fast%2Dgrowing%20and,from%202012%20to%20De
cember%202015
Liberto. (2019). Hard, Soft, On Hold or No Deal: Brexit Outcomes Explained. Retrieved from
https://www.investopedia.com/hard-soft-on-hold-or-no-deal-brexit-outcomes-explained-4584439
(Liberto, 2019)
Lovegrove, S. (2020). Is the UK still a member of the EEA? | Financial services: Regulation tomorrow.
Retrieved from https://www.regulationtomorrow.com/eu/is-the-uk-still-a-member-of-the-
eea/#:~:text=The%20UK%20ceased%20to%20be,EU%20on%2031%20January%202020.&text=
Accordingly%2C%20the%20rights%20and%20obligations,States%20until%2031%20December
%202020.
Map of United Kingdom. (2020). Retrieved from https://www.nationsonline.org/oneworld/map/united-
kingdom-map.htm
Negotiations and agreements - Trade. Retrieved from https://ec.europa.eu/trade/policy/countries-and-
regions/negotiations-and-agreements/
Public funding and pricing. Retrieved from https://legemiddelverket.no/english/public-funding-and-
pricing
Reality Check: How many EU nationals live in the UK?. (2016). Retrieved from
https://www.bbc.com/news/uk-politics-uk-leaves-the-eu-36745584
Roscini, D., Schlefer, J., & Dimitriou, K. (2017). The Greek Crisis: Tragedy or Opportunity?. Harvard
Business Review.
Sandford, A. (2020). Brexit Timeline 2016–2020: the UK’s path from referendum to EU exit. Retrieved
from https://www.euronews.com/2020/01/30/brexit-timeline-2016-2020-key-events-in-the-uk-s-
path-from-referendum-to-eu-exit
48 Singapore - Trade. Retrieved from https://ec.europa.eu/trade/policy/countries-and-
regions/countries/singapore/
Smith, E. (2020). Bank of England Governor Bailey denies outlook is optimistic, warns that parts of the
economy are ‘not viable’. Retrieved from https://www.cnbc.com/2020/08/06/boe-governor-
denies-outlook-is-optimistic-warns-parts-of-economy-not-viable.html
Stewart, C. (2020). Leading pharmaceutical companies in the UK 2018 by market share. Retrieved from
https://www.statista.com/statistics/956282/leading-pharmaceutical-companies-market-share-
united-kingdom-uk/
Tardi, C. (2019). Reading Into Discontinued Operations. Retrieved from
https://www.investopedia.com/terms/d/discontinued-
operations.asp#:~:text=In%20financial%20accounting%2C%20discontinued%20operations,opera
tions%20on%20the%20income%20statement.
Tariff - Import duties. (2020). Retrieved from https://www.britannica.com/topic/tariff/Import-duties
The UK Pharmaceutical Industry Braces for Brexit. (2020). Retrieved from https://www.the-
scientist.com/news-opinion/the-uk-pharmaceutical-industry-braces-for-brexit--64926
The UK Pharmaceutical Sector - An Overview. (2020). Retrieved from https://globalambition.ie/wp-
content/uploads/2020/03/Enterprise-Ireland-Report-UK-Pharmaceutical-Manufacturing-Sector-
Overview.pdf
U.K. Votes on “Brexit” from EU. (2020). Retrieved from https://www.britannica.com/story/uk-votes-on-
brexit-from-eu
United Kingdom GDP | 1960-2019 Data | 2020-2022 Forecast. (2020). Retrieved from
https://tradingeconomics.com/united-kingdom/gdp
Vietnam Trade and Investment Agreements. (2019). Retrieved from
https://trade.ec.europa.eu/doclib/docs/2016/june/tradoc_154622.pdf
49 Ward, M. Statistics on UK-EU trade. Retrieved from https://commonslibrary.parliament.uk/research-
briefings/cbp-
7851/#:~:text=The%20share%20of%20UK%20exports,with%20the%20EU%20in%202019
What is the European Parliament? | News | European Parliament. (2020). Retrieved from
https://www.europarl.europa.eu/news/en/faq/16/what-is-the-european-parliament
What We Do - European Medicines Agency. (2020). Retrieved from
https://www.ema.europa.eu/en/about-us/what-we-do
Worldwide. (2020). Retrieved from https://www.gsk.com/en-gb/contact-us/worldwide/?r=Europe&p=2
Written Evidence from AstraZeneca. (2017). Retrieved from
http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/business-
energy-and-industrial-strategy-committee/leaving-the-eu-implications-for-the-pharmaceuticals-
industry/written/74274.pdf
Xu, Jianwei. "The pharmaceutical industry is at risk from Brexit." LSE Brexit (2017).
ACADEMIC VITA
ANN M. PUTHUMANA
EDUCATION
The Pennsylvania State University | Schreyer Honors College University Park, PA Smeal College of Business | Integrated Masters of Accounting (MAcc) Program Class of Dec 2020 Integrated MAcc Program | Coursework Emphasis in Data Analytics
Institute for American Universities Aix-en-Provence, France The School of Business & International Relations | Education Abroad Program Class of Jul 2018
PROFESSIONAL EXPERIENCE
PricewaterhouseCoopers San Francisco, CA Virtual Forensic Consulting Intern July 2020
• Shadowed associates within the Cyber, Privacy, and Forensics practice in order to gain insights and skills regarding various forensics investigations, deals, and disputes • Earned certification in Human Centered Design to identify opportunities to design products, services, and experiences, and put people at the heart of solving problems by involving human perspective
Krause Innovation Studios University Park, PA Innovation Consultant Aug 2019 – Present • Provided technical support to professors, administrators, and students in the Penn State College of Education and regulated student studio use to better enhance the learning environment at the Krause Innovation Studios
State Farm Bloomington, IL Financial Operations Intern May 2019 – Aug 2019 • Designed and distributed Monthly Dashboard Summary by utilizing Microsoft Excel and Publisher to display payment metrics and monthly trends within the Treasury Services Department • Built a “PEP+ Checklist” in order to increase the amount of internal control in the ACH Payments process • Collaborated with financial analyst team to create Treasury Service’s monthly Card Acceptance Report by extracting financial data from core bank websites, payment applications, and State Farm Bank
LEADERSHIP EXPERIENCE
Schreyer for Women University Park, PA Internal Engagement Chair | Director of Career Development Jan 2017 – Dec 2019 • Created and managed social media accounts on Facebook, Instagram, and Twitter, gaining over 200 subscribers, to increase club awareness and communicate upcoming events within the Schreyer community • Hosted various career-oriented workshops and speaker events to enhance professional skills of members
Alpha Kappa Psi Co-Ed Professional Business Fraternity University Park, PA Fundraising Chair | Merchandise Chair Sep 2017 – May 2020t • Cooperated with a co-chair to coordinate numerous fundraising events within the State College area, raising over $200 in order to aid in the expansion of the business fraternity’s professional budget • Partnered with external clothing manufacturers to design and sell $1000 worth of merchandise to the brotherhood in order to promote and expand the business fraternity’s presence on campus
Penn State Smeal Ambassadors University Park, PA Director of Internal Development Sep 2017 – May 2020 • Acted as guide for prospective students, alumni, and donors by providing monthly tours of the Business Building to provide information regarding all opportunities the Smeal College of Business has to offer • Attended monthly meetings to be trained by experienced student ambassadors and stay updated on ongoing Smeal events in order to provide the most up-to-date tours of the college
Schreyer Student Council University Park, PA Recruitment Committee Apr 2017 – Dec 2018 • Informed over 500 prospective students of the opportunities presented by the Schreyer Honors College by speaking on numerous student panels to increase number of applicants and assist Schreyer Admissions Office
SKILLS, HONORS, CASE COMPETITIONS AND INTERESTS • Skills: Intermediate Knowledge of Italian, Microsoft Office (Excel, Access, PowerPoint, Outlook), SQL, VBA, Tableau, SAP, ACL • Honors: Academic Excellence Scholarship, Robert W. Koehler Accounting Scholarship, Penn State Provost Scholarship, Dean’s List • Case Competitions: PwC Challenge Case Competition (2017, 2018), KPMG Innovation and Collaboration Challenge (PSU Finalist – 2018), Deloitte Consulting Case Competition (PSU 2nd Place Finalist – 2019) • Interests: Ballet, American Greed, International Cuisine, Classical Music, Stand-Up Paddleboarding, Gone Girl, Visiting Museums