In a survey conducted by PricewaterhouseCoopers and published in March 2008, a quarter of pharmaceutical executives expressed a major concern about the indirect costs of compliance with REACH (Registration, Evaluation, Authorization and Restriction of Chemical Substances). Under REACH (implemented June 2007), companies must assess and manage the risk posed by the chemicals and substances they produce or market and provide data for the users of the chemicals.
REACH replaces a network of directives and regulations regarding chemicals that had evolved over many years. These had become complex, with inconsistencies between member states, and provided little safety data or information on chemical use, so the EU designed REACH to streamline the process and fill the gaps. (For more information on REACH, read the sidebar at the end of this article.)
According to KPMG, some experts have suggested that compliance with REACH may cost several billion euros. “We are really only finding out about the costs of REACH now,” explains Dr. Joanne Lloyd, Ph.D., of the information provider REACHReady (www.reachready.co.uk), a wholly owned subsidiary of the Chemical Industries Association. “The ECHA [European Chemicals Agency] originally thought that there were about 30,000 substances relevant to REACH and expected to get about 180,000 preregistration applications in the first six months. Instead, it received around 2.7 million preregistration applications, relating to about 150,000 substances.”
The Impact On Pharmaceutical Companies
REACH exempts certain groups of substances from registration. One specifically relevant to the pharmaceutical industry is that APIs (active pharmaceutical ingredients) and excipients are exempt if they have already been registered with the EMEA (European Medicines Evaluation Agency) as an ingredient of a medicinal product for human or veterinary use.
Another exemption that is important for companies involved in R&D is that substances that are part of product and process-oriented research and development (PPORD) are exempt from registration for 5 years, which can be extended for a further 10 years for medicinal products.
Intermediates that are fully used up by conversion into either another intermediate or the final molecule are also exempt from registration, and the company only has to prove safety. As these substances are exempt, implementation of REACH should not affect their prices. However, the pharmaceutical industry does use substances that don’t fall into these exemptions, and these must be registered if their manufacture exceeds the one metric ton per year limit, such as starting materials, growth media for organisms, or reagents used in processing. This may have cost implications for buyers within the industry, whether in the EU or outside. As otherwise exempt substances are subject to the REACH regulations for nonmedical purposes, manufacturers may decide to pass on their increased costs to both medical and nonmedical customers. The knock-on effect, if this does happen, will be increased costs to the end user of the pharmaceuticals or reduced profits for the industry.
There are concerns that REACH will affect the availability of certain chemicals, including those that pharmaceutical companies rely on for drug development or production. According to the PricewaterhouseCoopers survey, pharmaceutical executives say supply chain disruptions are the greatest risk posed by REACH. These disruptions could be temporary where companies have simply missed the preregistration deadline of Dec. 1, 2008 and have to prepare a full registration dossier before they can produce and market the substances in the EU. However, there may also be substances where there is little existing data or where there is only one company producing the substance, so that there is no one to share the costs of the data. Because of the REACH requirements for information, it may simply not be cost-effective to carry out the trials and the level of testing and information collation required.
“If there is little or no data available for a particular substance, it could cost up to 2 million euros [approximately $2,687,000] to conduct the tests and gather and share the information,” says Dr. Lloyd. “However, if the company has the data or there are other companies producing the same substance, so that they can share the data collation and dissemination, the costs may go down to around 50,000 euros [approximately $67,000].” This could lead to the particular substances either no longer being available, or being available from only a limited number of suppliers, driving the costs up.
“Pharmaceutical companies may also be concerned about the loss of confidentiality associated with sharing data with their competitors about their research, development, and manufacturing,” says Dr. Lloyd. “However, they can pay an additional fee and claim confidentiality, so they don’t have to share as much information.”
How Does This Affect The United States?
Though the regulations only apply in the EU, the direct impact could reach beyond to the United States (and the rest of the world). According to the PricewaterhouseCoopers survey, companies in the United States were generally less informed about REACH than those in Europe and Asia Pacific.
Under the terms of REACH, non-EU companies that wish to import nonexempt substances produced at levels over one metric ton/year into the EU will need to register them. “The preregistration process is required if companies will secure access to the EU market,” says Hans Schoolderman, director of sustainability & climate change services, PricewaterhouseCoopers Netherlands.
Companies based outside the EU cannot themselves register or preregister chemicals and must use an “only representative” for this process. These are individuals or companies who must be based in the EU, and who are empowered to act on behalf of the non-EU company, and create and submit the required documentation. These people also participate in the SIEF (Substance Information Exchange Forum) on behalf of U.S. companies. There is some concern that this adds an extra step to the process, increasing costs, as well as increasing the risk of security breaches.
There could also be an indirect impact on the U.S. pharmaceutical industry, as substances required for drug development and manufactured by EU-based companies make their way through the REACH registration process and hit the U.S. market, potentially bringing higher costs with them. They could even be withdrawn from the market because the costs of the studies required by REACH make the whole process no longer economically viable. As a result, companies within and outside the EU may have to make changes to products and processes.
Could Something Similar Happen In The United States?
A number of U.S. Democrat politicians, including Senator Barbara Boxer and Representative Hilda Solis, have called for testing requirements similar to those of REACH in the United States or even have suggested a similar regulatory system. However, this has seen opposition from industry bodies like the Society of Chemical Manufacturers and Affiliates (SOCMA), which has described REACH as “monolithic.”
Jim DeLisi, president of Fanwood Chemical, Inc., a SOCMA member, believes that implementing a system like REACH would hamper innovation and have a negative effect on the existing work put into managing risk by federal regulators and the chemical industry, saying there are already sufficient regulatory powers in place. “Existing EPA regulations and voluntary initiatives are sufficient, and far more appropriate than REACH, to control possible hazards and still preserve the sustainability of America’s third largest manufacturing industry,” says DeLisi. “Americans cannot afford to emulate this unproven, highly bureaucratic approach to chemical regulation, especially when we already possess a system that has proven its mettle and needs only revitalization.”
According to Dr. Lloyd, it’s possible that if companies can gain the rights to data in the SIEF, this could be shared in similar regulatory processes elsewhere in the world. “The rest of the world is looking on at the EU — we could be thought of as the guinea pigs.”
The REACH regulations could work both ways for the industry in the EU and in the rest of the world, having an effect on all parts of the chemical supply chain, both producers and users. The rules could improve communication and speed innovation, but they could also increase bureaucracy and costs and reduce access to substances needed for pharmaceutical development. It’s still too early to tell which will be the case — so, the jury is still out on REACH and its impact in the United States, making this a hot topic for life science executives to closely monitor.
What is REACH?
In June 2007, the REACH (Registration, Evaluation, Authorization and Restriction of Chemical Substances) regulations came into force in the European community. Under REACH, companies must assess and manage the risk posed by the chemicals and substances they produce or market and provide data for the users of the chemicals.
REACH replaces a network of directives and regulations regarding chemicals that had evolved over many years. These had become complex, with inconsistencies between member states, and provided little safety data or information on chemical use, so the EU designed REACH to streamline the process and fill the gaps.
The European Chemicals Agency (ECHA), based in Helsinki, Finland, manages REACH. The ECHA acts as the coordinating body, with the member states evaluating chemicals and preparing the proposals for classification, restriction, and authorization. The European Commission itself makes any decisions on authorizations and restrictions. According to the ECHA, the aim of REACH is to protect the environment and the health of individuals by identifying the properties of substances manufactured and/or marketed in the EU or substances manufactured outside of the EU and imported into the region.
Companies had from June 2008 until December 2008 to preregister, and those that have successfully completed preregistration benefit from extended deadlines for submitting their completed registration dossiers – November 2010 for substances produced or imported at over 1,000 metric tons/year and certain toxic compounds; May 2013 for substances over 100 metric tons/year; and May 2018 for substances over 1 metric ton/year. Any companies that did not meet the December 2008 deadline but that wish to manufacture in or import into Europe cannot do so until they submit complete registration dossiers.
According to the ECHA, by requiring information and assessment of substances that could risk health, REACH should allow for better risk management and more effective regulatory intervention where needed. The ECHA predicts a reduction in healthcare costs as a result of REACH, because improved information should lead to a decrease in chemical exposure-related disease and death.
REACH is expected to lessen the need for duplication of tests by encouraging companies using the same chemicals to share data through the SIEFs (Substance Information Exchange Forums). This could reduce product development costs, as well as the costs involved in REACH, and should speed up innovation, supporting and improving industry competitiveness.
The reduction in duplication should also lower the number of animals used for in vivo (i.e. within a living organism) testing. Companies will also have to submit testing proposals to the ECHA, which will decide whether the studies are necessary or whether the data can be provided from results of tests of similar compounds or from computer modeling. Having the ECHA as a central regulatory agency will improve consistency and remove the risk of any regional or national bias.