Thursday 13 th December 2012. Ian Pepper; Biotactix Consulting Ltd.

1. The impact and outcomes of the demands of the BPD, (and now the BPR ) on the various sectors of the Biocides Industry, the lessons learnt... and experience to date of coping with the changes. Thursday 13th December 2012. Ian Pepper; Biotactix Consulting Ltd.

2. 2.The Biocidal Products Directive-The impact to date on the Industry sectors. 1. An Industry Contraction in the Formulating Sector. - A very significant shift in their way of doing business is taking place with many formulating companies anticipating they will have to leave the market in 5 to 10 years. The relationship between formulator and the A.S . supplier is radically changing with supply agreements becoming a key requirement for access to A.S. dossiers. 2. A significant consolidation of the Active Substance ( A.S.) manufacturers is occurring. - A significant reduction in the number of A.S. Manufacturers left in the market through consolidation is happening as they look at their portfolios and take strategic decisions on how best to stay in business....i.e. go direct ...or through formulators. 3. A reduction in Product Numbers is starting to impact on users. - A recent Industry Survey indicated a potential drop in the number of products on the market today. Some say there will a reduction of at least 30% post completion of Annex 1 Inclusions. Most of these will be ’casualties’ from the SME sector. PT 1 Down 35% PT 2 Down 24% PT 3 Down 22% PT 4 Down 38% PT 5 Down 12% There is still no confirmed number of the products available which will require Authorisation in the EU, but estimates put the total figure in the market at 150,000. Germany, Holland and the UK know they have approximately 48-50,000 to evaluate. Of these it is thought that up to one third will not be supported. Of all applications for product authorisation to date, the HSE has handled half of them .

3. 3. The impact to date on the Industry sectors to date...continued • The greater demands and costs is causing a ‘distortion ’ in the markets. - The surviving Product Authorisation Holders will be the largest companies, whilst the SMEs who have less marketing flexibility and less ability to absorb costs, will have to seriously rationalise their ranges resulting in much less product choice and a significant increase in prices for the consumer. 5. The market freeze during the evaluation period is delaying innovation. - The inability for companies to change and innovate their products once the active has entered Annex 1 has proved very difficult and has resulted in a ‘freeze’ on innovation. The Transitional Provisions of the change in many countries from their own National rules to those of the new BPD have been found to be unnecessarily restrictive. • The overall impact of free riders and additional costs are threatening all businesses. - There is a slowly increasing recognition that fees, marketing restrictions, problems with Mutual Recognition and increasing complexities in the move from BPD to BPR are potentially too challenging for the biocides sector and help is needed to redress the balance and make the whole process of product authorisation more proportionate and affordable for all companies.

4. 4. A look at the origins of the BPD from the 1990s • BPD Product Types 1 to 23 encompassed a broad spectrum of business types, but a ‘one –size fits all’ approach was taken, largely based on the previous Plant Protection legislation. • Because many EU countries already operated pesticide national registration schemes and the companies in those markets were generally appropriately resourced, this approach ‘worked’ for the crop protection industry. • It was not recognised that the Biocides sector was fundamentally different as it contained many more smaller companies which were selling products not requiring product registration and they were therefore unfamiliar and unaware of the requirements to be implemented under the BPD. • Product types 1 to 5 producers have not been recognised as particularly vulnerable as the process of product registration is often completely alien to many and some are not sufficiently resourced or currently competent to be able to do the work ‘in-house’ themselves. • The necessary up-scaling of their costs and the investment required just to stay where they are is potentially dangerous to their cash-flow and any finance against assets is extremely difficult and often impossible. Funding externally is therefore not an option. • The ‘Time to Market’ for this sector’s innovations is so long in the EU that some potential investors ‘walk away’ and instead look to the US and other countries where they can obtain entry to the markets far more quickly. ( AIM Position ; recent downturn in the bio-sector sector shares blamed on the EU ‘blocks to market.’)

5. 5. Why has this happened ? Distinctions between two markets. • Global Crop market... £40-45 Bn. Global Non-Crop market ...£11.2 Bn. • ( Crop includes all ag, horticulture, turf, forestry, industrial and amenity. Non –Crop includes Timber, Pest Control, Public Health and ‘consumer’ which has an estimated value of £7.2 bn.) • Europe is estimated at approximately 25% of the global market ...£2.8 bn. • Within the EU, Pest Control sales are approximately £260m. This is a sales average of £9.6m per country. (UK is approximately £13m.) • Germany has over 35,000 products alone, so if ‘say’ 100,000 are to be authorised in the EU, each product has to fund the costs out of £28,000 average turnover generating perhaps £14,000 annual profit at 50% margin • In Agriculture there are few SMEs with a large % share held by the top ten companies. In the Biocides sector, estimates put the SME share at 90 %. • Several hundred companies are therefore ‘chasing’ a market with a value a quarter of the size, ....but with costs per product at least as high. • There is therefore a non –sustainable and disproportionate cost burden on small companies who have little prospect of staying in business and the outcome will be a shift in the market to larger companies with the eventual demise of the SME sector....unless something changes.

6. 6. So how do we deal with these issues...keep calm and carry on? Key questions to ask when developing a regulatory marketing strategy... • 1. Is this a Market I want to be in and can I afford to be in it ? • 2. Could my business survive without selling biocides into this market? • 3. Is there any I.P. of any specific added value in my formulation ? • 4. Do I need to be an Authorisation Holder to continue to do business ? • 5. What is my relationship with my A.S. Supplier, does he know me and will he give me an LoA ?. • 6. Where do my key strengths in my business lie? My market knowledge and customer base ... or my innovative formulating abilities ? • 7. Do I know the true cost of seeking Authorisation and do I have the intellectual ‘know-how’ and the financial resolve to fund it ? • 8. Do I have the capability to maintain the investment in the on-going regulatory support and maintenance plus future product innovation ?

7. 7. Do I know the key requirements and have a strategy in place ?A simple first- steps approach for the assessment of the product’s market position and the likely regulatory demands... • 1. Market Analysis; company position. L.O.A.s • 2. Feasibility Study; cost /benefit analysis. • 3. Data audit; current information and owners. • 4. Gap analysis; end-points and work required. -Covering the relevant and applicable product analytical, toxicological, storage stability, efficacy and environmental areas. • 5. Data sourcing and supply...costs and time. • 6. Dossier Construction....who by, costs and time. • 7. Case Presentation; reasons and positions.

8. 8. And what can we learn from those who have gone before ? The Industry experience of the BPD to date. 1. Product Authorisation issues... -Many MS are missing the deadlines for granting product authorisations. -There are no timelines set or given in the BPD text for new product authorisations...so there is no deadline to meet. -There can be outstanding data requirements set in the active substance CA Report that applicants may miss and which have to be satisfied before the Authorisation is granted. - Requirements such as GLP for certain studies are still being discussed and there is ambiguity. - The conditions set in the specific provisions given in the Annex 1 Inclusion are sometimes overlooked so that the conditions of use may not be covered for the product applied for. -Applicants can have considerable difficulty writing product dossiers without access to document IIA. B and C of the dossier on the active substance, as the rationale on the risk characterisation is not always sufficiently evident to allow a new estimate for a different product to be generated.

9. 9. The Industry experience to date...continued Mutual Recognition issues... • The choice of the Lead MS is very important as any limitations will be ‘embedded’ elsewhere. • For each MS in the process a separate LoA is required for each application, which all takes time. • R4BP2 had significant problems at introduction, the data required at the start is now far more detailed and system is not good for tracking submission ...although the ‘help team do help’. • The two month window for Industry to lodge applications with all required documentation and sometimes certified translations in all 27 MS ( plus others ) is almost impossible and there is no flexibility allowed to miss the target..and if you do you are off the market. • Some MS re- review the data and re-interpret and sometimes set additional data requirements... resulting in conflicting and additional demands. • There are still debates about confidentiality and the content of the SPC which it is argued by some...should be seen in it’s entirerity by any Authorisation Holder for that product. • Some have reported a lack of transparency in the evaluation with little feed-back on how applications are progressing. • Changes to the formulations of products on the market under National rules and which are being supported, have not been allowed in most MS... although some have allowed some minor alterations such as changes to perfumes, dyes or to the inert co-formulants. • Some flexibility and recognition of the marketing requirements is being seen where the same product has the same Authorisation Holder, but different names with the same number ...and other situations where the same product has different Authorisation Holders, but with different names and different numbers. In such cases if the product is the same , and no technical evaluation is required , then the cost of Authorisation should be minimal and applied just to cover the cost of the administration of the process

10. 10. What must the biocides sector do to meet the challenges it faces ? • We need to create INITIAL awareness, then offer advice and get recognition of the likely commercial threat of the BPD in a dialogue with any ‘regulatory’ staff, but more importantly the sales, marketing and finance directors who ‘shape’ the business and control the purse strings. • Offer basic training to in-house staff so they have an understanding of the principles and they get to know what questions they need to ask. • Active substance suppliers who decide not to go to the market themselves need to better inform their downstream formulators of the requirements and offer practical support in the product authorisation process in return for reasonable supply agreements. • Trade Associations and Regulatory Authorities should be more pro-ACTIVE in taking the message out to the SME sector that times are changing and the BPD / BPR WILL happen with the better use of help-desks, better staff availability for meetings with applicants ...and a prompt response time to enquiries with set service standards. • Take every opportunity to try to reduce the complexities of the product authorisation process by reducing jargon and by simplifying and explaining what is happening, rather than continuing to add to the confusion by generating more complexities and uncertainties. • Reduce the evaluation periods and improve the time to market by better resourcing in the Member States, allow more pragmatism and develop better inter-Member State harmonisation in product dossier assessment. • Facilitate consortiums of formulators to share resources and costs where common goals are achievable and where they fit the individual company marketing strategies. Joint Authorisation as a concept could address many of these areas... if managed correctly.

11. 11. What could the authorities do to help the sector meet the challenges ? 1. Address the disproportionate cost and payment terms as the current projections are largely untenable in terms of fees and dossier production. WHY?Many do not have the large volumes of sales to provide the funds necessary to meet the costs and therefore do not enjoy the economies of scale available to the larger companies. In addition the time to market reduces the appeal to investors. 2. Be clear and unambiguous in the advice and guidance on what has to be done and by when....and do not move the goal posts without considering the impact. WHY ? Uncertainty loses confidence and reduces shareholder value in a business. If the projected financial plans cannot be firmed up and the ‘time to spend’ is not known, then the return on capital is questionable. In addition, cash flow in small businesses is always a problem, unlike larger companies where the effects of spending can be buffered by other parts of the business. 3. Ensure effective enforcement of the regulations is applied fairly and consistently WHY ? Regulation can ‘clean up‘ industries and have positive effects, but where companies comply they should be rewarded by being able to trade in an environment free from competitors who avoid the costs and can therefore can sell more cheaply. 4. Reduce the over- emphasis on efficacy evaluation and follow the model where the market is left to decide. If a product can be used safely without negative effects the efficacy evaluation should be minimal. WHY ? The data requirements all contribute to the overall costs, and as at present, there is little efficacy evaluation required in most Members States for many PTs ...and the market functions adequately, ...so where is the evidence of harm and why is there the need now?

12. 12. The future is... ‘The new European Regulation on Biocides’ • Problems were identified with the current regime of the BPD... • - Long delays • - Few active substances yet approved • - High compliance costs...especially for SMEs • - Large numbers of products/actives withdrawn from the market. • And... • Mutual Recognition not mutual. • High complexities of dossiers and clarity of requirements was not good. • Computerisation unreliable. • Free-riding resulted in a badly skewed market for participants. • Evaluation duplication...product dossiers should have gone to the A.S.Rapporteur.

13. 13. ...And what will change ? • Active Substance ‘Approval’ and a data owners list. • Union Authorisations. • Product families. • Mutual Recognition...in parallel and sequence. • Data- sharing and waiving. • Simplified Authorisation Procedure...and a new Annex 1. • Scope changes-treated articles, in situ, nano materials. • Parallel trade. • Access to active data package during transitional period. • And .... • Better guidance, more pragmatism and smoother faster evaluation procedures at a lower cost ?

14. 14. What will be the eventual likely outcome for the biocides sector ? • The biocides sector is an important contributor to Industry as an innovator, employer and is a true growth area. • Many see the formulators as a key route to the market for many manufacturers and thereby provide choice and competition in the market place. ...all of which is good for the end –user. • However, with many formulator companies and ‘toll manufacturers’ still in denial or unaware of the implications of the BPD, many will be ill-equipped to survive on their own....and some may simply decide to leave the sector. • Many have not yet taken steps to build a relationship with their A.S. Supplier, with many incorrect assumptions being made. • For those that choose to remain if they are unable to achieve a critical mass and harness the resources necessary to meet the challenge, it is feared that they will follow the same route as in many other sectors when faced with major change to their cost structure...unless a creative solution to the problem is found. • The question remains therefore how can we maintain a sustainable position whereby the sector can continue to function largely with the same characteristics as it does today and how it can be enabled to continue to deliver the benefits already discussed in this presentation.

15. 15. Or.... • Will we have succeeded in spending most of our time protecting people from biocides rather than ensuring people are protected by biocides? • Thankyou for listening. • For questions... • Ian.pepper@biotactix.com UK; tel 0044 1903 774520