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Brexit: the Impact on the Life Sciences Industry
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Date
16 March 2017

Brexit: the Impact on the Life Sciences Industry

Following the referendum vote that the UK should leave the EU, the political landscape has been fast developing. Current indications are that notice under Article 50 will be given by the end of March 2017, thereby triggering the two year period (which may be extended) during which the UK and the remaining EU Member States will negotiate the UK's withdrawal. Recent statements from the Government and the Prime Minister suggest that the UK is moving towards a 'hard Brexit scenario', i.e., one that does not involve European Economic Area (EEA) membership or membership of the EU Customs Union. Instead, it seems likely that the exit model will comprise some form of bilateral free trade arrangement with the EU (perhaps with a transitional arrangement). If no such agreement can be reached, however, the future relationship will be subject to World Trade Organisation terms. 

Clearly, much will be debated over coming months and the full impact on industry generally, and specifically the life sciences industry, will continue to unfold. However, the recent White Paper on Exiting the European Union repeated the Prime Minister's 12 priorities which are said to be guiding the Government, the 10th of which was "ensuring the United Kingdom remains the best place for science and innovation". The industry will be hoping that it is high on the Government's agenda during the Brexit negotiations.

Impact on the life sciences regulatory environment

The life sciences sector is subject to significant levels of regulation, much of which is derived from EU Directives and Regulations. Directives are implemented in national laws, whereas Regulations have direct effect, and so national implementing legislation is unnecessary. Until the UK leaves the EU, it remains 'business as usual'. 

However, on 'Brexit day', existing EU laws, including Regulations, will be apparently transformed into UK laws through the mechanism of the 'Great Repeal Bill' (although this may not be straightforward, particularly where those laws require reciprocity). As the Prime Minister put it: "this will give the country maximum certainty as we leave the EU. The same rules will apply on the day after Brexit as they did before. And it will be for the British Parliament to decide on any changes to that law after full scrutiny and proper Parliamentary debate".

If, due to the exit model that is agreed, the UK is not required in the future to implement or maintain EU rules, the UK approach could be reviewed and modified over time, and potentially diverge from the EU regime. However, whilst in some areas this might be seen as presenting an opportunity for improvement (for example, in relation to the Supplementary Protection Certificate regime), the life sciences industry will want to avoid additional regulatory burdens and expense. 

Currently, the UK courts refer questions of interpretation of EU law to the European Court of Justice.  Again, in a hard Brexit scenario, we may expect that the UK Courts will, over time, perhaps begin to take a different approach to the CJEU on significant issues of interpretation, albeit decisions of the CJEU are likely to remain influential on the UK courts.

Clinical trials

A new EU Regulation on clinical trials, which modernises and streamlines the EU clinical trials framework, is due to come into operation in 2018. As a Regulation, it will have direct effect in the UK until it leaves the EU. Post-Brexit, if the UK is unable to participate in the new regime, pharmaceutical businesses may be subjected to extra regulatory and administrative requirements when conducting multi-centre clinical trials in the EU and the UK (although mutual recognition procedures may be negotiated).

Marketing authorisations for medicinal products

The European Medicines Agency (EMA) provides a mechanism to obtain a single marketing authorisation for a medicine by making one centralised application. EU law also provides for a mutual recognition procedure and a decentralised procedure of national authorisations. There is separately a national procedure for those medicines that are not mandatorily covered by the centralised procedure and which are intended to be marketed in the UK.

Post-Brexit, a system that requires life sciences companies to obtain separate authorisations in the UK and the EU will increase the regulatory burden. In August 2016, the Medicines & Healthcare Regulatory Authority (MHRA) issued a statement entitled "MHRA and making a success of Brexit" in which it stated that "playing a full, active role in European regulatory procedures for medicines remains a priority…". It is to be hoped therefore that the MHRA will remain part of the centralised and decentralised regulatory procedures.

The MHRA also stated that its role in regulating medical devices and in vitro diagnostic devices "remains integral" and that its preparations to implement the proposed new EU Regulations for Medical Devices and IVDs continue. These Regulations are expected to be adopted in 2017, so will apply to the UK (and, it is assumed, will continue to apply under the Great Repeal Bill).

The position of the EMA, in particular in relation to its location (it is based in London with 890 employees), is also interesting. Many pharmaceutical businesses currently base their European operations in the UK due to proximity to the EMA. A number of Member States - including, reportedly, Denmark, German, Ireland, Italy, The Netherlands, Spain and Sweden - have expressed an interest in hosting the EMA post-Brexit. The EMA meanwhile has issued a statement that it "welcomes the interest expressed by some Member States in hosting the Agency in future. EMA is confident that the Member States will make the most appropriate decision on the Agency's location and arrangements, taking the complex political and legal environment generated by the outcome of the UK referendum into account". The location of the EMA will also impact on companies' pharmacovigilance reporting processes.

Manufacturing quality

There are also EU rules relating to quality standards for medicinal products. Even in a hard Brexit scenario, it is very likely that the UK would maintain recognised international standards of good clinical practice (GCP), good manufacturing practice (GMP) and so on, in order to facilitate exports and imports of medicines.

Research & Development

Post-Brexit, companies based in the UK would in principle have no access to the EU R&D funding programmes from which they have benefited considerably to date, although many businesses do of course also have operations elsewhere in the EU. If the UK Government cannot match any lost funding, the UK's position as a research and development hub, particularly in the life sciences sector, could be jeopardised.

Impact on IP rights

Intellectual property law is substantially harmonised across the EU, in the form of a series of EU Regulations and Directives.  Whilst the effect of the Great Repeal Bill will be that these EU laws will be incorporated within UK law on Brexit, it is possible that over time the UK could decide to amend or repeal aspects that are considered to be particularly problematic.  Provision will also be need to be made to deal with the preservation of EU-wide rights such as the EU Trade Mark and Registered/Unregistered Community Design.  Businesses in the life sciences sector should keep an eye, in particular, on the ongoing developments relating to the Unitary Patent and Unified Patent Court and possible developments in relation to SPCs and parallel imports.

Patents and the proposed Unitary Patent and UPC

Patents and the proposed Unitary Patent and UPC The existing system for obtaining and enforcing European Patents under the European Patent Convention will not change. Immediately post the referendum vote, there had been considerable doubt as to whether the UK would participate in the proposed Unitary Patent and Unified Patent Court (UPC) regime. However, in November 2016, the UK Government made the surprise announcement that it was proceedings with its plans to ratify the UPC Agreement. The UK and German ratifications (constituting the final mandatory ratifications) are now expected shortly. Italy has recently become the 12th Member State to ratify. Accordingly, once the UK and Germany have ratified, the UPC can come into effect.

In terms of timescales, depending on the timing of the UK and German ratifications, it appears possible that the UPC will be open for business in December 2017, with the first unitary patents also being granted from that date.

Importantly, the UPC Preparatory Committee has also indicated that the likely start date for the sunrise period, during which holders of existing standard European Patents can opt them out of the UPC's jurisdiction (see more on this issue in our recent edition of Inside IP), will be in September 2017. This will give at least three months to lodge opt-outs before the UPC opens. Patent and SPC holders must crystallise their opt-out strategies now, particularly given the potentially complex due diligence that may be needed for some portfolios. Failure to register an opt-out before the new court commences could lead, on day one, to a pan-EU revocation action.

Post-Brexit, it remains unclear whether the UK can continue to participate in the UPC and whether unitary patents will continue to extend to the UK. This requires resolution of issues such as the extent to which continued participation in the UPC would require the UK to submit to the supremacy of EU law, and the jurisdiction of the CJEU, at least in relation to patent matters.

Supplementary protection certificates (SPCs)

SPCs extend the protection of a pharmaceutical product once the patent has expired (for up to five years post-expiry) in order to compensate for delays in obtaining regulatory approval. Whilst SPCs are granted on a national basis, the relevant legislation is an EU Regulation. Once the UK leaves the EU, the basis for SPC protection will depend upon the model negotiated for the UK's future relationship with the EU. In a hard Brexit scenario, some hope that this will be an opportunity for the UK to improve upon the existing EU regime, which has attracted significant criticism.

Supply chain issues and parallel imports

Medicines are routinely imported from one Member State where the price is low, to be sold at profit in another. Currently, IP rights are exhausted once the goods have been put on the market in the EEA. Post-Brexit, if the UK does not join the EEA, the existing rules relating to parallel imports of pharmaceutical products may change. In particular, the UK may decide that IP rights are only exhausted when the goods are put on the market in the UK, thereby putting a stop to parallel imports from outside of the UK. Or, it may decide to revert to the regime that was in place prior to harmonisation, namely international exhaustion. Other issues relating to movement of pharmaceutical products across Europe include Customs detention of counterfeit goods and potential additional regulatory burdens cross-borders.

Trade marks and designs

Many pharmaceutical businesses have taken advantage of the cost-effective EU-wide regime for trade marks and designs protection. These unitary EU-wide rights can be enforced in a single action and, in certain circumstances, may lead to pan-EU remedies in the form of an injunction (and/or damages) across the EU.

Once the UK leaves the EU - barring an agreement being reached with the EU - EU trade marks and designs will no longer extend to the UK. Accordingly, from the date of exit, it will be necessary for businesses to apply for both UK and EU trade mark and design protection, increasing the costs of obtaining IP protection across Europe.

In relation to existing EU trade marks and designs, we expect there to be a process to preserve those rights in the UK and a number of models are under consideration. However, this may involve costs for the owners of those rights and there are potential legal uncertainties arising from each of the models. It is also worth noting that the EU unregistered design regime is only available where a design is first disclosed in the EU. Whilst there is a UK unregistered design right regime, it has a narrower scope of protection. Those businesses that have in the past tended to rely on unregistered rights may therefore need to seek EU and/or UK design registrations.