On 23 June 2016, the UK public voted to leave the EU. Under Article 50 of the Lisbon Treaty, the EU Treaties shall cease to apply to the UK:
- from the date of entry into force of the withdrawal agreement that the UK negotiates with the Union, acting through the Council; or
- two years after the UK has notified the European Council of its intention to withdraw, unless the European Council, in agreement with the UK, unanimously decides to extend this period.
Therefore, in practice the British exit ("Brexit") date is most unlikely be before July 2018, or January 2019 given the recent indication by the Prime Minister that notification will not be given before 2017.
This briefing note advises on the immediate considerations and anticipates how Brexit will impact the Life Sciences sector. This article is part of our Brexit series and Life Sciences businesses will be affected by all of the implications identified throughout this series and, in particular, our note on the English Intellectual Property law implications of Brexit.
What is the immediate effect of the Brexit Vote
As the UK will remain within the EU for at least the next 2 years, in the short term the answer is that it should be "business as usual" for the Life Sciences sector in the UK.
The decision as to which model will be adopted by the UK and the EU post-Brexit will determine how the Life Sciences sector is truly affected.
If the UK remains in the European Economic Area (EEA), then the effects are likely to be minimal on the sector. This is because the UK would keep access to many of the benefits of the EU system, such as the centralised procedure for marketing authorisations, the EU portal for clinical trials and the Pharmacovigilance database. Similarly, if the UK joins the European Free Trade Association (EFTA) and negotiates sector specific access to the single market, then, depending on the exact nature of the relationship, effects may again be limited. If, however, the UK choses to move further away from the EU, or cannot agree the terms of a continued close association with the EU, then the effects may be more severe.
It is therefore uncertain what the full ramifications of Brexit are going to be and we therefore suggest the best policy at this time is to be prepared by keeping up to date as the process develops.
What future issues may the Life Sciences sector face following Brexit
The Life Sciences sector is one of the most highly regulated and globally harmonised industry sectors especially in terms of the development of pharmaceutical products. A large amount of the regulation originates from membership of the EU in the form of Directives or Regulations. In the case of Directives (e.g. Directive 2001/83/EC governing medicinal products) these have been implemented into national law and will therefore remain in place (subject to amendment). Regulations, in contrast, are directly applicable in the UK without the need for national implementation and therefore when the UK leaves the EU, the Regulations will no longer apply.
There is no reason why the UK Government could not enact these equivalent rules into UK law (in some cases this will not be required if we are part of the EEA/EFTA). If, however, the UK Government decide to no longer align themselves with European law the administrative burden of life sciences companies could increase significantly because regulatory requirements, for example clinical trial authorisations and marketing authorisation applications, may need to be obtained under a new and different legal framework. However, realistically even under a "Swiss type", hybrid situation, the Regulations and standards are unlikely to change substantially as the UK will wish to continue to facilitate free trade both within Europe and globally and would not wish to build artificial barriers.
The new Clinical Trials Regulation 536/2014 was adopted on 16 June 2014 but has not yet been implemented (it is expected to be in force by October 2018). The new Regulation provides for a single application for clinical trials across the EU (through a single portal) with an associated EU wide database. This Regulation will apply to clinical trials for medicinal products and, if it comes into force before Brexit, the UK will be bound by it until its departure. However, following Brexit the Regulation will not automatically continue to apply.
If the UK adopts significantly different national legislation to Regulation 536/2014, this is likely to make the clinical trials procedure increasingly complex with greater administrative burden and cost for companies wishing to conduct multi-centre clinical trials in the EU and the UK. In particular, UK companies will not have access to the single portal for applications for clinical trials, or if they do there may be a substantial fee, and separate centralised and national clinical trial authorisation procedures will need to be followed. Furthermore, companies will have to ensure that sponsors of a clinical trial have legal representation established in the EU but, for large life science companies at least, this is unlikely to pose a significant administrative issue.
Additional questions will also arise in relation to data protection (in particular clinical trial data and personal data) currently falling under the EU Data Protection Directive which should be borne in mind but is beyond the scope of this article. More detailed advice may be found here.
The majority of Marketing Authorisations are applied for under the decentralised procedure (national) or the centralised procedure (EU wide); each application process is determined by Directive 2001/83/EC. Following Brexit (if the UK is outside the EEA) a system for independent Marketing Authorisation approval will need to be adopted in the UK.
Marketing Authorisations granted by the UK will be unaffected and it is likely that marketing authorisations granted in the EU under the centralised procedure prior to the exit will be recognised by the UK. However, centralised marketing authorisations covering the EU held by UK companies will have to be transferred to companies established in EU countries unless mutual recognition agreements are put in place.
If nothing else having to apply for marketing authorisation in the UK as well as the EU will add to the regulatory burden, increase barriers to the market and costs for the life sciences industry. As mentioned below, the Medicines & Healthcare Products Regulatory Agency (MHRA) will find that its workload increases commensurately as the centralised procedures are dismantled.
Quality Assurance and Product Safety
It is likely that quality assurance procedures will need to be maintained in the UK in line with current EU good manufacturing practices in order to ensure products can be sold in the EU. This requires all EEA located manufacturers and importers of medicines to hold a manufacturing authorisation. Even if the UK is not part of the EEA after Brexit, UK manufacturers could continue exporting medicines to the EU and vice versa if equivalence is maintained in the UK/EU regulatory frameworks. This is likely to be the case for the UK in order to facilitate importation through mutual recognition agreements with the EU and other trading nations. However, the cost of importing into the EU may increase if the EU imposes additional requirements and inspections on non-EU imports.
Furthermore, uniform product safety laws, as applied currently across the EU (e.g. the General Product Safety Directive (2001/95/EC)), are likely to continue post Brexit in common with those of the EU and globally so as to maintain the competitiveness of UK goods and suppliers.
R&D and Funding
The EU currently provides funding and coordinates research collaborations through funding programmes such as the Innovative Medicines Initiative and Horizon 2020 (a 7-year programme with €80 billion to provide public/private sector collaborations and encourage innovation). If the UK is not part of the EEA following Brexit, access to this funding will be lost to UK-based companies without research facilities in other EU countries. It is also unclear whether the UK Government will supplement the lost funding and seek to establish bilateral agreements with other nations in order to access other funding/collaboration options.
The EU pharmacovigilance system is coordinated by the European Medicines Agency (EMA) which, as discussed below, may need to be relocated following Brexit. UK companies will therefore need to revise their pharmacovigilance reporting system as a single person cannot perform the pharmacovigilance function for the EU and UK as the appropriately qualified person should reside and operate in the EU.
The EMA is based in London and currently employees 890 people. When discussing the implications of Brexit the EMA website that "Its implications for the Agency's location and operations depend on the future relationship between the UK and the EU, which is unknown at present". It is understood that Sweden, Spain, Denmark and Italy have already expressed interest in providing the EMA a new home.
Should the UK not become part of the EEA, the EMA and MHRA will be significantly affected. The MHRA has stated their need to increase employee numbers to carry out the regulatory work, which would have previously been handled by EMA. In addition, where previously the EMA cooperated with the ICH, FDA, Japanese PMDA and other competent authorities, the MHRA will now need to negotiate its own cooperation agreements to replace those agreed by the EMA.
There will be further, hopefully more minor, impacts made to other UK agencies (e.g. NICE) that are beyond the scope of this article.
If the UK remains part of the EEA, then EU exhaustion of rights continues to apply and the free movement of goods will be preserved. However, outside the EEA EU exhaustion of rights rules will cease and it is unclear what the UK government will replace them with. If the UK leaves the single market, pharmaceutical companies may be able to assert their IP rights to stop parallel importation into the UK (in addition to other existing defenses) which may be seen as a benefit of Brexit by the life sciences sector.
Specific Impacts on Intellectual Property Rights
Unitary Patent System
The new EU patent regime was due to begin at the end of 2017 providing patentees with the option to apply for a single, pan-EU Unitary Patent (UP) covering most of EU, accompanied by the Unified Patent Court (UPC) to hear and determine patent disputes on a EU wide basis. The UPC currently requires ratification by the UK as one of several countries needed to bring the UPC into force. The UK may still take this step before the UK leaves the EU. However, if this does not happen, once the UK has left, the UPC Agreement will enter into force as soon as it has been ratified by 13 Member States, including Germany, France and Italy, instead of the UK. A deadlock may exist until the UK has actually left the EU, which might take several years and negotiating an additional protocol would take time.
However, it is possible that even after the UK leaves the EU it may be able to keep its membership of the Unitary Patent System if the UK becomes part of the EEA as such an agreement might include amendments to the UPC Agreement that would allow the UK to remain a Contracting Member State. However, because of Article 20 of the Treaty on European Union, the UP cannot cover the UK following Brexit, but the UPC might still have jurisdiction for the UK with regard to traditional European patents (dependent on amendments made to the UPC Agreement). Even if the UK maintains some form of link to the Unitary Patent System the UK is likely to be viewed as a less attractive destination for life sciences companies looking to acquire pan-European patent protection.
In addition the planned Unitary Patent Court Central Division which was to be based in London will have to be relocated (likely candidates would be Milan and The Hague) following Brexit.
The additional protection afforded to patentees by Supplementary Protection Certificates (SPCs) introduced via two EU Regulations will no longer apply to the UK following Brexit. These extensions to patent protection of up to 5 years are very valuable and similar extensions are available in many countries around the world (e.g. the US and Japan). It is therefore likely that equivalent regulations will be enacted by the UK Government but it is unclear what the nature of these will be and what fate awaits existing SPCs.
Trademarks and Registered Community designs
When the UK does leave the EU, European Union trademarks (EUTMs) and Registered Community designs (RCDs) will cease to be in force. However, it is likely there will be some mechanism for these to be converted into UK rights. As a result, owners of existing EU-wide registered rights should not without further advice immediately react by filing new UK applications, as it is likely that the filing dates of their existing rights for UK will be maintained in some way. However, it is unclear how this conversion mechanism will operate, or whether there will be a fee payable to the UK IPO.
In general, for trademark and design owners filing new applications now, there is a choice: apply EU-wide and hope to be able "convert" those rights into UK rights later; or file both UK and EU-wide applications now, to avoid having to rely on any conversion mechanism. Which option to take is likely to depend on the particular circumstances.