How will Brexit impact the UK’s life sciences industry? Julia Gillert and Els Janssens, senior associates with Baker & McKenzie, consider this and other questions with reference to the UK EU Life Sciences Transition Programme Report.

What is the UK EU Life Sciences Transition Programme, and what is this report about?

The UK EU Life Sciences Transition Programme was initiated this summer after the UK expressed itself in a referendum in favor of leaving the EU. The program is led by The UK/EU life sciences steering group which was especially established to oversee the program and reports into the UK’s Ministerial Industry Group ; a group established in the early 2000s bringing together the government and the research based pharmaceutical industry .

The Programme is being headed up by Andrew Witty, CEO of GSK, AstraZeneca CEO Pascal Soriot and Neil Mesher, CEO of Philips Electronics UK and Chair of the Ministerial Medical Technology Strategy Group. The key objective of the Programme is to determine how to create a world-leading life sciences environment in the UK outside of the EU.

The steering group prepared an initial report following in-depth consultation involving representatives from industry, public sector, relevant trade associations, NGOs, charities as well as external experts over the summer, reflecting on how to maintain and grow the UK’s life sciences sector in the context of leaving the EU. It then presented its report to the Ministerial Industry Group at a meeting last month.

What are the main challenges that Brexit presents for the UK Life Sciences Transition Programme?

The report positions the UK’s life sciences industry as one of the jewels in the UK’s crown. As a major contributor to the nation in terms of both health and wealth, with the potential to make an even greater contribution in the future, the report posits that this upward trajectory is what’s at stake during EU exit negotiations.

The challenge for the Programme is to ensure that this industry (with its differing nuances particular to its different sub-sectors of pharma, biotech, medtech, consumer health and animal health) is so well represented with government and indeed, members of other political parties represented at Parliament, that its voice is heard and what is more, listened to. The Programme seeks to inform the way that the government negotiates for Brexit so that the best interests of the industry may be protected in so far as that is possible.

It is worth bearing in mind that Brexit does pose some opportunities for the UK industry too. The UK is already a world leader in regenerative medicine, for instance, and a Brexit may give the UK industry a chance to more fully commercialise this exciting new area leading to further therapeutic breakthroughs.

What are the proposed solutions in the four key areas that the UK Life Sciences Industry has identified [Innovation / Commercial and Trade / Regulation / People]?

The report identifies four ‘baseline points’ upon which the life sciences industry places particular importance on the government reaching agreement with the EU-27 for a model that maintains the current system in terms of these four key areas:

Innovation

The report welcomes the Government’s promise to guarantee funding for projects under the Horizon 2020 initiative, while the UK remains a member of the EU, but a long-term solution still needs to be found. The UK is one of the largest recipients of research funding in the EU. Between 2007 and 2013, the industry secured €8.8bn in R&D funding (€3.4bn more than it contributed). Life Sciences has a long research cycle, and requires a longer-term funding solution to ensure the UK continues to excel in R&D and continue to deliver innovative medical technologies to UK and EU citizens.

The report suggests that the UK must maintain reciprocal agreements and collaborations with the EU and the ability for UK academics to lead EU-wide collaborations. This is critical because without participation in international collaboration projects, funding is less effective. The industry would like continuity of research and innovation funding (e.g. of the sort currently provided by the EU – Horizon 2020, EIB / EIF). The report advocates the UK acquiring “associate member” status for Horizon 2020 (akin to Switzerland, Israel and others) to maintain access to funding on the same terms as currently, with the ability to maintain this status into the next round of EU research funding.

Commercial and Trade

Industry strongly urges the government to seek to maintain free and simplified trade with the EU on terms equivalent to those of a full member of the EU Customs Union and EC common system of VAT (VAT union). This would result in no increases in UK duty rates and no import VAT being assessed against trade between the UK and the EU. Terms should also include the UK maintaining access to the EU’s FTAs with non-EU countries.

In the report, industry acknowledges that this aim will be difficult to negotiate (and since the report was published, the government has signalled it will seek a ‘hard’ Brexit leaving the single market. Industry pre-empts such events in the report and states that the UK will need to create a supportive environment for trade to mitigate any increased costs and risks for companies, and pushes for the chance to provide early and ongoing support to ensure its voice is heard in helping the government address the nuances applicable to the industry.

Regulation

It is this area upon which the industry places most importance, urging the government to provide for the UK to remain aligned with EU medicines and medical devices regulation, EU IP protection mechanisms (including regulatory data protection, supplementary protection certificates and orphan and paediatric incentives) and continue to actively participate in EU procedures. Active participation is believed not only to be in the interest of the UK but also the EU, considering the significant contribution the UK has made to the EU regulatory system and the gap that would be created by the UK’s withdrawal from it. The report proposes that a regulatory cooperation agreement between the EU-27 and the UK be established to allow the UK to continue to participate in EMA committees and European Commission medical devices committees. The nature of such proposed participation is not defined in the report, which could be important. Non-EU Member States participating in the EU regulatory system today (i.e. Norway, Liechtenstein and Iceland) do not have voting rights:

The report argues that if UK regulations were to diverge from those of the EU; the resulting duplication of processes, increased costs and a divergence in standards would make the UK a less attractive place to develop and launch innovative products; drugs in Australia and Canada come to market 6-12 months later on average than those in the EU/ USA (the UK market is not sufficiently large to justify significant additional burden for industry, at just 3% of global pharmaceutical sales).

People

In the report, the vital importance of access to the EU talent pool to the UK life sciences industry is emphasised. The industry proposes the continuation of free movement of people between the UK and EU; if free movement cannot be maintained, the UK should ensure continued access to skilled workers via a straightforward, demand-led, rapid immigration system. A transitional period would be important, to help minimise the disruption any such changes would mean for industry. At the same time, industry also wishes to maintain the advantages it receives from nurturing talent within UK universities; the industry recommends that the UK retains the ability for EU students to study in the UK and benefit from ‘local’ country tuition fee levels at UK academic institutions.

Whilst all four points are identified as key, the report places particular importance on the third listed here; preservation of the EU common regulatory framework. The report highlights – besides the economic impact – the possible effect on public health in the form of delay in access to innovative medicines and compromised patient safety.

What are the main legal hurdles that the proposals may face?

These developments pose great challenge to the report’s proposals. Indeed, the preferred position is under threat if for instance the UK would no longer submit to the jurisdiction of the EU courts: To illustrate this point: EMA’s binding decisions (e.g. PIP decisions) are subject to the jurisdiction of the EU courts. It is hard to see how the UK would participate in the EMA’s activities but not recognize the jurisdiction of the EU courts in this respect. It would equally be problematic if UK courts depart from any interpretation given by the EU courts on any point of law in connection with EU pharmaceutical or devices regulation. Although the report is admirably packed full not only of ideal negotiating positions and objectives (together with the background reasons for such positions) but also a series of fall-back positions, even those positions did not fully appreciate that the government’s view of a Brexit would differ so greatly to the industry’s. The industry sees a post-Brexit arrangement as closely aligned to the status quo as possible, to minimize the damage to the UK’s industry; recent speeches by senior government figures suggests that the government is opting for a more extreme vision of a UK more severely separated from the EU-27.

There is still some possibility that exceptions may be made for certain industries, perhaps putting in place particular Swiss model type bespoke agreements for industries such as life sciences, where a continued close partnership with the UK would benefit the EU-27 on a mutual basis. However, even if the industry may successfully lobby the government to negotiate for this, it would remain to be seen whether the EU-27 were prepared to unanimously agree such special arrangements, particularly if negotiations become acrimonious.

As mentioned above, since the Steering Group met on 6 September amid a certain sense of optimism following the summer recess of Parliament, the recent Conservative Party Conference this month has generated some of the clearest hints yet given in the four months since the Referendum that the government will seek a ‘hard’ Brexit, involving leaving the single market and annulling the European Communities Act 1972 upon the UK’s eventual exit, enabling the UK to immediately start diverging from EU law and meaning that the UK would no longer submit to the jurisdiction of the European Courts.

Following the publication of this report, what will happen next?

However, as we have mentioned, since the meeting the government has strongly indicated it will seek a so-called ‘hard’ Brexit, taking the UK out of the single market. This is far from what industry has been pushing for and suggests many of the positions for which the industry advocates in its report will be untenable. The steering group is due to meet with the Ministerial Industrial Group again later in the autumn and the next meeting will involve discussion around scenarios originally perceived as far less desirable for the sector.

This article was first published on Lexis®PSL IP & IT analysis on 18 October Click for a free trial of Lexis®PSL.