With the UK having voted to leave the EU, lifesciences businesses will now need to give much further consideration to what effect Brexit will have on their business and take the necessary steps to mitigate any negative impact and exploit any opportunities. The leave vote means there is no immediate let up in the uncertainty over whether there will still be access to the single market and how the lifesciences regulatory framework will apply to lifesciences businesses operating in the UK.
To help you focus on the key issues facing your business, we have updated and expanded our Lifesciences Brexit Checklist to cover a range of the key legal issues facing the lifesciences sector.
The eventual effects of Brexit on the lifesciences industry are heavily dependent on what deal is reached in the agreement on the exit terms between the UK and the EU. If the UK were to stay within the EEA, for example, very little will change, as broadly the same regulatory framework would apply but with it needing to be applied through the terms of the EEA agreement, and then implemented into national legislation, rather than EU law and Commission decisions being directly applicable. Given that this option still entails accepting free movement and contributing to the EU budget, it is not clear if this would be seen as a politically acceptable option within the UK.
Alternatively, the UK may follow the approach of Switzerland, by entering a series of bilateral agreements, or to have no agreement and rely on WTO rules. However, there is less clarity regarding how the applicable regulatory and IP framework would look if this were to be the case. Despite Switzerland having a pharmaceutical regulatory system closely aligned with that of the EU, it is not a part of the EU regulatory framework covering medicinal products and there is no mutual recognition of Swiss and EU marketing authorisations. There is, however, mutual recognition of GMP standards and over many aspects of medical devices regulation.
For a general overview of these main alternatives to EU membership and the likely implications of each of these for the UK, please see our Brexit Next site here.
What happens next?
The government will now need to make a decision on triggering article 50 of the Treaty on European Union, which sets out the formal mechanism for a member state to leave the EU. Many commentators thought it would be possible for the UK to begin ‘informal’ talks before with the EU, and this would be the best route to ensuring that a preferential agreement could be reached. However, the EU has made it clear that it will not negotiate with the UK until article 50 is triggered. This further strengthens the EU’s hand in any negotiations, as the UK will always be negotiating knowing that the clock is ticking. If the negotiation period elapses without a new settlement having been agreed (and no extension has been agreed), the UK would leave the EU and would fall back on WTO rules for trade with the EU. It is generally considered that this would be significantly detrimental for British businesses.
Impact on medicines regulation
Unless the UK opts to remain in the EEA, which would entail remaining part of the EU’s medicines regulatory framework, there are many regulatory areas that could be impacted by the UK leaving the EU. These include marketing authorisations, packaging requirements, manufacturing standards and pharmacovigilance. It is unlikely that there would be an immediate divergence between the UK and EU regulation on exit but the main issues concern the access that UK companies will have to the single market and the loss of efficiencies brought about by harmonized regulation.
The cornerstone of the EU regulatory system applicable to medicines is the harmonized procedures for obtaining marketing authorisations for medicines. EU legislation provides three routes for obtaining a marketing authorisation in more than one member state within the EEA, consisting of the centralised procedure, the decentralised procedure and mutual recognition. If the UK were to no longer be a part of these, it may act as a disincentive to companies to obtain a marketing authorisation in the UK due to the combination of the extra expense, the relatively small population and the relatively low price the NHS pays for medicines.
For medicines currently centrally-authorised by the EMA, and therefore authorised under an EU regulation, there is the further issue that Brexit may mean that the authorisation would no longer be applicable in the UK. The government will likely have to legislate to the effect that any such authorisations are recognised after Brexit to ensure there are no medicines shortages.
The effects of Brexit are still likely to be felt even if the UK were to opt for a Swiss-style arrangement with the EU, with bilateral arrangements granting access to certain areas of the single market. Switzerland does not have full mutual recognition with the EU of authorisations and licences relevant to medicines and only benefits from mutual recognition of GMP inspections and batch certification. Switzerland may not be an ideal example considering the UK would already have medicines regulations wholly aligned with the EU at the time of leaving and may, therefore, be perceived by the EU as suitable for mutual recognition on a wider range of areas. However, this does highlight the difficulties in negotiating regulatory integration in the area of medicines.
Further details of the potential consequences on medicines regulation can be found in our Lifesciences Brexit Checklist.
Establishment of Companies
A further issue is that to hold any form of EU marketing authorisation, a company must be established in the EU. This would mean that companies will need to ensure that an EU-established entity within their group is the marketing authorisation holder for their products. Given the international nature of most lifesciences companies, this should not be too much of an issue but it may require some corporate restructuring. Furthermore, it may contribute in time to companies considering moving corporate headquarters and other operations out of the UK.
The EMA is currently based in London and the vote to leave casts a great deal of uncertainty as to whether it will remain in this location. If the UK were to leave the EU but remain in the EEA, it is conceivable that the EU may allow the EMA to continue to be based in London, but even then the chances would seem slim.
Another concern is that the UK’s MHRA currently has significant influence over the EMA through membership of committees and the number of times it acts as rapporteur for medicines undergoing assessment in the centralised procedure. It would stand to lose this if the UK is no longer a participant in the EU’s medicines regulatory framework. This influence is currently seen as creating sway over EMA decisions that can be in UK businesses’ interests.
With trilogue negotiations on the text of the new Medical Devices Regulation (“MDR”) and In Vitro Diagnostic Regulation (“IVDR”) having only just concluded and adoption of the texts expected later this year, the coming years were already billed to see significant change in the regulation of the devices and diagnostics sectors. However, medical device and IVD manufacturers will now also need to consider how Brexit will affect their businesses.
The regulation of medical devices is unlikely to be as heavily affected by Brexit as that of medicines. The EU legislation over medical devices also applies in the EEA. Furthermore, Switzerland has a mutual recognition agreement with the EU covering conformity assessment. Certain other countries, such as Australia and New Zealand, also have mutual recognition agreements with the EU in respect of conformity assessment, so this is likely to be possible even if the UK is not a participant the single market in any way.
In each case, there would be a significant loss of influence over the future of the regulatory framework. Whilst EEA states have some say over shaping legislative proposals of the European Commission, they do not have a final say over the legislation, yet are still required to implement this legislation. With the MDR and IVDR each leaving many aspects to be set through implementing and delegated acts, there are many items that UK businesses will regret the loss of British influence over. Although the UK will likely still be in the EU for the period that most of these acts are being produced, it is likely that the UK’s voice will no longer carry much sway given that it will be leaving the EU.
Considering that the notice under Article 50 is not likely to be served until later this year or early next year, it looks likely that the MDR and IVDR could actually take effect in the UK before it leaves the EU. This means businesses will still need to ensure compliance with the Regulations. As implementation of the Regulations will require repeal of the current UK legislation (which implement the current Directives) regulating devices and diagnostics, the UK will likely have to enact the Regulations into UK law on exiting the EU to avoid any gap in regulation. There would then later be the possibility for deregulation, however, it is not clear how much of a push there will be for this, considering that any manufacturers exporting to the EU will still be having to comply with the EU Regulations anyway.
On leaving the EU, the UK will likely lose access to the new central portal and database that covers authorisation of clinical trials across the EU. The new EU Clinical Trails Regulation, which is due to come into full effect once the new portal and database are up and running, will have the effect of streamlining authorisation of clinical trials across the EU, making it easier for companies to gain authorisation for a trial with sites in numerous member states. Loss of access to this system will likely have the effect of making the UK a less attractive place for conducting clinical trials. This is due to the increased cost and administrative burden of applying for further authorisation in the UK, in addition to the EU.
There are unlikely to be significant effects to the application of the current intellectual property regime in how it applies to lifesciences in the UK. However, the UK’s departure from the EU could prove hugely detrimental to the proposed Unitary Patent system. The UK was required to ratify the Unitary Patent legislation but has not done so yet, meaning it could stymie efforts to create this system. Under the current wording of the Unitary Patent legislation, participation in the Unitary Patent is only available to EU member states, meaning the UK will not be able to participate. The UK will almost certainly no longer be able to play host to the pharmaceuticals and chemicals branch of the Unitary Patent court, dealing a blow to UK lifesciences leadership. Lifesciences businesses will need to apply for separate patents to cover the UK in addition to ones to cover the EU. They will also need to enter into separate UK litigation in respect of those patents.
For further information on the likely implications of Brexit on intellectual property, please see our Law-Now here.
The UK is currently a beneficiary of significant amounts of EU research funding. These EU programmes also help to foster international collaborations between researchers, with UK researchers often leading these collaborations. Switzerland has been a significant player in these, so there is clearly scope for countries outside of the EU/EEA to access these through specific bilateral agreements. However, it should be noted that the EU has taken an uncompromising approach to requiring that access to EU scientific research funding programmes means accepting free movement of people. When Switzerland voted in a referendum to limit free movement, meaning that it could not sign a free movement agreement with Croatia, its access to the funding programmes was duly restricted causing significant damage to the ability of Swiss researchers to attract funding and collaborate with EU researchers. This indicates that the UK will find it hard to access these programmes if it makes restricting free movement of people a key negotiation policy.
Loss of this funding and the access to collaborative projects may well have a significant detrimental effect on the lifesciences industry ecosystem within the UK, reducing R&D and the flow of potential new products from universities and research institutions.
Restrictions on freedom of movement are also likely to have a negative impact on scientific research in the UK. UK science has benefitted greatly from the talent pool that it can attract to the UK from across the EEA and UK universities and research institutions currently have large numbers of researchers from other member states that they will want to keep.
Lifesciences businesses may process a not insignificant amount of personal data. As well as personal data that every business could expect to process, for example that of their employees, they may also process personal data in relation to clinical trials. It is not uncommon for UK lifesciences businesses to conduct clinical trials in other EU member states and in doing so the personal data of clinical trial subjects may be transferred between member states, including into the UK.
The primary data protection legislation that is currently in force in EU Member States is derived from an EU Directive. After extensive negotiations, the General Data Protection Regulation (GDPR) was formally adopted on 4 May 2016 and is set to replace most EU data protection legislation. It is likely that the GDPR will have come into effect by the time that the UK does eventually leave the EU.
If the UK opts to remain in the EEA then the GDPR will still be applicable in the UK. Even if the UK does not remain in the EEA and chooses to have its relationship with the EU take another form, it is expected that the UK would not then take immediate steps to vastly alter its data protection legislation. This is due to the GDPR requiring that, for personal data transfers to countries outside of the EEA, there must be an “adequate level of protection” or an exemption must apply. In practice, this will mean that the country outside the EEA must have data protection legislation in effect equivalent to the GDPR. For further information on the likely implications of Brexit on data protection, please see our Law-Now here.