Brexit and life sciences: uncertainty reigns but change is on the way

One potential outcome of the British vote to leave the EU is the divergence of regulatory frameworks for bringing pharmaceutical products to market in the UK and the EU—UK IP rights may split from harmonised EU systems of protection.

UK life sciences companies will be hit hardest by these changes but they are also set to affect all major EU and international players with activities across the UK and the EU.

Of course, much will depend on the UK’s relationship with the EU once Brexit negotiations are concluded. If the UK remains in the European Economic Area (EEA), then the adjustments for the pharmaceutical industry are likely to be less significant.

But if Brexit takes the UK further from the EU, then the sector may face more significant upheavals, although the UK is likely to continue to adhere to many globally harmonised standards.

All change ahead

Changes to the regulatory regime in the UK would affect all stages of launching a new medicine.

Clinical trials

The new EU clinical trials regulation, (EU) No. 536/2014, is expected to come into force in 2018, most likely before the UK leaves the EU, introducing a simplified EU-wide application process for clinical trials.

But this system will not automatically continue to apply in the UK after its exit, potentially increasing the administrative burden on companies running multi-centre trials which include the UK. International companies sponsoring clinical trials which rely on a UK entity as their EU legal representative may need to consider moving it elsewhere in the EU.

The UK might push for a Swiss model allowing legal representatives in the UK to be treated as being established in the EU, but it will depend whether this is on offer from the EU.

Good manufacturing practice

EU law specifies good manufacturing practice principles for the manufacture of medicines. If the UK does not remain in the EEA, EU and UK standards could diverge following the Brexit, meaning that products produced in the UK could not be exported into the EU and vice versa.

But the UK is likely to maintain equivalent standards to facilitate entering into mutual recognition agreements with the European Medicines Agency (EMA).

Marketing authorisations

Currently marketing authorisations (MAs) for pharmaceutical products can be obtained from national regulators, or centrally via the EMA, based in London. In the aftermath of the referendum, countries such as Italy, Spain, Denmark and Sweden have lobbied to host the EMA. It’s possible that the EMA will move even if the UK remains in the EEA (and also remains a member of the EMA).

A move is all but certain if the UK leaves the EEA, meaning that UK regulator the Medicines & Healthcare Products Regulatory Agency (MHRA) would need to build up its own capabilities.

The relocation of the EMA is likely to be disruptive, and may introduce delays into the approval process.

Although MAs granted before the UK’s exit will most likely continue to be recognised in both the UK and EU, if the UK leaves the EEA businesses wishing to market medicines in both areas will need to satisfy two separate authorisation processes with separate regulators. They will also need to think carefully about which of their European subsidiaries will hold their MAs from now on.

Pharmacovigilance

The EMA coordinates an EU-wide system of pharmacovigilance, which includes checks on MA owners, reporting on adverse events, data collection and analysis, and risk evaluation.

The UK’s exit could result in less sharing of expertise between the EU and the UK, a somewhat smaller pool of data for the EU, and a much smaller pool of data for analysis in the UK, which may reduce efficiency and increase costs for pharmaceutical companies operating in the UK.

National rights

Many of the IP and related rights on which pharmaceutical companies rely to protect their innovations are harmonised across the EU. Following Brexit, the UK portion of such rights may be replaced by national rights governed by different rules.

UK and EU patents

Although the exit won’t have a large impact on the UK national patent system or European Patent Convention system, the UK may legislate to change certain aspects of its patent law such as biotech patents and exemptions to patent infringement.

Unified Patent Court

The UK will not be allowed to join the Unified Patent Court (UPC) system as it currently stands after Brexit. There is a significant push for the UK to ratify the UPC Agreement immediately—several legal opinions are circulating suggesting that, provided the UK joins the UPC before Brexit, it can remain in the UPC afterwards. Others, however, suggest that for the UK to join the UPC now would be politically impossible in the light of the referendum vote.

The introduction of the unitary patent/UPC system is not likely to have as great an initial impact on the life sciences sector as it would on other sectors.

Many originators may opt European patents out of the UPC system and continue to apply for European patents and/or national patents to avoid the risk of losing a patent across the EU from a central nullity decision of the UPC.

“If the UK government continues to prioritise life sciences research and development, there is a good chance that the UK will remain a key market for life sciences after Brexit.”

This would also make life harder for competing originators and producers of generics since they would still have to challenge multiple patents instead of just one, and would be exposed to the risk of multiple patent infringement proceedings across Europe.

In the longer term, originators who prefer a national system of enforcement would not welcome the single point of vulnerability that the UPC will introduce.

This concern would be exacerbated under another possible route forward for the UPC. Some are suggesting that a new UPC Agreement could be drawn up without the UK that could be brought into force without waiting for Brexit. The UK advocated strongly for the transitional provisions in the UPC and it is possible that a new-model UPC would cut back on both opt-out and seven-year transitional provisions.

SPCs and market exclusivity

Leaving the EEA means that the UK will no longer be part of the EU supplementary protection certificate (SPC) system, which provides a patent owner with up to five years of additional protection for medicinal products (a further six month paediatric extension may be obtained under the paediatric regulation, (EC) No. 1901/2006. Certain EU regulations providing for additions to and extensions of market exclusivity for orphan or paediatric drugs would no longer be applicable following Brexit.

It’s unclear how UK national law will apply to existing SPCs, existing applications for SPCs and any future applications for SPCs. If the general approach is continuity of existing law, then SPCs will continue and existing applications will go forward.

However, the UK could adopt an SPC system with different rules and prerequisites to the EU system. Alternatively, the UK might continue with existing SPC regulations but interpret them differently, no longer being bound by the various and detailed Court of Justice of the European Union decisions on the SPC regulations.

Exhaustion principle

Similarly, EU rules on the free movement of goods and the principle of exhaustion would no longer apply after an exit from the EEA.

A patent owner would neither exhaust its patent rights within the EU/EEA by selling its patent-protected products in the UK, nor exhaust its UK patent rights by selling such products in the EU/EEA.

Although this may make parallel imports from the UK into the EEA more difficult, in practice that is unlikely to be commercially significant and what happens the other way round will be a matter for UK law.

Trademarks and trade secrets

Owners of European Union trademarks and/or registered Community design rights may want to consider applying for additional UK rights, given the uncertainty over how UK protection will be carved out from unitary EU rights.

While the UK would not be obliged to implement the new trade secrets directive, Brexit is unlikely to have a big impact, since the national level of trade secrets protection in the UK is already stronger than the level of protection in most other EU member states and is generally comparable to the level of protection provided by the directive.

Looking to the future

At present the UK receives more funding than any other EU country from the European Research Council and UK universities rely on the EU for around 16% of their total research funding.

UK life sciences companies, scientific researchers and universities benefit from various European funding schemes such as Horizon 2020 and the Innovative Medicines Initiative.

It’s entirely possible that the UK’s access to those funds may be restricted following Brexit. However, the UK chancellor has pledged to replace any lost EU research funding until 2020.

Access to the EU single market will be a key concern for the UK life sciences sector. If the UK does not remain within the single market, international pharmaceutical companies may be more likely to launch products in the bigger EU market than in the UK, increasing the time to market for new medicines in the UK.

A divergent regulatory regime or new tariffs on sales would further decrease the attractiveness of marketing in the UK, while changes to free movement rules may make it harder for businesses based in the UK to attract and retain top researchers.

Despite this, the UK provides investment, funding and tax incentives for the life sciences sector, and accounts for approximately 25% of the EU market.

If the UK government continues to prioritise life sciences research and development, there is a good chance that the UK will remain a key market for life sciences after Brexit.

Being outside the EU does not necessarily preclude involvement in EU research programmes. The UK may still be able to gain access to EU research funds by paying an inclusion fee, as is the case for other non-members such as Norway, Switzerland and Israel.

Facing up to the challenge

Currently it’s unclear which exit model will apply, and negotiations between the UK and the EU could take many years.

Following Brexit, it’s also unclear which EU laws would remain applicable within the UK and, where laws are repealed, if and what kind of national legislation would be adopted.

Certainly the biggest challenge facing attorneys will be helping clients to navigate the safest course during the negotiation period. However, attorneys are likely to hold off recommending changes to regulatory structures or relocating legal representatives until a clearer picture emerges of the UK’s future relationship with the EU.

If it becomes apparent that the UK intends to leave the EEA, then there will be greater changes to the UK’s legal and regulatory framework. In this case, attorneys should consider the following with their life sciences clients:

Christina Guazzi is an associate at  Freshfields Bruckhaus Deringer in London. She can be contacted at: christina.guazzi@freshfields.com

Nina Schäffner is an associate at Freshfields Bruckhaus Deringer in Munich. She can be contacted at: nina.schaeffner@freshfields.com