Brexit: The waiting game

As the UK’s proposed departure from the EU creeps closer, and a no-deal Brexit—leaving without an agreement as to what the future relationship between the remaining 27 members and the UK will be—looks a very real possibility, there is a growing concern across the country’s life sciences industry about how much this will impact what they do, and how much is still uncertain.

“There is an awful lot of guesswork going on, not only for law firms but also regarding the potential effects on the pharma industry” says Graham Burnett-Hall, a partner at Marks & Clerk in the UK.

Sally Shorthose, a partner at Bird & Bird, says the only thing worse than a no-deal Brexit is not knowing whether there will be one or not.

“Industry has said consistently that uncertainty is the worst thing. If you know you’re preparing for a ‘hard’ Brexit, you can make the relevant contingencies, but companies really don’t want to be spending time and money on exercises that might not be needed,” she says.

While the day-to-day operations affected by a no-deal Brexit are far and wide-reaching, one notable effect leaving the EU may have is the threat it poses to the UK’s current standing as a leader in life sciences innovation.

R&D threat

As Shorthose explains, there has been a concern “right from the beginning” in view of the fact that the UK life sciences sector has been the beneficiary of a lot of EU funding.

“The last government said it saw life sciences as an absolute cornerstone of UK economy and that it would compensate for that lack of funding,” Shorthose adds.

But, “there is a huge amount of uncertainty as to how the UK will fund research in the public sector,” agrees Burnett-Hall.

This is echoed by the British Medical Association (BMA), which said the future of funding sources remains unclear.

“The current uncertainty that has been created may potentially lead to the UK losing academic expertise and a decline in demand from researchers to work in the UK, which would ultimately damage the UK’s research outputs and reputation,” the agency warned in its latest Brexit briefing.

When it comes to private practice and industry, the question companies will be facing is whether they can fund themselves, and if they will have the people to carry out the research.

"I fear there will be a knock-on effect where we become a less attractive place to carry out trials." - Sally Shorthose, Bird & Bird

Under threat is the UK’s reputation as a hub for innovation.

Shorthose says clinical trials for orphan drugs, for example, will find it more difficult to find enough potential subjects.

“The patient populations are that much smaller in the UK. While you can probably find enough subjects for a trial in Europe, getting enough to justify a trial in the UK will be much more difficult, so I fear there will be a knock-on effect where we become a less attractive place to carry out trials,” she says.

There are also issues surrounding immigration policies. As Burnett-Hall points out: “Companies will be asking: if we are going to have research and development centres in the UK, are we going to be able to have the scientists we want to work in those facilities?”

He says he would be surprised if companies commit to extremely large investment programmes without knowing whether they will be able to staff them with the calibre of scientists needed.

“They may decide they will be better off locating elsewhere,” he warns.

Drug shortages

Leaving the EU without a deal would also impact trade between the UK and member states, as all current arrangements would cease, and trade would be governed by the World Trade Organization’s (WTO) rules and tariffs.

This is another area where the true effects are unknown.

“While pharmaceuticals ostensibly attract a 0% tariff, the WTO’s schedule for pharmaceuticals is terribly out of date and hasn’t been reviewed for 10 years,” Shorthose says.

This schedule names the pharmaceuticals that are subject to a 0% tariff, but because so many bilateral and EU agreements exist, there hasn’t been a need to use the WTO rules for a long time.

"As soon as the referendum happened, people like me were looking very closely at the wording of the UPC agreement." - Paul England, Taylor Wessing

Once these agreements fall away and the UK must rely on the WTO schedule, “it could mean that we don’t automatically benefit from the 0% tariff on pharmaceuticals, so conceivably, we will have to pay if we are trying to export” Shorthose warns.

Burnett-Hall urges us to think about what this will mean for pharmaceutical companies that have set up their production under the current arrangements.

“At the moment, the movement of chemicals across borders is very straightforward and production will have been geared up to assume there will be no delay at borders.

“That’s no longer going to exist, so if you’re looking at making pharmaceuticals and small molecule drugs, many of the materials you will be using will be crossing borders. There could be delays, which becomes more complicated when some pharmaceuticals have limited shelf lives or have requirements to be kept refrigerated,” he says.

One area this will affect is medical radioisotopes, which have a short half-life and cannot be stockpiled, but for which continuous and timely access is vital for patient health.

It’s a topic which prompts some of the BMA’s starkest warnings. “The UK does not have access to a domestic supply, close to the point of use, and so relies on imports from Europe and beyond,” the BMA said.

“As a member of the European Atomic Energy Community (EAEC), this supply is largely fulfilled by EU countries and has been stable and consistent in recent years. Leaving the EAEC will significantly risk this supply,” it added.

The association says that trading on the WTO’s rules will also increase taxes on imports and exports in some sectors, estimating that it could cost the UK an additional £80 billion per year by 2033.

The BMA says that given this, it is crucial that parliament has the ability to adequately scrutinise any new trade agreements.

Currently the UK does not have sufficient powers to guard against these potential impacts and “it is unlikely that a more robust and transparent procedure could be put in place before October 31”, it says.

Unanswerable challenges

It appears that no amount of resources and planning by the UK government or corporations is enough to fully mitigate the effects of a no-deal departure.

Lilly, the UK arm of US pharmaceutical company Eli Lilly, says ensuring that patients in the UK can continue to access the medicines they rely on is a “top priority” in respect of its no-deal Brexit planning.

But, while it has done “everything in its power to prepare for Brexit”, circumstances outside its responsibility may still disrupt medicines supply.

“This includes delays at ports of entry, freight capacity on sea and air routes, and volatility in demand for medicines due to stockpiling outside of our supply chain, and unpredictable fluctuations in parallel import and export,” it tells LSIPR.

“A no-deal Brexit would result in the UK’s complete and sudden disassociation from decades of partnership with the EU on medicines regulation and drug safety monitoring,” the company explains, urging the government to find a way of moving forward that maintains close cooperation with the EU on medicines regulation and cross-border movement of goods.

"There could be delays, which becomes more complicated when some pharmaceuticals have limited shelf lives." - Graham Burnett-Hall, Marks & Clerk

The BMA believes one way of ensuring the continuity of supply in the event of a no-deal Brexit may be by applying legislation which came into effect in July, which allows community pharmacists to dispense alternatives to the drug prescribed by a practitioner, in the event of a medicine being in short supply.

“While such protocols may speed up access to medicines in the event of shortages, there are real risks with such a blanket approach,” the BMA said.

Additionally, it said, leaving the EU without a deal could impact the speed of availability of new drugs for patients in the UK.

The government’s “no-deal” guidance confirms that the Medicines and Healthcare products Regulatory Agency will take on the work of the European Medicine Agency, “but by regulating medicines on its own, the UK will be a much smaller market for medicines, coupled with already tight margins for medicines,” the BMA said.

“This means the UK will be less of a priority market, leading to delays in new products being brought to market here,” it added.

Additionally, predictions show that a separate regulatory system could lead to delays of 12 to 24 months for UK patients needing access to lifesaving cancer drugs.

Patent prosecution

More positively, Paul England, a senior associate at Taylor Wessing, says patent prosecution will be largely unaffected by a no-deal Brexit.

“We are in the lucky position that is, if we leave the EU without a deal, on November 1 business is as it was the day before,” he says.

This is because patents are prosecuted on a national level and the European Patent Office is not an EU body—rather it was set up under the European Patent Convention of which 40 counties are participants, including non-EU countries such as Switzerland and Turkey.

However, it will affect one big area for rights owners—Supplementary Protection Certificates (SPCs), which are particularly important in the pharma industry.

SPCs are applied for and granted on a national basis but the law that covers them is EU regulation rather than a UK national law. When the UK leaves the EU, these regulations will be adopted into UK law in amended form.

But, a key requirement for obtaining an SPC is, as well as having a patent, a marketing authorisation.

“In the future, if you want an SPC in the UK, that marketing authorisation must refer to a product on the market in the UK as opposed to what it is now, which is authorisation for being on the market anywhere in the European Economic Area,” Burnett-Hall says.

This means that different requirements will be needed in order to obtain SPCs in the UK and the EU.

“When you’re dealing with pharmaceuticals, they are most valuable when they are in their patent term so it is very much in the interest of companies to obtain SPCs that they can enforce for longer, as they are an extremely valuable asset when prosecuting,” Burnett-Hall says.

For Lilly, this issue raises “serious concerns” with the approach taken by the UK government’s no-deal planning, adding that a hard Brexit would undermine IP protection for pharmaceuticals in
the UK.

“The wording of the no-deal statutory instruments would have the practical effect of tying the start of IP protection to either the UK or EU approval, whichever is earlier,” it says.

This means a medicine granted marketing authorisation in the EU and then six months later in the UK would have six months reduced duration of IP protection in the UK, because the start date is tethered to whichever approval is earlier.

“In such a scenario, the UK would have less protection than all other EU member states. This clearly has a detrimental impact to the UK’s capacity to compete for global investment in research and development,” the company says.

In a statement to LSIPR, the UK Intellectual Property Office (IPO) said it understands the concerns of innovators that this could potentially mean a shorter effective period of SPC protection.

The IPO said that introducing a new way of calculating the duration of SPC protection would be a “significant change affecting the whole of the pharma industry and the NHS”, and would not provide “the certainty and continuity that is needed”, and have potentially “unforeseen” consequences.

However, it said, the government is keen to start exploring the SPC issue with the industry as early as possible post-Brexit.

A second consideration, and cause for concern for UK pharma companies, is the EU’s manufacturing waiver for medicines currently protected by SPCs.

Under the waiver, generic manufacturers may manufacture branded products before an SPC has expired, with the intent of stockpiling them for sale once the patent expires.

Despite Brexit, and the fact the UK government voted against the waiver as a member state of the EU, the UK is required to implement this regulation by virtue of the Withdrawal Act 2018.

“We believe this is bad policy that further risks the UK’s status as a premier destination for medicines innovation, especially considering that countries such as the US and Japan have the same SPC mechanism that existed in the EU before the waiver,” says Lilly.

The US and Japan will therefore have a competitive advantage relative to the UK and EU, Lilly adds.

“We hope that there will be an opportunity to review implementation of the waiver in the UK after Brexit as part of broader efforts by the government towards their stated aim of making the UK a world leader in life sciences innovation,” the company says.

Unified Patent Court

The decision to develop the Unified Patent Court (UPC) was agreed in 2013 by EU countries with the aim of having a single EU court to resolve all patent disputes.

“All we need is Germany to ratify the agreement and it would come into force,” Burnett-Hall says, adding that a particularly important provision of the court is that it would be split into three central divisions, one of which would have been in London.

It was planned that the London branch of the central division would handle pharmaceutical disputes, in particular patent revocation claims in the pharmaceutical area.

“Given that life sciences is a big part of our economy, that branch was a really big win for us,” England says.

“But as soon as the referendum happened, people like me were looking very closely at the wording of the UPC agreement to see whether there was some way the UK could still participate, or whether it could be amended.”

According to England, there is a weight of opinion, which not everyone agrees with, that legally speaking the UK could still participate even after Brexit.

He explains that while a no-deal Brexit doesn’t change the legal technicalities, it does make it much less likely that the UK will be able to participate.

“Leaving without a deal is a failure of diplomacy, and some would describe it as poisoning the well of relations with the EU.

“Whatever legal method there is for us to participate, it has to be agreed by everyone. A no-deal Brexit makes it that much harder to get the EU representatives around the table to agree to it,” England says.

Additionally, Burnett-Hall says, other countries such as Italy and the Netherlands have expressed an interest in hosting what would have been the UK branch of the central division instead.

He adds: “It would not be at all surprising if the remaining countries went ahead without us.”

Burnett-Hall adds that under the provisions of the UPC agreement, patent holders will be given the option of opting their patents out of prosecution at the court for 20 years. As it is highly likely that most pharma companies would choose to do so, the UK “probably would not see litigation change too drastically”, he says.

However, if the UPC goes ahead without the UK and if two companies choose to litigate at the UPC, England says they would they need to litigate separately in the UK.

“It’s conceivable that parties might want to focus on litigation in the EU block because it is a bigger market. But even then, the UK is so strategically important for patent litigation that even there we see opportunities rather than a problem,” England says.

As with many of the other effects of a no-deal Brexit, the future of the UPC is just one example of litigators, pharma companies and associations being unable to see a clear road ahead when it comes to exercising IP rights.

“In the coming weeks, the UK parliament will have to make momentous decisions over the UK’s future relationship with the EU,” says the BMA. But as negotiations continue, only upon leaving will the effects of the UK’s departure become any clearer.

Fact file