The Brexit deal; shot in the arm or kick in the teeth for the pharma sector?
The UK Government and EU Commission trumpeted their Brexit trade deal, struck at the end of December, as ‘comprehensive’, the ‘biggest yet’. But a closer inspection of the EU-UK Trade and Cooperation Agreement (TCA) renders these statements largely illusory for the pharma sector. While pharma companies grapple with the effects of Brexit, there are undoubtedly a number of ways that the TCA benefits the sector, while leaving significant issues unanswered. Andrew Shindler takes stock of the deal and considers potential future difficulties.
Surprisingly, although the TCA is voluminous at 1250 pages, it is not comprehensive for most regulated industries. Its main substance claims to cover ‘trade’, but the only sectors with specific provisions are transport, fisheries, energy and aviation. Medicinal products are mentioned only in passing. Medical devices do not feature at all.
The most important rule is on trade in goods. This rule applies across all sectors and enshrines the fundamental principle allowing goods that originate in one market to be exported to the other without tax, duty or quota. This applies equally to medicinal products and medical devices as to any other type of goods.
However, given the importance of origin, businesses now need to check their supply chains against detailed origination criteria to determine whether their products or devices qualify as tax and duty-free. As an example, merely repackaging or relabeling goods in the UK which have been imported from a third country, is insufficient.
Even where products do originate in the UK or EU, thus qualifying for tax and duty-free status, this does not mean they can cross the border without friction. The system requires customs formalities, including a statement of origin. Exporters must keep copies of records proving origination for four years and importers must also keep records in most cases.
This general rule on exporting and importing goods free of tax, duty and tariff is significant in enabling the continuing flow of medicines and medical devices between the EU and the UK. However, for the reasons described below, it remains an imperfect solution for the pharma sector.
Intellectual property regimes remain largely parallel
Intellectual property underpins the pharma sector. Fortunately, the UK and EU recognise its importance in the TCA which has a dedicated IP chapter, affirming their commitment to TRIPS. TRIPS maintains minimum standards, such as making patents available for medicinal products and medical devices and a minimum 20 year patent term.
SPCs are preserved in both legal systems by a provision that the EU and UK are required to grant additional periods of protection for medicinal products after patent expiry to recognise the delay in obtaining marketing authorisations (MAs). The IP chapter of the TCA has specific provisions on SPCs and data/market exclusivity. Although, the length of the period is left to the parties to determine, the EU will simply retain its current SPC regulation, which broadly provides a maximum five-year extension, plus an additional six months where there is sufficient paediatric data. Meanwhile, the UK has introduced a parallel system with the same periods, although a UK medicine could end up with a shorter extension because the period starts on the earlier of the EU MA and the UK MA.
The EU and UK must also protect regulatory data submitted to obtain MAs against disclosure to third parties, unless protected against unfair use or there is an overriding public interest in disclosure. The protection extends to rejecting third party regulatory submissions and preventing third parties from marketing products which rely on that data without the applicant’s consent.
As with SPCs, the period of protection is left to the parties to determine, but both the EU and the UK will maintain the existing “8+2+1” regime.
The Medicinal Products Annex
The TCA mentions medicinal products only fleetingly in its main body, but contains a specific Medicinal Products Annex. Unfortunately, this is thin gruel. Although potentially wide in scope, covering marketed human and veterinary products, advanced therapy products, APIs and investigational products, and with lofty objectives, its only concrete provisions for businesses relate to good manufacturing practice (GMP).
The GMP provisions require the EU and UK to recognise the other’s manufacturing facility inspections and accept its GMP documents. However, each party can still conduct its own inspections and can suspend recognition in certain circumstances. The parties must notify each other of material change in their GMP requirements and can terminate the mutual recognition arrangements if they consider the other’s changed requirements inadequate, after further discussion.
The rest of the Annex is confined to high level regulatory cooperation. Even here, the obligation is weak, generally only to “endeavour” to take the steps described, such as consulting the other on proposals that change its technical regulations and cooperating in promoting internationally agreed scientific and technical guidelines.
The Annex applies only to products, and not to medical devices.
UK medicines are now subject to testing and certification by an EU qualified person on export to the EU on a batch-by-batch basis and a UKCA mark will be required to market medical devices in the UK – this will not be recognised in the EU where a CE mark will still be required.
Mind the gap
The sizeable gap in the TCA is the EU and UK’s failure to agree on mutual recognition of conformity assessments, approval bodies, product markings or labelling, other than the very limited provisions on GMP.
Mutual recognition which would have involved each party recognising the other’s certifications as complying with its own standards. Without it, medicinal products and medical devices must be shown to meet the requirements of both separate markets, if they are to be sold there. Pharmaceutical, biotech and medical device companies must therefore now comply with two distinct regulatory regimes, which may diverge increasingly over time, to market their products in both the UK and the EU.
To take two practical examples, which make this process onerous for businesses:
The UK has unilaterally offered transitional provisions that will smooth some imports in the short term. It will continue to accept EU batch-testing until the end of 2022 and CE marked devices until 30 June 2023. These do not apply in reverse. There are also grace periods of up to 12 months, depending on the class, for registering devices for the new UKCA mark.
Further changes on the horizon
The TCA includes a chapter titled ‘Technical Barriers to Trade’. Aimed primarily at regulatory cooperation in relation to new standards, this does not solve the problem described above, although it may have a mitigating effect on regulatory divergence.
This chapter also requires the UK and EU to cooperate on market surveillance and product safety, including regular information exchange, co-operative enforcement and coordinated product recalls.
While it is to be hoped that these provisions will limit divergence in standards, the obligations are loose and there is no guarantee that the UK and the EU will follow the same path. Indeed, on 11 February the UK Government passed the Medicines and Medical Devices Act 2021, giving it sweeping powers to amend existing regulations.
For the pharma and device sector, the TCA is a mixed blessing. While its general rule allowing products across the border without tax, duty or quota is of huge importance, the glaring omission of mutual recognition considerably weakens that benefit. Whether the provisions on cooperation will mitigate this weakness or merely serve as a face mask for regulatory divergence remains to be seen.
About the author
Andrew Shindler is partner of Commerce and Technology at Locke Lord (UK) LLP. Andrew has broad experience over thirty years working in the life sciences and other sectors. He specialises in commercial transactions, including licensing and R&D agreements, manufacturing and distribution arrangements, joint ventures and spin outs. Andrew is also an expert on GDPR. He has led award-winning commercial teams, notably Commercial Law Firm of the Year and Corporate Team of the Year – Mid Market.