On 23 June 2016, in a national referendum, the population of the UK voted by a narrow majority (52%) to leave the European Union (EU). What does this mean for the life sciences sector?

In this article we consider what we know regarding the consequences of the UK's Leave vote for funding, the regulatory regime for medicines and intellectual property, particularly the patents ecosystem.

Introduction

There is considerable uncertainty as to when (and, even, whether) the UK will exit the EU (a so-called "Brexit"). Nor do we know the nature of the UK's ongoing relationship with the EU after any Brexit occurs, the specifics of which will impact the landscape for the life sciences sector.

If the UK emerges from Brexit as a member of the European Economic Area (EEA), there will be greater scope for a negotiated continued UK involvement in EU regimes and mechanisms.

Funding for research through European schemes

UK life sciences companies and scientific researchers benefit from various funding schemes. Arguably most relevant for the life sciences sector is Horizon 2020. Described as the biggest ever EU research and innovation programme, Horizon 2020 is making available €80 billion between 2014 and 2020 with the aim of supporting breakthroughs, discoveries and world firsts.

The Innovative Medicines Initiative (IMI) is another funding mechanism for the life sciences sector. Bringing together government (through the EU) and industry (as represented by the European Federation of Pharmaceutical Industries and associations (EFPIA)), its second phase budget for 2014-2024 is €3.3 billion (half coming from Horizon 2020).

Funding for research is also available in the life sciences sector through the European Investment Fund (EIF). Held by the European Investment Bank, other banks and financial institutions and the European Commission, the EIF invests money in venture capital funds that then invest directly in businesses, to promote the creation and development of SMEs.

The European Research Council (ERC) also provides access to funding which supports the underlying science base in the UK.

According to the UK BioIndustry Association, a trade association for UK bioscience, the UK is a net recipient of EU funding for its health research, accessing more funding per capita than any other country.

Outside the EU, the UK is likely to find access to such funding mechanisms significantly reduced. The UK Government's Department for Business, Innovation and Skills has issued a statement on higher education and research following the EU referendum, which includes the following:

"The referendum result has no immediate effect on those applying to or participating in Horizon 2020. UK researchers and businesses can continue to apply to the programme in the usual way. The future of UK access to European research and innovation funding will be a matter for future discussions. Government is determined to ensure that the UK continues to play a leading role in European and international research and innovation."

It is therefore imperative for the UK Government to make clear that, in the event of any Brexit, UK Government funds will be made available to UK-based life sciences research institutions (and across all innovative sectors), in both the private and public sectors, on terms which are equivalent to those available through the European schemes. This is necessary to support and secure the UK's position as a leading research base into the medium and long term, and with it the wider benefits to the UK economy.

Similarly, in the course of the UK's transition through Brexit, funds must be made urgently available in order to ensure that ongoing research programs, which may be dependent upon approval of application(s) for funding from such EU sources, continue to remain viably located in the UK.

Whether venture capital funding for early stage companies might be affected by a Brexit remains to be seen. At the very least, investors might think twice about establishing a new spin-out in the UK. The UK has, in recent times, established itself as a jurisdiction of choice for setting up new life science companies in Europe and it would be a shame, to say the least, to see that change. In the short term we are already aware of transactions being put on hold while parties assess the wider implications of a Brexit.

The regulatory regime for medicines and medical devices

The life sciences sector is one of the most highly regulated industry sectors in the world. The majority of the UK legal frameworks governing medicines (including clinical trials, marketing authorisations, licences to manufacture and pharmacovigilance) and medical devices are based on, or directly apply, EU legislation.

The European Medicines Agency (EMA) is the European regulatory agency in charge of providing EU institutions with scientific advice on medicinal products. It is responsible for the centralised authorisation procedure for human and veterinary products, which results in a single marketing authorisation that is valid in all EU countries, as well as the EEA countries (Iceland, Liechtenstein and Norway). The centralised procedure is compulsory for certain categories of drugs and diseases, optional for others.

Where the centralised authorisation procedure is not compulsory, approval can be obtained from a national regulatory agency, with EU-wide approval still available under a mutual recognition mechanism or decentralised procedure. The UK's Medicines and Healthcare Products Regulatory Agency (MHRA) is the national agency in the UK.

Prior to a Brexit, decisions will need to be taken on what procedures will be available to obtain authorisations and what mutual recognition will be available following Brexit. Whether the UK becomes an EEA country will be highly relevant here.

In the short term, the legal frameworks are unaffected by the outcome of the referendum, and EU law will continue to govern the regulatory regimes, as well as the regulatory categorisation of different products and devices. EU law will continue to shape the outcome of UK cases, such as in the recent Court of Appeal decision in R (Blue Bio) v Secretary of State for Health on the boundary between medicines and food supplements.

It seems unlikely that, if the UK were to leave the EU, the government would be in a rush to change much of the law which currently regulates medicines and medical devices. However, EU life sciences law is not standing still. There are significant EU legal reforms due to come into force on a timetable which overlaps the period in which a Brexit might occur. These include important new EU Regulations on medical devices and clinical trials. Given the uncertainty over the timing of a Brexit, there are significant challenges for business in knowing how to prepare for legal changes. There is a risk for the UK that investment and activity in these areas will be diverted to countries where the future regulatory regime is more certain.

The UK has been effective in influencing the shape of EU regulation that impacts the life sciences sector. In this, the UK has been greatly assisted by the reputation and efforts of the MHRA, which is considered to be a world-leading regulator. Outside the EU, the UK will not be able to influence the European framework legislation. However, multinational businesses will need to continue to comply with the European regulatory framework. Moreover, the UK regulatory framework is, in practice, unlikely to diverge materially from the European framework.

Brexit will also most likely increase the volume of regulatory scrutiny to be conducted at the UK level, increasing costs for business and the country.

In addition, the EMA is based in London. It seems inevitable that a Brexit would lead to the EMA moving to a country which is a member of the EU. This would be a significant loss for the UK. Having the EMA located in London puts the UK firmly in the centre of drug regulation in Europe. In short, biopharmaceutical sector regulation is an area in which the UK Government must prioritise the development of strategy to manage a smooth and constructive transition in any Brexit.

Intellectual property and the patents ecosystem

Patents

Brexit will not impact the existing system for the grant and enforcement of European patents covering the UK, which will continue. This is because the current system is established by agreements made outside the remit of the EU and EEA. The UK's reputation as a jurisdiction in which patent disputes are heard and resolved in a proportionate manner by experienced and specialist judges, who deliver high quality judgments, will continue.

However, the UK's Leave vote is likely now to delay implementation of the new Unified Patent Court (UPC) and Unitary Patent (UP) system.

In recent years, most member states of the European Union, including the UK, have been working together to introduce the new UPC system to establish, for the first time, a court with jurisdiction to resolve patent disputes spanning much of the EU. The UPC, along with the UP (a new, single patent right of equivalent scope), represents a fundamental change to the patents landscape in Europe. In various ways it supplements, complements and replaces aspects of the existing system.

However, the treaty that establishes the new system (the 'UPC Agreement') mandates (among other things) that participating countries must be members of the EU, that it will enter into force only following ratification by the UK, and that the location of a part of the Court of First Instance (being the part of the court that will deal with life sciences cases) will be in London.

It is theoretically possible that the UK could ratify the UPC Agreement before any Brexit takes effect, in order to get the new system operational. However, we consider this to be unlikely. In any event, the location of part of the Central Division (a part of the Court of First Instance) in London is likely to be considered by the other participating states to be an unsustainable oddity needing correction, by amendment to the UPC Agreement. Some countries could treat this as an opportunity to re-visit the wider negotiations. If the history in this area is anything to go by, agreement could take some time.

Consequently, the UK's Leave vote is, in practice, likely to postpone any change to the current system for grant and enforcement of patents, not just for the UK, but for the whole of Europe. Whether the UK will make the new system operational in the short term, and whether it will be able to negotiate a way of remaining involved in the UPC and UP system in the circumstances of Brexit, remains to be seen.

For more on the consequences of the UK's vote Leave for patents, please see our article "Brexit: what the UK's vote Leave means for the patents ecosystem and UPC".

Supplementary protection certificates

Supplementary Protection Certificates (SPCs) provide for extended patent protection for the active ingredient(s) in medicinal products and plant protection products. SPCs are granted at the national level by the relevant patent office (for the UK, the UKIPO), pursuant to European legislation which has effect across the EU and the EEA.

A Brexit from which the UK does not emerge as a member of the EEA will mean that the UK needs new national legislation to implement its own patent term extension scheme (probably by amending the UK Patents Act 1977) in order for SPC-type protection to continue to be available following Brexit.

Wider intellectual property (IP) rights

A Brexit that sets the UK adrift from the EEA will mean that the UK needs to unpick significant laws in some areas of trade mark and design protection, and legislate new paths. The current unitary (EU-wide) regimes for trade mark and design protection will have to be undone somehow. Should a unitary right be split into two parts, covering the UK and the remaining EU? Or should an existing EU right give its holder a right of seniority in an application for a UK right? The UK needs a strategy on this, and soon.

In relation to designs, businesses that have been relying on unregistered Community protection should consider, as a matter of priority, obtaining registered protection. If you have disclosed the design, the clock is already ticking to get a registration on the books before you are prevented from doing so.

From a practical perspective, businesses should also be aware of the need to ensure that terminology used in licences, settlement agreements, co-existence agreements and other transactional arrangements is now drafted in such a way that the extraction of the UK from the EU and unitary IP right systems can be accommodated without a need to re-open negotiation of the contractual terms. In the course of time, existing arrangements which cover the EU as a defined territory, or which concern EU IP rights, will need to be reviewed in order to consider whether they will remain fit for purpose following Brexit.

For more on the issues raised in relation to intellectual property rights generally, please see our article "Brexit - what next for intellectual property?".

It is also worth noting that tax incentives (including the UK's Patent Box scheme) for the location of research, innovation and development work in the UK should now also be considered as a priority by the UK Government.

Concluding comment

Many sectors will, to a greater or lesser extent, be affected by an exit of the UK from the EU; and the implications for the life sciences sector are potentially significant. The sector has become used to working under laws and regulations which apply on an EU wide basis. Many UK laws, like the Human Medicines Regulations 2012, are EU-based, and many drugs are now authorised under a single authorisation which has brought significant efficiencies to applying for and obtaining marketing authorisations in the EU. The unitary patent and the UPC would have added to those efficiencies and increased the attractiveness of the EU, and therefore the UK, as a place to do business in the sector.

However, irrespective of any Brexit, the UK's wider legal and regulatory structures provide a progressive and outward-looking environment for business. With the right leadership and strategy, this can be built upon further in the event of any Brexit. We have every confidence that the UK will remain a leading global hub for life sciences investment, innovation, research and development.

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