Issue Impact
Potential significant reduction in funding for UK academic research stemming from loss of/reduced access to EU funding programmes This could lead to a reduced product research and development base in the UK, as there will be less opportunity for collaboration with, and technology transfer from, universities/research institutions. It may also lead to fewer trained research scientists being available for lifesciences companies to recruit. Overall, this could lead to the UK becoming a less appealing location for lifesciences companies to site their R&D operations.
The UK may no longer have access to the EEA centralised clinical trial authorisation portal and database for medicinal products (which may also in future apply to the approval process for medical device clinical investigations) Opening UK pharmaceutical/medical devices clinical trial sites in the UK would entail incurring the cost of applying for authorisation of a clinical trial for the UK only. Trial sponsors will lose the time and cost-efficiencies of a single application filing process covering the UK and the rest of the EEA.
Medicines authorised through the EMA-operated centralised procedure may no longer be authorised in the UK, as currently marketing authorisations for these drugs are provided for by an EU Regulation having direct effect If no mutual recognition agreement is in place post-Brexit for the centralised procedure, the UK would likely have to act unilaterally to recognise EU-authorised drugs; otherwise there is the potential for UK medicines shortages. This would at least in the first instance have to take the form of “grandfathering”, i.e. any EMA authorisation granted before Brexit would continue to be recognised in the UK.

This could also be extended to include unilateral recognition of authorisations granted by the EMA in future.

Companies may need to consider whether it is economically viable to apply for a UK marketing authorisation, considering the additional cost and the relatively smaller market that the UK presents. Companies may also choose to delay the launch of a product in the UK to see how successful it is in larger markets first, thereby delaying UK patients’ access to innovative therapies.
The UK’s nationally granted marketing authorisations for medicines may no longer be within the scope of the EU mutual recognition procedures, whereby a single member state’s medicines authority assesses a marketing authorisation application for compliance with the legal requirements. The report is then (usually) adopted by other concerned member states Medicines previously authorised through these procedures will retain valid UK marketing authorisations in their own right. However, this may result in fewer marketing authorisation applications in the future, as pharmaceutical companies take advantage of the time and cost efficiencies associated with the EU mutual recognition procedures and may defer applications for standalone UK authorisations.
Companies must be established in the EEA in order to hold a medicines marketing authorisation in the EEA If the current marketing authorisation holder is a UK company that intends to market medicines in other EEA countries, it would, subject to the exact terms of any final EU trade agreement, need to establish (or else equip at least one entity within its group) in at least one EEA member state to operate as marketing authorisation holder. This entity would have to re-apply for EU marketing authorisations for the products.
Medicines manufacturers may need to file adverse safety reports in relation to their products both in the UK and in the EU There would be additional cost and resource required to meet two sets of requirements, particularly if the UK regulatory requirements diverge from those in the EEA.
Active substances for medicines can only be imported into the EEA if they have been manufactured in accordance with Good Manufacturing Practice (“GMP”) standards at least equivalent to those applicable in the EU The UK GMP standards would therefore need to be equivalent to the EU’s to allow UK active substance manufacturers to export to the EEA, unless the UK is whitelisted by the European Commission (which the UK would need to apply for). Provided that UK legislation remains equivalent to EU legislation after Brexit it is unlikely to be difficult for the UK to obtain a whitelisting.
EU law lays down specific packaging and labelling requirements that must be complied with when selling medicines in the EEA Packaging and labelling requirements (including new safety features and anti-tampering measures brought in under the EU Falsified Medicines Directive) must be complied with by manufacturers who are exporting to the EEA from third countries. For UK companies that do not export to the EEA, there may be less stringent packaging and labelling requirements if the government does de-regulate post-Brexit. However, patient safety measures do not appear to be a very obvious target for de-regulation.
The UK will no longer have influence over EU medical devices legislation The UK would no longer need to follow the EU medical devices legislation, including the new Medical Devices and In Vitro Diagnostics Regulations. This would potentially mean manufacturers selling devices solely in the UK could avoid certain provisions that are contained in the new Regulations. UK manufacturers selling solely in the UK might benefit from this but those manufacturers exporting to the EEA (or contract manufacturing for other sellers in the EEA) would still have to abide by the requirements of the EU legislation and would therefore have to cover the cost of compliance with an additional regulatory regime.

With the texts of the Medical Devices and In Vitro Diagnostics Regulations still being finalised, the UK would lose influence over the process to finalise these texts and the associated implementing and delegated acts. UK manufacturers exporting to the EEA could be adversely affected by this loss of influence.
Medical device manufacturers who are not established in the EEA must have an authorised representative If a UK company is not also established in the EEA, then it will need to have (and fund) a European authorised representative. The Council text of the proposed new Medical Devices Regulation places liability provisions on authorised representatives. Appointing an authorised representative could become expensive.
Contracts Companies should be considering the impact of the UK leaving the EU in the drafting of all future agreements that could be affected by Brexit and should also review agreements that have already been entered into for any unexpected consequences.

Agreements which were drafted before a referendum on EU membership was even contemplated could be particularly at risk of unintended and unexpected consequences of their drafting. For example: if the territorial scope of an agreement is defined as the ‘EU’, the UK may fall outside this once the UK has left the EU. It is also possible that leaving the EU could constitute a force majeure event trigger termination provisions.

In the longer term, it may be that exclusive jurisdiction clauses in agreements in favour of the English Courts will no longer prevent an EU Court from hearing a claim as the Brussels Regulation on choice of law will not apply to the UK. Unfortunately this could lead to more complex international litigation unless the UK chooses to enter into an agreement similar to the Brussels regulation with the EU.
Patents and SPCs In many respects, the European patent landscape remains unchanged. The European Patent Convention is not based upon EU membership, and as before patents will continue to be granted on a national basis in European territories, regardless of whether they are via national IPOs or the EPO.

However, the UK’s departure from the EU may be a real blow to the proposed Unitary Patent system. Although the UK has ratified the Unified Patent Court Agreement, membership of the Unitary Patent system is limited to EU member states as currently drafted. There are various theories as to how the UK might still be able to join the UPC, but all seem remote for the time being.

One area of patent law that will be affected when the UK leaves the EU is Supplementary Protection Certificates (SPCs). These effectively extend the term of patent rights for medicinal (human or veterinary) or plant protection products which have had to undergo a regulatory approval before being made available. Since SPCs are an EU creation, they will no longer be effective or available in the UK without equivalent domestic legislation.
Trade secrets The decision to leave the EU will have little or no impact on the law in relation to trade secrets. The new Trade Secrets Directive is in force from July 2016. This will be binding in the UK until it leaves the EU. In any event, most of the provisions are already part of English law so there will be little impact even in the long term.
General Data Protection Regulation The General Data Protection Regulation (GDPR) is likely to apply in the UK prior to Brexit (the GDPR applies from 25 May 2018). If the UK is outside the EEA following Brexit, the GDPR will fall away. If that is the case, it is likely that the UK will implement replacement legislation that is identical to or, if not identical, equivalent to the GDPR to better ensure that the European Commission decides that the UK is a country with an “adequate level of protection” for the purposes of EU to UK data transfers. If such an adequacy decision is not in place after Brexit, organisations transferring personal data from the EU to the UK will need to consider alternative transfer “mechanisms” to ensure compliance with the GDPR. The GDPR will still apply to UK organisations that have processing activities related to the offering of goods or services to individuals in the EU, or monitoring the behaviour of individuals in the EU. These organisations will be required to appoint an EU-based representative.
Enforcement of competition law The leave vote has important ramifications for the enforcement of competition law in the UK. Whilst UK companies that trade in Europe will still be subject to EU competition law, the leave vote means that the European Commission will not be able to investigate companies’ activities within the UK. The Competition and Markets Authority (CMA) will be responsible for the application of competition law in the UK and will therefore come under pressure to up its game in terms of enforcement. As a result, we can expect to see significant restructuring of the CMA.

Currently the lifesciences sector is a priority enforcement sector for the CMA, with a number of ongoing cases. This is unlikely to diminish as a result of Brexit; indeed, we can expect further activity from the CMA in this sector.
Public procurement A change of approach in relation to procurement policy is unlikely to be pursued by UK policy makers in the immediate months and years following the leave vote. In fact, in relation to public procurement, the UK’s approach has been to go beyond the minimum requirements set by EU law. The legislation will continue to operate until repealed or reformed and, in the aftermath of any exit, reform of procurement law seems unlikely to be top of the government’s to-do list.

In the long term, the UK could seek to vary or even revoke parts of the legislative framework to reduce the costs in complying with the EU rules. This could result in greater flexibility in terms of contracting authorities being able to restrict competition to UK entities. Likewise, however, it could also mean that UK entities which currently bid for contract opportunities outside the UK may find it more difficult to bid for those contracts.
Merger control filings The EU operates a ‘one-stop-shop’ merger control regime for transactions that would otherwise have to be notified for clearance in a number of individual EU or EEA countries. Post-Brexit, the UK may no longer be a jurisdiction within that one-stop-shop. This would be likely to mean more transactions being notified and investigated by the UK’s Competition and Markets Authority.
Change of law risk: impact on M&A It is likely that as a consequence of Brexit lifesciences transactions will see increased due diligence, more integration scenario planning, and further consideration given to the contractual allocation of risk during negotiations
Loss of transactional tools A number of cross-border M&A mechanisms (e.g. cross-border mergers) and entity structures (e.g. the Société Européene and EEIG) rely on European regulations and/or mutual recognition which may no longer apply.
Delay in transactions Inevitably, across the broader market some sale processes are being put on hold or are proceeding with caution pending greater certainty in the political and economic climate. However, the lifesciences sector is regarded as being less domestic in nature than a number of other sectors and so international deal activity should remain fairly robust.
Material adverse change Transaction documentation should be reviewed to consider completion and funding obligations including the scope of any material adverse change provisions.
Opportunistic investments Buyers may be seeking to take advantage of market uncertainty and currency weakness. Many UK companies have a more attractive valuation given the fall in Sterling.
VAT and customs duties Complex supply chain models involving multiple jurisdictions are common in the lifesciences sector and raise significant VAT and customs issues.

Whilst VAT is a European tax, it is likely either that it would be retained or that a similar sales/turnover tax would operate in the UK once the UK was out of the EU. There could, however, be incompatibility between the two sets of rules and VAT may be triggered on supplies between the UK and the EU. This would give rise to increased cost and/or a greater compliance burden, particularly where complex supply chain models are involved.

On leaving the Customs Union, the UK would no longer benefit from the abolition of customs duties and procedure within the EU. Whilst the nature of the UK’s trade agreements post-Brexit is highly speculative, where goods cross the UK/EU border increased tax costs may result.
Direct taxation Direct taxations remain the prerogative of national legislatures, rather than the EU. Whilst other tax rises have been suggested in order to deal with the economic challenges following the vote to leave, George Osborne has pledged to reduce corporation tax to below 15% in an effort to attract business to the UK.

The UK has introduced tax incentives that are of significant benefit to the lifesciences sector, in particular R&D tax credits and the Patent Box regime. Historically these incentives have had to comply with EU state aid rules, resulting in delays in implementation, difficulties in making changes and some onerous provisions. If the requirement to comply with state aid rules were removed, these disadvantages would no longer apply. However, it is worth noting that membership of the EEA or EFTA may require the UK to continue to comply with these rules.
Financial sanctions: a complex political and legal issue At present the position is that all EU sanctions remain in force and will continue to be implemented in the UK until the formal arrangements for Brexit are finalised. UN sanctions will also continue to be implemented in the UK post-Brexit. The ultimate position on the overall legal framework of sanctions will ultimately depend on the detail of agreed trade and diplomatic deals under any arrangement that is reached with respect to the UK’s position going forward. As part of these developments, there is a political concern that the UK could lose its leading role in the global development of sanctions through a reduction of its influence on the EU.
Environment Existing EU originating environment laws will apply in the UK at least until the withdrawal. Post withdrawal the extent to which they will apply will depend on the terms of any new agreement with the EU and the approach adopted by the UK Government and Parliament. However, lifesciences manufacturers that continue to place goods on the EU market will have to continue to comply with existing and new EU law, whether the UK is in the EU or otherwise.
What action can you take now? How can CMS help?
Brexit planning:
internal briefing

Ensure necessary briefing internally on Brexit and raise awareness of the above issues/impacts – at both board level and in the business generally.
Provide in-house Brexit training/presentation.
Lead in-house Brexit brainstorming.
Review in-house briefings.
Brexit planning:
public affairs / governmental relations

Prepare list of areas / issues for lobbying.
Brainstorm / review issues.
Contract audit
Companies should review all contracts which reference EU legislation and/or which pre-suppose that the UK will remain an EU member state to assess the impact of Brexit on these contracts and the parties’ contractual arrangements for regulatory compliance.
CMS can advise on the review of agreements in the light of Brexit.
Drafting
Companies should be considering the impact of the UK leaving the EU in the drafting of all future agreements.
CMS is able to advise on the drafting and negotiation of clauses that can best protect your business in the light of Brexit.
Collaboration agreements
In respect of any collaboration agreements with research institutions that are dependent on, or heavily reliant on, EU funding for the research, companies should consider including contractual clauses covering what is to happen upon Brexit.
CMS is able to advise on the drafting and negotiation of clauses that can best protect your business upon Brexit.
Clinical trial programmes
Those responsible for organising clinical trial programmes should be made aware of the potential cost and delay implications of Brexit.
CMS can advise on how Brexit may affect clinical trial legislation and what contractual and organisational protections should be put in place to help alleviate any adverse effect of Brexit on your business.