After the vote: Issues for the Life Science Industry to Consider

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

With the UK voting to leave the European Union, we face an extended period of commercial and legal uncertainty. For the moment, though, nothing has changed in the legal framework within which the industry operates, and it will not change in the immediate future. Nevertheless we have had many conversations since the vote with our clients and other members of the Life Sciences industry and we thought it would be useful to share with you the issues on their agendas.

These issues will evolve over time and others will likely force their way up the agenda. We will continue to monitor them all and will publish updates as we all pick our way through to the new world.

Regulatory

Regulatory arrangements will be materially affected, although hopefully sensible transitional arrangements will be introduced. Currently EU and EEA member states benefit from relevant Europe-wide regulatory regimes providing centralised approval or mutual recognition approval routes for medicines and the CE approval system for devices. Corporates will likely need a legal presence in both the UK and an EU member state to market pharmaceuticals across the UK and EEA. Additionally the European regulatory body (the EMA) currently based here in the UK, will likely be relocated on an exit.

Intellectual Property

Some aspects of IP will be more affected than others by a Brexit. An exit will have the greatest impact on a company's trade mark and design right portfolio and strategy. Whilst still a hot debate, if freedom of movement is eroded, this could result in a reassessment as to the law on parallel imports and grey market goods entering and leaving the UK which could be positive for rights holders. There is no impact on the UK's relationship with the European Patent Office, which is not an EU institution, and it will still be possible to use the EPO to file Europe-wide patents before and after a Brexit. However, new legislation will ultimately be needed to introduce a UK SPC equivalent, as SPCs are granted under EU law. That legislation will also need to be mindful of how changes (including transitional arrangements) will be applied to any transitional arrangements around the regulatory approval processes.

Unified Patent Court

The future of the unified patent court and unitary patent is now in doubt – certainly the current agreement for one of the three central divisions of the UPC to be based in London would appear open to challenge by other EU member states. As for the unitary patent, similar to EU trade marks, it will be questionable how the UK can be party to that regime after Brexit is formalised, due to the unitary nature of the right.

Horizon 2020

Loss of access to EU grant funding under Horizon 2020 is a serious concern for university research. Although Horizon 2020 funding is a relatively small part of the UK's research landscape, it increasingly funds the most complex and prestigious projects. The big prize in these projects is to be the co-ordinating institution, which UK universities benefit from disproportionately. These roles are likely to be lost once the UK leaves the EU and there is a major medium to long term risk of UK universities dropping down the research league tables. This, with the anticipated immigration restrictions (which will impact on overseas postgraduate recruitment), risks a brain drain and the diminution of our world class reputation for research and innovation.

Equity Capital Markets

As the IPO market closes around this time of year anyway, the short term position will reflect normal trends. However, with leadership elections underway in both main political parties, no clarity on what "Brexit" actually means and an economic downturn almost inevitable, the prospect of the IPO window reopening before 2017 appears slim.

Venture Capital Investment

In the short term, it is difficult to see why the political turmoil should have a significant effect. VCs have committed funds and a relatively defined time period to invest them. The companies they invest in are not trading, so not particularly exposed to the wider economy. We therefore expect VC investments will not be significantly deflected at this stage unless VCs feel they will not be able to "follow their money" into future funding rounds for the reasons set out below.

Venture Capital Fundraising

The greater medium term risk for venture capital is for those UK based funds that are, or were expecting to start, raising new funds. They may now find capital harder to find, especially if the EIF is a major investor in their funds (often the case for early stage/valley of death funding). The EIF will probably not be able to fund UK companies once the UK leaves the EU. This could also indirectly impact university research – why fund UK research if there's a lack of "local" money available to commercialise it?

Passporting Rights

Financial institutions in the EU can "passport" into other EU countries without being directly authorised there (a valuable concession, as obtaining and maintaining regulatory authorisations is a significant cost). Unless a deal is reached, UK based institutions will lose this right (and continuing EU based institutions would lose the right to passport into the UK). This may be a particularly inhibiting factor for venture capital, as VC firms are generally smaller and more cost sensitive than larger investment funds.

General Amendments to Documents

The precise implications of Brexit on contracts will depend on a number of factors including when Brexit happens, what form it takes and the drafting/ context of each contract. That said, it is likely that changes will need to be made to a number of terms including any references to the EU, EU member states and territorial scope of contracts, references to legislation, termination provisions, agents for service etc.

If you have any further questions, please get in touch with Dr. Robert Stephen, Stephen Reese, Niall McAlister or your usual Olswang contact.