Blog: The Brexit Deal; Shot in the Arm or Kick in the Teeth for the Pharma Sector? – JD Supra

The UK Government and EU Commission trumpeted their last minute Brexit trade deal, struck at the end of December, as comprehensive, the biggest yet. Even allowing for the hyperbole of politicians, a closer inspection of the EU-UK Trade and Cooperation Agreement (TCA) renders these statements illusory for the pharma sector.

In this article we summarise the extent to which the TCA really assists businesses in the sector to overcome the separation of the UK and the EU into two separate markets.

1. General Rules on Trade – Don’t mention the pharma

Although the TCA is voluminous at 1250 pages, it is not comprehensive for most regulated industries. Its main substance is found in Part 2 which 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 not at all.

The most important rule is on trade in goods. It applies across all sectors and enshrines the fundamental principle that goods which originate in one market can 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.

Since origin is the cornerstone of this tax and duty-free rule, the TCA unsurprisingly sets out detailed criteria governing origination. Organisations will need to check their supply chains against these criteria to determine whether their products or devices qualify: for example, merely repackaging or relabeling goods in the UK, where they have been imported from a third country, is insufficient.

Even where products do originate in the market of export, thus qualifying for the tax and duty-free status, this does not mean they can cross the border without friction. The system requires customs formalities, in particular 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, it is subject to three important qualifications:

  1. the ‘red tape’ involved in providing evidence as to product origination in order for products to freely cross the border –the wrong paperwork can lead to costly delays;
  2. medicines and devices often contain ingredients and constituents from third countries, requiring the origination rules to be consulted and the finished product may not qualify; and
  3. most notably, the regulatory barriers described in section 4 below.

2. Intellectual Property

Intellectual property underpins the pharma sector (as well as many others, from publishing to consumer goods). Fortunately, the UK and EU recognise its importance and Part 2 TCA contains an Intellectual Property chapter.

This chapter is intended to facilitate commercialisation of innovative products and ensure effective protection and enforcement of intellectual property rights. It affirms the parties’ commitment to international IP conventions, such as TRIPS, to preserve international comity in IP. As a brief reminder, TRIPs requires its member states to make patents available for inventions in all fields, to confer patents without discriminating as to place of invention or production and to set minimum standards, such as a 20 year term.

The intellectual property chapter’s provisions on supplementary protection certificates and data/market exclusivity have the most specific application to the sector.

Supplementary Protection Certificates

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).

Although, the length of the period is left to the parties to determine, the EU will simply retain its current SPC regulation: broadly, this provides a maximum five year extension, plus an additional six months where there is sufficient pediatric data. Meanwhile, the UK has introduced a parallel system with the same extension periods under the Supplementary Protection Certificates (Amendment) (EU Exit) Regulations 2020, albeit that a UK medicine could end up with a shorter extension because the period will start on the earlier of the EU MA and the UK MA.

Data and market exclusivity

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 and the EU will maintain its existing regime, comprising 8+2+1 years of protection. Again, the UK has retained a parallel version of the EU regime with the same periods, although in this case the UK Government was recently persuaded to start the periods on the grant of the UK MA, not the earlier of the EU and UK MA (other than in Northern Ireland).

3. Medicinal Products Annex

Although the TCA mentions medicinal products only fleetingly in its main body, they are one of only five industry sectors to benefit from a dedicated annex, along with wine, cars, chemicals and organics.

The Annex is TBT-2 Medicinal Products (the Pharma Annex). Unfortunately, it 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 GMP.

Under Article 5, the EU and UK must recognise the other’s manufacturing facility inspections and accept its GMP documents. However, each can still conduct its own inspections and can suspend its recognition in certain circumstances. The parties must notify each other of any material change in their GMP requirements and if other party can terminate the mutual recognition arrangements if it considers the changed requirement inadequate, after further discussion.

The rest of the Pharma Annex is confined to high level regulatory cooperation between the EU and UK. Even here, the obligation is generally only to “endeavour”, i.e. try, to do something, such as consulting the other on proposals that significantly change its technical regulations and cooperating in promoting internationally agreed scientific and technical guidelines.

Much of the regulatory cooperation will take place through the forum of a newly established Medicinal Products Working Group, which will help the Trade Specialised Committee on Technical Barriers to Trade to ensure the proper functioning of the Pharma Annex. This Committee’s brief is to supervise the operation of Chapter 4, described in 4 below.

The Pharma Annex does not apply to medical devices.

4. Mind the Gap

The large gap in the TCA, where the pharma sector is concerned, 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 required each party to recognise 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 where they will be sold. 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:

  • 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
  • the UK is introducing a UKCA mark for medical devices, which will be required to market them in the UK – it will not be recognised in the EU.

There are some transitional provisions that will smooth some imports in the short term. The UK will continue to accept EU batch-testing until the end of 2022 and CE marked devices until 30 June 2023. These provisions are unilateral and do not apply in reverse. There are also grace periods of up to 12 months, depending on the class, for registering devices with the MHRA.

Reducing Technical Trade Barriers

Despite the encouraging title, the TCA’s Chapter 4, Technical Barriers to Trade, does relatively little to mitigate the double regulatory burden. As with most of the Pharma Annex, it deals only with high level issues in a general way.

In summary, it requires the UK and EU, wherever they wish to adopt a new technical standard, regulation or assessment procedure, to:

  • assess its impact and whether alternatives are available;
  • base it on international standards unless inappropriate;
  • enable public consultation, including by the other’s nationals, where the new measure is significant;
  • invite comment from and discussion with the other;
  • provide information on the legal basis and rationale for the new measure, on request; and
  • limit mandatory product marking or labelling to information which is relevant for users or indicates regulatory compliance.

Technical Barriers to Trade also requires cooperation on market surveillance and product safety, including regular information exchange, co-operative enforcement and coordinated product recalls.

While these provisions might limit divergence in standards, 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.

Post Mortem

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 the benefit.

Whether the provisions on cooperation will mitigate this weakness or merely serve as a face mask for regulatory divergence remains to be seen.

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