Contributed By Arnold & Porter
The regulation of medicinal products in the UK derives from EU legislation, principally Directive 2001/83/EC (the Directive), and Regulation (EC) 726/2004 (the EU Regulation). The key UK legislation is the Human Medicines Regulations 2012 (SI 2012/1916).
The Human Medicines Regulations define a medicinal product as follows:
Currently, medical devices in the EU are regulated by three directives (the Medical Device Directives):
The MDD is applicable to all medical devices, which are defined as “any instrument, apparatus, appliance, software, material or other article, whether used alone or in combination, including the software intended by its manufacturer to be used specifically for diagnostic and/or therapeutic purposes and necessary for its proper application, intended by the manufacturer to be used for human beings for the purpose of:
and which does not achieve its principal intended action in or on the human body by pharmacological, immunological or metabolic means, but which may be assisted in its function by such means.”
This includes items such as heart valves, hip replacements, contact lenses, bandages, inhalers and certain software apps.
The AIMDD concerns active implantable medical devices, meaning any medical device which relies on a source of energy or power, other than that directly generated by the human body or gravity, which is intended to be totally or partially introduced, surgically or medically, into the human body or by medical intervention into a natural orifice, which is intended to remain there after the procedure. This includes devices such as pacemakers, insulin pumps and cochlear implants.
The IVDMD concerns any medical device which is a reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment, or system, whether used alone or in combination, intended by the manufacturer to be used in vitro for the examination of specimens. This includes items such as pregnancy tests, blood glucose meters and HIV tests.
Before they could take effect, the Medical Device Directives required transposition into domestic law. In the UK this was achieved by the Medical Devices Regulations 2002/618. As a result of the diverging interpretations, the EU framework has been applied somewhat inconsistently across the Member States. To address this, in September 2012 the European Commission presented two legislative proposals on medical and in vitro diagnostic devices. This process culminated in two new directly applicable regulations being adopted 25 May 2017 (the Medical Device Regulations), namely:
The majority of the MDR and IVDR provisions will apply from 26 May 2020 and 26 May 2022, respectively. The information set out below is based on the UK’s current legislation, except where stated otherwise.
The Medicines and Healthcare Products Regulatory Agency (MHRA) is an executive agency sponsored by the Department of Health and Social Care (DHSC). The MHRA acts on behalf of the UK Licensing Authority, comprising the Secretary of State, and the Ministers for Health, Social Care and Public Health or Safety, with the statutory responsibility to apply and enforce laws governing pharmaceuticals and medical devices in the UK. The MHRA is responsible for managing applications made through the national, mutual recognition or decentralised procedures. However, when an application for marketing authorisation is submitted through the centralised procedure, that falls within the remit of the European Medicines Agency (EMA). The EMA advises the European Commission in relation to supervision of medicinal products authorised in the EU, including those authorised through the centralised procedure.
Pricing and reimbursement matters fall primarily within the competence of the DHSC.
Notified bodies are private organisations that have been designated by an EU member state to assess whether manufacturers and their medical devices meet the requirements set out in the legislation. Manufacturers can apply to any notified body within the EU for certification. On receipt of an application, the notified body will conduct an assessment which, if successful, will result in the relevant certification being granted to the manufacturer. This certification allows manufacturers to place a CE mark on their products, which in turn permits these products to be placed on the EU market.
In the UK, there are four notified bodies, namely:
The MHRA is responsible for ensuring that medical devices placed on the market and put into service in the UK meet the regulatory requirements. Accordingly, the MHRA:
Decisions of the MHRA can be challenged by way of judicial review in the Administrative Court, Queen’s Bench Division.
In order to challenge a decision of the MHRA by judicial review, an application must be made promptly, and in any event within three months, of the decision to be challenged. This is a strict deadline that cannot be extended by agreement between the parties. In order to bring a claim for judicial review the applicants must be able to show a sufficient interest in the matter to which the application relates. This will be shown where a decision of the MHRA directly affects the legal rights of enterprises to market or deal in their products – for example, refusal to grant marketing authorisation.
The court’s permission is required to proceed with a claim for judicial review. The test for permission to be granted is whether there is there an arguable case for judicial review that justifies full investigation of the substantive merits. An arguable case is considered to be one with a realistic prospect of success.
The court’s function in judicial review is to assess the decision made by the regulator or public authority for legal error. The court cannot remake the decision or make factual determinations. The grounds for judicial review are evolving but can be summarised under four headings:
The judicial review rules and procedures apply equally to challenges concerning other products regulated by a public authority, such as food products.
The definition of a medicinal product is set out above. UK law reflects the non-cumulation principle of the Court of Justice of the EU, whereby products can ordinarily only be regulated as one type of product. The MHRA’s Medicines Borderline Section is able to give advice on whether or not a product is likely to be classified as a medicinal product under UK law. Its Guidance Note 8 sets out factors that it will consider in determining whether a product should be classified as a medicinal product (rather than, for example, a medical device, cosmetic or food). The MHRA will take account of a range of factors, including:
According to Article 2(2) of the Directive, where doubt remains, the product in question may be classified as medicinal product, taking into account all its characteristics.
To distinguish between medical devices and medicinal product, it is important to consider:
The principal intended action of a medical device is typically fulfilled by physical means (including mechanical action, physical barrier, replacement of, or physical support to, organs or body functions), whereas the principal action of a medicinal product is normally achieved by pharmacological, immunological or metabolic means. A substance administered for diagnostic purposes is also usually considered to be a medicinal product.
Cosmetic products are regulated by the Cosmetic Products Regulation (EC) 1223/2009, which is implemented in the UK through the Cosmetic Products Enforcement Regulations 2013/1478. The definition in the UK Regulations is the same as that in the EU Regulation and focuses on the location of use (the external parts of the body or the teeth) and the purpose – cleaning, perfuming, changing appearance, correcting body odours, protecting, or keeping in good condition. However, such purposes must not be wholly for the purpose of treating or preventing disease.
Foods and foodstuffs are defined in Regulation (EC) 178/2002, which has direct effect in the UK. The classification of foods and foodstuffs will depend on a range of factors, including the scope of any claims made, and the actual effect the product has on the body. For example, if a product has a significant pharmacological, immunological or metabolic action (or claims to do so) it is likely to be viewed as a medicinal product.
The MHRA’s Borderline Section is able to issue determinations on whether a product falls within the definition of a medicinal product or a medical device. For food and cosmetics borderline cases, advice can be obtained from the Trading Standards Institute.
Functional foods and nutraceuticals must comply with general UK food laws. These are principally based on EU law, and include:
Where necessary, the UK has implemented the EU legislation by way of several legal instruments. The Food Safety Act 1990 (as amended) and the General Food Regulations 2004 make it an offence to describe a food falsely or provide misleading information regarding its nature, substance or quality. The UK Food Information Regulations 2014/1855 put in place additional requirements concerning enforcement and claims.
Food supplements are regulated by the Food Supplements (England) Regulations 2003/1387 as amended (and equivalent regulations in Scotland, Wales and Northern Ireland), which implement the EU Food Supplements Directive 2002/46.
From 20 July 2016, Regulation (EU) No 609/2013 on foods for specific groups (the FSG Regulation) regulates the labelling and advertising requirements for food intended for certain specific groups, and sets out specific rules for the following four categories of products:
Food that does not fall within one of these four categories will be subject only to the general food law requirements.
The UK Food for Specific Groups (Information and Compositional Requirements) (England) Regulations 2016 (SI 2016/6881) came into force on 20 July 2016. These implement the minimal requirements of the FSG Regulation and put provisions in place to enable the FSG Regulation to be enforced in the UK.
There are three categories, or legal classifications, of pharmaceutical products. The legal classification determines the level of control over supply. In part, classification rests on how much health professional input is needed to diagnose and treat the conditions for which the medicine might be used. The underlying principle for classifying medicines is to maximise timely access to effective medicines while minimising the risk of harm from inappropriate use.
The three legal classifications are:
As discussed above, there are three main types of medical devices:
Medical devices are given a classification depending on the level of risk associated with their use. How a medical device is classified will depend on factors including the intended purpose of the device, how long it is intended to be in use for and if the device is invasive/surgically invasive, is implantable or active, or contains a substance which in its own right is considered to be a medicinal substance.
General medical devices and active implantable devices fall within the following categories
All active implantable medical devices fall under the highest risk category (Class III).
In vitro diagnostic medical devices are currently categorised differently into four main groups, namely those which are:
However, the classification of IVDs has been revamped under the IVDR which, as discussed above, will be applicable on 26 May 2022.
Clinical trials of medicinal products are regulated by the Medicines for Human Use (Clinical Trials) Regulations 2004/1031, which implement Directive 2001/20/EC on the conduct of clinical trials (the Clinical Trials Directive) in the UK. Clinical trials must be conducted in accordance with good clinical practice, as well as the terms of the protocol, clinical trial authorisation and the ethics committee approval. As yet, new legislation has not been proposed in anticipation of the application of the Clinical Trials Regulation 536/2014.
Clinical investigations for medical devices are regulated by the Medical Devices Regulations 2002/618, which implement collectively Directive 93/42/EEC (the Medical Devices Directive), Directive 90/385/EEC (the Active Implantable Medical Devices Directive) and Directive 98/79/EC (the In Vitro Diagnostic Medical Devices Directive) in the UK. Clinical investigations must be conducted in accordance with Annex X of the Medical Devices Directive, and any conditions imposed by the Secretary of State on the conduct of the trial. As yet, new legislation has not been proposed in anticipation of the application of the Medical Devices Regulations 2017/745/EU.
Applications for a clinical trial authorisation for a medicinal product are made to the MHRA. It is also necessary to obtain approval from an appropriate ethics committee. A clinical trial can only be started if the competent authorities have concluded that the anticipated therapeutic and public health benefits justify the risks.
After receipt of a valid request for an authorisation, the MHRA will conduct an initial assessment within 30 days. At this time, the MHRA will either: accept the request for the clinical trial authorisation; accept the request subject to conditions; or not accept the request, and provide reasons for its decision.
The ethics committee will review certain documents relating to the trial, especially the trial protocol, the informed consent form, the suitability of the personnel, investigator and facilities, and the investigator’s brochure. In doing so, the ethics committee will consider the recruitment, compensation and consent of the subjects who will be taking part in the trial. The ethics committee has 60 days in which to form a view on the clinical trial, and must then give a reasoned opinion to the applicant and the MHRA.
The MHRA must also be notified of clinical investigations for medical devices. A sponsor must notify the MHRA at least 60 days before starting the investigation. The MHRA will consider valid documentation, and will assess the safety and performance of the device as well as the design of the clinical investigation to be carried out. A letter will be sent to the sponsor within 60 days with a decision (either being an ‘objection’ or ‘no objection’) as to whether or not the proposed clinical investigation can be carried out.
In addition, an opinion of the ethics committee is required, following a similar process as for medicinal products.
The UK Clinical Trials Regulations refer to the EU Clinical Trials Directive, and the obligations set out therein. In the UK, there are no independent obligations imposed on sponsors in relation to the publication of clinical trial data. Instead, the UK requirements refer to Article 11 of the Clinical Trials Directive, which states that Member States have an obligation to enter certain information about trials conducted in their territory onto the European EudraCT database, and are required to make some of that information public.
Similarly, the advertising code for the pharmaceutical industry published by the Association of the British Pharmaceutical Industry (the ABPI) requires companies to disclose details of clinical trials in accordance with the IFPMA/EFPIA/PhRMA/JPMA’s Joint Position on the Disclosure of Clinical Trial Information via Clinical Trial Registries and Databases, and the Joint Position on the Publication of Clinical Trial Results in the Scientific Literature.
There are no particular obligations relating to publication of information on clinical investigations.
There are no restrictions in relation to using online tools to support clinical trials or clinical investigations. However, all advertising of clinical trials and clinical investigations, and all materials provided or directed to subjects, will be reviewed by the relevant ethics committee. There may also be a question as to whether any online tool or application may be considered to be a medical device in its own right, depending on its functionality.
When data are first collected from clinical trial or clinical investigation subjects, they would be considered as both personal and 'special category' data under the General Data Protection Regulation 2016 (GDPR), as implemented in the UK by the Data Protection Act 2018. This is because the data will concern health, and relates to an identified or identifiable natural person.
If the data are fully anonymised after the initial collection, so that the relevant subject is no longer identifiable or able to be linked to the data, the data may no longer be considered as personal and special category data. However, the processes of anonymisation would need to be considered on a case-by-case basis; if the anonymisation is reversible, it may mean the data falls back within the personal and special category data classification.
Subject to compliance with the guiding principles for lawful processing of personal data including data security, the resulting data can be transferred to a third party or affiliate provided that the relevant individual has been informed of this, and has provided their consent (where consent is being relied upon as a legal basis for the processing of the data according to a legitimate purpose – as discussed below – and is not excessive). Contracts between the sending and recipient entities would need to contain provisions to reflect the GDPR requirements. The GDPR also requires certain criteria to be included in contracts between data controllers, the entities that determine the purposes and means of the personal data processing, and with data processors, the entities that process personal data on behalf of data controllers.
If it is intended that the personal data will be transferred to a country outside of the European Economic Area, the relevant individuals would need to consent explicitly to this, or certain protective mechanisms would need to be put in place. Such mechanisms include the EU-US Privacy Shield or standard contractual clauses that have been approved by the European Commission or binding corporate internal rules for data transfers within multinational companies.
The processing of personal or special category data in connection with a database would be subject to the GDPR and UK implementing legislation, and that includes all processing activities such as adding the data to the database in the first instance and any subsequent processing of the data such as transferring, recording, editing, retrieving, deleting, etc. As such, there needs to be a relevant legal basis for the processing activities.
If consent is being relied upon as the legal basis for processing the personal or special category data, individuals would need to consent explicitly to any processing connected to the database. Safeguards should be put in place to ensure security in authorised access so that the quality and integrity of the data are protected.
Note that Opinion 3/2019 from the European Data Protection Board (EDPB) states that consent is not necessarily the most appropriate legal basis for processing personal or special category data in the context of clinical trials. This is because the GDPR requires a very high standard for consent (one of which is that the consent must be freely given) and must be capable of being withdrawn by the data subject at any point. The EDPB notes that other legal bases, such as processing for the legitimate interests of the sponsor/controller (Article 6(1)(f) GDPR), necessity for public interest in the area of public health (Article 9 (2)(i) GDPR), and necessity for scientific research purposes that are proportionate to the aim pursued by the sponsor/controller (Article 9 (2)(j) GDPR), would be more appropriate grounds, provided the processing is used exclusively for scientific research purposes (whether stated in the protocol or not).
Regardless of the legal basis used, individuals would also need to be provided with certain information in relation to the database (such as their rights under the legislation and the potential recipients of their personal data). In addition, the personal data stored on the database would need to be kept up to date, accurate, secure, and kept no longer than necessary for the purposes of the particular processing activities or as required under applicable laws.
Regulation 2 of the Human Medicines Regulations defines a medicinal product as:
Regulation 2(1) of the Medical Devices Regulations 2002 (SI 2002/618) (the Medical Devices Regulations) defines a medical device as any instrument, apparatus, appliance, software, material or other article used alone or combined for humans to:
To distinguish between medical devices and medicinal product, it is important to consider:
The principal intended action of a medical device is typically fulfilled by physical means (including mechanical action, physical barrier, replacement of, or support to, organs or body functions), whereas the principal action of a medicinal product is normally achieved by pharmacological, immunological or metabolic means. A medical device should not achieve its main intended action by pharmacological, immunological or metabolic means, although it can be assisted by these means.
Where the assessment is not straightforward, or disagreement arises, the MHRA’s Medicines Borderline Section is able to issue determinations on whether a product falls within the definition of a medicinal product or a medical device. Its Guidance Note 8 sets out factors that it will consider in determining whether a product should be classified as a medicinal product. The MHRA will take account of a range of factors, including: claims made about the product by the manufacturer or on the product information; the presentation; the primary intended purpose; the product’s pharmacological, immunological, metabolic properties; the classification of similar products on the market; the decisions of other EU Member States on similar products; and relevant EU Court/domestic court precedents.
Where doubt remains, the product in question will be classified as a medicinal product.
The Human Medicines Regulations implement EU law regarding the procedures and requirements to obtain a marketing authorisation (MA). The general rule is that a medicinal product may only be placed on the UK market if it has been granted a MA. Part 5 of the Human Medicines Regulations sets out the details and conditions for an application for grant of a MA in the UK. Setting aside the placing of a centrally approved MA on the UK market, in practice, submissions of MA applications must be made to the MHRA and those submissions that do not meet the relevant requirements will not be validated.
The MHRA may only grant the MA if it is satisfied that:
In an Article 8(3) 'full application', this will usually require the submission of substantial manufacturing, pre-clinical (animal) and clinical (from clinical trials in humans) data, known as a 'full dossier'.
Biological medicinal products must meet the same quality, safety and efficacy criteria to obtain MA as non-biological medicinal products. However, since biological medicinal products are especially sensitive to change in starting materials or manufacturing conditions, Annex I to EU Directive 2001/83/EC (the Directive) sets out specific requirements applicable to biological medicinal products.
Certain types of application can use the abridged application procedure, whereby the application does not need to provide a full dossier, that includes pre-clinical or clinical data, but can cross-refer to data submitted for another medicinal product, known as the reference medicinal product. Abridged applications include the following.
If the new product meets the requirements for a generic product as defined in Article 10(2)b of the Directive, the application may be abridged to refer to the relevant data of a reference product whose data protection period has expired. Therefore, it can be authorised without its own clinical and pre-clinical data (Regulation 51 of the Human Medicines Regulations).
A hybrid application can be made for a 'variant' of the reference product by complying with Article 10(3) of the Directive. It differs from a generic application in that the results of appropriate pre-clinical tests and clinical trials will be necessary in the following three circumstances: (i) where the strict definition of a generic medicinal product is not met; (ii) where the bio-availability studies cannot be used to demonstrate bio-equivalence; and (iii) where there are changes in the product compared to the reference medicinal product (Regulation 52).
A biosimilar application complying with Article 10(4) of the Directive differs from a generic application due to differences relating to raw materials or differences in manufacturing processes of the biological medicinal product and the reference biological medicinal product. As a result, appropriate pre-clinical tests and clinical trials will be necessary (Regulation 53).
Well-established use application
The new product may include an active substance which has a well-established medicinal use for a particular indication and an acceptable level of safety such that, consistent with Article 10a of the Directive, the applicant may submit published data demonstrating ten years of systematic use in the EU to support the safety and efficacy of the product (Regulation 54).
Informed consent application
Consistent with Article 10c of the Directive, where a company provides its 'informed consent' to rely upon the originator’s dossier, a second company can get an exact copy of the MA (Regulation 56).
Before a medical device can be placed on the UK market, it must carry a European Conformity mark (CE mark). CE marking is applied by the manufacturer and means that the device meets the relevant regulatory requirements, known as the 'essential requirements' contained in Annex I of the EU Medical Devices Directive 93/42/EEC (the Medical Devices Directive), and, when used as intended, works properly and is acceptably safe. When a CE mark is applied to a product, the medical device can be freely marketed anywhere in the EEA without further control.
It is the manufacturer's responsibility to obtain and place the CE mark on the product. If the product is imported from outside the EEA, this responsibility falls to the importer within the EU.
General medical devices may be classified as being Class I, Class IIa, Class IIb or Class III. However, it should be noted that under the new Regulations, the classification rules for medical devices have been expanded (and for in vitro diagnostic devices have been completely overhauled). There are no grandfathering provisions (a provision where an old rule continues to apply to an existing situation while a new rule will apply to future cases) so all medical devices already on the market will need to be reassessed in accordance with the new requirements. The process for obtaining a CE mark, and whether this requires the involvement of a notified body, is discussed in 3.4 Procedure for Obtaining a Marketing Authorisation ('Medical Devices'), below.
MAs in the UK are valid for five years. However, marketing authorisation ceases to be valid if the product is not placed on market within three years of the date of authorisation (known as the 'sunset' clause).
The renewal application should be submitted to the MHRA six months before expiry. The authorisation may be renewed on the basis of a re-evaluation of the risk-benefit balance. Once renewed, the MA will be valid for an unlimited period unless there are justified grounds relating to pharmacovigilance to proceed with one additional five-year renewal (Regulation 65 of the Human Medicines Regulations).
The MHRA may revoke, vary or suspend a UK MA if any of the 11 conditions listed in Regulation 68 of the Human Medicines Regulations is met. This list of conditions include situations such as the MHRA believing that the product is harmful or that the positive therapeutic effects of the product do not outweigh its risks to the health of patients or of the public, or that the product’s composition is not as described in the application for the MA or the material supplied with it.
A CE mark is valid indefinitely and the underlying conformity assessment does not require renewal unless the specifications of the device change.
The MHRA has the power to issue:
Process for obtaining authorisation
If the applicant wants to market a medicine only in the UK, an application for a UK national MA must be made to the MHRA. Applicants who have an existing authorisation in another Member State can apply under the Mutual Recognition Procedure describing the UK/MHRA as a Concerned Member State. There is also the option to start a decentralised procedure at EU level, with the UK/MHRA as Reference Member State (RMS) or as a Concerned Member State. All applications must follow the Common Technical Document (CTD) format.
The procedure takes up to 210 days (decentralised and national procedures), or 90 days (mutual recognition procedure), excluding time taken to provide further information or if further data or explanations are required. If the UK is a Concerned Member State, the MHRA will issue a national licence for the product within 30 days of the close of the co-ordinated procedure.
The current fees range from GBP121,664 for a full application made through the DCP with the UK as RMS, to GBP2,564 for a second-wave mutual recognition application for an abridged application. Proof of payment should be included in the application.
The Paediatric Regulation 1901/2006 is currently directly applicable in the UK. An applicant in the UK may, therefore, be obliged to conduct paediatric clinical trials or to obtain a waiver or deferral, as necessary, and to provide information regarding existing paediatric studies to the MHRA.
The Variations Regulation (EC) 1234/2008 and the provisions of Regulation 726/2004 regarding variations to MAs are currently directly applicable in the UK.
Type IA variations can be implemented before the MA holder notifies the MHRA, as long as the MHRA is notified within 12 months. The MHRA will take up to 30 days to process the application. Type IAIN variations must be notified 'immediately' (ie, within two weeks of the change being implemented).
Type IB variation must be approved before they are implemented. The MHRA will assess the application in up to 30 days, and the MAH will be given a further 30 days to respond to any requests for information.
Major, type II variations must be approved before they are implemented. Once the MHRA has all the documents, it will take 30, 90 or 120 days to assess the application, depending on how urgent or complex the changes are, excluding time taken to answer questions.
Fees are up to GBP35,846 for an extended type II complex variation with the MHRA as the Reference Member State, to no fee for a type IA variation.
The transfer of a granted MA from one legal entity to another is referred to as 'change of ownership' in the UK. The legal entity taking over the MA is required to submit an application for change of ownership together with a series of supporting documents (such as letters from the manufacturer(s) confirming that it is prepared to manufacture on behalf of the new MA holder). The application will contain all the necessary particulars of the future MA holder, the existing MA and the new MA holder’s declaration of having all the necessary means to comply with the obligations imposed to a MA holder. The application must be signed by the existing MA holder. It is not possible to transfer ownership of pending MAs.
The procedure for a change of ownership is governed by UK secondary legislation and is considered an administrative process. Applications for transfers of ownership attract a fee of GBP442 and take up to 42 days from the date of submission.
Process for obtaining authorisation
In order to obtain a CE mark for a medical device, the manufacturer must follow one of four conformity assessment procedures. The particular procedure will depend upon the classification of the medical device, and the process of conformity assessment is risk-based, having regard to the characteristics of the hazards associated with the device, to minimise harm to users.
The manufacturer must select the appropriate Conformity Assessment Procedure to obtain a CE mark for their medical device. For all classes of device, the manufacturer is required to provide a technical file, although the requirements for the technical file will depend upon the Conformity Assessment Procedure selected. As a general rule, the documentation should cover the design, manufacture and intended operation of the product.
The conformity assessment procedure assesses that a device meets all the general essential requirements and relevant design and construction essential requirements contained in Annex I of the Medical Devices Directive. Where available, relevant harmonised standards may be used to demonstrate how the requirements have been met. The Medical Devices Directive contains no specific requirement to undertake clinical testing, although this is required for certain conformity assessment procedures. However, under the new Regulations the evidence required to demonstrate compliance with the general safety and performance requirements has greatly increased. In particular, clinical data are now required.
All but the very lowest risk devices must have a conformity assessment carried out by an independent certification body, called a 'notified body'. A notified body ensures manufacturers comply with the requirements, including reviewing clinical and scientific data, manufacturing processes and the quality management system. If they comply, the notified body will issue a CE certificate, which manufacturers can use to show that the device has passed the conformity assessment. Low risk Class I medical devices do not need to go through a conformity procedure with a notified body. However, they must be registered with the MHRA. For all devices, once the relevant assessment has been successfully completed (and the certificate received, as applicable) the manufacturer may place the CE mark on their medical device and put their device on the UK market.
There are no specific obligations to conduct studies of use of the medical device in children in order to obtain a CE mark.
If any specification, method of manufacture or intended use of a medical device is amended, it is the responsibility of the manufacturer to ensure that the relevant conformity assessment is updated in order that the CE mark remains a true representation that the product is fit for purpose.
If the ownership of a medical device is transferred to another party, the new party becomes the legal manufacturer and is responsible for the device’s compliance with the CE mark. In cases where the medical device is registered with the MHRA, the MHRA should be notified of the new ownership. There is a GBP100 fee for each change request, but it is possible to change more than one detail within each registration request.
The Human Medicines Regulations state that a person may not sell or supply, or offer to sell or supply, an unauthorised medicinal product, or a medicinal product otherwise than in accordance with the terms of a MA. However, consistent with Article 5(1) of the Directive, the UK allows an exception to this provision if:
The supply of unlicensed products under these provisions is often called in the UK 'named patient supply', although the patient does not, in fact, have to be named by the doctor seeking supply of the unlicensed product.
The Human Medicines Regulations also set out other exemptions – for example, where medicinal products, other than prescription-only medicines, are manufactured and assembled in accordance with the instructions from a healthcare professional, or where authorised general sales list medicinal products are mixed together, or mixed with a substance which is not a medicinal product, to manufacture a new product. There are also exemptions in relation to advanced therapy medicinal products prepared on a non-routine basis, and for certain radiopharmaceuticals. A MA is also not required where supply is authorised by the MHRA on a temporary basis in response to a suspected or confirmed spread of agents that may cause harm to human beings, such as chemical agents or nuclear radiation. Unlicensed medicines can also be supplied in the context of clinical trials.
When named patient supply of medicinal products is offered to a co-ordinated patient group this is referred to as a 'compassionate use scheme'. However, the legislative provisions of named patient supply continue to apply.
In 2014, the UK government launched a specific scheme that can give patients access to unlicensed products that have been subject to specified MHRS assessment called, the Early Access to Medicines Scheme (EAMS). EAMS is a voluntary, non-statutory scheme that is intended to run in parallel with the above provisions. The scheme allows patients to access innovative unlicensed medicines earlier than the current MA procedures permit, but applies only to medicines that target life-threatening or seriously debilitating conditions for which there are no existing treatments, or where existing treatments are unsatisfactory. There must be sufficient quality, safety and efficacy data available to show that the risk-benefit profile of the product is positive, and that the medicine represents a significant advance in the treatment of an unmet need. Products will normally be eligible for an early access scientific opinion after Phase III clinical trials, although medicines with exceptional and compelling data may be eligible after Phase II. The company that has developed the medicinal product that is subject to the EAMS may not advertise the potential treatment to HCPs, but information is included on the MHRA’s website.
Where devices are custom-made for individual patients, or intended for clinical investigation they do not need a CE mark.
Custom-made medical devices are defined by Regulation 5(1) of the Medical Devices Regulations as devices manufactured specifically in accordance with a duly qualified medical practitioner’s written prescription that gives, under his or her responsibility, specific design characteristics and is intended for the sole use of a particular patient. The manufacturer of a custom-made medical device must meet the requirements of the Medical Devices Regulations that relate to custom-made devices.
The MHRA may also approve exceptional use of a non-compliant device on humanitarian grounds under Regulation 12(5) of the Medical Devices Regulations. These devices do not need a CE mark. A manufacturer can apply to the MHRA to supply a medical device that does not comply with the law to protect a patient’s health if there is no legitimate alternative available. The same provision may be made for custom-made devices that have not complied with the standard conformity assessment procedure.
The marketing authorisation holder is responsible for the quality, efficacy and safety of the product throughout the product's life cycle. As part of this, the authorisation holder has an obligation to keep the dossier up-to-date to take account of scientific and technical progress.
In terms of pharmacovigilance, MA holders are required to operate and audit appropriate pharmacovigilance and risk management systems, to monitor the safety of their products throughout the products’ life cycle, and to detect any change to their risk-benefit balance. MA holders must, as part of their pharmacovigilance systems, have an appropriately qualified person responsible for pharmacovigilance located in the EU, maintain a pharmacovigilance master file, operate, monitor and update a risk management system for the product, record and report all suspected adverse reactions occurring in relation to their products, and submit periodic risk-benefit evaluation reports for their products. In addition, they must report any suspected falsified medicines entering the legitimate supply chain (see 3.8 Existing Rules Against Illegal Medicines and/or Medical Devices, below).
The MHRA may grant a MA subject to one or more conditions, including:
The MA holder must incorporate any such condition into the risk management system for the product.
Under the current Medical Devices Directive, and implementing Human Medicines Regulations, there are limited post-marketing and vigilance obligations placed on manufacturers within the legislation itself. However, guidance from the European Commission and international standards set out further detail, such as the details of the quality management system that should be in place to demonstrate compliance with the applicable requirements, and the details of the post-market surveillance that should be conducted, including monitoring and reporting adverse events, and taking appropriate corrective action. In the UK, the MHRA requires that once a medical device has been placed on the UK market, the manufacturer monitors and reports to it any serious adverse incidents associated with the product.
Under the new Regulations there are enhanced reactive and proactive post-market obligations on manufacturers. For example, the legislation now sets out specific requirements whereby, depending on the level of risk that the product poses, manufacturers may be required to: establish and implement a post-market surveillance system in a manner proportionate to risk; develop a post-market surveillance plan; submit periodic safety update reports; and upon reporting serious incidents implement field safety corrective action. The Regulations also introduce greater visibility over the whole supply chain and requirements relating to traceability of devices.
The Regulations also introduce enhanced obligations on post-market clinical follow-up, whereby the manufacturer must identify potential risks associated with the product as part of the post-market surveillance plan, and conduct post-market clinical follow-up to assess those risks.
Requests for information about MAs and pending MAs may be submitted to the MHRA under the Freedom of Information Act 2000 (FOIA).
The MHRA releases very little information in relation to pending MA applications. Whilst the MHRA will treat requests made under the FOIA on their own merits and in accordance with the legislation, the MHRA recognises pharmaceutical companies’ commercial interests in limiting the disclosure of information relating to products they plan to bring to market.
Following the grant or the refusal of a MA, the MHRA generally release detailed information about the application and authorisation, both proactively via disclosures on their websites and also in response to third-party information requests. FOIA provides mechanisms whereby personal data, confidential information and commercially sensitive information may be withheld or redacted from documents requested by third parties, and the MHRA typically allows MA holders to comment on any proposed redactions prior to their release. However, information will be considered commercially confidential in only limited situations where specific and actual evidence is provided to show how disclosure would undermine a company’s commercial interests.
The notified bodies registered in the UK (see 1.2 Regulatory Bodies, above) are private entities. Therefore, access to information provisions that apply to public bodies do not apply. As such, both before and after CE marking, the information pertaining to the device remains the property of the manufacturer.
Once registered with the MHRA, a manufacturer’s details will be added to the Public Access Database for Medical Device Registration. Records are listed by manufacturer and device and include contact details. Manufacturers of IVDs will not be published on this database, as the IVD Directive contains a confidentiality clause. Other information held by the MHRA could be requested under the FOIA, but will only be provided where no exceptions under the FOIA apply.
The European Database for Medical Devices (Eudamed) contains data on medical devices that have been collected and entered by competent authorities and the European Commission. Eudamed includes: data on registration of manufacturers, authorised representatives and devices; data relating to certificates issued, modified, supplemented, suspended, withdrawn or refused; data obtained in accordance with the Medical Device Vigilance System; and data on clinical investigations. Currently, Eudamed can only be accessed by the national competent authorities and the European Commission. However, under the new Regulations, parts of the Eudamed database are to be made public. For example, members of the public will be able to access: key information on notified body certificates, suspension, withdrawal and restriction; clinical investigation reports and summaries; and field safety notices.
The Falsified Medicines Directive introduced a number of regulatory measures intended to prevent the entry of falsified medicines into the legal supply chain. These measures were transposed through amendments to the Human Medicines Regulations, which came into force in 2013, and include:
The Falsified Medicines Directive also provided for a further requirement for prescription-only medicines to include certain safety features, including a seal on the outer packaging (to indicate whether the pack has been tampered with) and a unique identifier. Following the publication of delegated legislation, these new requirements will comes into force in the UK in 2019.
The MHRA has enforcement powers under the Medical Devices Regulations and the General Product Safety Regulations 2005 (SI 2005 No 1803). As part of this, MHRA can investigate any business activity that is covered by these regulations, which includes falsification and illegal distribution of medical devices. To ensure that medical devices placed on the market and put into service in the UK meet these regulatory requirements, the MHRA assesses all allegations of non-compliance raised using a risk-based system, monitors the activity of notified bodies designated by MHRA to assess the compliance of manufacturers, investigates medical devices as a result of adverse incident reports or intelligence indicating a potential problem, and carries out proactive risk-based projects with other Member States in Europe to identify emerging risks. These activities form part of the MHRA’s market surveillance obligations under EU law and are intended to capture, amongst other things, falsified and legally non-compliant devices.
There are a number of options for using IP rights to tackle counterfeit pharmaceuticals and medical devices at the border, which are discussed below in section 11 IP Other Than Patent. Counterfeit pharmaceuticals and medical devices can be detained by the UK customs authority, the UK Border Agency (UKBA), on entry into the UK. Under Regulation 608/2013 (the Customs Regulation) the holder of an intellectual property right (IPR), including a patent or a trade mark, can register its right with the UKBA and ask the UKBA to detain goods that are suspected of infringing that right.
Statutory controls on pharmaceutical pricing are set out in the National Health Service Act 2006 (as amended) and subordinate legislation. Products that are not supplied through the National Health Service (NHS) are not subject to price controls; in practice, though, over 90% of medicines are supplied through the NHS.
The 2019 Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) – a voluntary agreement negotiated between the Department of Health and the Association of the British Pharmaceutical Industry (ABPI) – controls prices of branded medicinal products indirectly by controlling profit on NHS business, and by establishing a budget cap on the total expenditure by the NHS on branded health service medicines, with member companies making scheme payments to the Department of Health (calculated as a percentage of eligible net sales) as quarterly rebates to cover excess expenditure. The payment percentage for 2019 under the VPAS is 9.6%. The VPAS is an agreement which is not binding under the law of contract; however, the Secretary of State may enforce sums payable under the scheme, using powers under Section 261(9) National Health Service Act 2006.
If a company is not a member of the PPRS (around 10% of companies), it is regulated by the parallel statutory scheme, currently set out in the Branded Health Service Medicines (Costs) Regulations 2018 (as amended). The statutory scheme is applicable only to branded health service prescription-only medicinal products. From 1 April 2018, it has involved a payment scheme, calculated as a percentage of net sales, similar to the scheme payments required under the VPAS. Payments are made on a quarterly basis; for 2019, the payment percentage is 9.9%. The maximum price which may be charged for a branded health service medicine within the scheme is that directed by the Secretary of State. The scheme includes requirements to pay interest where payments are made late and daily penalties may additionally be imposed.
In primary care, the price of some medicinal products is also indirectly controlled by the reimbursement price, as set out in the Drug Tariff (a monthly publication, specifying the amounts to be paid to contractors for providing relevant services). These prices are calculated based on sales information provided by pharmacies, manufacturers and wholesalers. Where the Drug Tariff does not list a reimbursement price for a particular medicinal product (which is the situation for most originator products prior to patent expiry) or where a product is prescribed by brand name, it will be reimbursed at the manufacturer’s NHS list price.
Medical devices will only be routinely dispensed in primary care through the NHS if they are included in the Drug Tariff. The Department of Health/NHS Business Services Authority (NHSBSA) agrees the reimbursement price of the medical device with the device manufacturer at launch. The reimbursement price will principally be determined by comparing the device with similar products on the market and their respective prices. If there are no comparable devices or the applicant submits evidence to support a different price, the reimbursement price is determined by negotiation between the parties. The sale of any device not listed within the Drug Tariff is a matter for negotiation between the seller and the local NHS.
New branded health services medicines which contain a new active substances and are supplied by VPAS member companies are subject to free pricing at launch, as are line extensions of such medicinal products launched within 36 months of licensing of the initial indication in the UK; the prices of such products must, however, be notified to the Department of Health prior to launch. The price for all other branded health service medicines supplied by VPAS member companies must be agreed with the Department of Health, taking into account factors such as: clinical need; the price of alternative products; the price and operational costs in EEA and other markets; the date of patent expiry; estimated quantity of product to be supplied and sales income over five years; estimated costs to the scheme member; the price at which reasonable costs are met with a reasonable profit earned; and the scheme member's profits over the previous five years. There is no formal system of international reference pricing, although the cost of the presentation in other markets is specifically listed as a relevant criterion to which the Department of Health should have regard.
New branded medicines supplied by statutory scheme members are priced at the direction of the Secretary of State, taking into account factors similar to those under the VPAS, including whether the product includes a new active substance.
The prices of branded generic medicinal products are controlled in the same way as originator medicines, either under the VPAS or the statutory scheme.
Unbranded generic medicinal products may be priced at the discretion of the manufacturer, with the expectation that prices will be controlled by the effects of competition. To the extent that the price of any medicine, not subject to a voluntary scheme, is deemed to be excessive, the Secretary of State has power under the National Health Service Act 2006, to issue a direction to limit the price.
All medicines validly prescribed on an NHS prescription may in principle be reimbursed from public funds, unless expressly excluded. Schedules 1 and 2 to the National Health Service (General Medical Services Contracts) (Prescription of Drugs, etc) Regulations 2004 list a limited number of products that:
In primary care, patients receive medicines prescribed by their general practitioners from pharmacies in the community. They must pay a fixed price for NHS prescriptions, unless they fall within one of a number of exempt categories (for example, children, the elderly and persons suffering from certain chronic diseases). The current prescription charge (as from 1 April 2019) is GBP9.00.
In relation to reimbursement of medicinal products used in NHS hospitals, the Health and Social Care Act 2012 established the 'national tariff' – a set of prices for defined items of care ('currencies'). Hospitals are paid by commissioners, based on procedures performed or care provided, with the cost of the procedure or care (including the costs of associated medicines and devices) fixed in the national tariff. Certain high-cost medicinal products and medical devices are reimbursed outside the tariff system and enhanced payments may be made for some patients.
When a medicinal product receives an MA, the NHS list price must be notified or agreed (as appropriate) with the Department of Health before it is supplied to the NHS. All such products may, in principle, be reimbursed without further cost-benefit analysis.
However, in England most new medicines (and new indications for existing products) undergo health technology appraisal by the National Institute for Health and Care Excellence (NICE), which issues guidance to the NHS on use of the particular medicinal product, based on an assessment of clinical effectiveness and cost-effectiveness relative to alternative therapies. NHS bodies in England are required by regulations to make funding available so that patients are able to access treatments recommended by NICE in technology appraisal guidance, generally from a date three months after guidance is issued. In cases where the estimated budget impact associated with use of the technology exceeds GBP20 million in any of the first three years after launch, NHS England may ask NICE to delay the period for mandatory implementation.
NICE also assesses some medical devices and diagnostic tests through parallel procedures.
The All Wales Medicines Strategy Group (AWMSG) issues guidance on new technologies immediately following launch, prior to NICE guidance being issued or where NICE will not be conducting an appraisal. In Scotland, the Scottish Medicines Consortium (SMC) assesses all new medicines and new indications for existing medicines and issues guidance close to the product launch. In Northern Ireland, the Department of Health, Social Services and Public Safety considers NICE guidance and reviews it for legal, policy and financial consequences only, before deciding on implementation.
While theoretically NHS prescribers may prescribe any product they consider to be clinically appropriate for their patients, in practice NHS commissioners control which medicines may be prescribed through local or national formularies, the content of which is largely determined by the cost-effectiveness of individual products. Treatments recommended by NICE should be included automatically in NHS formularies in England. In contrast, products which are not recommended by NICE are generally not funded on a routine basis. An equivalent approach is taken to products recommended by AWMSG, SMC and the Northern Ireland Department of Health, Social Services and Public Safety in the devolved administrations.
In addition to NICE’s recommendations (or those of AWMSG, SMC and the Northern Ireland Department of Health, Social Services and Public Safety) the following factors will be used to determine whether medicines are funded:
Community pharmacists purchase products from manufacturers or wholesalers and are reimbursed by the NHSBSA for the service they provide and the products they dispense at the rate specified in the Drug Tariff, or, where no reimbursement price is set in the Drug Tariff, at the manufacturer's list price. To the extent that the price paid by the pharmacist is less than that reimbursed by NHSBSA, the pharmacist makes a margin of profit. The extent of this margin is monitored by NHSBSA and clawbacks are imposed to ensure that pharmacy profits do not exceed defined limits.
There is no generic substitution by community pharmacists in the UK and the Medicines Act 1968 requires the particular product prescribed in a prescription to be dispensed. However, in general, doctors are encouraged to prescribe products using their international non-proprietary name (INN) and NHS prescribing systems convert prescriptions for a branded product to the INN, unless the doctor specifies otherwise. Where a product is prescribed by INN, the pharmacist may dispense any product that meets the specifications/INN described and is likely to select the lowest-cost product. Generic substitution is standard practice in the hospital context.
The promotion of pharmaceuticals in the UK is controlled by a combination of legislation and self-regulation by reference to national codes of practice.
The key legal provisions regarding medicines advertising are found in Part 14 of the Human Medicines Regulations, which are supplemented by guidance from the MHRA (the Blue Guide). Part 14 and the Blue Guide cover both advertising aimed at healthcare professionals (HCPs) and at the general public. The Bribery Act 2010 overlaps with certain areas covered by the medicines advertising legislation to the extent that these are concerned with interactions between industry and HCPs and other decision makers.
There are different rules for advertising of medicines to the public and advertising aimed at HCPs. Advertising to the public is permitted for medicines legally classified as 'pharmacy sale' or 'general sale list' while advertising for prescription-only medicines may only be targeted at “persons qualified to prescribe or supply” medicines.
The laws governing the promotion and advertising of medical devices are less detailed than those established for medicines. The Medical Devices Regulations 2002 implement the EU Medical Device Directives and, although they cover the issues of labelling, information to be supplied with medical devices and the CE mark, they do not regulate advertising material per se. The advertising of medical devices is therefore governed by the general consumer legislation such as the Sale of Goods Act 1979, the Consumer Protection from Unfair Trading Regulations 2008, the Business Protection from Misleading Marketing Regulations 2008 and the Bribery Act 2010.
The new EU Medical Devices Regulations (Regulation 2017/745, the MDR and Regulation 2017/746, the IVDR) entered into force on 25 May 2017 and MHRA has stated that it will continue to apply the key provisions after the UK leaves the EU. However, as described above, the MDR and the IVDR will not apply fully until after the transition period has ended, on 25 May 2020 and 25 May 2022 respectively. During the transition period, devices can be placed on the market under the current Medical Device Directives, or the new Medical Devices Regulations (if they fully comply with the requirements). Article 7 of the EU Medical Devices Regulations include a new requirement concerning claims. In particular, when advertising a medical device it is expressly prohibited to make claims that may mislead the user or the patient with regard to the device's intended purpose, safety and performance by:
When placing devices on the market in the UK under the new EU Medical Device Regulations, Article 7 must be complied with in addition to the general consumer legislation outlined in 5.9 Consumer Protection Rules, below.
Advance notification or authorisation of advertising of medicines is not generally required; however, Section 304 of the Human Medicines Regulations provides the MHRA with the power to issue a notice requiring any person concerned with the publication of advertisements relating to medicinal products to supply copies of advertisements prior to publication and not to use those advertisements until they have been approved. It is a criminal offence to fail to comply with such a notice. Circumstances in which pre-use vetting may be required include: (i) where a newly licensed product subject to intensive monitoring is placed on the market; (ii) where a product is a reclassified product – for example, from prescription-only to pharmacy; or (iii) where previous advertising for a product has breached the Regulations. Pre-use vetting may also be requested as a result of a major new indication for use or where there are safety concerns. In addition, the MHRA has committed to vet initial advertising for all new active substances.
The duration of the vetting is commonly two to three months, and does not normally extend for longer than six months. This period can be reduced or extended depending on the quality of the initial advertising material submitted and other relevant factors.
It is also open to companies to seek guidance from the MHRA on proposed advertisements or to request a meeting to discuss issues that arise during the vetting procedure.
From a self-regulatory system point of view, the Association of the British Pharmaceutical Industry Code of Practice (the ABPI Code), administered by the Prescription Medicines Code of Practice Authority (PMCPA) does not generally require any prior approval for the advertising of POMs, but again, guidance can be sought prior to publication. MHRA vetting does not guarantee compliance with the ABPI Code.
In the case of over-the-counter medicines, the Proprietary Association of Great Britain (PAGB) Consumer Code requires prior approval. However, this requirement does not apply to advertisements aimed at persons qualified to prescribe or supply medicines, or their employers (caught by the PAGB Professional Code). The PAGB reviews all of their members’ advertising to the public against their code of practice.
There are no authorisation or pre-notification requirements for the promotion and advertising of medical devices in the UK.
The self-regulatory system for medicines is controlled by the above mentioned ABPI Code and the PAGB Codes, which apply to the advertising of prescription-only medicines and the advertising of over-the-counter medicines respectively. The activities of companies who do not agree to be subject to the self-regulatory regimes are controlled directly by MHRA.
The Advertising Standards Authority (ASA), which administers the Committees of Advertising Practice Codes, has competence to hear complaints about advertising generally, including the advertising of medicines to the general public. The types of complaints the ASA normally reviews are those that fall outside the remit of the PMCPA or PAGB and, in particular, those concerning borderline products.
In practice, the majority of advertising complaints concerning medicines (including those made by HCPs) are dealt with under the self-regulatory system. There is a memorandum of understanding between the ABPI, PMCPA and the MHRA clarifying the relationship between the self-regulatory process and the enforcement function of the MHRA and another memorandum of understanding between the ABPI, PMCPA and the Serious Fraud Office (SFO) clarifying the synergies between these two complementary systems of control.
The SFO is responsible for enforcing the Bribery Act 2010 and, as a general matter, has endorsed the efforts of the MHRA and ABPI to control medicines advertising regarding those activities covered by the Human Medicines Regulations, the ABPI Code and the Bribery Act.
As the PMCPA is performing a general regulatory and public law function in relation to advertising of medicines, its decisions have, in one case, been found to be subject to judicial review by the Administrative Court, but it is possible that another court would take a different view of the PMCPA’s role.
The self-regulatory regime for the medical technology or devices sector is primarily controlled by the Association of British Healthcare Industries (ABHI) in accordance with the principles set out in its Code of Business Practice, which requires any advertising of medical devices to be accurate, balanced, fair, objective and unambiguous. The ABHI Code, along with the Eucomed Code of Ethical Business Practice, govern collaborations and other interactions between medical device manufacturers and HCPs.
The PAGB Medical Devices Code applies to all OTC medical devices which are covered by PAGB membership and supplied by PAGB member companies. A medical device will be covered by PAGB membership if it has been CE-marked according to the relevant medical device legislation, with the manufacturer holding a registration or CE certification as relevant and having issued a valid declaration of conformity; additionally, it is intended for self-care use and competes in an existing OTC therapeutic category within the PAGB OTC directory.
We explain the sanctions that may be imposed in cases where the advertising regulations have been breached in 5.6 Sanctions Provided by the Self-regulatory/State System, below.
Since there is no specific regulation of advertising of medical devices under UK law (as opposed to self-regulation, addressed below), the sanctions/provisional safety measures include only those set out in general consumer law, which also apply to medicines.
In practice, the majority of the advertising complaints relating to medicines are raised by competitors; however, all competent bodies, the MHRA, the SFO, the PMCPA and the PAGB can hear complaints from whatever source, including HCPs and other interested parties (including journalists and members of the public).
The MHRA and the SFO will routinely decline to investigate cases where they are aware that these are under investigation by a self-regulatory body, such as the PMCPA, but reserve their right to take action if serious public health concerns are raised (in the case of the MHRA) or if the complaint meets its criteria of serious fraud (in the case of the SFO) or if self-regulation fails in the sense that a company is a persistent and serious offender.
Competitors make complaints about advertising of medical devices to the ABHI under the self-regulatory system. Complaints about advertising to consumers may be directed to the Advertising Standards Authority. The self-regulatory bodies prefer to resolve complaints informally with companies agreeing to correct their advertising voluntarily, and prosecutions for advertising offences are rare.
Generally, it is unusual for competitors to take direct action through the courts. The unfair competition causes of action available in some Member States are not part of UK law, and slander of goods and other tortious causes of action exist, but often involve difficult issues of proof.
Under the statutory process, sections 304, 305 and 306 of the Human Medicines Regulations provide the MHRA with the power to issue notices prohibiting the publication of specified advertisements. In these cases, the MHRA notifies the company issuing the advertising that it is minded to consider such advertisement to be in breach of the Regulations and the company has the right to make written representations to the Independent Review Panel for Advertising, which gives advice to the MHRA. If the MHRA issues a final notice determining that the advertisement is in breach, the company has no further right of appeal and it will commit a criminal offence if it publishes the advertisement again.
Following prosecution, a person contravening the Human Medicines Regulations faces a fine if the matter is dealt with by the Magistrates' Court. If the matter is dealt with by the Crown Court, in addition to or instead of a fine, imprisonment may be imposed for a period of up to two years on responsible individuals. The courts have discretion over the amount of the fine they impose.
Under the self-regulatory system, if a company is found in breach of the ABPI Code, the PMCPA may impose administrative charges. The company is required to give an undertaking that the relevant activity has been discontinued and that measures have been put in place to prevent a similar breach in the future. A case report is published by the PMCPA when the case has been concluded. In serious cases, PMCPA may take additional action including: requiring an audit of a company’s promotional procedures followed by the possibility of a requirement for pre-vetting of future material; a requirement for recovery of material; a requirement for the company to issue a corrective statement; and/or a public reprimand. Ultimately, a company may be referred to the ABPI Board of Management for consideration of suspension or expulsion from the ABPI. The PAGB does not impose financial sanctions but it has the power to expel a company from the association if it has failed to comply with the PAGB Code.
For complaints submitted by competitors to the MHRA, the MHRA endeavours to complete its investigations within 30 days. This timeframe may be extended if the discussions with the respondent are detailed or the MHRA has taken formal legal action. Where appropriate the MHRA may refer the complaint to one of the regulatory and self-regulatory bodies that deal with the advertising and promotion of medicines.
On the self-regulatory side, there are no time limits specified for the total duration of the process before the PMCPA and this can take from a few weeks to a few months where an appeal to the Appeal Board occurs. The PMCPA requires companies to engage in inter-company dialogue in advance of any complaint being accepted. In practice, some issues are resolved after a few weeks of inter-company dialogue. The company has the option of appealing the decision but use of the promotional material or activity at issue must be suspended pending the final outcome.
Complaints under the PAGB Professional Code are considered by the Complaints Committee and can be appealed to the Appeal Board. There is, however, no complaints procedure in respect of consumer advertising. Instead, PAGB administers a vetting process for its members’ consumer advertising material. If this material is the subject of complaint the complaint is handled by the ASA.
In relation to medical devices, the ABHI operates a similar enforcement system to that of the ABPI and PMCPA, whereby complaints are investigated and considered in accordance with the self-regulatory ABHI Code. Companies found in breach of these provisions may be subject to sanctions including an administrative charge, public reprimand and, ultimately, they may be expelled from the ABHI. However, there is little practical experience with the operation of the ABHI complaints procedure – between 2008 and 2016, there were only approximately 30 complaints. None of these cases went through the entire complaints procedure, instead being settled through mediation or withdrawn before the full investigation was completed.
Complaints about consumer advertising of medicines or medical devices can also be submitted to ASA. There are no set timelines for resolution of a complaint by the ASA and the length of the process depends on the complexity of the issue at hand.
All interactions with HCOs and HCPs must comply with the Bribery Act 2010 and particular care must be taken when making a transfer of value to a healthcare organisation or HCP. The ABPI and ABHI Codes provide guidance on the standards that are expected of pharmaceutical and medical device companies in this respect.
In relation to medicinal products, under the ABPI Code, the general rule is that gifts cannot be provided to HCPs or healthcare organisations. The prohibition includes inconsequential items such as mugs, calendars and even items for use with patients such as surgical gloves and tissues. An exception exists for inexpensive notebooks and writing utensils which do not bear product branding and are provided by the company at scientific meetings (stationery for use at third-party events must bear no product or company branding). The total cost of all such items provided to an individual attending a meeting must not exceed GBP6 (excluding VAT). Exceptions exist for other items, in particular, items intended to be provided to patients via HCPs as part of a patient support programme (the items must be inexpensive and directly benefit patient care), and certain items for HCPs containing educational or promotional material (eg, memory sticks and text books).
Companies are also allowed to provide HCOs with medical and educational goods and services (MEGS) which benefit the NHS and/or enhance/maintain patient care or are made for the purpose of supporting research. These are considered as donations, grants or benefits in kind. MEGS should not bear product branding but may bear a company name and, in any event, the involvement of the company must be made clear to any HCO or HCP receiving the MEGS.
There is no legal rule obliging disclosure of this information in the UK but the ABPI Code requires companies to disclose publicly certain transfers of value they make directly or indirectly to HCPs and HCOs located in Europe. Pharmaceutical companies who are not members of the ABPI or subject to the Code may do so on a voluntary basis.
The transparency requirements under the ABPI Code are based on, and are broadly consistent with, the EFPIA Disclosure Code 2014. The categories of information that must be disclosed are similar to those set out in the EFPIA Code and include:
Under the ABPI Code, transfers of value must be disclosed annually via the ABPI’s central platform. A new template issued in 2019, available to download from the PMCPA’s website, must be used to disclose the data. Disclosure should take place within the first six months after the end of the calendar year in which the transfers of value were made.
The ABHI Code and the Medtech Europe Code of Business Practice set out transparency requirements applicable to interactions between medical technology companies and healthcare providers. In particular, these codes forbid member companies from providing direct financial or in-kind support to individual HCPs to cover the costs of their attendance at third-party organised educational events or attendance to company events taking place at the same time and on the same location as a third-party organised event.
From 1 January 2018, ABHI member companies have been required to gather data regarding educational grants provided to HCOs, and from 1 January 2019, these began to be publicly disclosed via the EthicalMedTech platform. The information disclosed includes the aggregate amount of all the grants provided to each healthcare organisation during the previous reporting year.
A high proportion of the complaints received by the MHRA in the past three years are about advertising to the public of botulinum toxin (ie, Botox) products and other prescription-only medicines. In 2018, 90% of the complaints received concerned the promotion of prescription-only medicines to the public. The advertising material that was the subject of these complaints predominantly appeared on websites, but the MHRA has seen in the past few years an increase in the number of complaints about advertising on social media such as Facebook and Twitter.
The subject of complaints under the ABPI Code is very varied and ranges from complaints by competitors and HCPs on misleading advertising, comparative advertisements, advertising of off-label and unlicensed medicines, inappropriate arrangements for advisory board meetings and other meetings involving HCPs, the provision of MEGS by companies and other type of support.
In relation to the advertising and promotion of medical devices, the most common complaint received by the ABHI to date concerns comparative claims made against another company’s products. All these complaints have been resolved through mediation between the companies by the ABHI secretariat and the Complaints Panel Chairman.
The advertising of both medicines and medical devices is governed by the general consumer legislation, including the Sale of Goods Act 1979 and the Consumer Protection from Unfair Trading Regulations 2008.
Advertisements for medicines and medical devices must also comply with general consumer protection self-regulatory instruments, namely the UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (CAP Code) and the UK Code of Broadcast Advertising (BCAP Code). These instruments are enforced by the Advertising Standards Authority (ASA) mentioned. Both the CAP and BCAP Codes contain specific rules in relation to the advertising of health products.
Under UK law, misleading advertisements include those that contain false information or those where the overall presentation deceives or is likely to deceive the average consumer in relation to, for example, the availability, benefits, risks or composition of the product. An advertisement can also be considered misleading if it creates confusion with any products, trade marks, trade names or other distinguishing marks of a competitor.
There are no specific rules governing medical apps in the UK. Standalone software and medical apps that meet the definition of a medical device (set out in section 1 Regulatory Framework, above) will be regulated as medical devices and are required to be CE-marked. Not all apps used in a healthcare setting will be medical devices. A case-by-case assessment is required considering the product’s functionality as a whole. One of the key factors to determine whether standalone software or an app falls within the definition of 'medical device' is whether its use has a medical purpose.
Physicians can, and do, provide medical attention remotely in the UK, including through mobile devices. However, there are currently no specific and separate rules for telemedicine. Under English law, the provision of telemedicine services constitutes the provision of healthcare, which is a regulated activity under the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014, subject to the supervision of the Care Quality Commission (CQC), the independent regulator of health and social care services in England. In order to provide healthcare services in England, providers must be registered with the CQC, and must demonstrate that the care and treatment they provide meet the requirements of the Health and Social Care Act 2008, and its associated regulations. The CQC is responsible for all health and social care provision in England, regardless of whether it is provided remotely or face-to-face, and the same standards apply in either case.
The practice of medicine is regulated separately by the General Medical Council (GMC), the regulatory body for doctors, which is responsible for giving advice on standards of professional conduct and medical ethics. In order to practise medicine in the UK, doctors are required to be registered with the GMC, to hold a licence to practice and to revalidate that licence on a five-yearly basis. As with the CQC’s regulation of healthcare providers, the same standards apply to doctors, regardless of whether they practise in physical or virtual clinics.
There are no special rules applicable to the online advertising and promotion of medicines and medical devices. Pharmaceutical companies may use online portals, web pages and social networking sites to promote their products, provided they follow the legislation, guidance and codes of practice (set out in section 5 Promotion and Advertising, above). Breaches of these requirements through online activities may be enforced in the same way as activities involving traditional methods of communication.
In practice, companies rely on the guidance provided by the MHRA and, under the self-regulatory system, the PMCPA. The MHRA Blue Guide confirms that material posted on UK websites (including social networking sites, blogs and discussion forums) and/or aimed at a UK audience is subject to UK medicines advertising legislation. Clause 28 of the ABPI Code deals with online advertising and promotion, and states that promotional material about prescription-only medicines directed to a UK audience that is provided on the internet must comply with all relevant requirements of the Code.
In addition, the PMCPA has published Guidance on Digital Communications, which includes advice on how companies can make the best use of digital communication tools such as Twitter, Facebook, Pinterest and Wikipedia, whilst complying with the restrictions under the ABPI Code. This Guidance makes clear that companies should be able to use any method of communication to provide materials to any audience. However, such communications must follow the requirements of the ABPI Code, in particular in relation to prescription-only medicines.
Electronic prescription is permitted in the UK, provided the prescription is created electronically, signed with an advanced electronic signature and sent to the person by whom it is dispensed as an electronic communication. If the prescription is for a substance or product listed in Schedule 2 or 3 of the Misuse of Drugs Regulations 2001, it must be sent to the person by whom it is dispensed via the electronic prescription service managed by the Health and Social Care Information Centre, the UK’s national provider of information, data and IT systems for the NHS, which is more commonly known as NHS Digital. In addition, electronic prescriptions must comply with all the general requirements for prescriptions, including those relating to the particulars required to be stated (ie, date, details of the patient and the prescribing clinician).
Online sales of both medicinal products and medical devices are permitted in the UK.
With regard to medicinal products, any person based in the UK offering medicines for sale to the public in the UK (or in another EEA country) via a website, must be registered with the MHRA and be included in its list of UK-registered online retail sellers. Once registered with the MHRA, the seller must clearly display – in a visible position on every page of its website that offers to sell medicinal products to the public – the EU Common Logo (the EU distance selling logo, intended to help members of the public identify websites that can legally sell medicinal products to the public). The website must also contain the contact details of the MHRA and a link to the MHRA website.
Medicines classified as 'pharmacy' or 'prescription-only medicines' can only be supplied at a registered pharmacy, under the supervision of a pharmacist, even when the sale or supply is made online. All pharmacies in Great Britain, including those providing internet services, must be registered with the General Pharmaceutical Council (GPC). A registered pharmacy that offers to sell or supply medicines to patients and the public over the internet can apply to the GPC for permission to display the voluntary internet pharmacy logo on its website. This is separate from the EU Common Logo, and is intended to provide reassurance to patients and the public that they are purchasing medicines online from a registered pharmacy that meets the GPC standards for registration.
As regards medical devices, there are no specific requirements for online selling. However, as explained above, in order to place medical devices on the market in the EU, a manufacturer (or its authorised representative), must complete a conformity assessment in order to place the CE mark on its products, and register with the MHRA.
In addition, a person selling medicines or devices online must comply with a number of other requirements:
Website operators may also have to provide information relating to intellectual property rights, a slavery and human trafficking statement (if the company’s global turnover is GBP36 million or more) and, if website operators are processing personal data of users, information to users as required under applicable data protection laws. The European General Data Protection Regulation (2016/679) sets out a list of information to be provided to individuals in such circumstances, and the UK Privacy and Electronic Communications (EC Directive) Regulations 2003 govern cookies and electronic direct marketing.
Electronic health records are regulated under the National Health Service (General Medical Services Contracts) Regulations 2015. The basic requirement is that GPs are required to keep adequate records of their attendance on, and treatment of, patients. Such records may be kept either on hard-copy forms supplied by the NHS Commissioning Board or, with the written consent of the Board, by way of computerised records, or a combination of the two. The NHS Commissioning Board has approved a system for the automated uploading, storing and displaying of patient data relating to medications, allergies, adverse reactions and, where agreed with the GP and subject to the patient’s consent, any other data taken from the patient’s electronic record.
A manufacturer licence issued by the MHRA is required in order to manufacture finished pharmaceutical products. Following submission of an application, the MHRA will perform an inspection of the designated manufacturing site to verify compliance with good manufacturing practices. Applications are generally processed within 90 working days, although timings can vary depending on how quickly, subject to the availability of inspectors, an inspection can be carried out and whether there are any deficiencies identified that will require the applicant to address them before the MHRA can make a determination on granting of a manufacturer’s licence. The current fee for a standard manufacturer's licence is GBP3,143 plus a GBP2,655 inspection fee.
A manufacturer licence may be restricted to manufacture and control of specific product types such as sterile products. The MHRA is responsible for regulating the manufacturing site and relevant personnel (including the ‘qualified person’) located in the UK.
Once granted, the manufacturer receives a licence document setting out the specific terms of the licence. The manufacturer licence remains in force until the licence is revoked by the MHRA or it is surrendered by the licence-holder.
Manufacturers of medical devices are not required to obtain a specific authorisation to manufacture. Depending on the classification of the medical device, its legal manufacturer may be required to register with the competent authority (in the UK, the MHRA) or be assessed by a notified body in order to place the medical devices on the market in the UK.
A wholesale distribution authorisation issued by the MHRA is required in order to engage in the sale, supply, offer for sale or supply of prescription-only, pharmacy, traditional herbal and general sales list medicines in the UK, or to import licensed and unlicensed medicinal products into the UK from countries inside the European Economic Area (EEA). The MHRA has confirmed that this position will remain post-Brexit. Applicants for a new wholesale distribution authorisation should apply using the MHRA’s online Process Licensing Portal. As with manufacturer licences, applications are generally processed within 90 working days. The current fee for a wholesale distribution authorisation is GBP1,803 plus a GBP1,936 inspection fee.
The facility involved in wholesale distribution is subject to inspection by the MHRA before a wholesale distribution licence is granted.
The site and relevant personnel (including the ‘responsible person’) must be located in the UK.
Once granted, the wholesaler receives a licence document certifying compliance with good distribution practice and detailing the types of products being handled for each inspected site. A wholesale distribution authorisation remains in force until it is revoked by the MHRA or it is surrendered by the authorisation holder.
Distributors of medical devices are not required to obtain an authorisation to engage in wholesale trade.
Medicinal products are classified within three categories:
Importing and exporting medicinal products is governed by the Human Medicines Regulations. Importing medical devices is governed by the Medical Devices Regulations 2002, EU Regulation 2017/745 on medical devices (EU MDR), and Regulation 2017/746 on in vitro diagnostic medical devices (EU IVDR); there are no specific rules regarding exporting medical devices.
HM Revenue and Customs is responsible for border control. The MHRA Enforcement Group is responsible for applying and enforcing the Human Medicines Regulations 2012 and the Medical Devices Regulations 2002.
Imports are currently treated differently, depending on whether the goods are being imported from countries within or outside the EU. As at the date of writing, most goods imported from other EU countries are freely circulating on the EU single market and so can be imported with minimal customs control and no import duty or VAT to pay. Importers of goods from outside the EU must make an import declaration to customs and will generally have to pay import duty and import VAT.
Businesses that are established in the EU, actively involved in customs operations and international trade and have an Economic Operator Registration and Identification (EORI) number can register with HM Revenue and Customs (HMRC) as Authorised Economic Operators (AEO). The scheme is not compulsory, but companies that meet the requirements can take advantage of simplified customs procedures for the security and safety of their imported goods in transit.
Note that the designation of a particular entity as the importer of record for customs purposes will not be conclusive in determining who should hold any required import authorisations from a regulatory perspective.
Medicines authorised in both the UK and another EU Member State may be parallel imported from that other Member State and marketed in the UK, provided the imported product has no therapeutic difference from the corresponding UK product. The MHRA has committed to ensuring that parallel imports from the EU continue post-Brexit.
Parallel importers must submit an application to the MHRA for a Parallel Import Licence prior to any importation. They must also hold a wholesale distribution authorisation covering importing, storage and sale of the relevant products. Any relabelling or repackaging activities will likely require a manufacturer licence.
Medicines that are unlicensed in the UK can be imported and used to meet the special clinical needs of a patient that cannot be met by a licensed medicine.
Importing unlicensed medicines from outside the EEA requires a manufacturer ‘special’ licence, whilst importing an unlicensed human medicinal product from within the EEA requires a wholesale distribution authorisation. These licences must be valid for import and handling of unlicensed medicinal products.
Importers should send the MHRA a completed notification of intent form 28 days prior to import. If the MHRA does not object within 28 days (on the basis of concerns about the product’s safety or quality, if there is an equivalent licensed product available that will meet the special clinical needs of the individual patient, or if there is not a special clinical need for a patient to have the product) then the import may proceed. In the event of clinical emergencies, MHRA is able to process import notifications within one working day.
There are no formal restrictions on an individual importing medicines into the UK provided they are strictly for use by that person or a member of their immediate family. Consequently, no authorisation is required to aid personal importation. The MHRA considers personal use to involve up to a three-month supply for use by an individual or their immediate family or household, with no onward sale or supply.
Importers of medical devices from outside the EU are not required to obtain an import authorisation, but will instead become legally responsible under the medical devices legislation for those devices. They may choose either to sell under the name of the actual manufacturer as its local authorised representative, or to sell under the importer’s name (but will then require agreement with the actual manufacturer to ensure access to the technical documentation relating to the CE marking).
A common customs tariff is currently charged across all EU countries on goods imported from outside the EU. Details of specific tariff duties and measures that apply to particular goods in the UK are contained in the Integrated Tariff of the United Kingdom.
An importer or exporter is responsible for the correct tariff classification of goods. Her Majesty’s Revenue and Customs has developed an online trade tariff tool to assist in product classification. Pharmaceutical products are classified in chapter 30 of the tariff according to their nature, presentation and whether or not they are intended for retail sale.
The UK imposes export controls on items that could be used for military purposes, torture, capital punishment, or for developing or manufacturing chemical, biological or nuclear weapons.
The main legal basis for controls on exports of 'dual-use items' is the EU Dual-Use Regulation 428/2009 (as amended), which is directly applicable in the UK. In addition to dual-use goods controlled by the EU Dual-Use Regulation, a number of dual-use items are listed in separate UK legislation. A consolidated list of strategic military and dual-use items that require export authorisation is published by the Department for International Trade – this includes biological agents, toxins, genetically modified organisms, pathogens, toxic chemicals, and technology for the development or production of these materials.
The UK currently participates in the free trade arrangements of the European Union (EU) and European Free Trade Association (EFTA), and is a member of the World Trade Organisation (WTO).
The UK declared policy is to put in place sanctions and embargoes as political trade restrictions against target countries with the aim of maintaining or restoring international peace and security. When a sanction or embargo is set, the UK follows international procedure to put it in place in British law. The UN Security Council imposes sanctions through Security Council Resolutions. The EU acts on these by adopting a 'common position' and, where appropriate, an EU regulation directly applicable to Member States is introduced. Where sanctions and embargo measures require more than administrative action to implement them, the UK introduces new (or amends existing) secondary licensing and enforcement legislation.
The most frequently applied measures are arms-related sanctions and financial measures. Importers or exporters to or from sanctioned individuals, organisations or countries need to consider the specific restrictions in place. In some cases there are exemptions or licensing grounds for the provision of goods for medical or humanitarian purposes.
Other measures may be applied according to individual circumstances.
UK patents are subject to the Patents Act 1977, as amended (the Patents Act), as interpreted in a substantial body of case law. The UK is a common law jurisdiction with a binding system of precedent, so the UK courts are bound to follow earlier decisions on the interpretation and application of the Patents Act.
The UK is a signatory to the Patent Co-operation Treaty 1970 (PCT) and the European Patent Convention 2000 (EPC 2000), which are implemented in the Patents Act. The PCT is administered by the World Intellectual Property Office and most jurisdictions likely to be of interest to a patent applicant are signatories. The PCT provides a single route for filing an application in all of the contracting countries, but examination and grant are dealt with by national or regional patent offices. The EPC 2000 provides a single route for the examination and grant of a patent across all contracting European states via the European Patent Office, although once granted a European patent operates as a bundle of individual national patents.
The UK is also a signatory to the Unified Patent Court Agreement (UPCA) which, together with the associated EU regulations establishing the Unitary Patent, provides for the grant and enforcement of a single unitary patent across all participating EU Member States. The UPCA (and consequential amendments to the Patents Act) will come into force once it has been ratified by Germany. However, the combination of Brexit and a constitutional challenge to the UPC Agreement in Germany has left it uncertain whether the UPCA will come into force in its current form, or at all. It is possible the unitary patent system will start in 2019, but there is no clear timetable at present.
Finally, extensions of UK patents by supplementary protection certificates (SPCs) and paediatric extensions are governed by EU law, as discussed further below.
Pharmaceutical patents are frequently subject to validity challenges in the UK courts, in particular challenges to the validity of second medical use patents on the ground of obviousness and, increasingly in recent years, lack of plausibility. SPCs for pharmaceutical patents are also frequently challenged, and there is considerable uncertainty across Europe as to when an SPC is available and the scope and duration of protection. This uncertainty has led to a number of references from the UK courts to the Court of Justice of the European Union (CJEU) on the correct interpretation of the SPC legislation.
An invention (pharmaceutical or otherwise) is patentable if it: (i) is new, (ii) involves an inventive step, (iii) is capable of industrial application (a fairly low hurdle), and (iv) is not specifically excluded from patent protection (eg, methods of treatment by surgery or therapy, and methods of diagnosis are excluded categories).
As in other European jurisdictions, UK law requires claims to a specific medical use of a pharmaceutical substance or composition to be drafted in a particular form. Historically, claims to a specific use of a known pharmaceutical could only be protected using the 'Swiss-type' form: ie, “the use of substance X for the manufacture of a medicament to treat indication Y”. This form was used in order to avoid the prohibition on patenting methods of treatment. Following the revision of the Patents Act to implement the EPC 2000, such claims must now be in the form of “substance X for use in the treatment of indication Y”. As the change in form was only implemented by the European Patent Office and UK Intellectual Property Office in 2010, pharmaceutical patents currently in force may contain claims of either form, depending on the date of grant.
Second Medical Uses
Claims to second and subsequent medical uses are patentable as long as they fulfil the usual requirements of patentability, including novelty and non-obviousness, subject to the requirements as to form of claim already mentioned.
New Dosage Regimes and Patient Populations
Claims to new dosage regimens or to new or selected patient populations are patentable on the same basis.
Activities Constituting Infringement
The English courts considered, for the first time, the issues surrounding infringement of second medical use patents in the Warner-Lambert v Mylan & Actavis case concerning the drug pregabalin.
In relation to direct infringement (ie, disposal/offering to dispose/use/importation of a product obtained directly by means of the patented process) there was a question mark over intention. The Court of Appeal considered that it was enough to infringe a 'Swiss form' claim for the manufacturer to foresee the intentional use of the drug by the end user for the specified purpose, unless the manufacturer took all reasonable steps within its power to prevent that happening. On appeal to the Supreme Court, the generic manufacturers contended that infringement requires actual intention by the manufacturer that the product should be used for the specified purpose (ie, manufactured to be used for the treatment of indication Y).
The Supreme Court handed down its decision in November 2018. Their Lordships took diverging views regarding the correct test for infringement. The minority preferred a test based on whether the alleged infringed subjectively intended to target the patent-protected market. The majority, however, deemed that the correct approach was to apply an ‘outward presentation’ test, in which the objective characteristics of the product in question ought to be considered with regard to the way it is packaged and marketed. In this view, if a product does not make clear its use is limited, it will infringe.
In relation to indirect infringement, contrary to the view of the trial judge (Arnold J), the Court of Appeal considered that the process of preparing the composition can continue through any packaging step performed by the manufacturer and includes the labelling step performed by the pharmacist. The Supreme Court unanimously rejected the idea that a Swiss-type claim could be indirectly infringed.
It should be noted that the Supreme Court held that Warner-Lambert’s patent was invalid, but had it been valid it would not have been infringed by Actavis. Thus the comments on infringement are obiter dicta, and therefore are not binding.
Patent term extensions in the UK are governed by EU Regulation 469/2009 (the SPC Regulation) and Regulation 1901/2006 (the Paediatric Regulation).
The SPC Regulation provides for a patent’s term to be extended for a period equal to the period between the date of filing of the patent and the date of grant of the first authorisation to place the product on the market in the EU, less five years. The extension is subject to a maximum duration of five years. The Paediatric Regulation provides for an additional six-month extension of term if the patent-holder completes an agreed Paediatric Investigation Plan to determine whether the product is safe for use in children.
At the time of publication, guidance had been published by the UK government regarding SPCs in the event that ‘no deal’ had been agreed to when the UK leaves the EU. This stated that if the UK were to leave the EU without a deal, the Patents (Amendment) (EU Exit) Regulations 2019 (the Patents Regulations) would enter into force on exit day. These would have the effect of retaining EU law relating to patents in the UK from exit day onwards.
With regard to SPCs in particular, the guidance provides that if an SPC has already been granted it will remain in effect in the UK on exit day. If it is granted but not yet in effect, it will come into effect following the expiry of the patent. If an application has been lodged for an SPC at the UK IPO, this will continue to progress through examination and would not need to be refiled.
Application of the provisions
Only one SPC may be granted per product, and the product must be protected by the patent in question in order for that patent’s term to be extended. As mentioned above, there is considerable uncertainty as to the application of the SPC Regulation, in particular in relation to combination products and where the patent claims adopt functional definitions or use Markush formulas to define products, and this uncertainty has given rise to a large number of disputes in the UK courts. Many of these disputes resulted in the UK court referring questions of interpretation of the SPC Regulation to the CJEU, although the CJEU’s answers have still not provided certainty.
Challenge to extensions
Patent term extensions can be challenged by bringing an action for revocation of the SPC or paediatric extension in the UK court. Alternatively, the scope of an extension can be challenged by bringing an action for a declaration that a particular product does not fall within the scope of the extension, and so the patent (as extended) is not infringed.
Where a patent covers a pharmaceutical product or medical device, it is an infringing act to make, sell, offer to sell, use, import or keep the product or device in the UK. It is not an infringing act to make an offer to sell a product before patent expiry if the offer is to sell the product after patent expiry. It is also not an infringing act to merely apply for or obtain authorisation to sell a pharmaceutical product or medical device before patent expiry.
Where a patent covers a method for making a pharmaceutical product or medical device, it is an infringing act to use the patented method in the UK. It is also an infringing act to sell, offer to sell, use, import or keep a product 'obtained directly' by means of the patented process. Whether a product has been 'obtained directly' from a patented process is a question of fact in each case and has been the subject of a number of disputes in the UK.
It is also an (indirect) infringement to supply or offer to supply in the UK means relating to an essential element of the invention, for putting the invention into effect, knowing (or it being obvious to a reasonable person in the circumstances) that those means are suitable for putting and are intended to put the invention into effect in the UK.
The recent Supreme Court case Actavis UK Ltd and others v Eli Lilly and Company  UKSC 48 set out an approach to claim interpretation, introducing the ‘doctrine of equivalents’ to the UK. Briefly, this means that a feature which is clearly different, but equivalent to, a claimed feature may still infringe (even though it does not fall within the ambit of the claim language).
This contrasts with previous authority on claim construction which took a purposive approach to claim construction. That is, the House of Lords had previously ruled in Catnic Components Ltd v Hill & Smith Ltd  RPC 183 (HL) and Kirin-Amgen Inc v Hoechst Marion Roussell  UKHL 46, that the test was to ask what the person skilled in the art would have understood the patentee to have used the language of the claim to mean.
It is possible to apply for an injunction restraining a party from infringing a patent on the basis of a threat of infringement, even if no actual infringement has occurred. There is no requirement that the infringement be 'imminent' in order for an injunction to be granted; the patent-holder must only prove that there is a sufficiently strong probability that, in the absence of an injunction, the other party will infringe the patent.
There are a number of general exemptions from patent infringement which might apply to pharmaceutical products and medical devices.
Acts carried out privately and for purposes which are not commercial are exempted from infringement.
Acts carried out for experimental purposes relating to the subject-matter of the invention are also not infringing, even if those acts are carried out for a commercial purpose.
'Experimental purposes' include anything done in or for the purposes of a 'medicinal product assessment', the latter term including work done in the UK for the purposes of obtaining an MA for a pharmaceutical product (whether generic or innovative) anywhere in the world. There is no equivalent express provision relating to medical devices.
There is also a specific exemption from patent infringement for trials carried out in order to obtain an EU MA for a generic pharmaceutical product.
A compulsory licence of a UK patent is available if, where the patented invention is a product, demand for that product is not being met on reasonable terms. A compulsory licence is also available if the patent-holder’s behaviour is causing the establishment or development of commercial or industrial activities in the UK to be unfairly prejudiced, or if the exploitation of an important technical advance of considerable economic significance is being hindered. These compulsory licence provisions are rarely asserted and are therefore of limited relevance in practice. However, there have been an increasing number of cases where the patentee does not seek an injunction provided an appropriate royalty is agreed or awarded by the court for future infringement (ie, in effect a court-imposed compulsory licence following a finding of infringement).
An action for infringement may be brought by the patent-holder or by an exclusive licensee.
The remedies available for infringement are an injunction to prevent future infringement, damages or, at the option of the patent-holder, an account of the infringer’s profits. The patent-holder may also seek delivery or destruction of all infringing articles in the possession or power of the infringer.
An action for infringement can be brought in the Patents Court or in the Intellectual Property Enterprise Court (IPEC), both of these courts being part of the English High Court.
The IPEC is designed to deal with lower-value, less complex cases. There are two alternative procedures for making a claim in the IPEC. The IPEC multi-track has a limit on damages of up to GBP500,000, and costs are subject to a GBP50,000 cap. The small claims track is for claims with a value of up to GBP10,000, and costs orders are highly restricted.
Higher-value claims must be brought in the Patents Court. Depending on the parties’ assessment of the technical complexity of the case, the case may be heard by a specialist patents judge.
An infringement action is commenced with the issue of a claim form and particulars of claim, outlining the patent-holder’s claim for infringement. The alleged infringer then submits its defence and any counterclaim, which may include a counterclaim for invalidity. If the alleged infringer raises a counterclaim, then the patent-holder will serve its own defence. Parties may then reply to any defences.
Following the exchange of formal pleadings, the court will schedule a case management conference to set the timetable for the action and the estimated trial date.
The position used to be that, in a Patents Court action, the parties were typically required to give disclosure of all documents which support or undermine either party’s case. Now, the court is prepared to limit disclosure to only those documents required to deal justly with the case. Instead of giving disclosure in relation to infringement, the alleged infringer may submit a description of the product or process alleged to infringe.
Expert evidence is typically exchanged before trial in written witness statements, and the experts are cross-examined on the content of these statements during the trial. The parties may, if necessary, also provide evidence of experiments relating to infringement or validity, subject to a tightly controlled procedure.
The procedure in the IPEC is more streamlined in order to keep costs in proportion to the value of the claim, and the judge has wide case management powers to achieve this. Similar, but not identical, procedures are being trialled in the Patents Court which may provide something of a halfway house.
Invalidity as a Defence
Invalidity is available as a defence to an infringement claim and is raised by way of a counterclaim. If validity is challenged then the alleged infringer is required to serve 'grounds of invalidity' setting out on what basis the patent is said to be invalid, including any prior art cited in support of a lack of novelty or obviousness attack.
While Actavis UK Ltd and others v Eli Lilly and Company  UKSC 48 changed the test for claim construction in relation to infringement (see 10.4 Infringement, above) to introduce a doctrine of equivalents to the UK, the same cannot be said for claim construction in relation to novelty analysis. It was indicated that the usual purposive construction test would likely be applicable when undertaking a novelty analysis in Generics (UK) Limited v Yeda Research and Development Company Limited  EWHC 2629, although a further Supreme Court judgment would be necessary to determine this is the case. If it is, this would mark a departure from the standard practice whereby construction of claims remain constant for infringement and validity purposes.
Procedures Available to Generic Entrant
A generic entrant who wishes to 'clear the way' may start an action to revoke a patent or SPC which is a potential block to market entry – there are no standing requirements. Alternatively, or in addition, the generic entrant may start an action for a declaration that its proposed product does not infringe the patent or SPC.
Clearing the Way
There is no requirement on a generic entrant to clear the way, and there is no patent linkage between the authorisation for a pharmaceutical product and the patent position. However, a generic entrant who does not clear the way is likely to be sued for infringement by the patent-holder. If the patent-holder can show that generic entry will cause irreparable harm, which has typically been accepted by the UK court, the patent-holder can obtain an interim injunction preventing the generic entrant from launching its product.
Regulatory Authorisation and Patents
The authorisation procedure for pharmaceuticals and medical devices ordinarily has no regard to patent issues (unlike the position in the USA). An exception is that although ordinarily a generic pharmaceutical will be approved, after expiry of data protection, with the same SPC as the originator’s product, the authorities will allow the approval of a product without dosage forms and indications still protected by a patent at the time when the generic is approved for marketing.
A rights-holder has a number of options for tackling counterfeit pharmaceuticals and medical devices.
Trade-mark infringement can constitute a criminal offence under the UK Trade Marks Act 1994. The criminal sanctions under the Trade Marks Act are imprisonment for up to ten years, a fine, or both. Although it is possible to bring a private criminal prosecution against an infringer, criminal proceedings are more usually brought by the UK’s Trading Standards Authorities or by the MHRA. In addition, the MHRA has the power to bring criminal proceedings against counterfeiters under the Human Medicines Regulation 2012. The sanctions under the Regulations are imprisonment for up to two years and/or an unlimited fine as well as administrative sanctions.
A trade mark-holder can also bring a civil action for trade-mark infringement under the Trade Marks Act. As with a patent infringement claim, a trade mark action can be brought in the High Court, the IPEC or the IPEC small claims track, depending on the value and complexity of the claim. Civil proceedings may be appropriate when dealing with counterfeiting on a large scale, or where the rights-holder wishes to take advantage of the procedural tools and remedies offered in civil proceedings (for example, search orders or injunctions).
Where the counterfeit product also infringes a patent then the patent-holder can commence an action for patent infringement as discussed above. However, for counterfeit products, a trade-mark infringement action may be more straightforward.
Counterfeit pharmaceuticals can also be detained by the UK customs authority, the UK Border Agency (UKBA), on entry into the UK from outside the EEA. Under Regulation 608/2013 (the Customs Regulation) the holder of an intellectual property right (IPR), including a patent or a trade mark, can register its right with the UKBA and ask the UKBA to detain goods which are suspected of infringing that right.
For pharmaceuticals, under the Centralised Procedure, the EMA will authorise a product name. Otherwise than in exceptional cases (eg, where the proposed trade mark has been cancelled, opposed or objected to under trade mark law in a Member State) a single name must be used throughout the EU.
The EMA has issued guidelines on the acceptability of names or human medicinal products. The requirements include that:
The usual rules in relation to registration of any trade marks also apply, although the EMA will not take into consideration aspects of intellectual property rights/trade mark registration within its review.
At the time of writing, the terms upon which the UK will leave the EU remain uncertain. The above statements regarding the Centralised Procedure at the EMA and its applicability in the UK are subject to change should the UK become a third country with or without a withdrawal agreement post-Brexit.
In relation to National Procedure, the MHRA’s guidelines on appropriate trade marks for medicinal products are much the same as the EMA’s guidance.
The UK Medical Devices Regulations 2002 does not contain any restrictions on the product names or trade marks of medical devices. However, as with any trade mark for a medical device in any EU country, the following should be avoided:
The EU Medical Devices Regulations (Regulation (EU) 2017/745 – MDR – and Regulation (EU) 2017/746 – the IVDR) entered into force on 25 May 2017. However, the MDR and the IVDR will not apply fully until after the transition period has ended, on 25 May 2020 and 2022 respectively. During the transition period, devices can be placed on the UK market under the current EU Medical Devices Directives, or the new EU Medical Devices Regulations (if they fully comply with the new EU Medical Devices Regulations). Article 7 of the MDR and the IVDR includes a new requirement concerning claims. In particular, trade marks used in connection with the labelling, instructions for use, making available, putting into service or advertising of a medical device are prohibited if they may mislead the user or the patient with regard to the device's intended purpose, safety and performance by:
When placing devices on the market in the UK under the new EU Medical Device Regulations (which are directly effective in the UK) Article 7 must be complied with.
Once goods bearing a trade mark have been placed on the market within the EEA by or with the consent of the trade mark-holder, the trade mark-holder’s right to object to resale of those goods within the EEA is exhausted. The trade mark-holder, therefore, cannot object to the resale of unaltered genuine products from within the EEA. The trade mark-holder can object where products are imported from countries outside the EEA unless the importer can demonstrate unequivocal consent from the trade mark-holder to their importation.
It may be necessary for the distributor to alter the original packaging of a genuine product to comply with UK regulatory requirements: although medicinal products sold in the UK may retain labelling in the language of the source country, they must also have an English patient information leaflet and English language labelling. If alterations are necessary (rather than merely commercially desirable) then the trade mark-holder will be unable to object, as long as certain specified conditions are met including prior notification to the trade mark-holder.
With regard to medical devices, the information on the packaging and label of a medical device placed on the market in the UK must be in English (irrespective of whether or not the information is also in another language, and whether or not the device is for professional use).
The instructions for use accompanying a medical device may be either in English or in another officially recognised EU language, provided that (if the instructions are not in English) any packaging, label or promotional literature must carry a clear statement in English stating the language in which the instructions are given. This general rule is subject to an exception in relation to in vitro devices, for which the information must be in English if the device may reach a final user in the UK, unless the MHRA has authorised the use of another Community language(s). If the in vitro device is a device for self-testing, the instructions for use and label must include a translation into the official language of any Member State of the community in which the device reaches a final user.
Where products are authorised nationally, a licence is required in order to distribute pharmaceutical products imported from elsewhere in the EU, although the procedure for obtaining such a licence is simpler than the procedure for obtaining an MA for the original product. Where products are authorised centrally, the EMA must be notified of proposed parallel importation relating to medicinal products. There are no parallel import licences for medical devices. See above, 9 Import and Export, for details of the requirements for imports and exports of medicines and medical devices.
At the time of writing, the circumstances surrounding the UK’s withdrawal from the EU are still unknown. The UK government had introduced a Statutory Instrument to maintain EEA exhaustion of intellectual property rights in the event of a no-deal Brexit. That is, it would continue to allow parallel imports into the UK of products first sold elsewhere in the EEA. However, whether the opposite is true (eg, if it will be possible to parallel import from the UK into the EEA post-Brexit) will be dependent on the EU.
Intellectual property protection is available for the trade dress and design of pharmaceuticals, medical devices or their packaging, subject to the normal restrictions on the relevant IPR and the labelling requirements of the pharmaceutical regulatory laws. The packaging of a product, the precise design of a tablet or the design of a medical device are capable of being protected as registered or unregistered designs, subject to the usual requirements for such protection. In addition, the trade dress and packaging of a pharmaceutical product or medical device may be protected by a right in the tort of passing off. In order to establish a claim in passing off, it is necessary to show: (i) goodwill attaching to the claimant’s goods or services; (ii) a misrepresentation by the defendant that his or her goods are those of the claimant; and (iii) that this misrepresentation has caused harm to the claimant.
Innovator pharmaceutical companies benefit from a period of regulatory data protection and marketing protection to protect the investment made in developing a medicinal product. The regulatory data protection period is a period of eight years during which a generic applicant cannot cross-refer to the innovator's pre-clinical and clinical data to obtain a marketing authorisation for a copy product. In addition, the marketing protection period is a further period of two years (making a total of ten years) during which a copy product that is authorised based on the innovator's pre-clinical and clinical data cannot be placed on the market. This combined period of eight-plus-two-years is often known as the data/marketing exclusivity period. There is also the possibility of extending this period by an additional one year in certain circumstances, such as on the approval of a new indication bringing significant clinical benefit when compared with existing therapies.
There are no protection or exclusivities for medical devices.
UK competition law is similar in all material respects to EU competition law other than – in addition to prohibitions against anti-competitive agreements and abuse of dominance – that there is an additional criminal offence attaching to individuals who cause undertakings to enter into certain cartel agreements. In relation to the pharmaceutical sector, pharmaceutical undertakings in the UK have been found to infringe competition law in the following circumstances.
Predation and excessive pricing
In January 2002, the then Competition Commission Appeal Tribunal upheld a decision of the Director General of Fair Trading that Napp Pharmaceuticals had abused its dominant position in the market for sustained release morphine tablets and capsules in the UK. While charging high prices to customers in the community segment of the market, Napp supplied the products to hospitals at discounts which were found to have the object and effect of hindering competition. The pricing behaviour comprised: (i) selectively supplying the products to hospitals at lower prices than to customers in the community segment; and (ii) supplying to hospitals at excessively low prices. In addition, it was found to have charged excessive prices to customers in the community segment (Case No 1001/1/1/01 Napp Pharmaceutical Holdings Limited v Director General of Fair Trading).
More recently, in 2016, the Competition and Markets Authority (CMA) imposed a fine of almost GBP90 million on Pfizer and Flynn Pharma in relation to excessive pricing of phenytoin sodium capsules. The case concerned the delisting of a branded product which took it out of UK price control and relaunching it as a generic whilst multiplying the price both at wholesale and retail level. The Competition Appeal Tribunal (CAT) quashed the CMA’s decision and remitted the case back to the CMA for re-examination. The case is currently subject to a further appeal to the Court of Appeal with hearings scheduled in the course of 2019.
In March 2004, the Competition Appeal Tribunal upheld a decision of the then Office of Fair Trading (OFT) that Genzyme had engaged in a margin squeeze in the downstream market for the supply of home care services for patients suffering from Gaucher’s disease (Case No 1016/1/1/03 Genzyme Limited v The Office of Fair Trading  CAT 4).
In October 2010, Reckitt Benckiser agreed to pay a fine of GBP10.2 million for abuse of dominance. This related to the withdrawal and delisting of a presentation of its heartburn product Gaviscon in circumstances that would make it difficult for physicians to prescribe the generic equivalent of the withdrawn product.
Reverse payment settlements/pay-for-delay
In April 2016, the CMA imposed fines of almost GBP45 million on GlaxoSmithKline and various generics companies for concluding reverse payment settlement agreements in respect of the supply of paroxetine in the UK. The CMA also decided that GSK's conduct amounted to an abuse of a dominant position. One company initially investigated, Teva Pharmaceuticals, received a ‘no grounds for action letter’. The decision is currently under appeal to the CAT and subject to a preliminary reference to the Court of Justice of the European Communities.
In June 2014 the newly created CMA (which succeeded the OFT and the Competition Commission) opened an investigation into an unnamed party in relation to a suspected loyalty-inducing discount scheme in the pharmaceutical sector. The case was closed in June 2015 on administrative priority grounds and the party concerned was issued with a warning letter. The CMA did not reach a view on whether the discount scheme infringed competition law. Rather, it concluded that committing resources in order to determine whether an infringement had been committed was not warranted in the particular circumstances, as further investigation of the conduct would have had limited, if any, impact on consumer welfare.
However, the CMA took the opportunity to issue general guidance on the application of competition law to discounts or rebates implemented by dominant companies. The guidance largely restated approach from existing EU case law, including Intel (T-286/09). It explains that discounts and rebates which are not conditional on the customer obtaining all or most of its requirements from the dominant company, may nevertheless be considered loyalty-inducing if:
Contestable sales can be contrasted with non-contestable sales, or the dominant company’s 'assured base', for which there is no competition as the customer is either unable to satisfy this proportion of its demand other than through the dominant company or has a strong preference not to do so. If the discount or rebate applies to contestable, as well as non-contestable sales, then in order to compete for the contestable sales a competitor must compensate the customer not just for the loss of the discount not just over those contestable units, but also over the non-contestable units. This makes it more difficult for that competitor to compete with the dominant company. The loyalty-inducing effect is likely to be even stronger where the discount or rebate is structured such that the customer is able to reduce its units.
The guidance also endorses the relevance of the 'as-efficient-competitor' test by reaffirming that a discount or rebate may raise concerns if it forces a supplier competing for the contestable portion of demand to price below the dominant company’s long run average incremental cost of production.
In December 2015 the CMA opened an investigation into a discount regime operated by Merck Sharp & Dohme in respect of its biological product Remicade. The investigation focused on whether the discount regime foreclosed or delayed market entry of biosimilar products into the UK market. Following a statement of objection in May 2017 and an oral hearing in November 2017, the CMA decided in March 2019 to close the case on the basis that there were ‘no grounds for action’. The principal reason for this was that whilst the company (and the NHS) expected the discount regime to have foreclosing effects, a higher level of biosimilar entry meant that there were no such effects in practice. In its decision the CMA takes the view that it is not necessarily a defence to demonstrate that an ‘as-efficient-competitor’ could profitably meet the overall discount offered by the dominant company.
The CMA’s infringement decision against GlaxoSmithKline and several generics companies mentioned above is based on the theory that a patent settlement in which an originator makes a payment or value transfer to an actual or potential generic entrant in return for entry restrictions on the generic company’s own product development breaches competition law. This breaches both the rules on abuse of dominance and restrictive agreements. As set out above, this case is subject to an appeal and a preliminary ruling reference.
The then OFT’s decision against Reckitt Benckiser, mentioned above, was based on the theory that Reckitt Benckiser withdrew from the NHS prescription channel its NHS presentation of Gaviscon Original Liquid. The timing of the withdrawal – after the product's patent had expired, but before the publication of the generic name for it – meant that pharmacists could not readily dispense a generic version. Any search for the equivalent products would instead have pointed to a replacement, and protected, product – Gaviscon Advance Liquid. The OFT held that such a means of migrating patients to the protected product amounted to an abuse of dominance because of its impact on generic entry. In the same case the OFT initially investigated an alleged campaign to delay generic entry through interventions with the regulatory bodies but closed that line of the investigation on the basis of administrative priorities.
The CMA’s decision in Remicade outlined above examined a discount regime in the context of anticipated market entry of biosimilar products.
The Competition and Markets Authority
Individuals and companies may bring infringements of competition law to the CMA’s attention. It is then up to the CMA to decide whether it opens an investigation and whether to close an investigation (ie, the complainant/whistle-blower will not be able to stop an investigation by withdrawing a complaint). In certain circumstances individuals can receive a financial reward for whistle-blowing.
Certain designated consumer bodies are also entitled to bring 'super-complaints' to the CMA. Such a complaint will be that any feature, or combination of features, of a UK market is, or appears to be, significantly harming the interests of consumers. Super-complaints will be fast-tracked and will be responded to within a certain period.
The CMA may also investigate a matter of its own volition.
Actions for civil remedies may be brought in the High Court (Chancery Division) by anyone with sufficient interest, such as a competitor, supplier or customer who has suffered loss or damage as a result of an alleged infringement of UK or EU competition law. The remedies available include damages and/or injunction. These actions may be standalone (ie, those that seek to establish the infringement and seek a remedy) or follow-on (those that rely on a prior finding of an infringement by a competent competition authority, and seek only to establish that damage has occurred).
The applicant must prove its case by reference to the civil standard of proof. In addition, any person who has suffered loss or damage as a result of an infringement of UK or EU competition law may bring a damages action before the CAT. Finally, in the CAT (but not the High Court) it is possible to bring collective proceedings by a representative on behalf of an identified class of claimants.
Significant court proceedings in the pharma space include (i) the NHS and Teva’s claims against Reckitt Benckiser as a follow-on damages case arising out of the Gaviscon decision (both of which settled) and (ii) NHS’s ongoing claim against Servier in respect of perindopril which started as a standalone case during the EU Commission’s investigation; the latter claim is still ongoing.
The most relevant key areas of focus are (i) entry restrictions and (ii) pricing cases, outlined above.
In addition there are also a number of ongoing CMA investigations in relation to a number of pharmaceutical products. Some of these cases are being closed or focused on a narrower set of molecules, but we expect the pharma sector to remain a focus area for potential enforcement both at UK and at EU level. We also do not envisage that Brexit (in whichever form) will have a significant impact on the substance or incidence of such investigations.
Key Contractual Terms
The following two sections focus on important or customary provisions which are particularly significant in transactions in the pharmaceutical and medical device sectors. The degree of relevance, or importance, of each will vary depending upon the assets being bought, and in particular the stage of development of those assets (research, development or marketed product stage).
Share Purchase Deals
Besides other usual preconditions for completion of the transaction, an important matter to specify as a condition for share purchase deals can be a waiver of 'change of control' termination rights in key contracts. Although such termination rights may be less common than, for example, prohibitions on assignment of a contract, long-term contracts (for example, clinical trial contracts, IP in-licences and out-licences, development and/or commercialisation agreements, supply and manufacturing agreements) are a key part of many pharmaceutical and medical device businesses, and the treatment of such contracts should be considered an important deal term for both buyer and seller.
Some warranty areas will be of particular importance in this sector. They will be those that either go to the value of key assets and revenue generation, or to reputational and regulatory risk. 'Value' warranties are those relating to: IPRs (where key warranties will concern title to, and validity and enforceability of, IPRs, together with comfort regarding challenges, and potentially freedom-to-operate); key long-term contracts, such as those referred to above (where key warranties will concern termination rights and disputes); and inventory (which might be clinical trial materials, work-in-progress or finished product, and where key warranties will, as applicable to the product address shelf life, location and usability/saleability). Key 'reputational' and 'regulatory' warranties include: record-keeping and compliance with regulatory requirements specific to the assets; the existence and duration of any regulatory exclusivity periods in respect of pharmaceutical products; product liability claims and insurance cover; and anti-corruption policies and procedures (particularly for mature businesses which sell to government agencies).
In relation to inventory, the regulatory requirements, as applicable to the product relating to manufacturing, packaging and product labelling for patients/prescribers must also be considered in addition to the usual transitional arrangements that may be required to permit buyer or seller to use the name and trade marks of the other on packaging. Regulatory authorities, for example, impose a maximum period during which stock with packaging/labelling which refers to the seller or its manufacturer may be sold.
If a seller is prepared to give a non-compete covenant, it should frame the restriction with reference to the specific characteristics of the sold products in order to give clarity as to the scope of the restriction, and to avoid conflict with retained businesses. For pharmaceutical products this will commonly be by reference to one or some of: the active pharmaceutical ingredient; the method of action; and/or the therapeutic indication. For medical devices this will commonly be by reference to the intended purpose of the device. A buyer should also review any non-compete restrictions to ensure that none of the target company’s contracts contain restrictions which, post-acquisition, will restrict that business’s current operations.
If signing and closing the transaction are not simultaneous then the seller should consider whether specific obligations are required as to the maintenance of key assets, such as maintaining and enforcing key IPRs and MAs.
Transactions involving early stage companies backed by venture capital, founders and management will need to deal with any share options, warrants to acquire shares and/or convertible debt which may be in issue. Besides tax considerations, the basic structuring question which will determine whether the rights are acquired or released is whether or not the purchase price is such that holders of options/warrants/convertibles will be in or out of the money at closing.
Asset Purchase Deals
Clear identification and listing of the assets being sold and those that are being excluded should be a priority at the start of the transaction. Although asset purchase deals in the pharmaceutical and medical device sectors are no different in principle from an asset sale in other sectors, IPRs and regulatory authorisations should be carefully identified so as to, for example, agree the treatment of any rights to which the seller may need access post-closing. Ownership of inventory, and the permits and authorisations required to manufacture, hold and sell it, should also be clearly identified – for example, by warehouse location and/or stock-take provisions. The distribution channel(s) for both pharmaceutical products and medical devices need to be clearly understood to ensure that manufacture, inventory handling and delivery is maintained despite the change of ownership and in accordance with all applicable regulatory requirements. Identifying, locating and transferring records associated with the relevant products can also be key – besides marketing and customer records, there will also be strict requirements as to handling and maintenance of, for example, MA dossiers and pharmacovigilance records for medicines. More detailed provisions for post-closing access to records and product samples may be required than would be the case in less regulated sectors.
As with any asset sale, the transaction agreement will need to deal with the method of transfer for each category of asset to be transferred. For most categories (IPRs, contracts, employees, etc) the method will be no different for a pharmaceutical or medical device sector transaction to that in other sectors. However, arrangements for the transfer of product permits and authorisations (for example, manufacturing authorisations and MAs) should be considered in detail. Even if no other transitional services are required by the buyer from the seller, it is usual for the seller to provide a level of continued co-operation and support in order to ensure that permits/authorisations are transferred smoothly.
With regard to key contracts, the points made above for a share sale in respect of termination rights and conditionality apply equally in respect of an asset sale, but in relation to restrictions on assignment rather than change of control.
Legal provisions as to the buyer’s and the seller’s responsibility for product liability will often be important. If the parties so choose, a buyer could assume responsibility for all such liability regardless of when the relevant material/product was supplied or sold, in effect as if the deal were a share sale. Perhaps more likely, the parties will allocate responsibility by reference to the date upon which material/product was manufactured or supplied/sold. In any event, the parties should indemnify each other according to the responsibility assumed, and ensure that they have insurance cover to match that allocation. If the buyer takes pre-closing responsibility, it may need rights to access the seller’s insurance cover in respect of that period.
The points made above as to key warranty areas on a share acquisition apply equally to acquired categories of assets on an assets acquisition, as do the points made regarding non-compete covenants.
The legal provisions set out above in relation to sales of assets or shares apply equally to transfers of assets or shares into joint venture vehicles.
Joint ventures in the pharmaceutical and medical device sectors present specific issues in respect of termination which should be provided for. The parties may want to consider whether they should have exit or termination rights upon the occurrence, or failure to occur, of the key milestones which are considered below in 13.2 Customary Agreements to Bridge the Valuation Gap. The joint venture parties should also consider how IPRs owned by the joint venture should be allocated between them.
There are a number of provisions/issues which are particular to licence agreements in the pharmaceutical and medical devices sectors, as detailed below.
Negotiation of licence agreements in these sectors will often focus on the level of efforts (‘commercially reasonable efforts’ or similar) that the licensee should use when developing and commercialising the products in question. Given the enforcement risk of dispute over the interpretation of these terms if it came to litigation, the parties should spend time on defining this and will frequently seek to define these terms, often by reference to an objective standard based on the efforts that a company with similar products at a similar stage of development or commercialisation would reasonably be expected to employ. Practice is also developing to include very specific diligence requirements, either in place of or to clarify general endeavours requirements.
As a general rule, the licensee of a pharmaceutical product will want the right to apply for and/or hold the relevant MAs for that product in the licensed territory. Whether the licensee of a medical device will be viewed as the manufacturer (or, under the Medical Devices Regulation, an importer or distributor) of the device – and its resultant regulatory responsibilities – will turn on the circumstances of each case. In any event, given the valuable data/information that is required to support regulatory filings, licensors will want to be kept informed of the licensee’s interactions with the relevant regulatory bodies and to ensure messaging is aligned with the approach taken for products marketed elsewhere. Licensors of pharmaceutical products may seek the ability to refer to the licensee’s MAs in regulatory filings in other fields/territories, and they will also want to ensure that MAs are transferred to the licensor (or its nominee) promptly upon any termination or expiry of the licence. Licensors will also seek to control the ability of the licensee to apply for additional authorisations that potentially expand the scope of the licensed activities – for example, sales of the licensed product in combination with other products.
Sharing of data
Where licences involve ongoing development work (eg, clinical trials and other studies), cost allocation and access to the results will be of key importance. Licensors may wish to use data generated by a licensee in regulatory filings outside of the field/territory. Equally, licensees may want access to data from trials/studies carried out by the licensor (or its other licensees). Regulating access to/use of such data can be complex, particularly where third parties (eg, a licensor’s other licensees) are involved.
Warranties and covenants
Licensing transactions tend to have fewer warranties and covenants compared to M&A transactions, but there is a strong emphasis on regulatory and intellectual property warranties (eg, that the licensor has all relevant rights to be able to grant the licence to the licensee; that the licensee’s exercise of the rights under the licence does not infringe any third-party IP rights, and that the licensor has not granted any other rights with respect to the licensed products to third parties. Restrictions on the commercialisation of competing products by the licensee and/or licensor are a common feature of licences in this sector. Not only is it is important to consider the scope of such restrictions on either party’s current activities, but also what effect they may have on future licences and other deals. For example, the restriction may oblige a party to divest any competing product acquired in the future. Any such forced sale (particularly where the required timescales for divestment are short) could significantly undermine the value of the assets being sold.
Given the importance of IP in licensing transactions, the IP provisions will be heavily discussed. Issues commonly arise around ownership (and in particular joint ownership) of inventions and improvements, as the position around how they may be exploited by both parties varies between different jurisdictions and may also give rise to competition law concerns where licensees are required to assign or exclusively license their rights back to licensors. The licensee will often require the first right to prosecute, maintain, enforce and defend licensed IP rights within its territory, but the licensor will equally seek to ensure that it has sufficient controls to protect its interest if the licensee fails to do so. Trade mark matters may also be a concern if the licensor and licensee will share a brand.
Given the potential long duration of licences in these sectors, and the complexities of bringing products to market and obtaining pricing and reimbursement approvals, the parties will often look to put in place detailed governance structures to ensure that key decisions can be made quickly and with the involvement of the relevant stakeholders. It is common to see a steering committee structure to allow the parties to consult with one another on key decisions around commercialisation of the products, often with specialist sub-committees to deal with issues that arise during development, manufacture, etc. The circumstances in which these committees may – and may not – make decisions that are binding on the parties are often subject to detailed discussion, and a robust dispute resolution procedure should be put in place to ensure that any differences of opinion are escalated and addressed appropriately.
Licence agreements in the pharmaceutical and medical devices sectors typically involve a combination of up-front payments (generally payable at signing), milestone payments that are payable upon achievement of specified development and commercialisation targets or events, and royalty payments based on net sales. Defining the events that trigger milestone payments and the basis on which net sales should be calculated requires careful drafting.
With regard to other commercial agreements in the pharmaceutical products and medical devices sector (such as contract manufacturing agreements or services agreements) the following provisions are likely to be of importance.
GMP and GDP compliance
The principles and guidelines of 'good manufacturing practice' (or GMP) and 'good distribution practice' (or GDP) are commonly used in commercial agreements for pharmaceutical products and medical devices to cover all aspects of the manufacturing and distribution process, ensuring that the products in question are consistently produced and controlled to the quality standards appropriate to their intended use, obtained from the licensed supply chain and consistently stored, transported and handled under suitable conditions. GMP and GDP requirements for pharmaceutical products and medical devices derive from a variety of legislation, guidance and international standards, and whilst these standards are broadly harmonised throughout the EU, engagement with the parties’ quality management function at an early stage is recommended.
Supply chain oversight
The legislation underpinning the sale and supply of pharmaceutical products in the EU (Directive 2001/83) imposes obligations on manufacturers, importers, wholesale distributors and brokers to ensure that they only obtain their supplies from, and sell to, other persons or entities with the appropriate authorisations to do so, and has recently been updated to require the addition of anti-tamper features and unique identification codes to prescription-only medicines. Traditionally the supply chain for medical devices has been subject to less regulatory scrutiny, but following the implementation of new EU regulations for medical devices and in vitro medical devices, economic operators throughout the supply chain are now subject to their own regulatory responsibilities.
Duty to ensure continued supply
All UK MA holders and distributors of authorised pharmaceutical products are under a legal obligation to ensure appropriate and continued supplies of that product so that the needs of patients in the UK are met. In practice, this means that issues such as materials shortages, capacity constraints, business continuity and disaster recovery planning are likely to be of greater importance in any manufacturing and supply/distribution related arrangements.
Compliance with Industry Codes of Practice
The Association of the British Pharmaceutical Industry’s Code of Practice (the ABPI Code) sets standards for the promotion of medicines and the provision of information to patients and the public in the UK, and the Association of British Healthcare Industries’ Code of Business Practice sets similar standards in respect of medical devices. Pharmaceutical/device companies generally look to reflect the applicable obligations imposed on them by these codes of practice in their commercial agreements. For example, if a pharmaceutical company engages an agency to run a meeting involving healthcare professionals, the agency will generally be contractually obliged to comply with the ABPI Code in relation to the selection of the meeting venue and the provision of hospitality/payment of expenses to the attendees.
MA holders are obliged to operate appropriate pharmacovigilance and risk management systems in respect of their marketed medicines (see 3.6 Ongoing Obligations for an explanation of pharmacovigilance). Similarly medical device manufacturers are required to have quality management systems in place. This means that commercial agreements with pharmaceutical and medical device companies often include pharmacovigilance and safety-related provisions which put obligations on service-providers and other contracting parties to take action where they become aware of any information relating to the safety of products marketed by the pharmaceutical company (eg, adverse reactions suffered by patients). These obligations can take many forms and it is important for service-providers to understand their scope including, in particular, any time limits for notifying the other party (which are generally short).
Transactions in the pharmaceutical and biotech sectors involve more earn-out/milestone value than transactions in the medical devices sector, and considerably more than most other sectors. Unless the assets in question comprise entirely mature products, it is common to find contingent payment provisions to deal with value variables. For early stage businesses, the triggers for payment of milestones will commonly be: study results; regulatory filings or approvals; grant of MAs; and achieving first sales. For other businesses, earn-out payment provisions tend to be triggered by the business attaining minimum levels of licence/royalty receipts and/or product sales. Detailed terms may be added to clarify when milestones are deemed to have been achieved, and the agreement may contain specific dispute (expert) resolution procedures for disputes relating to milestone payments.
The level of obligation imposed on a buyer to achieve a milestone (eg, 'commercially reasonable/best efforts') should be a key consideration for both buyer and seller. For transactions involving larger buyers, the buyer may be required to apply the same level of effort it applies to its own products. Transactions commonly include detailed and specific requirements as to the steps to be taken, in addition to a general reasonable or best efforts obligation. There may be difficult decision points during a product’s path-to-market where buyer and seller will have conflicting interests which should be covered with more specific obligations (or even rights to take back the underlying product assets).
The agreement may also include terms to deal with earn-out rights in the event there is a change in control of the buyer or the relevant assets are sold.
In public (listed) transactions, it is not unusual for entitlements to contingent payments to be structured as tradeable instruments (contingent value rights), which are themselves listed.
In more complex transactions, a party may also retain or extract value, other than purely from sale and purchase price, by entering into revenue-generating commercial agreements as part of the overall transaction, such as co-development or co-promotion agreements.
A range of price adjustment methods are often used in share sale transactions, although they are not specific to transactions in the pharmaceutical or medical device industries. In common with private transactions in many sectors, it is quite usual to provide for completion accounts to be drawn up post-closing, following which the sale price will be subject to a 'true-up' adjustment based upon actual net assets, or more commonly actual working capital/net debt, measured against the estimate upon which the completion payment was calculated.
'Locked box' provisions are not uncommon, although more frequently used with venture capital or private equity-led seller transactions, rather than with industry sellers. Such provisions are a substitute, in effect, for completion accounts-based adjustments, but these provisions only trigger a payment back to the buyer if the seller has breached a pre-closing obligation not to extract cash out of the target company (the 'locked box').
Retentions (holdback) from the purchase price at closing, or payment into an escrow account, are also common features of sale transactions in this sector. Such features are usually used to create security for the buyer in respect of warranty or indemnity claims, and to that extent can operate in practice as price adjustment provisions. Retention/escrows feature particularly in private transactions involving early stage businesses and/or where there are multiple sellers. When interest rates are low or negative, agreement may be needed how to share the limited interest (or liability for negative interest) on escrow sums among transaction parties.
Transactions which are being negotiated on a bilateral basis, whether they have been bilateral from the start or have reached that point after an initially competitive process, are commonly protected for the buyer by an appropriate period of exclusivity given by the seller. Strict non-disclosure agreements are also customary in the pharmaceutical and medical device sectors, reflecting the particular need to protect valuable confidential technical data and know-how.
In common with transactions in other sectors, larger-value and public transactions may well be covered for the buyer and/or the seller by other forms of protection against 'execution risk'. If there are significant preconditions to closing, which are more often the responsibility of one party or the other, such as obtaining shareholder or regulatory approval, then that party may agree to pay a break (termination) fee if the condition is not satisfied. English public companies are subject to certain regulatory restrictions upon the size of the break fee they can agree to pay.
A seller may look for some form of 'cash confirmation' protection in a significant-value private sale ('cash confirmation' protection is required for public transactions covered by the Takeover Code in any event). This is especially so if there is expected to be a considerable gap between signing and completion. In a private transaction, the scope of the comfort given is a matter for negotiation but can include seller diligence, and buyer confirmation, of the terms and conditions of the buyer’s binding debt finance facilities, instead of a guarantee from the buyer’s sponsor or larger group entities.
Share sale and joint venture transactions should be assessed against applicable merger control regimes (either at EU or at Member State level, depending generally on the parties’ size): a filing, approval and therefore conditions precedent to closing may be required or advisable, as with M&A transactions in other industries. Certain asset sales may also fall within the merger regime, where these assets essentially constitute part of a business to which turnover can be ascribed.
Co-operation agreements or commercial transactions (or asset sales not subject to the merger regime) do not require – and parties cannot obtain – antitrust pre-approval. In such cases, the parties must self-assess to determine whether the transactional documents are valid and enforceable under competition law. They are assisted in this by several relevant EU block exemptions, which apply automatically in the UK (and are likely substantively to survive under the different Brexit scenarios). Those are the block exemptions, and accompanying European Commission guidelines on technology transfer agreements, on research and development, and on vertical restraints.
A key question in any acquisition, whether cross-border or purely domestic, is whether to buy or sell shares in the company that carries on the business or whether to acquire the business assets. Many more considerations other than tax will be relevant to this issue, but the tax consequences of either option will be important from both the buyer’s and seller’s perspectives.
In broad terms, with a share sale the buyer inherits all the tax history of the target company (together with ‘hidden’ tax liabilities that may only come to light after closing) but tax continuity is maintained, whereas with an asset sale there are relatively few legacy issues in tax terms but the continuity of ownership is broken. For example, the seller may find that it suffers a claw-back of reliefs if the price a buyer wants to pay for (and attribute to) a particular asset exceeds its value for tax depreciation purposes.
Which option is better and for whom will be a matter of careful examination and the ultimate choice, as well as depending on factors other than tax, may come down to the relative bargaining strengths of each party and desire to do the commercial deal. However, currently the requirements of the seller’s disposal planning will usually dictate that a share sale is the preferred route, particularly in the pharmaceutical and medical device sectors.
In a UK context it is usual on a share sale for the buyer to require and have the benefit of a seller indemnity for historic tax issues that may come to light after closing (as well as to conduct detailed tax due diligence, partly through detailed warranties designed to flush out tax concerns). Such an indemnity is not given (and is usually not necessary) on an asset sale and will also be resisted, or reduced in scope, where the seller is a private equity entity. In certain European jurisdictions outside the UK, warranties given on ‘an indemnity basis’ may take the place of the typical form of UK tax indemnity. Both the typical form of UK indemnity and the European variant are intended, in effect, to operate as a post-closing adjustment of the price paid. If the buyer is happy with the strength of the seller’s credit standing and the scope of the indemnity it may be happy to assume a certain level of tax risk but the availability of tax risk insurance can help to limit further the buyer’s exposure and the seller’s liability. Rates vary but, broadly speaking, premiums can be 4% to 6% of the purchase price.
A UK resident will usually (if commercially possible) wish to sell shares, regardless of the identity of the buyer and regardless of whether or not the buyer is establishing a UK-resident acquisition vehicle. This is because a seller (whether a corporate body or an individual) will often be able to claim exemption from tax or reliefs that reduce the effective rate of tax on the sale proceeds. A corporate seller can claim the benefit of an exemption for the sale of a target company’s shares provided certain conditions are met (largely relating to the requirement for the target company to be carrying on an active trade as opposed to a passive investment business), if it owns 10% or more of the target company’s shares and has owned them for a year before the disposal. Individual sellers can claim ‘entrepreneurs’ relief’ in the UK for disposals of shares in trading companies, again provided that certain conditions are met including that they are employees or officers of the company, they have a minimum holding of 5% (which they have held for two years), an entitlement to 5% of the profits of the company and voting power of 5%. Many other European jurisdictions have similar ‘participation exemption’ regimes which apply to share sales. Finally, in some circumstances both corporate and individual sellers can roll-over gains on the disposal of shares into shares or debt instruments issued by the buyer, but note here the shares or debt instruments must be issued by the entity that acquires the shares and further detailed conditions must be satisfied. Questions concerning roll-over where non-UK buyers issue instruments to be exchanged for shares can arise and it is key to ensure that whatever form of instrument is issued it can enable the seller to claim rollover.
Very broadly speaking, sellers in the UK will prefer not to sell assets because exemptions and reliefs will not be available to shelter or reduce taxable gains to the same extent as for a sale of shares. Asset sales are rarer in the UK.
Often a buyer will prefer to acquire assets because it is simpler and because fewer tax ‘legacy’ issues arise with asset purchases (VAT – sales tax – can be a notable exception). Real estate in the UK is subject to a transfer tax at 5% for commercial land and buildings and if there is a significant real estate component then the transaction tax costs may be significantly increased with an asset purchase (by contrast, the acquisition of shares is subject to a transfer tax at only 0.5% of the price). However, as noted above, share sales are far more common and are driven by the seller’s disposal planning.
In addition, if the availability of the UK patent box tax regime is key to the economics of the deal it may be easier to acquire a target company that has an existing entitlement to claim the patent box than to acquire a patent from it and try to establish entitlement to treatment of income under the favourable terms of that regime. On the other hand, where a patentable asset is not yet capable of commercial exploitation so that relevant income has yet to be generated from it then the buyer may acquire that asset and develop it so as to come within the new regime. Note, however, that, amongst other things, the patentable asset will almost certainly need to be owned by a UK vehicle company or held by and for the benefit of a UK branch of a non-UK buyer so that patent income comes within the UK tax net. Furthermore, the amount of profit to be taxed at the patent box rate is restricted by the ‘nexus fraction’, which is based on the amount of qualifying R&D expenditure incurred by the patent box company on a particular patent relative to the overall R&D expenditure and any relevant intellectual property acquisition costs in relation to that patent. It should be noted that changes to the way the regime works will take effect in 2020. For companies that have already opted into the patent box and that do not have any new qualifying IP rights, however, the patent box in its present form will apply until 2021. The availability of R&D tax reliefs and allowances throughout the EU is always going to be a major consideration when deciding on both the form of an acquisition and the location of an acquisition structure.
In the pharmaceutical and medical devices sectors, given the relatively generous nature of some of the exemptions and reliefs available to both corporate and individual sellers of shares in trading companies, buyers in the UK may find considerable pressure to accommodate a seller’s tax preferences. A buyer that is not prepared to do so could find itself at a distinct competitive disadvantage in a bid situation. Few bidders are prepared to pay a substantial premium over the price that other bidders are offering to acquire shares in order to gross up the price for tax.
Tax Risk Assessment
Proper tax due diligence (through a forensic examination of a target company’s financial information, interviews with key managers and answers to tax enquiries) should highlight areas of tax risk that may help in determining which option the buyer may prefer (assuming the seller will or is likely to comply). In the pharmaceutical and medical device sectors particular exposures can relate to the following.
This is an area where compliance can fall short, particularly with staff travelling to and from various jurisdictions in pursuance of their duties. However, more significantly, in the UK and elsewhere in Europe, it is common practice in the pharmaceutical and medical devices sectors for self-employed consultants to be hired either directly or through personal service companies (referred to as PSCs), for significant periods of time (up to several years in many cases). Tax authorities look closely at these arrangements to determine whether in their view they are, in effect, ‘disguised’ employments. If they are, then amounts paid under contracts should have been subject to payroll taxes including employers’ social security contributions of 13.8%. Currently, where there is an PSC the risk of having to account for payroll taxes falls on the PSC and not the ‘employer’ company. From April 2020, however, amendments to the relevant rules reverses this so that the employer or end user of the PSC services will be at risk for payroll taxes that were not, but should have been, deducted.
Transfer pricing, diverted profits tax and hybrid mismatches, royalty withholding, double tax treaties and permanent establishments in the UK
Complex intra-group arrangements can exist even in the smallest of businesses and the prices at which intra-group supplies of services and assets (particularly intangible assets) are made between members of groups across borders is an area in which tax authorities are dedicating significant resources and introducing complex anti-avoidance rules in order to protect national tax bases. The so-called ‘export’ of ‘profit potential’ by the transfer of intangibles offshore is something which can impact on the tax risk profile of pharmaceutical and medical device groups in particular. In recent years, in addition to strengthening its transfer pricing resources, HMRC has championed the introduction of rules which seek to tackle situations involving the artificial diversion of profits from the UK and tax arbitrage achieved through use of hybrid instruments and entities. Both these sets of rules may need to be considered in detail where cross-border IP transfers and royalty flows take place.
In addition, although there are already extensive UK withholding tax obligations on most types of IP royalties (including royalties paid by a non-resident in respect of IP used for the purposes of a UK permanent establishment) the UK Government has introduced a direct charge on non-residents in another attempt to capture income regarded as attributable to the exploitation of valuable IP in the UK through the sale of goods or services in the UK. The charge amounts, in effect to an extra-territorial charge to UK income tax on what are termed 'UK-derived amounts' paid to a resident of, broadly, a tax haven jurisdiction. There are exemptions from the new charge, including if UK sales are under GBP10 million, the person potentially chargeable has a substantial presence in or pays a substantial amount of tax in the jurisdiction concerned. Finally, although UK double tax treaties provide an element of protection from certain anti-avoidance and other rules applicable to tax haven jurisdictions, changes in response to the OECD BEPS ('base erosion and profit shifting') project mean that significant modifications will be made to the operation of the UK’s double tax treaties with other jurisdictions to prevent perceived avoidance and evasion of tax. Multi-national businesses will be concerned to understand how these BEPS-related modifications to the operation of the UK’s double tax treaties will affect them in any particular cross-border situation and will make due diligence of target businesses with cross-border payments and other arrangements as important as ever.
Value-added tax (VAT)
This is an area that can often fall short of high compliance standards and complex issues can arise in the context of cross-border supplies of goods and services, particularly where sales are made directly to non-business customers.
The insolvency of a licensor can have a significant impact on licensees of IPRs. In terms of the protection granted to licensees under English law, much will depend on the circumstances including, for example, the terms of the relevant licence agreement and the general commercial viability of the arrangements.
Under English law, licence agreements will not automatically terminate upon the occurrence of an 'insolvency event' affecting one of the parties (eg, administration or insolvency). However, licence agreements in the pharmaceutical and medical devices sectors commonly include a contractual right for the unaffected party to terminate in such situations. If this is the case, the first issue for a licensee to consider is whether or not they want the licence agreement to continue. If they do not, the licensee can terminate the agreement (taking care to comply with the relevant notice provisions).
In many cases, however, a licensee will want the agreement to continue. Unfortunately, this may not always be within the licensee’s control. For example, if a licence is unprofitable or gives rise to a liability for the licensor to pay money or perform any other onerous act, a liquidator may be entitled to 'disclaim' the licence under Section 178 of the Insolvency Act 1986. This could be the case if the licence concerns patent registrations in many countries and the licensor is obliged to pay substantial renewal fees (although it seems more likely that a liquidator would want to preserve the value of the patents).
The effect of a 'disclaimer' is to terminate the rights, interests and liabilities of the licensor in the property concerned with effect from the date of the disclaimer. This does not necessarily mean that the licence will come to an end, as the rights or liabilities of the licensee are only affected to the extent necessary for releasing the licensor from its obligations.
If the licence is not terminated or disclaimed, a liquidator may seek to realise value for the licensor’s creditors by assigning or otherwise transferring the licensor’s interest. In such cases, issues such as whether the licence agreement included an option for the licensee to purchase the IPR in the event of the licensor’s insolvency and/or whether the licence agreement can be assigned without the licensee’s consent will all be important in determining the next steps pursued by the liquidator.
In the UK context, regulators are likely to focus corporate investigations on offences contrary to the Bribery Act 2010. In particular, companies should be aware that they may be liable to prosecution for offences contrary to Section 7 of the Bribery Act 2010 if they do not have in place adequate procedures to prevent bribery by their direct employees, employees of subsidiary companies and agents acting on their behalf. Where healthcare professionals and organisational managers are public officials there may be scope for investigating offences of conspiracy to commit misconduct in public office where the public official has acted in a manner which breaches the public’s trust in their role – for example, if a public official received money from a pharmaceutical company for authorising the use of a particular product over a competitor's product. Investigators in the UK are likely to concern themselves with attributing blame for this sort of behaviour at a corporate level.
Current investigations of which we are aware concern the manner in which companies interact with healthcare professionals and others with responsibility for authorising the use of one particular product over competitors' products, particularly price-fixing and the offer and securing of supply contracts by the provision of improper incentives.
An investigation into a pharmaceutical company is most likely to be conducted by the SFO, and focus on issues such as fraud, bribery and corruption. In recent years, the SFO has adopted a more aggressive and proactive stance in relation to an enforcement.
Whether a company is notified of an investigation or reports issues of concern, it is vitally important for any subject of an SFO investigation to gauge the dialogue with the SFO appropriately. The prosecutors will be looking for a great deal of co-operation and full and frank disclosure from companies under investigation, much as the prosecuting bodies in the USA do. The key from a defence perspective is to ensure that every decision made, and every response given, is reasoned and reasonable. These types of investigations are incredibly complex and will almost certainly last for multiple years. In addition, there will more than likely be a long list of complex legal issues, such as the prosecutors requesting sight of confidential or legally privileged information, that will need to be considered every step of the way.
Accordingly, it is of paramount importance to ensure that the prosecutors know from the outset where the line of co-operation is drawn. If this relationship is poorly managed, or if communications break down, this will more than likely prevent a suspect company from achieving a favourable disposal. However, a well-managed dialogue and relationship will set the foundations for proper consideration of representations on disposal. It will always be at the prosecuting body’s discretion to prosecute or not, but with the introduction of Deferred Prosecution Agreements (DPAs) it is now possible for a company which complies with an SFO investigation appropriately perhaps to avoid prosecution and instead fix the wrongdoing, and ensure it does not happen again. To date, DPAs have been agreed in SFO investigations into Standard Bank, 'XYZ' (an as-yet unnamed SME based in England), Rolls-Royce, and Tesco.
Moreover, organisations providing goods or services to the NHS should consider implementing and maintaining appropriate anti-fraud and security management arrangements to avoid falling foul of not only the SFO, but the Crown Prosecution Service, and the NHS’ own anti-fraud, bribery and corruption agency, NHS Protect.
The past 12 months have seen the first consideration by a jury of the 'adequate procedures' defence, resulting in the conviction of Skansen Interiors under Section 7 of the Bribery Act 2010 for failure to prevent bribery. This gave some insight into the factors that may or may not be taken into consideration on the question of whether anti-bribery procedures are 'adequate'.
In recent months, the efficacy of DPAs has been called into question following the acquittals of the three individual defendants charged in relation to accounting irregularities by Tesco. The company had entered into a DPA with the SFO in May 2017 based on the actions of those three individuals. This has created uncertainty as to whether convictions against individuals will necessarily follow SFO-approved DPAs and as to whether the SFO can prove the criminal charges on which DPAs are formulated, which could weaken the SFO’s position when seeking to encourage companies to enter into DPAs in the future.
In February 2019, no further action was taken against GSK after a five-year investigation by the SFO.
There does not appear to be any reason to differentiate the sort of investigation that would focus on pharmaceutical companies from other corporate criminal investigations. Whilst investigations into pharmaceutical companies will likely be protracted and involve investigations across different jurisdictions (which in itself can cause difficulties for the investigator and suspect alike) this is similar to any corporate investigation. If companies or individuals are charged then they are tried in the same criminal courts and the same burden and standard of proof apply during their trials. However, it is important to note that a conviction for bribery offences may have the significant added punitive effect of barring convicted corporations from participating in public procurement contracts.
Claims in respect of defective products, including medicinal products and medical devices, may be brought in the UK in negligence, in contract and under the Consumer Protection Act 1987 (the CPA), which implements the Product Liability Directive, 85/374/EEC, in the UK.
Most prescription-only medicines and prescribed medical devices are supplied under NHS provisions; such prescription and dispensing has been found not to be contractual but rather pursuant to a statutory obligation. Therefore, contractual remedies will only arise for the supply of medicines and medical devices under private prescriptions or purchased over-the-counter (OTC).
Special compensation arrangements apply to persons suffering severe disablement as a result of certain vaccinations. The Vaccines Damage Payments Act 1979 provides for the payment of fixed compensation to qualifying claimants. Compensation schemes are also sometimes set up to resolve specific claims (eg, the schemes relating to HIV and Hepatitis C contamination of blood products). No-fault compensation schemes may be available to persons who suffer injury as a consequence of participation in a clinical trial.
Differences in Liability
Most claims for compensation for personal injuries caused by defective medicinal products and medical devices are brought under the CPA. This imposes strict (no fault) liability on the producer of a defective product. The 'producer' is defined as the manufacturer, the importer of the product into the EU or the person who holds him or herself out as producer by affixing his or her mark to the product (an 'own-brander'). A person who supplies the product may also be liable if they fail to identify the producer or at least the person who supplied the product to them when asked to do so. Note that under the Medical Devices Regulation (Article 11(5) of Regulation (EU) 2017/745) where the manufacturer of a medical device is not established in the EU, the manufacturer’s authorised representative within the EU is legally liable for defective devices on the same basis as, and jointly and severally with, the manufacturer. A product is defective for the purposes of the CPA if it is not as “safe as persons generally are entitled to expect”, taking account of all the circumstances, including any instructions or warnings provided with the product and the manner in which it has been marketed. The claimant is required to prove that the product was defective and establish a causal relationship between the defect and the injury.
In negligence, liability will be established if it is shown that the defendant owed a duty of care to the claimant, that he or she breached that duty by failing to take reasonable care and that the breach caused the damage complained of. Such claims are commonly brought against the manufacturer of a defective product and/or, where a medicinal product is involved, against the holder of the MA, although claims may be brought against other parties in the supply chain if fault can be established.
Claims for breach of contract in respect of products in the life sciences field are most commonly brought in respect of medicines and medical devices (such as breast implants) supplied by private clinics. Supply of a defective product will almost certainly involve breach of express or implied terms of the contract. Standard terms are implied into all contracts for the sale of goods unless the parties agree to exclude them. Products must be of satisfactory quality and comply with the description applied to them. Additional obligations apply to contracts between a business and a consumer ('consumer contracts'): there is a presumption that goods that malfunction during the first six months after delivery were in breach of contract at the time of supply.
Claims for breach of statutory duty can be brought where legislation is intended to create a private law right, actionable by an individual harmed by the breach. However, no such rights have been found to arise from breach of consumer statutes and to date there has been no UK litigation similar to the consumer fraud litigation pursued in some US states.
At present a proposed EU Directive on collective consumer redress is being developed, which will allow certain types of suitably qualified consumer organisations to bring collective actions on behalf of consumers in respect of breaches of various regulatory provisions relating to products. The draft legislation applies to breaches of some EU pharmaceuticals legislation (Articles 86 to 100 of Directive 2001/83/EC relating to advertising and promotion). Recent European Parliament amendments to the draft Directive propose that the collective redress provisions should also apply to breaches of the following: EU legislation relating to the centralised authorisation procedure for medicinal products (Regulation (EC) No 726/2004); cosmetics legislation; and general product safety legislation. The draft legislation also refers to the Product Liability Directive 85/374/EEC, although it is not clear how it is meant to apply to this. It remains to be seen what form the final Directive will take.
The claimant has the burden of proving, on the balance of probabilities, that the defendant’s product caused or materially contributed to the claimant’s injuries. The traditional test of causation is the ‘but-for test’: the claimant must prove that, but for the defendant’s negligence, or supply of a defective product, the claimant would not have sustained the injury.
There is no general presumption of causation. However, the CJEU’s decision in Boston Scientific Medizintechnik GmbH v AOK Sachsen-Anhalt, Case C-503/13, which is binding on the UK courts, indicates that where a product such as an implanted medical device is part of a batch of potentially defective products, liability may be established under the Product Liability Directive without proof that the product has actually malfunctioned and caused injury.
There are no specific defences applicable to claims relating to medicinal products or medical devices.
However, there are several defences provided by the CPA. The defendant has the burden of proving these. Therefore it is a defence to a claim that a product is defective if:
Liability under the CPA and in negligence may also be limited by the principles of contributory negligence. In negligence, a defence of volenti is available if the claimant freely and voluntarily agreed to run the risk of injury in full knowledge of the nature and extent of the risk. Otherwise, the defendant will defeat the claim if the claimant cannot establish each of the elements of negligence. No specific defences arise in contract, but the claim will fail if the claimant cannot establish the breach of contract and damage due to that breach.
Under the CPA a regulatory compliance defence is available if the manufacturer can show that the defect is due to compliance with UK or EU laws. The defence has limited scope and only applies, for example, in the case of alleged failure to warn where the ‘defective’ warnings were mandated by UK or EU regulators, not where those warnings were negotiated or otherwise agreed with regulators.
Otherwise, there is no general defence under the CPA, in negligence, or in contract, in circumstances where the manufacturer is able to demonstrate compliance with regulatory and statutory requirements relating to the development, manufacture, licensing, marketing and supply of the product, although such compliance is of evidential value and may help in the defence of claims.
As set out above, the test of causation is whether the defendant’s product caused or materially contributed to the claimant’s injury. What amounts to a ‘material contribution’ depends on whether the alleged injury is divisible and whether there are possible alternative causes. If the injury is non-divisible and there are several possible causes, but it cannot be established which of them caused the injury, causation may not be established. However, causation may be established in the case of a divisible injury where the injury is caused by multiple factors which have an additive or multiplicative effect. In these circumstances, liability is likely to be apportioned to reflect the extent of the defendant’s liability for the injury. These principles have not been applied to pharmaceutical product liability claims.
The English courts have not adopted so-called 'market share' liability. Where it cannot be established which of several possible producers manufactured the defective product, the claimant’s evidential burden cannot be met and the claim will be dismissed.
The primary limitation period for actions in tort (including negligence claims) and for breach of contract is six years from the date on which the cause of action accrued. Special time limits apply to personal injury claims, including those brought in negligence or under the CPA. In such cases, the claim must be brought within three years from the date on which the cause of action accrued (ie, the date of injury or death) or the date of knowledge by the claimant of the facts required to bring a claim. The court has a discretionary power to disapply this time limit where it would be equitable to do so.
Special rules apply to persons under a disability (children and persons with mental incapacity) and time generally only begins to run for limitation purposes when the claimant dies or ceases to be under a disability. Where an action is based on the defendant’s fraud or concealment the relevant limitation period does not begin to run until the claimant has, or could with reasonable diligence have discovered, the fraud or concealment.
In addition to limitation provisions, a right of action under the CPA is extinguished ten years after the defective product was put into circulation ('the ten-year long-stop'). The ten-year period runs even in circumstances where the claimant is under a disability.
There is no specific ‘claim for information’. However, under the Civil Procedure Rules, the parties are expected to comply with applicable pre-action protocols, providing that the key documents which would be relied upon by one party or adversely affect the case of one of the other parties, should be disclosed before proceedings are commenced. If a party wishes to obtain additional specified documents they may seek an order under 31.16 of the CPR for pre-action disclosure against a party likely to be involved in proceedings. This application will be granted if the court is satisfied that such disclosure is necessary in order to assist the dispute to be resolved without proceedings or to save costs. The court may also make an order under CPR 31.17 for disclosure against a third party who is not involved in proceedings, where the documents sought are necessary in order to dispose fairly of the claim or to save costs.
It is possible to seek disclosure of information from a public body via a request under the Freedom of Information Act 2000. The public body is required to respond to a request within 20 working days, disclosing the information sought by the applicant unless this falls within one or more of the exemptions listed under the Act. The exemptions are categorised as absolute or qualified; information which falls within an absolute exemption should not be disclosed, while information within a qualified exemption is subject to a public interest test and must be disclosed unless the public interest in withholding the information outweighs the public interest in disclosure. An applicant who is dissatisfied with the response of a public body to a request for access to documents may appeal the decision to the Information Commissioner.
The types of damages that may be recovered vary depending on the legal basis of the claim. Under the CPA, damages are available in respect of death or personal injury (both physical and psychiatric injuries) or damage to property for private use and consumption (if the property damage exceeds the minimum threshold of GBP275). Damages are not recoverable in respect of damage to the defective product itself.
In negligence, damages can be recovered for death or personal injury (including mental injuries) and damage to property. Pure economic losses which are not consequent on physical damage are not generally recoverable.
In contract, damages are usually awarded for monetary loss (for example, in respect of damage to property and to the defective product itself), but they can include non-pecuniary losses, such as damages for death or personal injury (including mental injury). Economic losses, such as loss of profits, are recoverable if these are a foreseeable consequence of the breach.
Although it is possible to claim punitive damages under English law, they are limited to situations where the defendant’s conduct was calculated to make a profit that exceeds the compensation recoverable by the claimant, or where there has been oppressive, arbitrary and unconstitutional conduct by government servants. It is doubtful whether they are available in product liability actions.
English law does not generally permit recovery of the cost of ‘medical monitoring’ tests or investigations unless the product has actually been shown to be defective. Such medical monitoring costs are recoverable only as medical expenses consequential upon the main injury.
There is no limit on the damages which may be claimed by a single claimant and/or available from one manufacturer.
Few cases concerning liability for defective pharmaceutical products or medical devices in the UK have been reported. The evidential burden on claimants of proving liability and causation of their injuries is significant.
Wilkes v Depuy International Ltd  EWHC 3096, addressed the assessment of defect, in a case involving a metal 'C-stem' hip prosthesis. The claimant had been implanted with the prosthesis, which subsequently fractured; he brought a claim against the manufacturer under the CPA alleging that the C-stem was defective at the time it was put into circulation. The court confirmed that the meaning of “all the circumstances” at s3(2) of the Act was wide and must mean “all relevant circumstances”. Whether a product conformed to the producer’s specification or relevant standards could be a relevant circumstance, as could regulatory approval, the risk-benefit balance, any instructions for use provided to a clinician, whether the defect could have been avoided and cost.
The test as to the level of safety that persons "generally are entitled to expect" is objective; it is not what persons actually expect but what, as a matter of law, they are entitled to expect. The court noted that safety is a relative concept, no medicine can be risk-free if it is effective and a product is not defective simply because a safer design could be envisaged.
Significantly, the court in Wilkes rejected and diverted from the approach followed in A v National Blood Authority and Ors  3 All ER 298 (the so-called 'Hepatitis C Litigation'), which adopted a rigid classification of products as 'standard' or 'non-standard' and required the identification of “the harmful characteristic which caused the injury” as a first step, before defect could be identified. The approach to defect in Wilkes was followed in another hips case: Gee & Others v DePuy International Limited  EWHC 1208 (QB).
A non-statutory inquiry under Baroness Cumberlege (The Independent Medicines and Medical Devices Safety Review) was set up in 2018 by the Secretary of State for Health and Social Care to look at issues surrounding the marketing of certain implants and medicinal products in respect of which compensation is being sought. The inquiry is yet to report.
In the UK, any such trial is held by a judge alone.
Under English law the parties are required to provide disclosure of documentary evidence (construed widely to include videotapes, telephonic recordings and documents stored electronically) in accordance with the Civil Procedure Rules following a reasonable and proportionate search for disclosable material. The scope and extent of the search must be described in a formal disclosure statement. Disclosure usually takes place after pleadings setting out the parties’ cases have been served. However, the court may, in appropriate cases, order pre-action disclosure of documents.
In claims involving personal injuries the standard rule is that a party to an action is required to disclose the documents within his or her control on which he or she relies and which adversely affect his or her own case or support another party’s case, although the court may dispense with or limit such disclosure in appropriate cases. However the court has wide powers to make any alternative order that it considers to be appropriate. In determining the scope of disclosure, the court will take account of the associated costs and will ensure that these are proportionate to the overall sums in issue in the proceedings.
The factual and expert evidence that the parties intend to rely upon at trial must be provided in the form of witness statements and expert reports that are exchanged by the parties prior to the trial. The court will generally control the number of factual and expert witnesses whose evidence may be relied upon.
There have been no recent discussions regarding potential changes in the legal regime for liability for pharmaceutical products, although at EU level there are ongoing discussions about the possible need to adapt the Product Liability Directive to technological change, which could result in changes that could materially affect the producers of innovative products, such as pharmaceuticals; see above, 15.1 Specific Legal Regime ('Differences in Liability').
The current legislation governing privacy and data protection across the EU member states is the EU General Data Protection Regulation 2016/679 (GDPR). As an EU Regulation, the GDPR applies across the Member States without the need for additional implementing legislation. The GDPR became directly applicable across all EU Member States on 25 May 2018. The GDPR allows for Member-State supplementation in certain areas (such as in relation to processing personal data relating to criminal convictions and offences).
The UK has enacted the Data Protection Act 2018 which controls how personal information is used by organisations, businesses and the government.
Other legislation and regulations also apply to privacy and data protection, notably: the Privacy and Electronic Communications (EC Directive) Regulations 2003 (as amended) in the UK, which apply to electronic communications and are particularly relevant for marketing communications; the Regulation of Investigatory Powers Act 2000, which relates to law enforcement investigatory powers and covers the interception of communications and surveillance; and other sector-specific regulations and codes.
The UK Information Commissioner’s Office (the ICO) is the regulatory body responsible for applying and enforcing the privacy and data protection legislation and regulations in the UK.
Health-related information is treated as a 'special category' of personal data under the GDPR. There are stricter conditions for processing health-related information under the GDPR.
Under the GDPR, two legal conditions need to be satisfied in order for health-related information to be processed (eg, collected, recorded, structured, stored, used or disclosed). The first condition relates to the general processing of personal data – that the processing is necessary for a performance of a contract with the relevant individual, or for legitimate purposes pursued by an organisation (which must be balanced against the rights of the individual). The second condition relates to the processing of special categories of personal data – that the relevant individual has given explicit consent to the processing of their health information for one or more specified purposes.
Health-related information can also be subject to regulation under some legislation relevant to the life sciences sector; such as legislation relating to clinical trials, or the processing of human cells and tissue samples.
The maximum fine that can be issued by national regulators under the GDPR is EUR20 million or 4% of an undertaking’s total worldwide annual turnover of the preceding financial year (whichever is higher), for the most serious breaches of the GDPR.
Under the GDPR, Member States will also be able to set rules on further sanctions that national regulators may enforce, such as those that are currently open to the ICO (for instance, enforcement notices requiring organisations to comply with the legislation, or powers to enter and inspect premises).
Under the GDPR, individuals who have suffered damage as a result of an infringement also have the right to compensation from the company responsible for the infringement.
Transferring personal data to cloud platforms and storing personal data on those platforms will need to comply with the data protection legislation, including the aspects of the legislation relating to the 'special category' of health information. Therefore, careful attention needs to be paid to the legal bases upon which such information is being processed by the cloud customer and cloud provider.
It is likely that the cloud customer will be classed as a 'data controller' under the legislation, as it is likely to be determining the purposes and means of the personal data transfer and storage. The cloud provider will likely be classed as the 'data processor' under the legislation, as it would be responsible for storing the personal data on behalf of the cloud customer. However, the determination of the respective positions will depend on the particular activities undertaken by each party. The distinction is important for the purposes of the GDPR (which places obligations on data processors as well as data controllers). Under the GDPR, data controllers must also enter into contracts with data processors that must contain certain provisions (for instance, relating to security measures and data subjects’ rights).
If there is a transfer of personal data out of the EEA to a cloud platform based in a country that has not been deemed to have an 'adequate' data protection regime by the European Commission, protective measures will also need to be put in place, such as standard contractual clauses which have been approved by the European Commission or the EU-US Privacy Shield.
At the time of writing, the circumstances of how and if the UK would be leaving the EU were uncertain. Post-Brexit, the EU GDPR will no longer be law in the UK. However, the Data Protection Act 2018 will remain in force and there is a Statutory Instrument, titled The Data Protection Act 2018 (Commencement No 1 and Transitional and Saving Provisions) Regulations 2018 ready for implementation should the UK leave the EU on exit day without a deal.