Brexit and the medical devices industry: coping with uncertainty
21 June 2018
With just 281 days left to go before the United Kingdom formally leaves the European Union on 29 March 2019 the medical devices industry still faces much uncertainty. Any deal for the medical devices sector must be hammered out by October this year to give the EU parliament time to ratify its terms before next March. The negotiating teams have provisionally agreed an implementation period ending in December 2020. A regulatory status quo would prevail during this time. But the official line remains that “nothing is agreed until everything is agreed”, leaving open the doomsday prospect of a no-deal scenario in which the UK is forced to trade with the EU on World Trade Organisation terms.
Despite the continued assertions of the government that it must be free to walk away from the negotiating table, the UK needs a good deal for its own medical devices industry. The UK exports around £2billion of health technologies to the EU each year, while the NHS uses £3.2 billion of health technologies from the EU every year. 50% of authorised representatives in the EU for non-EU medical device manufacturers are in the EU and the UK’s five Notified Bodies for medical devices oversee 50-60 % of the highest risk medical devices in the EU.
The UK government has made it clear that its aim is to agree a comprehensive free trade agreement covering goods and services in exchange for payments to the EU. For its medical devices industry, the UK government wants a deal that ensures that:
- patients in the UK and the EU are not put at a disadvantage;
- the industry must be able to get their products into and out of the UK and the EU markets as quickly and simply as they do now;
- the industry remains at the forefront of medical innovation;
- the UK continues to play a leading role in promoting ad ensuring public health in Europe and worldwide.
In practical terms this should mean:
- zero tariffs;
- a mutual recognition agreement enabling recognition of UK Notified Bodies and Authorised Representatives;
- an immigration policy that recognises the need for the movement of highly skilled scientists and engineers between the UK and the EU;
- continued participation in ICH and EU research programmes;
- the Medical Devices Regulation becoming UK law as far as legally possible.
The EU is making no assumptions, however. In its Notice to Stakeholders published on 22 January 2018 the European Commission announced that, after the UK’s withdrawal date:
- a manufacturer or importer established in the UK will no longer be treated as an economic operator established in the EU;
- distributors in the EU of products from the UK become importers;
- EU authorised representatives based in the UK will no longer be recognised. UK manufacturers will need to appoint an authorised representative in the EU-27;
- UK Notified Bodies will lose their status as EU Notified Bodies.
The EC Notice to Stakeholders may well simply represent the starting position of the EU in the negotiations. But given the chasm of expectations between the UK and the EU how can manufacturers and importers of medical devices navigate a course over the next few months that maintains business readiness for Brexit, whatever form it will take?
The most practical approach will be to carry out audits of the areas of business affected by Brexit. This will ensure that leaders have up to date information at their fingertips to support swift business decisions once the post Brexit landscape becomes clearer. Many medical device companies will already be carrying out audits of their use of Notified Bodies, their use of Authorised Representatives and their supply chain.
Although industry hopes for a mutual recognition agreement, the sensible course must be to prepare for no agreement. This will mean Notified Bodies and Authorised Representatives, both for existing products as well as products introduced to the market post-Brexit, must be established in the EU.
Businesses should make sure that they know whether the Notified Bodies that have performed conformity assessments and issued CE- marked certifications for their products are established or intend to establish in the EU-27 before March 2019. The British Standards Institute, one of the UK’s leading Notified Bodies, is, for example, seeking designation from the Dutch competent authority enabling it to continue to certify medical devices for the EU market. The tough line adopted by the European Commission in its Notice to Stakeholders means that the EU will not accept grandfathering of existing certificates of conformity issued by UK Notified Bodies. These will need transferring to an EU-27 Notified Body by a contractual arrangement between the manufacturer, the UK Notified Body and the EU-27 Notified Body. Experience with the continuing implementation of the Medical Devices Regulation suggests there is a high demand for and a limited supply of designated Notified Bodies in the EU. Medical device manufacturers that need to seek a new Notified Body for their products in the EU-27 should act quickly to reserve their place in the queue.
Where a manufacturer of a device is not established in a Member State, a medical device may only be placed on the market in the EU if the manufacturer has designated a sole authorised representative. The authorised representative plays an important role in the verification of compliance with the Medical Devices Regulation and represents the manufacturer in some communications with competent authorities and customers. Post Brexit, in the absence of a mutual recognition agreement, authorised representatives established in the UK will no longer be recognised. UK manufacturers, who have not needed an authorised representative up to now, will need to appoint one. The appointment of an authorised representative requires the agreement to the terms of the authorised representative’s mandate and some due diligence on the part of a manufacturer to ensure that the proposed authorised representative is equipped to carry out that mandate. Since these checks and contractual negotiations may take some time, it would be sensible for medical devices companies to establish sooner rather than later whether they will need to appoint an authorised representative in the EU.
Finding an authorised representative willing to act may present a challenge. The Medical Device Regulation will impose joint and several liability for defective medical devices on EU authorised representatives. Some may be reluctant to accept this role, especially in relation to higher risk products or product categories that they have limited experience with.
The Life Sciences industries’ lobbying of the UK government to maintain the closest possible regulatory alignment with the EU post-Brexit has made much of the integrated supply chains that now characterize UK manufacturers of both pharmaceuticals and medical devices. Product components may cross the border between the UK and the EU-27 many times before a finished product is exported. Medical device companies should now be auditing their supply chains to work out where all of their components come from, down to the paper and ink for the packaging, to establish how these could be disrupted by the imposition of tariffs or regulatory checks at each border crossing in future. Can UK based manufacturers simplify supply chains by sourcing more components in the UK or outside the EU altogether? Can EU based manufacturers source components now coming from the UK from within the EU-27 in future? Should companies move manufacturing out of the UK to a country that does have a free trade agreement with the EU? Whether this is necessary or cost effective will crucially depend on the terms of the final Brexit deal but a manufacturer would be wise to know how it stands and prepare for the worst contingency. Working out how WTO tariffs might affect your pricing and assessing whether your IT and VAT systems could cope with any novel customs clearance arrangements could also feature in your war gaming.
One thing that is clear is that the UK will implement the Medical Devices Regulation as far as it can even in the absence of a mutual recognition agreement. Elements of the implementation that will require co-operation between the EU-27 and the UK obviously cannot be implemented unilaterally but the UK government intends that the regulatory scrutiny required before placing a medical device on the market in the UK post- Brexit will match that in the EU. So medical device companies should continue to prepare for the implementation of the Medical Devices Regulation both in the EU-27 and in the UK.
Finally, one of the best ways of coping with uncertainty in this awkward pre-Brexit period where facts are thin on the ground is for medical device companies to stay fully engaged with their trade associations in the UK and in Europe. The Association of British HealthTech Industries (ABHI) is heavily involved in supporting and advising the UK government stakeholders in the life sciences industries. The trade associations have ensured that the voice of those industries has been heard by the UK negotiators, emphasizing the importance of maintaining the closest possible alignment, on tariffs and on regulation, with the EU-27 post Brexit. Their hand will be strengthened by hard examples of why this matters for UK patients and UK industry and jobs. If the business audits we have advised highlight any persuasive scenarios the ABHI will surely be keen to hear about them.