Regulatory Editor

As the U.K. pursues its divorce from the EU, smaller U.S. drug and device companies could be caught disproportionately in the collateral damage.

Many of them already struggle with the cost of duplicative regulatory requirements involved in marketing their products in the EU, but those costs could increase under Brexit, according to a report released last week by the U.S. International Trade Commission on trade-related barriers impacting U.S. small- and medium-sized enterprises (SMEs) that export to the U.K.

For instance, the Clinical Trials Directive and its soon-to-be-successor, the EU Clinical Trials Regulation, require sponsors to have an EU-based legal representative. After the split, sponsors who currently have that subsidiary/representative in the U.K. would need to add an EU entity – either by duplicating their U.K. presence in another EU country or by establishing a new EU presence – to be able to access the EU market. Either alternative would increase costs, which could prove burdensome for an SME, the commission said.

The EU's Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) regulatory system, which applies to pharmaceuticals, cosmetics and other chemical products, requires a similar EU-based presence in the form of an "only representative" (OR). Again, some of the current ORs are based in the U.K.

When the U.K. goes its own way, it's expected to set up a U.K. REACH program based on that of the EU. To prevent another layer of regulatory costs, industry has suggested that the U.K. program accept EU REACH registered chemicals and documentation. It also recommended that the EU allow SMEs with U.K. ORs to retain their OR. One SME interviewed by the commission said switching to a new or unaffiliated OR could compromise the security of the company's information and disclose confidential business information.

Duplicative regulatory costs

In preparation for a possible Brexit, the U.S. and U.K. have signed several mutual recognition agreements, including one pertaining to pharmaceutical manufacturing inspections that should reduce some of the regulatory costs for U.S. drug companies exporting products to the U.K. Despite similarities in the countries' regulations, there is no reciprocal agreement governing medical devices, according to the report.

Consequently, U.S. device makers continue to face duplicative compliance costs that already serve as trade barriers for SMEs. Complying with just one FDA regulation can cost a device company millions of dollars, the commission said. It noted one estimate on the cost of bringing a medical device to market in the U.S. on the pre-market authorization path is $18.9 million. When a company exports the device, it faces additional regulatory costs.

For example, "the need to obtain a CE mark is a significant trade-related barrier that negatively affects SMEs exporting medical products to the U.K. because the process is time-consuming and expensive," the report said. The U.K. requires device firms to conduct an internal conformity assessment for their products or, if necessary, have a conformity assessment done by a third party. If a third party is used, the company is responsible for the certifiers' travel and accommodation expenses.

Providing reciprocal certifications between the U.S. and U.K. for devices that meet closely harmonized standards would reduce the regulatory burden and cost on SMEs, which make up most of the U.S. medical device industry, the commission said. The report noted that 73% of U.S. device companies have fewer than 20 employees, and 88% have fewer than 100.

"U.S. SMEs that produce and export medical goods are disproportionately affected by the added time and costs needed to duplicate certifications on certain medical devices and products," the report said.

The commission identified a number of other existing problems that create trade barriers for drug and device SMEs, including requirements for labeling, licensing and packaging. But perhaps one of the biggest barriers for SMEs is the cost of protecting intellectual property (IP) in multiple countries, especially in the EU where the acquisition and maintenance costs for patents are substantially higher than in the U.S. and other major markets, according to the report.

After spending more than $150,000 in attorneys' fees and costs to obtain U.S. patents, one SME told the commission that it decided it wasn't worth spending more to broaden the company's IP protection so it could operate abroad. Other SMEs agreed "that the high costs and complexity associated with obtaining and protecting patents were overwhelming, with the result that SMEs often focus more on the U.S. market and less on international opportunities," the commission said.

That can be a risky decision as U.S. IP rights won't protect against infringement elsewhere. "IP is often an important contributor to the value and competitiveness of U.S. firms of all sizes. . . . While a larger business may be able to absorb the losses associated with IP infringement, for SMEs it can be an 'end-of-life occurrence,'" the report said.

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