The National Health Service (“NHS”) featured heavily in discussions during the run up to the European Union (“EU”) Referendum and still features in the aftermath of the vote to leave the EU.
The UK medical devices sector however, which has an indirect effect on the NHS (as a supplier into the NHS), did not feature as much as expected in the discussions surrounding the EU Referendum in spite of the fact that the EU has a profound effect on the sector. This article seeks to examine the potential effect that the vote to leave the EU has and will have on the UK medical devices sector.
Current legal framework
The majority of the UK legal framework governing the UK medical devices sector originates from the EU and is either directly applicable (through Regulations) or indirectly applicable through the UK government implementing EU Directives. The UK legal framework governing the medical devices sector is enshrined in the Medical Devices Regulations 2002 (as amended) which implements the following EU directives (the “Directives):
- Directive 90/385/EEC relating to active implantable medical devices;
- Directive 98/79/EC relating to in vitro diagnostic medical devices; and
- Directive 93/42/EEC relating to medical devices.
Proposed legal framework
The final texts of two EU regulations (the “Regulations”) are in circulation, i.e. they are coming to the end of the EU legislative process, and it is proposed that they will become directly applicable on all member states in the immediate future. These are:
- the Medical Device Regulation; and
- the In Vitro Diagnostic Regulation.
It is intended that the Regulations replace the legal framework previously put in place by the Directives.
Effect on the vote to leave the EU on the medical devices sector
It is still unclear the precise terms that will be negotiated in respect of the UK’s exit from the EU and exactly when a formal exit will take effect, however, the UK government may seek to repeal secondary legislation that implemented certain EU directives which may lead to the Medical Devices Regulations 2002 (as amended) being repealed, the result of which would require the UK government to establish a new set of law to govern the UK medical devices sector. Alternatively, the Medical Devices Regulations 2002 (as amended) may be one of the pieces of legislation which the UK government may choose not to repeal, the implication being, that the UK medical devices sector may continue to be regulated in the same way.
In the event that a different, and new, set of laws are established to govern the UK medical devices sector, it may have profound implications on the sector as a whole. The new laws may be drafted in such a way which gives medical devices companies in the UK a more relaxed framework in which to operate within, however, the commercial reality is that UK based medical devices companies will want to sell their products in the EU and the rest of the world (which is part of the reason why medical devices companies are often seen as a good investment). In order to sell their products in the EU (and even the rest of the world as certain countries have agreements with the EU in respect of product conformity), UK medical devices companies will need to continue to meet the relevant EU standards for their products, and if they fail to do so because they are no longer bound by the laws of the EU, it may lead to reduced trade with the EU and the rest of the world.
Commercially speaking, the decision to leave the EU will have had a more prescient and tangible impact on the UK medical devices sector. Investors may withhold investment in the UK medical devices sector if there is a decline in trade with the EU and the rest of the world. However, there are many who advocate that the UK will be at the fore of global free trade and if this is the case and a suitable legal framework supports this position, then the UK medical devices sector may have access to a global market potentially making the sector a safe bet for investors.
In respect of imports and exports, a weaker pound will have a negative effect on imports and a more positive effect on exports; however, as set out above, the appropriate legal framework and market conditions will also be important factors as to whether UK medical devices have successful export levels. Higher import costs may result in an increase in the value of sale prices of UK manufactured medical devices. The NHS is the largest customer for the UK medical devices sector and many within the sector are already frustrated with the NHS’ conservative and lengthy purchase process for UK manufactured medical devices. Higher sale prices, due to higher importing costs, are not likely to make the sales process into the NHS any easier for the UK medical devices sector.
In respect of immigration, changes in the rules governing EU nationals (and nationals from countries outside of the EU) working and residing in the UK may also have an effect on the UK medical devices sector, in particular those companies who rely on the research and development skills of foreign nationals in the development of medical devices.
Many questions are yet to be answered in respect of the effect of the vote to leave the EU, however, the UK medical devices sector will inevitably need to keep one eye on the decisions being made in order to react if necessary.
About the author
Mohammed specialises in acquisitions, disposals, joint ventures, private equity matters, re-organisations and shareholder agreements.
