Part II of this article apperas in the February 2007 issue of The Metropolitan Corporate Counsel.
For businesses in any industry, the European Union (EU) is a market force to be reckoned with. Currently made up of 25 Member States, the EU is the world's largest economy by gross domestic product, and it is the third largest population. Its reach and market strength is soon to be increased by the addition of five new Member States: Bulgaria, Croatia, Macedonia, Romania, and Turkey.
Although each Member State of the EU retains some sovereignty over affairs conducted within its own borders, a considerable body of law is now promulgated by the European Commission (EC) and implemented into national legislation in each Member State. This harmonization of laws across the Member States is designed to bolster the principle of free movement of goods, which, in brief, means that once goods have passed the borders of one Member State having met its entry requirements, they are free to be circulated and imported to all other Member States and sold throughout the EU.
However, in light of the health benefits and associated risks that accompany medicinal products, the situation in the EU is much more complicated. Medicinal products are highly regulated in the EU and are subject to a separate, complicated system of approvals that governs how, when, where, and in what form such products will be allowed to be sold in the UK. Additionally, a number of important, strategic commercial and corporate considerations accompany this complex regulatory environment.
The EU is also home to a multitude of world-class research facilities, and with a large, diverse population and EU-wide clinical trial rules, it represents an excellent choice for the conduct of clinical trials.
The EU, therefore, presents interesting opportunities for life science companies, both before and after the grant of marketing authorizations. Consequently, in order for businesses in the pharmaceutical and devices sector to optimize their presence in the EU market, and to make the most of the extensive resources the EU has to offer, it is important to have an understanding of both the regulatory setting and the associated commercial issues.
Accordingly, this article offers an insight into the regulatory regime in place in the EU for companies wishing to conduct clinical trials or obtain authorizations for medicinal products and medical devices in the EU.
An Overview Of The Regulatory System
The regulation of medicinal products is governed in the EU by Directive 2001/83/EC relating to the medicinal products (the "Directive"). Also known as the Consolidated Directive, it brings many years of separate legislation together into one, detailed document. It was last updated in 2005, when a number of far-reaching, fundamental, and sometimes controversial changes were made. Although it contains many complexities, the fundamental premise of the Directive is simple: no medicinal product may be placed on the market in the EU unless the relevant competent authority grants a marketing authorization.
It is also worth noting that the legislation has also been adopted by the members of the European Economic Area (EEA): Norway, Iceland, and Liechtenstein. The Swiss system also mirrors EU regulation.
In addition to the requirements that must be met to obtain a marketing authorization, the Directive lays down rules relating to specific categories of medicines (e.g., homeopathic and herbal medicines), manufacture, importation and distribution, labelling and advertising, the classification of medicinal products, and pharmacovigilance.
The Directive, which has been implemented into the national laws of each EU Member State, is accompanied by a number of other EU directives and regulations that address specific areas of medicinal legislation, such as the Clinical Trials Directive.
Both general medicines legislation in the EU and the Clinical Trials Directive (see below) require the holder of an authorization for a medicinal product or a clinical trial in the EU to either be established itself in the EU or to have a legal representative who can act on its behalf. In addition, for various activities that are conducted in the EU pertaining to medicines, such as manufacturing, wholesale dealing, and pharmacovigilance, EU medicines law also requires pharmaceutical companies to have a "Qualified Person" at their disposal to oversee certain functions.
Qualified Persons must meet certain specific criteria in order to be classified in this way. It is generally accepted that such Qualified Persons need not be employed directly and may be engaged on a contract or consultancy basis, although depending on the circumstances, direct employment may present the most attractive option. Such considerations will also have an important impact on the choices such as country and corporate vehicle.
Consequently, structuring operations in the EU, including consideration of the preferred corporate structure in the most appropriate EU country is one of the most important decisions a pharmaceutical company can take.
There are a number of choices available for business operations. The principal corporate options are:
a company (including a subsidiary of an overseas company);
a branch; or
a place of business.
For the purposes of this article it is assumed that business operations will be established in the UK.
Companies (Including Subsidiaries of Overseas Companie s)
One option for businesses wishing to establish in the UK is to form a UK company limited by shares. The usual choice for overseas companies is a private company subsidiary of the overseas company. It is possible to establish both private and public companies in the UK - the main difference between the two is that a private company cannot offer its shares to the public. In general, public companies are also more regulated than private companies, and there are additional requirements to be met when setting up a public company.
A company incorporated in the UK has a separate legal identity, distinct from its members (whether a parent company or individuals). As such, its members usually have no legal liability for the company's acts and obligations, except for unpaid share capital and any guarantees given in the case of companies limited by shares.
Branch or Place of Business
A "branch" is part of an overseas limited company organized to conduct business through local representatives in the UK rather than referring it abroad. Companies House (the official UK government register of UK companies) gives guidance on what level of activity is required to necessitate registration as a branch. Broadly speaking, if a person is able to deal directly with the UK office instead of the company in its home jurisdiction then the UK office is more than likely to be a branch.
A "place of business" is for companies who cannot register as a branch because their activities in the UK are not sufficient to constitute a branch. Such activities might include internal computer processing, warehousing, or simply a representative office. Essentially a characteristic of a place of business is that its activities tend to be incidental operations.
B. Clinical Trials
In order to obtain a marketing authorization to place a medicinal product on the market in the EU, it is necessary to have data demonstrating the quality, safety and efficacy of the product in question. The results of clinical trials comprise a large part of this data, and as such, clinical trials represent one of the largest hurdles companies developing potential new drugs face.
The issues that present themselves to pharmaceutical companies attempting to organize a clinical trial can be numerous. For example, depending on the disease in question, obtaining a sufficient enrolment number for clinical trials can often be a slow and difficult process, and it can be difficult to obtain the breadth and diversity necessary to ensure results are well balanced. Ethical considerations, such as choice of patient, add additional complications.
As mentioned above, clinical trials in the EU are now governed by harmonized rules that apply to all EU Member States. This enables companies conducting clinical trials to run trials in a variety of countries simultaneously without the need to come to terms with a different set of rules and regulations for each country. It also means that companies have access to a larger number and a greater range of patients (e.g. different skin types, lifestyles, diets etc).
Overview Of The Clinical Trials Directive
Clinical Trials are regulated in the EU by European Directive 2001/20/EC (the "CTD"). The CTD has been implemented into national legislation in each EU Member State - in the UK by the Medicines for Human Use (Clinical Trials) Regulations 2004.
The CTD applies to the vast majority of trials conducted in the EU (non-interventional trials meeting certain criteria are excluded). Under the Directive, a trial may only be started in a Member State of the EU if it has been authorized by the relevant Competent Authority in that Member State (in the UK, this is the MHRA) and has been given a favorable opinion by an ethics committee. In addition, each trial must have an identified sponsor who is responsible for trial initiation (including obtaining authorization), management, conduct, and pharmacovigilance.
To provide public health protection, the CTD sets out the requirements for obtaining informed consent from participants and, in particular, sets out the process that must be followed in relation to specific vulnerable groups. In addition, both the European Medicines Agency (EMEA) and the national regulatory authorities will conduct mandatory good clinical practice inspections, and the findings from these inspections, together with details of each authorized trial, will be available for all other Member States' regulatory authorities to see on a new European database for clinical studies.
Failure to comply with certain aspects of the CTD may constitute a criminal offense and carry a prison sentence of up to two years, in addition to a fine.
The CTD is complemented by Directive 2005/28/EC on good clinical practice ("GCP"). The GCP Directive sets forth the detailed rules and procedures that aim to assist and guide companies involved in clinical trials.
Anthony Warnock-Smith is a Partner in the Business and Finance Practice in the London office of Morgan Lewis. Natalie Kingston is an Associate in the Business and Finance Practice in the London office.