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Updated texts of the reform of the EU Regulatory Framework for Medicinal Products published: the most significant overhaul of the regulatory framework in over two decades

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The institutions of the European Union have published the updated texts of the new Directive and Regulation which together constitute the reform of the EU pharmaceutical regulatory framework.

The reform represents the most significant overhaul of the European Union’s pharmaceutical regulatory framework in over two decades and introduces substantial changes across a broad range of areas governing medicinal products, from development and marketing authorisation through to market access and security of supply.

The reform addresses, inter alia, the following areas:

  • Regulatory data and market protection — the reform reshapes the rules governing the protection of data submitted in support of a marketing authorisation and the subsequent period of regulatory market protection. These forms of regulatory protection are distinct from patent protection and play a key role in product protection and lifecycle management strategies, including by affecting the timing of market entry of generic and biosimilar medicinal products.
  • Marketing authorisation procedures and the role of the EMA — the new framework seeks to streamline and increase the efficiency of assessment and authorisation procedures, including by shortening the applicable scientific assessment timelines, while strengthening patient representation within the Committee for Medicinal Products for Human Use (CHMP).
  • Orphan medicinal products — the incentive framework applicable to medicinal products for rare conditions is revised, including the criteria for orphan designation, the applicable incentives, the regime governing breakthrough orphan medicinal products and the rules concerning the duration and extension of market exclusivity.
  • Paediatric medicinal products — the provisions governing the development and authorisation of medicinal products for the paediatric population are incorporated into the new legislative framework.
  • Generic and biosimilar medicinal products — the scope of the so-called Bolar exemption is clarified and further harmonised at EU level, specifying the activities preparatory to market entry that may be carried out without infringing applicable patent rights or supplementary protection certificates.
  • Antimicrobials — new incentive mechanisms are introduced to support the research and development of antimicrobials, including specific incentives for priority antimicrobials, as part of the broader EU response to antimicrobial resistance.
  • Availability of medicinal products and management of shortages — the new framework strengthens obligations relating to the monitoring, prevention and management of shortages and provides for EU-level mechanisms concerning medicinal products identified as critical.
  • Environmental considerations — greater emphasis is placed on the environmental risk assessment of medicinal products and on the adoption of appropriate measures to prevent or mitigate the identified environmental risks.

The Directive and the Regulation must now be formally adopted and subsequently published in the Official Journal of the European Union.

Both acts will enter into force on the twentieth day following their publication. As a general rule, the Regulation will apply 24 months after its entry into force, while Member States will be required to transpose and apply the Directive within the same 24-month period, subject in each case to the specific transitional arrangements and application dates laid down in the respective acts.

M&A AND “231” LIABILITY

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Legislative Decree No. 231/2001 (“Decree”) introduced into the Italian legal system a regime of administrative liability for entities in connection with certain offences committed, in their interest or for their benefit, by persons holding representative, administrative or management positions, or by persons under their direction or supervision. This liability exists alongside – rather than in place of – the criminal liability of the natural person who committed the offence. Alongside pecuniary sanctions, the Decree provides for disqualification measures capable of jeopardising business continuity and, consequently, the value of the investment.

IS YOUR TARGET AT RISK? When structuring an M&A transaction, the due diligence process conducted on the target company – which is essential to identify all risk factors likely to affect the value of the transaction and to define appropriate contractual safeguards – must also include a specific focus on administrative liability arising from the Decree.

BEYOND COSMETIC COMPLIANCE: WHAT TO LOOK FOR.  Due diligence investigations should not be limited to verifying the formal adoption of an organisation, management and control model pursuant to the Decree (the “Model“). Although the adoption of such a Model is certainly an essential factor, it is not in itself sufficient to ensure that the company is not subject to “231” liability. Instead, the Model’s effective implementation and regular updating must be assessed. Equal attention should also be paid to the functioning of the Supervisory Body, its composition, independence and practical operation, as well as to the adequacy of organisational safeguards in the areas most exposed to the risk of offences. Furthermore, it is particularly important to verify the existence of any criminal proceedings or significant allegations under the Decree, because such issues will not disappear as a result of the extraordinary transaction.

“231” LIABILITY AND EXTRAORDINARY TRANSACTIONS. Articles 28 et seq. of the Decree govern transformations, mergers and demergers. The legislator pursues a specific objective: to prevent extraordinary transactions from becoming a means of circumventing the liability regime established by the Decree. Therefore, any “231” liability under the Decree survives in the event of a transformation, merger or demerger. Is there anything that can be done to mitigate the risks of liability arising under the Decree? An entirely new risk assessment, Model and compliance structure may be a good solution.

WHAT ABOUT BUSINESS TRANSFERS?  A milder regime applies in the event of the transfer or contribution of a business in connection with which an offence giving rise to liability under the Decree has been committed. The transferee is jointly liable with the transferor, but only for pecuniary sanctions recorded in the accounting books or relating to an offence of which the transferee was aware.

KEY TAKEAWAYS.  Compliance issues arising under the Decree should not be regarded as a secondary aspect of legal due diligence, but as an essential component of the overall transaction assessment, capable of influencing the structure of the deal, the agreed financial terms and the rights and obligations of the parties post-closing.