The EU pharmaceutical package: The regulatory sandbox

On 26 April 2023, the European Commission published its proposal to reform the EU's pharmaceutical legislation, also known as the EU pharmaceutical package. The package consists of two legislative proposals: a new Directive and a new Regulation, which together will replace the existing pharmaceutical legislation and will constitute a new regulatory framework for all medicinal products.

One of the main goals of the proposed legislative reform is to drive innovation in the pharmaceutical industry. To achieve this goal, the proposed Regulation introduces the concept of a regulatory sandbox, which allows experimenting with new regulatory approaches for novel therapies in a limited part of a sector or area.

What is a regulatory sandbox?

In short, a regulatory sandbox is a time-limited regulatory framework that allows the testing of innovative technologies, products, services or approaches in a real-world environment under regulatory supervision to facilitate the development and authorisation of innovative products. The legal basis of a regulatory sandbox is a so-called "experimentation clause", that allows exemptions from existing requirements, in order to try out novel regulatory solutions.

The purpose of regulatory sandboxes

The purpose of regulatory sandboxes is twofold: not only does it offer significant opportunities for businesses to innovate, it also enables regulators to gain knowledge about innovative technologies, products, services or approaches at a very early stage of development, in order to find out the best means to regulate those innovations. The learnings resulting from a regulatory sandbox should provide the basis for future changes to the medicinal product regulation, so that regulators can respond to innovations in a proactive manner, rather than having to catch up with the increasingly fast paced evolutions in medicines development.

Whereas it is now being introduced for the first time in the context of medicines development on EU level, the concept of regulatory sandboxes is not entirely new. For over a decade now, regulatory sandboxes have been used by (mostly national) regulators to drive innovation in a range of sectors. Especially in the field of FinTech, regulatory sandboxes have already proven to have a significant impact. Early 2023, the European Commission launched the European Blockchain Regulatory Sandbox, for innovative use cases involving Distributed Ledger Technologies (DLT).

Why are regulatory sandboxes relevant?

At the time the EU pharmaceutical package is published, the flexibility offered by regulatory sandboxes is deemed especially relevant in the context of digitalisation, the use of artificial intelligence and machine learning. The traditional regulatory framework is often not adapted to innovations in the discovery, development or administration of medicinal products that are driven by such digital technologies. Businesses such offering those types of products and services may therefore be confronted with regulatory constraints that could discourage their further development. In the years to come, there may be all sorts of innovations that could benefit from a regulatory sandbox that are at present still beyond imagination.

When will a sandbox be possible?

The procedure for establishing a regulatory sandbox is set forth in Articles 113 to 115 of Chapter IX of the proposed Regulation.

A sandbox will be possible under the following conditions:

• scientific or regulatory challenges  arising from the characteristics or methods related to the medicinal product concerned make it impossible to develop the product or category of products in compliance with the existing regulatory requirements;
• the above mentioned characteristics or methods related to the product positively and distinctively contribute to the quality, safety or efficacy of the medicinal product or category of products or provide a major advantage contribution to patient access to treatment.

The EMA's role in regulatory sandboxes

The European Medicines Agency ("EMA") is assigned a catalyst role in the establishment of regulatory sandboxes: it is expected to monitor the field of emerging medicinal products and to request information and data in this regard from marketing authorisation holders, developers, independent experts, researchers, healthcare professionals and patients, and to engage in discussions with them.

Where the EMA considers it appropriate, for medicinal products that may fall within the scope of the Regulation proposal, to set up a regulatory sandbox, it shall provide a recommendation to the European Commission, listing the products or category of products covered by the sandbox and including a sandbox plan based on data submitted by the developers. The sandbox plan shall set out a clinical, scientific and regulatory justification for the sandbox, including an overview of the regulatory requirements that cannot be complied with (and, where appropriate, a proposal for an alternative or mitigation measures). Furthermore, the plan shall include a proposed timeline for the duration of the sandbox.

Based on the recommendation from the EMA, the European Commission shall subsequently decide on the set up of a regulatory sandbox. A Commission Decision establishing a regulatory sandbox shall be limited in time and shall prescribe detailed conditions for its implementation. In particular, the Commission Decision shall include (a) the proposed sandbox plan, (b) the duration of the regulatory sandbox and its expiry and (c) as a part of the sandbox plan, the regulatory requirements (of the proposed Directive and the proposed Regulation) that cannot be complied with, together with appropriate measures to mitigate potential risks to health and to the environment.

The Commission may decide to suspend or revoke a regulatory sandbox if the requirements and conditions for the sandbox are no longer met or if such suspension or revocation is appropriate to protect public health. If certain health risks are identified after the establishment of the regulatory sandbox, the Commission can, to the extent possible, also mitigate those risks by imposing supplementary conditions, after consultation with the EMA. The Commission may furthermore also extend the duration of a regulatory sandbox.

Consequences for the further product lifecycle

The fact that a product was developed in a regulatory sandbox will have some consequences for the further product lifecycle:

• when authorising clinical trial applications, the competent authorities should take the sandbox plan into account;
• a medicinal product developed in a regulatory sandbox may only be placed on the market when authorised in accordance with the procedure described in the proposed Regulation and such marketing authorisation shall, in first instance, only be valid for the duration of the regulatory sandbox. However, at the request of the marketing authorisation holder, the authorisation may be prolonged. Furthermore, if the regulatory sandbox is suspended or revoked by the European Commission, the marketing authorisation shall also be suspended.
• the marketing authorisation of a medicinal product developed under a regulatory sandbox may include derogations from the requirements under the EU pharmaceutical legislation;
• the summary of product characteristics and the package leaflet of the product shall indicate that it was developed as part of a regulatory sandbox; and
• the marketing authorisation should also reflect any mitigation measures that are taken for the regulatory sandbox.

Supervision of sandboxes

Although regulatory sandboxes are established by a decision from the European Commission, it is the responsibility of the competent authorities of the Member States to supervise the sandboxes and to ensure their compliance with the applicable legislation. The national competent authorities shall immediately notify to the Commission and to the EMA, any violation of the conditions of the decision on the implementation of a regulatory sandbox or the identification of health or environmental risks. The national competent authorities will be able to suspend or restrict the use of products in a sandbox in case of public health or safety risks. They can also suspend the development and testing in a sandbox until effective mitigation takes place.

The EMA is expected to submit annual reports to the Commission on the results of the regulatory sandbox. Based on the insights gained from those reports, the Commission can, where deemed appropriate, make legislative proposals with a view to update the regulatory framework. Moreover, such regulatory sandbox framework does not have the effect of exonerating the marketing authorisation holder from its liability with regards to the medicinal product concerned.

In summary many aspects of the regulatory sandbox will still require further clarification, in particular the consequences for products that will be developed under such temporary framework. Furthermore, it is yet to be seen how the text of the proposed Regulation will evolve in the course of the legislative process. However, one thing can be said with certainty: the flexibility offered by a regulatory sandbox will provide businesses with significant opportunities to grow and innovate. In addition, the fact that regulators will be able to learn and respond proactively to such innovations should lead to a more innovation-friendly and future proof regulatory framework.