A Look At The Proposed EU IP Exception To Promote Generic, Biosimilar Industry Competitiveness

The European Commission has proposed an exception to the extended period of patent protection that the European Union provides to original drug manufacturers for certain products, in order to boost the competitiveness of EU generic and biosimilar industries in global markets. The exception will allow EU generic and biosimilar companies to manufacture protected drugs for export during this patent extension period.

Stakeholders are so far unhappy with the exception for varying reasons. Meanwhile, studies analyse its potential economic impacts and legal implications, and the Commission remains confident that safeguards it is putting in place will keep the lower-priced medicines from making their way back into the EU.

The proposed legislation, if adopted, would allow European generic and biosimilar companies to manufacture drugs during this period of extended patent protection for export to non-EU markets only, while maintaining patent protection and market exclusivity for those drugs in the EU. This will enable EU generic and biosimilar companies to take advantage of significant market opportunities outside the EU, where original drugs have gone off-patent, to ensure that these industries remain competitive while they are waiting for access to the EU markets.

Proposed SPC Manufacturing Waiver

The period of extended patent protection provided by the EU is in the form of a supplementary protection certificate (SPC), which provides up to 5 years of extended patent protection for certain medicines. SPCs are designed to help companies recoup commercial losses from delays caused by clinical trials and the marketing authorization process.

The Commission proposed the SPC manufacturing waiver in May 2018, in response to a 2016 European Parliament resolution that urged the Commission “to introduce and implement before 2019 an SPC manufacturing waiver to boost the competitiveness of the European Generics and Biosimilar Industry in a global environment… without undermining the market exclusivity granted under the SPC regime in protected markets.”

To protect the SPC market exclusivity period in the EU, the Commission has included a set of safeguards in the proposed waiver to prevent generic and biosimilar drugs manufactured for export from leaking into the EU during this period.

The proposed SPC manufacturing waiver will now pass to the EU Council and Parliament to decide whether the regulation should be brought into effect as it is written, or with amendments, according to the EU website.

In the two years leading up to this proposal, the Commission issued a range of studies to investigate the potential impact of the waiver.

One of these studies that focused on the “legal aspects of SPCs,” conducted by the Max Planck Institute for Innovation and Competition, was the subject of a 2-day conference earlier this week at the Institute, which brought together a range of stakeholders on the issue.

Stakeholder Critical so far

The reactions of stakeholders to the proposed waiver are varied, with none in full support of the waiver as it is proposed. For some it does too much, for others too little, and for still others the very basis for SPCs should be called into question.

The EU generic and biosimilar industries have expressed support for the proposed legislation, as their competitiveness is at stake, but they argue that it does not go far enough. They have called for additional provisions to be added to the waiver, which is currently focused only on manufacturing for export. These industries would like to see explicit provisions in the waiver supporting the manufacture and stockpile of drugs in the EU to prepare for distribution on the first day that the SPC expires; they would like to remove the safeguards applied to the manufactured drugs, which include a range of labelling and transparency requirements; and they would like to see the waiver applied to existing SPCs, and not just future SPCs.

Original drug manufacturers, on the other hand, have slammed the proposed legislation, broadly claiming it will reduce intellectual property incentives for innovation of new drugs. The reduced incentives can be linked to the potential threat of lower profits, they said.

The proposed SPC manufacturing waiver will introduce EU generic and biosimilar competition at an earlier stage in non-EU markets, and also in the EU upon SPC expiry, which they innovator companies say is projected to erode sales of higher-priced original drugs.

Separately, public health advocates have raised alarm that SPCs provide an unnecessary extension of market exclusivity for high-priced original drugs, and delay access to affordable life-saving medicines. They are calling on the Commission to rethink the entire SPC regime itself.

Commission Aims to “Level the Playing Field” for Generics, Biosimilars

While there are a range of potential impacts of the SPC manufacturing waiver, including improved access to affordable medicines, the primary purpose of the waiver is to boost the competitiveness of EU generic and biosimilar industries.

Under existing SPC protection, “EU-based manufacturers of generics and/or biosimilars cannot currently manufacture for any purpose … while manufacturers based in those non-EU countries can do so,” putting the EU at a “competitive disadvantage” that “entails a risk of delocalisation of manufacturing outside of Europe, loss of investment opportunities, and a brake on further innovation and job creation in Europe,” according to a Commission FAQ on the waiver.

“This problem puts EU-based industry at a disadvantage vis-à-vis manufacturers located outside the EU, not only in global markets, but also in day-1 EU markets. This is because the certificate makes it more difficult for EU manufacturers to enter the EU market immediately after its expiry, given that they are not in a position to build up production capacity until the protection provided by the certificate has lapsed,” the Commission proposal states.

The Commission impact assessment on the waiver explains that its purpose is “to restore the level playing field between EU-based G/B [generic and biosimilar] manufacturers and non-EU-based ones, which would be beneficial for the competitiveness of the former and the European economy as a whole, while maintaining the current high level of IP protection in the EU.”

Defending the EU Economy in Face of the ‘Patent Cliff’

In their proposal, the Commission argues that the waiver will be essential to protect the economic viability of European generic and biosimilar industries, while also ensuring they will be prepared to take advantage of future growth opportunities related to the “patent cliff” of 2020, when many of the current blockbuster drugs will go off-patent.

While the Commission proposal is not primarily framed around the need to improve access to affordable medicines, this expected impact of the waiver has not been lost on public health advocates in parliament.

Tiemo Wölken, member of European Parliament and key advocate for the introduction of the SPC manufacturing waiver, said in his draft opinion [pdf] on the waiver that the “prices of new medicines have increased during the past decades to the point of sometimes being unaffordable for many European citizens, limiting their ‘right to benefit from medical treatment’, as stated in the Charter of Fundamental Rights of the EU. The entry of generics and biosimilar[s] onto the EU market is important for reducing prices, ensuring sustainability of healthcare systems, whilst also having a positive effect on national health budgets.”

Generic and Biosimilar Industries say Waiver is “Practically Impossible to Use”

While the Commission impact assessment reviewed provisions to manufacture generics and biosimilars for export during the SPC period, and to stockpile for “day one” distribution in the EU, only the export manufacturing provision was explicitly included in the Commission proposal.

Medicines for Europe, an association of European generic and biosimilar manufacturers, raised concern on its website that the current proposal “does not cover production for EU day-1 launch (i.e. launch of generics and biosimilars in EU markets immediately after SPC expiry).”

The group also said the “proposal includes anti-competitive, unnecessary and unjustified anti-diversion measures (i.e. notification, labelling, due diligence),” and that the “manufacturing waiver does not apply to existing SPCs [drugs currently under SPC protection],” the website states.

“As a result, the current text does NOT serve the purpose for which the SPC manufacturing waiver has been conceived for, with negative or no impact on patients, Member States’ healthcare budgets and the EU business developments of the generic and biosimilar medicines industry,” the group concluded.

Medicines for Europe instead calls for a more comprehensive proposal, detailed on the website, that includes provisions to:

• “Introduce the ‘EU day-1 launch’
• Remove anti-competitive, unjustified and unnecessary anti-diversion measures [and]
• Allow an immediate applicability of the SPC manufacturing waiver”

“Without these three key elements, the SPC manufacturing waiver would be practically impossible to use and would produce no benefits for patients, Member States’ healthcare budgets and the generic and biosimilar medicines,” the group concludes on the website.

For Innovator Pharma Companies, a Weakening of IP

The European Federation of Pharmaceutical Industries and Associations (EFPIA), representing EU-based original drug manufacturers, told Intellectual Property Watch that the “proposal sends a signal to the world that Europe is weakening its commitment to IP incentives and innovation.”

“Changes to the SPC legislation could have unintended consequences; disincentivising investment in Europe, putting jobs and economic growth at risk and critically slowing advances in patient care,” the group said.

The EFPIA impact assessment of the proposed waiver clarifies that this “weakening” of IP commitments relates to the potential introduction of significant competition from EU generic and biosimilar companies in non-EU countries during the SPC period, and within the EU once the SPC expires. The impact assessment explains that this competition would be partly due to a general perception that EU-manufactured medicines are high-quality, which applies to generics and biosimilars as much as it does to original drugs.

Without the waiver, pharmaceutical companies would enjoy continued sales of original drugs even after patents and SPCs expire, due to perceptions of drug quality. However, with the introduction of the waiver, lower-priced EU-manufactured drugs will enter the market sooner and introduce competition that will erode the sales of higher-priced drugs.

The EFPIA argues in their impact assessment that such a reduction in the sale of higher-priced products will negatively impact the EU economy, and should be avoided.

The Commission impact assessment, on the other hand, found that the “possible erosion of sales [of original pharmaceutical products] (which may also impact on jobs) is estimated to be around 10 times lower than the estimated benefits for EU-based G/B [generic and biosimilar] manufacturers, and might occur in any event due to increasing competition based outside Europe).”

Health Advocates Seek to “Abolish” SPCs

SPCs provide additional intellectual property protection and are designed to extend market exclusivity for original drugs as an incentive for investment in costly innovation. However, public health advocates argue that the very ground upon which SPCs are based should be called into question, and a manufacturing waiver is simply not enough.

“Prolonged exclusivity through SPCs has consistently delayed the availability of generic and biosimilar medicines in Europe, upsetting the balance between the commercial interests of pharmaceutical companies and the public interest of patients across Europe,” Médecins Sans Frontières (MSF, Doctors Without Borders) said in a briefing note on SPCs [pdf].

In it, MSF disagrees with the premise underlying SPCs that pharmaceutical innovation meets public health needs, and that pharmaceutical companies need additional incentives.

“First, studies demonstrate that the expansion of patent and market exclusivity protection on medicinal products worldwide has not addressed unmet medical and public health needs,” MSF explained. “Instead, the use of patents encourages pharmaceutical companies to prioritise research and development (R&D) that responds only to profitable markets rather than unmet medical need.”

“Second, evidence suggests that, in practice, drug prices do not reflect R&D costs – whether claimed or estimated. Reported figures consistently indicate that prices charged by pharmaceutical companies globally significantly exceed the actual cost of R&D,” MSF explained.

“By prolonging the monopolies of originator pharmaceutical companies, SPCs lead to unaffordable medicines prices that prevail for longer periods of time – threatening the sustainability of national healthcare systems and delaying patients’ access to lifesaving medical innovation,” MSF said in the note.

MSF then concluded with a recommendation that the European Commission “should abolish the SPC mechanism from its current legislation, regulations and practices.”

Stockpiling for “Day One” Distribution, A Political Trade-Off?

While the Commission impact assessment on the waiver explored potential provisions to manufacture generics and biosimilars for export, as well as for stockpiling to supply the EU market upon SPC expiry, it chose only to explicitly include the manufacturing provision for export in the proposal.

The reasons for this decision can be better understood by looking at the legal assessment of these two provisions in the Commission-backed report entitled, “Study on the Legal Aspects of Supplementary Protection Certificates in the EU,” conducted by the Max Planck Institute for Innovation and Competition.

In it, the institute explained that “the stockpiling waiver appears more problematic than the export waiver, as it concerns the manufacturing of goods destined for the same market and for the same purposes as those covered by the MA [marketing authorization]. Therefore, the potential negative effects on the position of the SPC holder are more aggravating. The hurdles for introducing such a waiver must be higher than in the case of the export waiver.”

The Commission’s impact assessment further found that “manufacturers taking advantage of this export waiver would, to a certain extent, [indirectly] also be ready for EU day-1 entry upon SPC expiry as they would have already operative manufacturing capacity.”

The Commission decision to exclude direct provisions in the proposal on manufacturing to stockpile for “day one” distribution, therefore, appears to take these considerations into account. It appears to be a strategic trade-off that appeases pharmaceutical industry concerns around “weakening” IP rights in the EU while also greasing the legislative wheels for the adoption of the waiver.

This tradeoff, however, does set the generic and biosimilar industries back in terms of supplying the EU market immediately upon SPC expiry, but according to the Commission’s logic, not too far back.

Safeguards to Prevent Low-Cost Medicines from “Leaking” into EU Markets

The Parliament resolution that requested the Commission to propose an SPC manufacturing waiver called on them to do this “without undermining the market exclusivity granted under the SPC regime in protected markets.”

The Commission’s response was to include a set of safeguard measures designed to prevent any generic and biosimilar drugs from leaking into EU markets while the SPC is in force. These safeguard measures will require generic and biosimilar manufacturers to strictly enact measures around transparency, due diligence and labelling.

“The combined effect of these safeguard measures will create transparency and prevent Intellectual Property (IP)-infringing products from entering Member State markets,” the proposal states, and describes the safeguard measures as follows:

• “Businesses intending to start manufacturing for export purposes will be under an obligation to notify the competent authorities, and the information contained in that notification will be made public.”
• “They will also have to comply with due diligence requirements, chiefly to prevent goods manufactured for export from being diverted onto the Union market.”
• “Finally, any export of SPC-protected products outside the Union will be subject to compliance with specific labelling requirements, though any burden stemming from this will be outweighed by the benefits arising from the exception.”

Even with the introduction of the waiver, the Commission said in a press release that “intellectual property (IP) protection for medicine production in Europe will remain the strongest in the world. SPC-protected medicines will retain their full market exclusivity in the EU.”

 

Image Credits: Medicines for Europe