The SPC manufacturing waiver: Good for patients,good for jobs,good for Europe

Argument 1 – European Gx businesses don’t win outside the EU

Firstly, the analysis of the impact of European manufactured goods in non-European market includes no actual data. Five case studies are set out relating to small molecule products in five different markets, and the conclusions appear to be extrapolated from those or otherwise have no referenced basis. Whilst it is true that certain markets offer incentives for local manufacturing, it seems extraordinary to suggest that on that basis there can be no opportunity for European manufacturers across the globe.

In contrast, the Charles River report analysed 117 small molecules products across eight non-EU countries. Even then, the analysis possibly downplayed the potential opportunity for European manufacturers given that the selection included four countries that have patent extensions (the US, Australia, Japan and Russia). These countries, along with China, Brazil, Turkey and Canada (which has recently implemented an extension system which incorporates a manufacturing waiver), were chosen on the basis that this represented 60% of current pharmaceutical exports. It might be considered that the remaining 40% takes place in numerous countries around the world in which no such extension of patent rights generally exist (there are a few exceptions), and so extrapolation from the chosen eight in which half of the countries do have patent extension systems, could easily be argued to be conservative. Further, the SPC waiver proposal has the capacity to create new opportunities and it could be expected that the destination of European exports will alter given the chance.

The White Paper ignores biosimilar products and solely focuses on small molecules. It is obvious to state, but of the major medicinal products coming off patent in the coming years, the majority are biologics. The company in which I work, Insud Pharma (which is based in Madrid and whose main manufacturing plants currently remain in Europe), has already launched a major monoclonal antibody product in South America which has attained over 50% market share in one market. Such opportunities cannot be dismissed out of hand. Biologic products require very significant investment and expertise to develop and manufacture – here European manufacturers have a competitive edge.

In any event, the Charles River Report specifically takes into account issues of local incentivisation and increased transport costs.

Argument 2 – Competition from European Gx businesses could impact European originators

Once again, no data are included and the White Paper here only relies on an analysis of three small molecule products. Only two are provided as case studies. Remarkably, the case studies do not differentiate between where the generic products were manufactured, merely making the unreferenced statement that ‘the finished generic products are usually produced locally’ as regards Brazilian companies. Accordingly, the information provided in the White Paper simply cannot support the conclusions that have been drawn.

For example, it is stated that ‘in some markets, generics manufactured in Europe are more likely to compete for market share with the original brands’. No basis is provided for this statement. In any event, there is no consideration of whether European manufactured products may be marketed in the livery of local distributors and/or subsidiaries of European manufacturers and what the impact of such arrangements would be.

The unsupported conclusions of EFPIA appear to be that there will be increased competition from European generic products and that is bad for business. Aside from the fact that such an argument promotes the inhibition of price competition in emerging markets despite no valid rights being in force and where access to medicines can be a very serious issue, this stance ignores the fact that medium- and large-sized European generic producers can still currently compete, but just without European manufacture. It is not necessarily a question of volume of competition, but whether the manufacturing site of those goods is in the EU or not. This is a central aspect of the SPC waiver proposal, which aims to prevent investment in manufacturing facilities of European generic companies from being forced out of the EU.

Argument 3 – Ex-EU IP rights don’t expire later than SPCs to a significant extent

The analysis in the White Paper is based on 25 products, in comparison to the 117 small molecules analysed in the Charles River report. For some reason, in the White Paper, it was deemed appropriate that three of the molecules were counted twice (Esomeprazole, Linzolid and Quetiapine) so in fact there were only 22 included. The disparity in the data-set between these two analyses is stark.

The inclusion criteria in the EFPIA paper are obscure. Biologic products are excluded even though they have massive importance in the future of the industry. Products expiring in the future are excluded, even though those are the most relevant for this analysis. Further, the White Paper states that in addition to SPC expiry dates, ‘patent information, journal and information around litigation’ was taken into account. This is vague as to what dates were chosen for their analysis. As you will see below, there are substantial concerns as to the data.

Three case studies are provided which maybe shine some light onto the thinking. For example, Aripiprazole is listed as expiring in October 2014 across the EU. The data in the White Paper correctly show an opportunity in Turkey in light of the later expiry of the patent rights in force across most of the EU. ⁵ However, the table set out in the White Paper omits to confirm opportunities in Russia, China and Brazil too. ⁶ This is actually a very good example of why the SPC waiver is needed.

Indeed, it is notable that where no rights exist the chart on page 6 of the White Paper just shows a lack of data, whereas each such case actually represents an opportunity (i.e. there are rights in the EU but none elsewhere). As such, the data are presented in the White Paper in a manner which misrepresents the actual situation.

The next case study, Atorvastatin, reveals that there were earlier launch opportunities in Brazil, Japan and the US with rights in the EU expiring later (May 2012). Unaccountably, there are no countries listed as early launch possibilities in the chart on page 6 of the White Paper.

Finally, the Clopidogrel example is not a particularly simple one given that genus patent EP0099802 expired in 2003 but the marketed product (Plavix) continued to be protected by an SPC that was restricted to the isomerically pure salt form (Hydrogen Sulphate). In any event, there were no patents in China and Turkey, ⁷ which thus constituted opportunities as well as those cited in the White Paper – Russia and Brazil.

In any event, I would question whether this list of countries is actually representative of the global opportunities that are available, given that the majority of countries around the world do not have patent extension regimes (as noted above), whereas 50% of those analysed in this section of the White Paper do have such regimes.

There are further idiosyncrasies in the other products selected for analysis in the White Paper. For example, Pregabalin is listed as having all patent expiries after those in Europe, which was not the case. The data may have been presented this way because the SPCs in Europe were surrendered by the patentee in 2013. Otherwise, the European expiry in 2018 would have comfortably been the latest (alongside that in the US). ⁸ The need for a large sample size is exemplified by the inclusion of products with such unusual histories, seeing as they may exert a disproportionate effect in a small sample such as that used for the White Paper.

Another example is Sildenafil. The data presented in respect of this product (indicating that rights in the EU expired before the rest of the world) are surprising. The European SPCs expired in June 2013, ⁹ whereas rights in the molecule expired in June 2010 in Brazil, ¹⁰ June 2011 in China, ¹¹ June 2011 in Russia ¹² and September 2012 in the US. ¹³ The listings in the White Paper have the expiries in Brazil, Turkey, Japan and China being significantly after those in the EU. This might refer to the second medical use patent family, although no such patent was registered in Turkey and in any event that patent family was found to be invalid in many jurisdictions.

Finally, the only expiry listed for Lansoprazole is the US expiry (November 2009) ¹⁴ which is considerably after those in the EU (December 2005). ¹⁵ However, rights in the molecule expired in China in August 2000 ¹⁶ and in Russia in August 2005. ¹⁷ Those data points were missing in the White Paper, but constitute lost European manufacturing opportunities, along with Brazil in which no basic patent rights were filed.

It is important to compare apples with apples. The data in the White Paper are not consistent or represented in a clear and accurate manner. In my view, the conclusion drawn as to the limited opportunity available to European manufacturers is not properly supported.

An analysis conducted by Medicines for Europe across 109 small molecule products determined that the SPCs in Europe expired after rights in the US, Korea, China, India and Canada 80% of the time. ¹⁸ The Charles River report contains data resultant from a significantly bigger analysis and also contradicts the findings of the White Paper. From an analysis of 117 small molecule products, they found earlier expiries in Canada 65% of the time, China 63% of the time, the US 62% of the time, Brazil 60% of the time and Japan 38% of the time. The average delay ranged between 2.23 years (for the US) and 3.85 years (for Canada). These are significant numbers that represent business opportunities for European manufacturers. A choice of other geographies would likely have accentuated these conclusions.

Argument 4 – European companies win most initial generic business in Europe already

This is probably the most surprising analysis of all. The White Paper cites the launch of just two products in four Western European Countries (although it only provides data on one product, Pantoprazole, which went generic over a decade ago) and seeks to claim that ‘European Companies’ cannot have any problem winning market share in Europe seeing as they took 47% of the market share within 18 months of expiry of rights. This is clearly not a meaningful analysis with a significant data-set.

The White Paper draws a distinction between global generic companies and European ones. However, what matters is the location of the manufacture site and not the residence or nationality of the company in question. The data provided on this point, such as it is, cannot feasibly support the sweeping conclusions that are drawn.

The fact remains that companies manufacturing in the EU necessarily are at a disadvantage as regards the expiry of rights in European markets. When non-EU manufacturers (be they global businesses, solely non-EU businesses or otherwise) are flying in consignments for a day 1 launch, European manufacturers can only then import Active Pharmaceutical Ingredient, formulate and pack their products ready for distribution. Lead times on launch stock for oral solid is normally around three months but with some respiratory products, which are complex to manufacture, can be as long as nine months. Missing market formation is a serious problem. As noted in the White Paper, ‘the most attractive business is the market in the first 6 months post-loss of exclusivity’.

The analysis in the White Paper, extrapolating from a single data-point, simply cannot be taken seriously on this issue either.

Argument 5 – API is already sourced in the most cost-efficient manner

No data are offered on this point at all, merely a series of comments obtained from having interviewed people at five companies. Whilst some comments are fair, and it is unlikely that European API manufacturers are going to compete on cost with Indian and Chinese manufacturers on high volume products, the very specific assertion that European API manufacture will only present an opportunity with niche products ‘when the volumes are so small that it is not likely to attract competition’ is completely unsubstantiated.

In fact, Insud Pharma has two European API manufacturing facilities which are not at all restricted to niche projects. There are further suppliers in various countries, including Italy and Poland, whom are similarly not restricted to the peripheries of the market. However, European API manufacture could expand, particularly to fill the gap of recent shut downs in China which have caused the scarcities of certain APIs. The SPC manufacturing waiver would facilitate the attainment of this further business for European manufacturers, as indicated in the Charles River Report. The numbers are not astronomical but still substantial and could be the stepping stone to further expansion in scale and consequent reduction of costs.

1. It will harm innovation in the EU

As noted above, the SPC was intended to provide compensation via market exclusivity in Europe, for a maximum of five years (extendable by six months on compliance with a paediatric investigation plan). It was not intended to additionally provide exclusivity from certain manufacturers for further months thereafter or to shield companies from competition in ex-EU markets.

2. It will weaken IP rights in the EU

The SPC is a sui generis right that was created in order to compensate innovators for regulatory delays. This will function in exactly the same way if the manufacturing waiver was introduced. The impact to the pharmaceutical industry has been discussed. There will be no impact to other industries seeing as SPCs are specific to pharmaceuticals. There is no impact on patent rights whatsoever.

3. It will constitute a localisation policy

The complaint is that this would be a legislative change that would favour European companies over non-European ones and therefore might be seen as being protectionism. In fact, the proposal merely levels the playing field between EU and non-EU manufacturers and would therefore eliminate existing discrimination rather than create a new advantage.

4. The EU will be put at a disadvantage to Japan and the US

If innovative pharmaceutical companies solely stuck to their home markets then there might be a point here, but this does not reflect the real world. All innovative pharmaceutical companies obtain just the same benefit from the various patent extension regimes, e.g. the US, the EU or Japan, regardless of their ‘nationality’ as they will almost invariably seek to market their products in each major market (directly or indirectly), and probably many minor ones too where such regimes do not exist.

Firstly, there is no firm evidence that innovative companies will be substantially affected by the implementation of the waiver, and certainly not in a manner which might counterbalance the positive effects to the European generic pharmaceutical industry. In any event, EU companies will in practice not be impacted more than companies from anywhere else.

5. Other jurisdictions may adopt similar measures

Canada has already introduced a manufacturing waiver when introducing its patent extension regime. This is a win for innovative companies, which thereby obtained an extended monopoly in another market, whilst local generic companies are not disadvantaged as regards manufacture. As patent extensions are pressed in future Free Trade Agreements, this model makes sense and will likely be followed by other countries. Without legislative action, European manufacturers will remain fighting with one hand tied behind their back.