EU Moves to Change Patent Rules for APIs

The European Parliament voted last month to allow manufacturing waivers to supplementary protection certificates (SPCs), a move supported by generics and biosimilars producers and manufacturers of active pharmaceutical ingredients (APIs), but opposed by innovator drug companies. So what is next?

Inside the manufacturing waiver for SPCs

Following the vote by the European Parliament, the measure now goes before the European Council, which consists of the heads of state or government of the EU member states, along with the President of the European Council and the President of the European Commission, for formal adoption, which is expected over the next several months. Once adopted, the rule will be published in the EU Official Journal. Upon adoption, there is a three-year transition period before the regulations are fully in effect. If it proceeds on course, the waiver will come into force in July 2019, and companies will be able to start manufacturing under the waiver from July 2022.

The manufacturing waiver for SPCs has been the subject of great debate between the generics/biosimilars industry and innovator drug companies. As currently in place, SPCs extend protection of patented medicines in the EU by up to five years to compensate for the time lost in obtaining regulatory approval of the medicine. During this period, European manufacturers of generic drugs and biosimilars cannot produce their medicines in the EU.

The purpose of the original EU legislation that authorized SPCs, which was enacted in 1992, was to recompense product-development companies for the time taken to obtain regulatory approval of their medicines and give them longer market exclusivity in the form of a SPC. The SPC regulation, however, according to some, has had the unintended effect of putting the European generic-drug, biosimilar, and APIs manufacturing industries at a competitive disadvantage vis-à-vis manufacturers producing in non-EU countries where no similar patent/SPC protection exists. During the time of SPC protection, EU-based manufacturers of generic drugs or biosimilars cannot produce generic or biosimilar versions of these medicines for sale in the EU, export these medicines to countries where the SPC does not apply, or produce and stockpile medicines for the EU market in advance of the day of SPC expiry. Critics of SPCs say that European manufacturers are currently required to outsource production outside Europe to supply countries without SPCs or where SPCs expire earlier than in Europe in order to provide competition as soon as SPCs expire in Europe.

To address these competition issues, the revision of the SPC regimes was announced in the European Commission’s 2015 single-market strategy and follows various studies, a consultation, and a European Parliament resolution endorsing the need to introduce before 2019 an SPC manufacturing waiver. Last year (May 2018), the European Commission proposed a regulation to put forth an SPC manufacturing waiver to address competition issues raised by SPCs; a loss of export markets, including new business opportunities and a lack of timely (meaning Day-1) entry into EU member states following expiry of the SPC for EU-based manufacturers of generics and biosimilars given that they are not in a position to build up production capacity until the protection provided by the SPC has lapsed.

What the SPC manufacturing waiver allows

The adoption of the new regulation for an SPC manufacturing waiver will entitle EU-based companies to manufacture a generic or biosimilar version of an SPC-protected medicine during the term of the certificate, if done either for the purpose of exporting to a non-EU market where protection has expired or never existed, or for stockpiling during the final six months of an SPC ahead of entry into the EU market. Generic and biosimilar makers will be required to notify authorities before they start production of their products at least three months in advance, meet labeling obligations to ensure that their products are not diverted to the EU, and inform their supply chains that the products is covered by the waiver and cannot be sold in the EU market before the Day-1 entry, according to information from the European Parliament.

The European Commission points to what it sees as the gains from an SPC manufacturing waiver for European manufacturers. “It will thus remove a major competitive disadvantage of EU manufacturers compared to manufacturers based in non-EU countries and ensure a better deal for patients,” said the European Commission in an April 17, 2019 statement.

The European Commission also points to the value of the new regulation in balancing the positions of the generics/biosimilars companies and innovator drug companies. “The revision is a well-calibrated adjustment to the current regime striking a balance between ensuring the attractiveness of Europe for innovative pharmaceutical companies and allowing EU-based generics and biosimilar to compete on the global market,” said the EC in its statement. “This manufacturing waiver will help create growth and high-skilled jobs in the EU and could generate more than EUR 1 billion [$1.12 billion] net additional sales and up to 25,000 new jobs over 10 years, particularly benefitting SMEs [small to medium-sized enterprises]. More competition will improve patients’ access to a wider choice of medicines and alleviate public budgets.”

Generics/biosimilar companies and innovator drug companies weigh in

Consistent with their previous positions, the generics/biosimilars industry welcomed the move to the manufacturing waiver for SPCs and the innovator drug industry did not.

“Medicines for Europe commends the EU institutions for successfully concluding this important step in the adoption of the waiver,” said Medicines for Europe, which represents generics and biosimilar companies in Europe, in an April 17, 2019 statement. “We congratulate the European Commission for proposing the waiver and the rapporteurs and shadow rapporteurs of the Legal, Trade and Health committees of the European Parliament as well as the European Council for substantially improving the manufacturing waiver to deliver access to medicines for European patients. The SPC manufacturing waiver will enable the European pharmaceutical industry to compete on a level playing field globally for manufacturing opportunities in generic and biosimilar medicines which is growing year on year.”

Meanwhile, the innovator drug industry opposes the SPC manufacturing waiver and is calling on the EC to address other ways to encourage research and development (R&D) and innovation. “There is no doubt that the introduction of the waiver has weakened Europe’s research and development offering, in the face of increasing competition from other global regions,” said the European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents innovator, research-based pharmaceutical companies in Europe, in an April 17, 2019 statement. “If Europe wants to realize its potential to be a leader in medical research and development, then the next Commission [EC] will need to look for opportunities to redress the balance, supporting research, development and innovation more broadly.”

EFPIA points to several ways in which the EC can support R&D and innovation: (1) by improving the position of Europe in fast-tracking breakthrough therapies; (2) by maintaining and developing Europe’s incentives and reward mechanisms for R&D; and (3) by supporting a flexible legal framework for a Public Private Partnership in health to foster medical R&D activities and modernized manufacturing.

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