SPC waiver: good intentions, but not the right deal?

Striking the perfect balance between incentivising innovation in drug development and widening access to medicines through generic competition is perhaps an unobtainable aim, but it’s an ideal that legislators and regulators must strive towards.

In 2016, in its “Resolution in the Single Market Strategy”, the European Parliament urged the European Commission to boost competition in the generic and biosimilar drugs market—without undermining the market exclusivity granted to IP owners—by 2019.

In response, in May this year, the Commission announced its plan to introduce a manufacturing waiver in relation to Regulation 469/2009, which governs the grant and scope of supplementary protection certificates (SPCs).

Businesses, interest groups, and associations have reacted strongly to the proposal, demonstrating that there is no such thing as a perfect balance in the context of innovation and generic competition.

For example, the European Federation of Pharmaceutical Industries and Associations, a trade body for the research-based pharmaceutical industry, released a statement in strong opposition to the waiver.

The association said the waiver “reduces IP rights and thereby jeopardises patient access to innovative treatments”, indicating to the rest of the world that the EU has lessened its commitment to IP.

On the other hand, Medicines for Europe, which represents the interests of generic and biosimilar pharmaceutical companies, called the proposal “essential for patient access to medicines and pharmaceutical manufacturing in Europe”. It added the caveat that “unintended effects” of the waiver need to be ironed out before it is implemented.

Although the Commission is seeking to implement the waiver by 2019, adoption of the proposal may well be delayed by the Parliament and the Commission coming to the end of their terms. Given the opposition to the waiver, it seems unlikely that the proposal will complete the legislative process before the European Parliamentary elections in May next year.

It is therefore perhaps too early to say how the waiver will work out for the affected parties, but with such a big unknown, concerns will remain in the meantime.

The proposal

An SPC, which can last up to five years, provides protection against not just the sale, but also the manufacture, of a medicine in the EU.

Paul England, senior associate at Taylor Wessing, notes that the SPC regulation prevents any generic manufacturing of the drug within the EU, regardless of it would have been exported and sold in a territory where SPC protection does not apply.

The Commission believes that this aspect of the regulation places generic manufacturers in the EU at a disadvantage compared to those based in other locations, which are able to make and then sell generic or biosimilar drugs, England says.

Liz Cohen, joint managing partner at Bristows, adds that these non-EU generic manufacturers are also able to bring generic or biosimilar drugs onto the EU market as soon as SPC protection expires, giving them a head start over EU-based manufacturers in their ability to compete globally.

The Commission’s proposal is intended to deal with any such disadvantage by providing an exemption to manufacturers in EU countries covered by an SPC, to allow manufacture for export outside the EU, England says.

Cohen says that the waiver is the first part of a wider initiative in the EU to revise and clarify the SPC regulation, to boost the competitiveness of the generics market without harming those who have obtained an SPC.

Michael Pears, partner, and Joel Beevers, patent assistant, at Potter Clarkson, note that the SPC regulation is already designed to strike a balance between the rights of innovators (SPC owners) and those of other manufacturers.

The Commission has claimed that the proposal will be instrumental in boosting the EU’s pharmaceutical research and development (R&D) hub, and predicted that it will generate additional net export sales of more than €1 billion ($1.2 billion) as well as 25,000 extra skilled jobs in Europe.

It will also raise the opportunity for EU-based generic and biosimilar manufacturers to be the first to market newly off-patent drugs in non-EU countries, leading to pricing advantages in potentially large markets, England says.

The reception

Cohen notes that there has been a “mixed reception” to the proposed waiver.

Trevor Cook, partner at WilmerHale, suggests there is “much more scope” for innovation and job creation in R&D for new pharmaceuticals than there is in generic manufacturing, and that the proposed waiver would drive drug innovation away from Europe.

As such, he says “the proposal is a bad idea”.

Pears and Beevers agree that the waiver would not necessarily lead to innovation and job creation. Any perceived erosion of IP rights may well reduce the apparent attractiveness of the EU as a place to innovate if that innovation is not sufficiently protected, they explain.

The Potter Clarkson lawyers add that the Commission’s estimation of the benefits gained from the waiver fail to consider the “unquantifiable negative effect of what many could see as an erosion of the monopoly right” in a drug.

Other concerns have been put forward about the practical workings of an SPC waiver.

Cohen says she cannot see how the SPC manufacturing waiver would lead to the benefits which are expected, as the proposal does not consider other patents in an SPC owner’s portfolio, such as those which protect the medicine formulation, or process patents.

She says that these prohibit the manufacture of certain formulations or by certain processes in the territories they cover, meaning that generic or biosimilar manufacturers may not reap the benefits expected.

Cook claims the Commission’s argument that the current situation puts EU-based manufacturers at a disadvantage compared to manufacturers in countries with less/no protection could equally be applied to any other IP right that provides a higher level of protection in Europe than in other territories.

“What Europe should be doing is encouraging other countries to match its standards of protection, and indeed consider whether there is a case for increasing them (such as by extending the maximum SPC term to that originally proposed in the 1990s, which was ten years), not participating in a race to the bottom by reducing them,” he explains.

Strength of safeguards

The Commission’s proposal contains safeguards to prevent generic and biosimilar manufacturers from diverting the waived products into the EU, but “whether the proposed safeguards will be enough remains to be seen”, Cohen says.

She explains that this will involve informing those in the supply chain that the product is covered by the SPC waiver and intended exclusively for export. This will also need to be reflected in contractual documentation, but Cohen says it is “unclear” who will be held liable if the medicines do end up on the EU market.

The Commission suggested that contractual notices are to be given by the manufacturer, but there does not appear to be any obligation that they are made or shared throughout the supply chain, she explains.

“Measures to prevent the entry of infringing goods onto the market are never watertight, and the possible diversion onto the EU market of generics and biosimilars manufactured for export purposes under the exemption is no exception,” England notes.

Another of the safeguards in the proposal is that those who wish to take advantage of the waiver will need to notify the relevant territory’s authority of their intent to manufacture an SPC-protected product for export. This notification would be made available to SPC owners.

They would also need to use an identifying logo to show that the product is for export purposes only.

Fundamentally, however, “any permission to manufacture in the EU heightens the risk of infringement, and ultimately an erosion of IP rights”, and the efficacy of the safeguards is dependent on the honesty of manufacturers to take the appropriate action, according to Pears and Beevers.

Concern about generic manufacturers stockpiling products to sell as soon as the relevant SPC expires is an additional worry as, Cook says, the waiver will make it “much harder” to police the manufacture and stockpiling of drugs for supply within the EU.

England explains that stockpiling is not covered by the proposed waiver, but SPC owners will no doubt be concerned that it will occur and provide generic and biosimilar manufacturers with a springboard they would not otherwise have had to enter EU markets.

“Also, establishing whether a generic/biosimilar company is manufacturing in compliance with the manufacturing waiver will be difficult,” Cohen says.

Cook asks: “How does one distinguish between such activities undertaken for one purpose and those undertaken for another?”

Cohen says that despite the safeguards, SPC owners may seek to implement extra monitoring in the EU to ensure that no generic or biosimilar products have entered the markets in error.

She adds that it is unclear who would be responsible for pursuing a breach of the waiver, and if the burden of enforcing compliance falls to the SPC owner, it may well result in an increase in litigation.

Overall, Cook believes that the waiver makes it easier to undertake the activities which the SPC regulation is designed to prevent and protect against “under the ostensible cover of manufacture for export”.

A word on Brexit

Although the UK is due to leave the EU on March 29, 2019, SPC applications made or pending before the end of the proposed transition period, on December 31, 2020, will also be governed by the SPC regulation.

This would include any amendment, such as the proposed waiver, to the regulation of SPCs in the EU.

Cohen says that the situation may be “a little more complicated” if there is a no-deal Brexit, although she notes that the UK Intellectual Property Office’s website outlines its plans to maintain the existing SPC framework in the UK after it leaves the EU.

As such, the UK SPC regime is expected to continue to be aligned with that of the EU.

However, if the Court of Justice of the European Union ceases to have jurisdictional authority over the UK after Brexit’s transitional period, it is possible that case law relating to SPCs in the UK and in the EU may diverge, although such speculation is unlikely to be realised for a while.

The verdict

The European Parliament and Commission appear to be of the opinion that action is necessary to boost the generic and biosimilar sectors, and that implementing a waiver will meet this need without eroding the rights associated with SPCs.

Although Cohen says it’s probably too early to assess how the proposed waiver will pan out, she notes that she currently shares the concerns of SPC owners.

For now, it appears that England is correct in his assessment of the proposed waiver: “Whether this is a good idea depends on whether you are involved in the generics business or you are a patent owner/licensee.”

SPC fact file: