SPC Manufacturing Waiver: Good For Generics, But Legal Questions Remain
This article was originally published in SRA
The European Parliament's backing for a waiver that would allow generics firms in the EU to produce generic and biosimilar drugs for export to non-EU countries during the originator product's EU supplementary protection certificate (SPC) period may have been welcomed by the generics industry, but it poses a set of legal questions that the European Commission will have to deal with before a waiver can be implemented.
Voting through its report on the commission's October 2015 Communication1 on "Upgrading the Single Market" last week, parliament urged the commission to implement the so-called SPC manufacturing waiver to help boost the competitiveness of the generic and biosimilar industry and create additional jobs and growth in the EU2.
Medicines for Europe's director general Adrian van den Hoven said: “The European Parliament’s strong support for the creation of pharmaceutical manufacturing jobs in Europe through an SPC manufacturing waiver is clear3."
The association said allowing the export of generic and biosimilar medicines to unprotected markets during the SPC period would "stimulate investment in Europe, support the creation of highly skilled jobs and increase access to high quality medicines in third countries, without changing the equilibrium between the originator and the generic and biosimilar medicines industries in the EU."
SPCs are seen as a key tool in compensating originator manufacturers for the time taken to get their products through the European drug approval systems, by offering an extension of effective patent protection of up to five years. Arguments between brand and generics firms over the period of validity of SPCs have led to many hard-fought cases in the European courts.
At present, EU legislation does not allow EU-based generics firms to manufacture their versions of SPC-protected drugs for export to countries outside the EU, and so manufacturing for this purpose tends to be outsourced to non-European sites.
The generics industry has been pressing for a manufacturing waiver for some time, arguing that most of the future growth in generics will occur in emerging markets with less stringent regulatory exclusivity regimes such as China, or in markets like Russia, Japan or the US, where patent protection tend to expire earlier than in the EU, and that companies based there can enter the market much earlier.
Need To Compete
In a staff working document attached to its Communication last year4, the commission pointed out that generics firms based in non-EU countries with no SPC protection, such as Brazil, Russia, India and China, can enter the market up to five years earlier than EU-based manufacturers.
In addition, it said, the current arrangements in some circumstances give "an unintended lead-time advantage to non-EU based operators to enter EU member states following the expiry of that SPC protection." Such a situation could have the effect of encouraging European manufacturers to move their production outside the EU, via delocalization or long-term outsourcing contracts, in order to overcome these legal hurdles and to stay competitive, it added.
In November last year, Medicines for Europe (then known as the European Generic and Biosimilar Medicines Association, or EGA) wrote to trade commissioner Cecilia Malmström saying that a targeted manufacturing waiver would enable European companies to compete effectively with global competitors, increase manufacturing and R&D in Europe, create "thousands of new high skill jobs," boost SME contract manufacturing, and stimulate economic growth5. This would have "a business value of at least €5.2bn based on a very conservative academic study," it claimed.
In its report, adopted on May 26, the parliament urged the commission to introduce a waiver before 2019, saying it could "have a positive impact on access to high-quality medicines in developing and least developed countries and help to avoid the outsourcing of production."
Van Hoven pointed out that this was the third time that the parliament had called for a waiver, and said "now we expect the commission to quickly introduce this strong trade stimulus to spur high-tech job creation and economic growth in Europe."
Legal Considerations
But it is not yet clear exactly how the commission will go about implementing a waiver within the current SPC framework, and questions have been raised as to whether such a move goes against the intent of the SPC regulation, how far it is justified and proportionate to the objective, and to what extent it might result in increased litigation.
Gareth Morgan, partner in the intellectual property department of law firm Olswang, pointed out that the SPC right is designed to provide some monopoly right compensation (up to a maximum of five years beyond the life of the relevant patent) to patentees for delays experienced in complying with EU legislation relating to the demonstration of safety and efficacy of medicinal products.
In proposing any legislation to introduce a waiver, the commission will need to be satisfied that "the inability of a patentee to prevent manufacture for export from the EU is not a material [dilution] and/or is a justifiable dilution of the SPC right," Morgan told Scrip Regulatory Affairs.
The commission will also need to weigh up the extent to which the measure affects EU patentees in non-EU markets, and how far it is proportionate. "The introduction of the SPC export waiver will mean that patentees will face competition from EU-based generic and biosimilar companies during SPC term for the first time since the SPC legislation was introduced in the 1990s," Morgan observed.
"The issue of proportionality is a question of balance. At present we can only assume that the commission is satisfied with an economic analysis that suggests the benefits that could be obtained from encouraging 'domestic EU' generic and biosimilar manufacturing for export during SPC term outweigh the potential losses that could be suffered by EU-based patentees facing increased competition in ex-EU markets during this time period."
He also noted that justifying the waiver was a question of weighing the interests of all parts of the pharmaceutical industry and assessing the effect that the legislation might have on the EU pharmaceutical industry as a whole.
"The commission has not yet, to my knowledge, published any document setting out the different sides of the argument in economic terms nor a document placing such analysis into context as a justification for the waiver," Morgan said. "I would expect this to be done prior to draft legislation being published."
Litigation, Export and Stockpiling
Moreover, in view of the "contentious nature of the export waiver legislation, it is anticipated that it will result in a significant increase in litigation if the legislation does not provide for both patentees and generic/biosimilar manufacturers to consider their interests are adequately protected," Morgan continued. "It is, however, unlikely that legislative provisions alone will be able to resolve all possible disputes that 'manufacture for export' will create."
In addition, he said, distinguishing between manufacturing for export and stockpiling for the EU market will be "one critical aspect of the legislative proposal." On one hand, patentees will be keen to ensure that proper use is being made of the manufacturing waiver, and on the other generic and biosimilar manufacturers will be resistant to disclosing what could be confidential commercial manufacturing information. "The legislation will need to strike a reasonable balance if it is not to lead to an increase in litigation around this point."
References
- European Commission Communication on Upgrading the Single Market, Oct. 28, 2015, https://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-550-EN-F1-1.PDF
- European Parliament vote on the Report on the Single Market Strategy, May 26, 2016, www.europarl.europa.eu/sides/getDoc.do?type=PV&reference=20160526&secondRef=ITEM-006-10&language=EN&ring=A8-2016-0171
- Medicines for Europe release, May 26, 2016, www.medicinesforeurope.com/news/the-european-parliament-votes-for-jobs-in-the-eu-generic-and-biosimilar-medicines-industries/
- European Commission staff working document on Single Market Strategy, Oct. 28, 2015, http://ec.europa.eu/DocsRoom/documents/14012
- Medicines for Europe (EGA) letter to Cecilia Malmström, Nov. 19, 2015, http://ec.europa.eu/carol/index.cfm?fuseaction=download&documentId=090166e5a3dc557b&title=EGA_Letter%20to%20Commissioner%20Malmstr%C3%B6m%2019%2011%202015.pdf