The EU Intellectual Property Incentives Framework Comes Under Revision but Raises More Questions Than Answers

Mariëlle van Heumen also contributed to this article.

Introduction
Earlier this week, on 28 May, the European Commission published its first proposal to review the European Union’s pharmaceutical innovation incentives. With a targeted adjustment to the Regulation on Supplementary Protection Certificates (SPCs) the European Commission proposes to allow manufacturers of non-originator pharmaceutical products to export to markets not covered by an SPC term, while the SPC term still being effective in Europe – the so-called SPC manufacturing waiver. In brief, this comes with unclear policy implications which raises further questions, although one thing seems clear – the political process around the proposal will continue to fuel an already heated debate on the nature of Intellectual Property incentives in fostering pharmaceutical innovation and put the pharmaceutical R&D model under further scrutiny.

Background
The proposal to adjust the SPC Regulation was published together with the launch of the European Commission study on Intellectual Property incentives in the EU pharmaceutical system. Together, these two documents will remain a landmark in the discussions on the EU IP incentives framework. The European Patent Convention (EPC) in 1975 established that a patent would be valid for twenty years from the filing date. As it takes an average 8-12 years to develop a medicine, several compensatory IP schemes were set up to make up for the lengthy testing and marketing authorization processes, such as SPCs. The first SPC Regulation in 1992 and as later amended, granted additional extension of the first patent term for up to five years for pharmaceutical and plant protection products. This has been interpreted as an indication of the historical influence of the pharmaceutical industry, as currently no other sectors have managed to achieve similar extension of the patent term adopted by the EPC. However, with the adoption of the adjusted SPC Regulation, this influence may now be waning.

EU policymakers had already been discussing possibilities for some time to grant an exemption from the SPC Regulation to the generic and biosimilar industries for export purposes. In October 2015, the Commission adopted a strategy report on “Upgrading the Single Market”, opening the door for a targeted manufacturing waiver. Half a year later, the European Parliament took it a step further, calling for an SPC waiver by 2019. This was later followed by several studies on the economic impact of such a proposal from both the originator and non-originator industries alike which were contested by each party. In this discussion, it became clear that the originator pharmaceutical industry through the main trade association EFPIA, preferred to retain the status quo while public health NGOs and the non-originator pharmaceutical industry have been advocating for changes to this framework.

Consequences
In its justification for the adjusted SPC proposal, the Commission sees an industrial opportunity in encouraging exports of non-originator pharmaceutical products, as a new wave of biologic medicines, including some of the world`s top-selling drugs, are set to become off-patent around 2020. However, as the proposal does not include products that are covered by the existing SPC term, this effect may be negligible in the short term with the consequences of the Regulation not being fully effective before in 2030 and later. This to the annoyance of Medicines for Europe, the trade association for the European generic and biosimilar industry who had advocated for a so-called “day-1 manufacturing waiver”, contrary to EFPIA who advocated for status quo. Given that the economic aspects of the readjusted SPC Regulation are uncertain, the political ramifications of the proposal may therefore be more significant.

Globally, the consistency of the proposed ‘solution’ can be questioned as it creates double standards for patent term protection inside and outside Europe. This could also lead to contradictions in for instance EU trade policies as the Commission has in trade negotiations with third countries been demanding that SPCs or equivalent are adopted in the target market and that such IP rights are enforced. Furthermore, by signaling to the rest of the world that the EU is reconsidering its IP incentives, the EU is defying its traditional staunch defense of high IP standards in WTO and WHO, which is likely to reinforce the discussion on access to medicines in those fora.

Within the EU, the IP incentives study and the adjusted the SPC Regulation proposal will most likely set the scene for the coming discussions on Intellectual Property incentives in other therapeutic areas, as a consultation and evaluation on the Orphan Medicines Regulation and the Paediatric Regulation are expected to be carried out over the next two years. The adjusted proposal on the SPC Regulation may have an impact on this forthcoming evaluation and consultation, as it first shows that EU IP incentives for the pharmaceutical industry are no longer “sacred cows”, and secondly, further put these intellectual property incentives at risk. This could be especially relevant for the Paediatric Regulation as it relates to the SPC Regulation by granting an additional 6-month extension to the initial SPC term if sufficient clinical research has been undertaken in paediatric populations.

Next steps
The Commission wants to finalize the SPC Regulation in 2019, which is a very ambitious timeline, considering that the next European Parliament elections will take place in May next year, giving the current European Parliament and Commission leadership only one year to complete the process. There are still many uncertainties left in this political process, even on which committee in the European Parliament who may be leading on SPC proposal file, as well as how the intergovernmental negotiations in the Council will play out. So far it has been clear that the issue of the SPC proposal have divided countries between those with an originator and those with a non-originator pharmaceutical industry.

Conclusion
During these forthcoming processes, should EU Member States seek to reduce pharmaceutical IP incentives as advocated by some countries, the outcome may have counterproductive given that pharmaceutical companies would have to charge higher prices on their innovative products to recover R&D costs and make a revenue before patent terms expire, thereby increasing short-term costs. EU governments should therefore be careful in what they wish for in addressing IP incentives as the root of high drug prices.

With the decision to readjust the SPC Regulation, there is also an expression of something larger being at stake for the industry: namely that EU Member States are increasingly rethinking the current pharmaceutical R&D model (as seen with the decision of EU Member States to get rid of the Innovative Medicines Initiative, the largest Public-Private Partnership between the pharmaceutical sector and a public body in the next EU Research Framework Programme). Although the pharmaceutical R&D model has been challenged for a long time by certain public health NGOs, many of these questions are now being asked by European policy-makers. The innovative pharmaceutical industry may now have to suffer for having neglected to come up with more comprehensive answers to these questions earlier.