European Union: 2004 - Annus Horribilis for Innovative Pharma?

Originally published March 2005

The last year saw a number of adverse legal changes for the innovative life sciences industry in Europe. This article looks at a number of these recent changes and asks whether the news really is all bad.

A new European pharmaceutical regulatory regime came into being in April 2004¹. This legislation revises the procedure prescribed for gaining regulatory approval for a medicinal product. One of the key changes was the amendments made to the approval route for generic medicines.

The current legislation allows a generic manufacturer to rely on the innovator's data for the originally authorised product (a "reference product") to establish the safety and efficacy of his "essentially similar" product, but only after the originator of the reference product data has enjoyed a period of "data exclusivity". This procedure, under which a followon product can rely on reference product data after expiry of the data exclusivity period, is called the "abridged procedure".

One of the main changes was the revision to the period of data exclusivity afforded to the data submitted by innovators for regulatory approval. The period is to be harmonised across Europe. Currently the period of protection is either six or 10 years depending on the Member State (see text box below). The new regime, which is due to come into force on 30 October 2005, will allow generic companies to use the data in compiling their own dossiers to obtain their own regulatory approvals after just eight years (although the product cannot be marketed until the expiration of 10 years from the date of first marketing).

This "8+2" formula will allow generics to get onto the market immediately after the period of data exclusivity ends. This is to be contrasted with the current procedure under which the generic application will not be processed until after the data exclusivity period has expired. This effectively provides the innovator pharmaceutical companies with an additional period of protection for the time taken by the regulatory authorities to process a generic application. Currently in the UK, for instance, the time taken to process a generic application may be up to 18 months giving an effective data exclusivity period of 11 years six months. Where data exclusivity, rather than a patent, is protecting an innovator's market, then the knock-on effect of the earlier competition is likely to cause a significant drop in profits in respect of those pharmaceuticals. However, the position is not all bad; the period of data exclusivity has gone up from six to 10 years in ten countries. The new regime will also apply in the new EU Member States a number of which previously had data exclusivity protection of less than 10 years.

The instances where data exclusivity rather than a patent monopoly protect a product are limited (principally because patent protection of 25 years' duration (with SPC protection) tends to out last the shorter 10 year data exclusivity). The data exclusivity period is normally only important for products which have not benefited from patent protection or which have lost patent protection early. One such product is GSK's Seretide® product in the UK. GSK has patent protection separately for each of the two active ingredients in this inhaler product - these expire in 2005. GSK also had a patent on the combination of the two active ingredients with an expiry date of 2013. In 2004, the combination patent was revoked in the UK. Following that revocation, GSK's patent protection in the UK on the pharmaceutical² would expire in 2005. However, no generic can enter the market before data exclusivity on one of the ingredients, Salmeterol, expires in 2006. Arguably, the data exclusivity for the combination of active ingredients runs until 2009, potentially giving GSK an exclusive market position well beyond the expiry of its remaining patents on the drug combination.

Existing Data Exclusivity Periods
^{* - Period of protection cannot go beyond period of patent protection.}

Roche Bolar The new legislation also introduced what is known as a "Roche Bolar" exemption. Generic manufacturers have previously run the risk of patent infringement if they conducted, in the EU, trials necessary to support an application for marketing authorisation via the abridged route. EU patent law provides an exception to infringement for experimental use. However, this exception is generally not applicable to testing aimed solely at obtaining regulatory approval and hence, much of the testing work has traditionally been performed outside the EU in jurisdictions where such exceptions are available or in jurisdictions where no patent protection existed. The new legislation will allow generic manufacturers to perform this work in the EU. Whilst this may be seen as a weakening of the innovator's patent position, in reality, the extent to which this will affect innovative pharma companies is limited. Prior to the introduction of this Roche Bolar exemption, the testing for regulatory purposes has taken place in jurisdictions without patent protection or an applicable exception to infringement.

The new legislation is ambiguous as to when the Roche Bolar provision kicks in. The legislation provides that the periods of data exclusivity protection in the new Article 10, the "8 + 2" formula, will only apply to medicinal products authorised after 30 October 2005 ("new products"). The legislation does not specifically provide for when the Roche Bolar exemption will apply, that is will the exemption be available for studies and trials carried out on products whose reference product was authorised before 30 October 2005 or just for new reference products (approved after 30 October 2005). If the latter approach is taken, then generic companies will be unable to market a product making use of this provision for conducting the necessary studies and trials until 2015. A purposive construction of the new Roche Bolar exemption would allow generics to carry out studies and trials, free from the risk of potential infringement, after 30 October 2005 irrespective of when the reference product was or is authorised.

All the new provision means is that a generic manufacturer has the option of doing the work in Europe. Notably, the new exemption does not allow the generic manufacturer to produce commercial quantities and to stockpile the products in Europe in preparation for the expiry of the patent.

The new legislation also introduces a new concept of a global marketing authorisation.

This revision has been viewed as limiting the protection given by the data exclusivity regime. However, the revision is in reality codifying the position which the courts had arrived at using the existing legislation; authorisations for new strengths, forms and routes of administration will not be considered as separate to the original authorisation (and apparently will not give rise to new data exclusivity period). The current position is exemplified in the Cyclosporin decision considered below.

The current regime is still very important for those products already on the market³ and last year saw an European Court of Justice ("ECJ") decision on the extent of the protection given under that regime in the Cyclosporin case⁴.

The issue at stake in the Cyclosporin case was whether a new period of data exclusivity "kicks in" in relation to the data required to obtain authorisation for certain new formulations or doses (Product B) of existing drugs (Product A). The ECJ held in the Cyclosporin case that data required to be submitted to obtain marketing authorisation for a new formulation could be relied upon by a third party and no separate data exclusivity period was given to the data submitted to obtain authorisation for the new formulation. This is the case even where the later authorised product (Product B) had a different formulation or dose to that originally authorised (Product A) and so could not be said to be essentially similar to Product A. This means that where the data exclusivity period on the original product has expired, the regulatory data for the most up to date formulation of the drug would appear to be generally available to generics. This allows a generic to enter the market place with the most up to date variant of the pharmaceutical. For example, in the recent Prozac case, the product was originally authorised as a capsule. Later, Ely Lilly obtained authorisation for a liquid formulation. The European Court of Justice has confirmed that generics are permitted to rely on the data for the later liquid formulation.

Life sciences companies' patent portfolios include not just patents on the product per se or the process used to manufacture the product. It is common to find further patents, such as those which cover crystalline forms, dosing regimes or a second medicinal use. These patents are the main battle ground in the innovative plays generic wars. With generic companies routinely attacking their validity and seeking declarations of noninfringement, they have for some time been the subject of general criticism. English case law demonstrates the problems the owners of these patents face.

A recent example is provided by Abbott v Ranbaxy (and others)⁵. Abbott attempted to obtain an interim injunction preventing Ranbaxy (and a number of other generic companies) from selling Clarithromycin, an antibiotic, pending trial. The basic patent covering clarithromycin has now expired and Abbott sought to rely upon a crystalline form patent. Ranbaxy sought summary judgment, alleging that the crystalline form patent was clearly invalid. Pumfrey J agreed, on the basis of a two day interim hearing, and struck out the claims by Abbott.

GSK's asthma product, Seretide™, which was discussed above in relation to data exclusivity has also been the subject of litigation in the last year⁶ The patent covered the combination of a beta-2-agonist (salmeterol) and a corticosteroid (fluticasone propionate). This combination patent was held to be invalid on the basis of lack of inventive step.

In October, the House of Lords gave its decision in the long-running patent litigation between Transkaryotic Therapies (TKT) and Amgen on the patent position on the blockbuster drug "Epogen", sales of which totalled $2.4 billion in 2003.

The UK patent was found to be invalid and not infringed. Lord Hoffmann found that there is no law of equivalence in the UK. The scope of monopoly afforded by a patent cannot extend beyond the meaning of the words of the patent claim⁷. The restriction of a patent monopoly to the meaning of the claims may result in patents being easier to circumvent and will give more certainty to generic manufacturers working at the edges of a patent. For the innovative life sciences industry, it may make it more difficult to maintain an exclusive position. However, the effect of this decision should not be overstated. The English courts have not traditionally recognised a doctrine of "equivalence" of the type recognised in the US, for instance. The effect of the decision therefore is to maintain that status quo and to reject the introduction of a new, wider infringement test⁸.

Last year also saw the re-negotiation of the UK's Prescription Price Regulation Scheme (the "PPRS"). The voluntary scheme covers the pricing of branded prescription medicines. The scheme is negotiated every five years by the Association of the British Pharmaceutical Industry and the NHS. The PPRS 2005-2010 was published on 3 November 2004, and provided for a seven per cent reduction in the price of branded prescription medicines. The deal is said to be worth more than £1.8 billion over the next five years to the NHS.

However, the new scheme is not all bad news. The agreement does provide for an increased allowance for research and development (up to 28% of NHS sales) and financial incentives for the introduction on innovative medicines including paediatric medicines.

This pattern of aggressive cuts in pharmaceutical pricing and reimbursement has been mirrored across Europe. The Italian medicines agency, AIFA, is reported to be planning on saving E220 million next year by revising the reimbursement list. These cuts have a direct impact on the value of pharmaceutical products and whilst there is no harmonised approach across Europe, there is a trend of reform on a national level.

The Advocate General's opinion in the Syfait case provides a ray of sunshine on the issue of parallel importations⁹. GSK refused to supply the Greek pharmaceutical wholesalers with more product than required to satisfy the consumption needs of the domestic market. The Greek wholesalers complained that a refusal by a dominant undertaking to fully meet the orders sent by the wholesalers due to an intention to limit export activity constituted an abuse within the meaning of Article 82.

Advocate General Jacobs' opinion is that such a refusal does not constitute an abuse. In his reasoning, Jacobs states that such a refusal is capable of objective justification because of the pricing structure imposed on the pharmaceutical industry by the Member States. He points to four key points:

1. State intervention is responsible for the price differentials
2. the current regulation of the pharma industry ensures that adequate stocks are available in each Member State
3. the potential negative consequences of parallel trade in this sector, specifically the incentive to innovate
4. that consumers may not be the beneficiaries from parallel trade as the prices are fixed by the public authorities.

It remains to be seen whether the ECJ will follow Advocate General Jacobs' opinion. If it does, the volume of lower-priced parallel imports (and corresponding pressure on prices) can be expected to fall.

2004 was a year of a number of legal hits, most notably for the refusal of additional periods of data exclusivity for new formulations and the aggressive pricing and reimbursement cuts across Europe. Secondary "follow-on" patents continue to be of limited value. However, the period of data exclusivity was harmonised at 10 years and the Roche Bolar provision is unlikely to have any great impact.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.