PhRMA and BIO request EU be added to USTR Watch List over review of incentives

PhRMA and BIO have both requested that the US Trade Representative place the European Union on its watch list in the 2018 Special 301 Report.

The Special 301 Report is a yearly review by the US Trade Representative of the global state of intellectual property rights enforcement. Three designations are given to countries which the US determines to be insufficient in IP enforcement. Priority Foreign Country, the most severe categorization, is a title usually given to those countries which are the subject of an investigation under Section 301 of the Trade Act of 1974. USTR can also place a country on the “Priority Watch List” or on the “Watch List”. Placement on either of these lists indicates that the US has identified particular problems in that country relating to IP protection, and a priority watch list designation leads USTR to develop an action plan on how to address IP protections.

The EU Incentives Review

The Pharmaceutical Research and Manufacturers of America (PhRMA) requested that the EU be added to this years report because of an ongoing European Commission review of IP-related incentives and their impact on innovation and access to medicines. The study, which began in 2016, could lead to changes in EU legislation around rewards for pharmaceutical innovation, and is likely to be completed in 2018.

As explained by Annsley Merelle Ward in The IPKat blog, the review will address several areas where the EU is considering reforms that would create new exceptions or limit non-patent exclusivities, topics not only important to PhRMA members in Europe, but to countries around the globe, including the United States.

Overview of existing IP related incentives and rewards supporting pharmaceutical innovation in the EU and analysis of their actual use by innovators throughout the entire product life cycle (focus on SPCs, data protection and market exclusivity)

Overall economic effects of SPC, data protection and market exclusivity on innovation, availability and accessibility – An analysis of the current economic incentives of SPC and data protection, taking into account patent protection and the impact on availability and accessibility of pharmaceutical care for patients and the pressure of health systems across the European Union

Economic impact of EU regulations on SPCs – Essentially, does the SPC Regulation meet the objectives in terms of scope and term of protection in accordance with the R&D investment and “lengthy market authorisation requirements”?

Economic impact of rules on data protection and market exclusivity for medicinal products, including the impact on innovation, availability and accessibility of the medicinal products concerned and the impact on the health of the population (through the development and availability of innovative medicines or the lack of access to them) and the financial sustainability of health systems

Economic analysis of the specific rules on market protection for orphan medicinal products in Regulation (EC) 141/2000 – The study aims to take into account the findings of the study on the economic impact of the Paediatric medicinal products Regulation, including its rewards and incentives and whether the incentives are proportionate to the goals of the Regulation in encouraging innovation, improving patients’ access to innovative medicines.

The EU’s proposed SPC exceptions

In addition to the incentives review, PhRMA and BIO both expressed concern over proposed changes to supplementary protection certificates (SPCs), the term used in Europe for patent extensions on pharmaceutical and plant protection products.

As in the United States, the rationale for the extensions of effective patent terms is that the extended terms compensate when there are delays in registering products. The existing EU Directive (Regulation (EC) No 469/2009) generally awards the SPC when there has been more than five years from the date of the application for a basic patent and the date of the first authorization to place the product on the market in the EU. The maximum term of the SPC is five years. These patent extensions are given regardless of public need or revenues already earned, and products that have generated tens of billions in sales are allowed monopoly extension under the current rules.

The review launched in 2017 by the European Commission could add certain waiver exemptions to the certificate, which would allow others to manufacture the drug during the SPC exclusivity period for the purposes of export or stockpiling. The push on exports is designed to allow EU generics manufacturers to sell products in countries where the patents (including any extensions of terms) had expired. In its comments, PhRMA expressed concern that other countries would emulate this exception, and even extend the exception beyond the SPC, to the primary patent term, citing a paper by Eric M Solovy and Deepak Raju which discusses a book chapter by Xavier Seuba, Mariano Genovesi and Pedro Roffe.

The issue of exports to countries without patent protection (or to a country that has issued a compulsory license) has long been an area of controversy, ever since restrictions on exports on compulsory licenses were included in the WTO TRIPS agreement, and the contours of the exceptions were the focus on negotiations at the WTO from 2001 to 2005, leading up to the recent addition of 31.bis to the TRIPS.

The proposal by Seuba and others is similar to the position advocated by many health groups during the negotiations on paragraph 7 of the 2001 Doha Declaration on TRIPS and Public Health, which was ultimately resolved by the WTO in 2003 with a complicated and much criticized procedure that formed the basis of 31.bis. (For more context on the earlier negotiations on exports of medicines, see CPTech’s page on paragraph 6 of the Doha Declaration on TRIPS and Public Health, here).

Emma Eatwell discussed the SPC exports issue in a June 22, 2017 article for Hanover, a communications consultancy firm.

The discussion on the future of the SPC initially started from the need to better articulate SPC legislation with the creation of unitary patent protection in the EU. The Commission envisages the creation of a European SPC title, introduction of an SPC manufacturing waiver for export purposes and the “modernisation” of the existing SPC Regulations and “clarification” and “recalibration” of the scope of patent Bolar and research exemptions in the EU. Representatives from the generics and biosimilars sectors have expressed their support for an SPC waiver, which is strongly opposed by the European Federation of Pharmaceutical Industries and Associations (EFPIA). Adrian Van den Hoven, Director General of Medicines of Europe, has accused EFPIA of “shameful behaviour”, whose lobbying is blocking and delaying the Commission’s legislative process on the matter[9].

[9] Generics and biosimilar experts say ‘unethical’ EFPIA lobby blocking drug access for poorer markets, APM Health Europe, 20 June 2017

The trade association BIO, in its Special 301 submission, also expressed alarm over the SPC exceptions issue. According to BIO, one of the arguments for the exception was the evidence put forth in a study by Vicente and Simões, published in the Journal of Generic Medicines in 2014, in which the authors describe “substantial economic gains in the EU” as a result of adopting the export exception. {See: Sussell, J. A. et al. (2017). “Reconsidering the economic impact of the EU manufacturing and export provisions”, Journal of Generic Medicines, Vol. 13, Issue 2, pp. 73–89.}

PhRMA summed up the rationale for granting the SPC patent extensions as follows:

“SPC’s are a critical part of the European intellectual property system. They partially restore the effective patent term and thereby help to compensate for a portion of the time incurred during the testing and regulatory review period that may ‘make the period of effective protection under the patent insufficient to cover the investment put into that research.’”

What is left unsaid is that these patent extensions are often given to products with astounding profits and prices that restrain access and harm patients. For example, AbbVie’s Humira, which had earned $108 billion in global sales through 2017:Q3, and will likely earn more than $18 billion in 2017 alone, received a patent term extension in both the United States and Europe.

The European Commission’s reviews are not yet complete, and the industry lobbying on both issues is intense.

If PhRMA’s recommendations are adopted by the USTR, it would be the first time that the European Union has appeared on the Special 301 watch list since 2006.

KEI’s reaction to the PhRMA and BIO comments on the EU

In KEI’s view, the White House should not only reject the PhRMA and BIO recommendations for the EU, it should consider launching similar, and better yet, even more extensive reviews of the costs and benefits of existing US incentive mechanisms for drug developers.

Obviously, the European Union and the United States should both have robust exceptions to patents and patent terms for cases where a product is intended for export to countries where patents are not in force (or have been subject to a compulsory license), or else our domestic manufacturers will be excluded from important markets. At present, for example, nearly all of the drugs purchased for the PEPFAR program are manufactured in India, often because it is illegal to manufacture generics in the United States.

The European Union and the United States should also have and use exceptions to exclusive rights when prices are excessive, or where strong exclusive rights to the invention are otherwise not in the public interest.

Robust incentives for investments in biopharmaceutical are necessary, but they should also be cost effective, and not conflict with social objectives including universal access. As noted by the UN Secretary General’s High Level Panel on Access to Medicines, society needs to find ways to eliminate the incoherence between mechanisms to promote innovation and access.

The United States, the European Union and other governments need to explore ways to eliminate the tradeoffs between innovation and access, and in particular, to progressively delink R&D incentives from product prices. But at a very minimum, just having more transparency and some cost benefit analysis of the existing systems is a step forward.

Rather than punish Europe for undertaking a review of their incentive system, the United States should follow its example and review incentive structures within our country. The current administration made promises to rein in high drug prices, and since the only reason prices are high are the monopoly based incentives we grant, a review of that system is in order.

Kim Treanor