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Last week's most read article: SPC Waiver will save money but increase litigation for generics

Fresenius Kabi, Insud Pharma and other generics firms explain how the EU’s SPC manufacturing waiver in its new form will benefit them – but also how its notification clause could make litigation easier for innovator drug firms

The EU’s proposed Supplementary Protection Certificate (SPC) Waiver offers huge benefits to European generic drugs firms, but it could also start a surge of pharmaceutical litigation by compelling users to hand over otherwise sensitive or confidential information to rights holders.

In-house counsel at Fresenius Kabi, Insud Pharma and two other generics firms explain that last month’s endorsed waiver compromise, which includes a provision for day-one launch in the EU, will benefit them by ensuring they do not have to relocate production plants outside of Europe.
But they add that the agreed notification provision, requiring a user to notify SPC holders and patent offices in states where manufacturing will occur three months before production, could make court actions easier to pursue and thus more attractive to innovator drug manufacturers.
“I regret to say that litigators may be licking their lips at the prospect of this notification provision,” says one industry source, adding: “With the ability to find out information that would otherwise be confidential about business supply chains, innovators may see opportunities for some form of court action on the back of that.”
The SPC Waiver can be used against SPC-protected medicines with a 2022 patent expiration date – which means it will not really come into force until 2027 and the potential litigation wave will not arrive until about 2030, according to sources.
“The flow of information between competitors around product launches is a difficult aspect to all of this. You do not see this in other industries where there is prior warning"
The waiver was proposed by the European Commission in May 2018 to allow third parties to manufacture an SPC-protected medicinal product for export to countries where protection had expired or never existed.
After intense lobbying from either side of the pharma industry, a compromise was reached with the European Parliament on February 14 2019 that allowed generics businesses to stockpile small-molecule and biosimilar drugs six months before SPC expiration for the EU market.

The draft waiver will undergo a legal and linguistic review before it is sent to the parliament and council for formal adoption.


Looming litigation

Corinna Sundermann, senior vice president of IP at Fresenius Kabi in Germany, says that the notification mechanism will give innovators more opportunity to litigate against generics – and that they are likely to jump at those chances. There is a lot of money involved in these products and innovators are often open to litigating for patents that are not even relevant, she says.
She adds that her business was sued for a patent on a polymorph despite providing evidence that the substance was not incorporated into its product. “This might happen more if they know where we manufacture products and when, because they [would] know where and when to sue.”
An IP lawyer at a US-based innovator drug company adds that originator firms may use the notification mechanism for litigation information-gathering purposes, but he points out that three months does not give these companies much time to plan.
“It is not cheaper to manufacture in India or China because you inevitably need to ship around employees from Europe with the necessary skills"
He adds that when it comes to biologics, innovator companies are going to assume that blockbuster drugs will be copied by virtually every biosimilar manufacturer; but for niche products it may be useful to easily identify the relevant biosimilar manufacturers when otherwise it would have been difficult to work out who, if anyone, is copying the drug. 
Tomos Shillingford, associate general counsel at Insud Pharma in the UK, adds that the notification mechanism is unnecessary and that it could lead to additional litigation, depending on how the information divulged to SPC holders and patent offices is used.
But he adds that perhaps the real danger for generics companies is that the data provides commercial forewarning of where products are going to be launched, which permits strategies to be put in place that will act against those launches in a commercial manner.
“The flow of information between competitors around product launches is a difficult aspect to all of this. You do not see this in other industries where there is prior warning.” 
An IP lawyer at a UK-based generics company adds that, on balance, the notification mechanism could drive more litigation – but if the only thing waiver users have to do is reveal the country of origin, then it gives an originator patentee something to work with, but not a lot.
“If the SPC can’t be asserted, the originator will start looking at the rest of the patent arsenal and what information is needed to bring a case. So, one can also imagine that there may be renewed interest in inspection orders and other national discovery mechanisms, which itself will probably drive litigation.”
He adds that the situation may lead to more secondary patents being asserted and perhaps an upsurge in private investigations focused on generics’ activities in a single country.
Quite a lot of thinking might also go into timing , he says, and a generics firm might start manufacturing just a few months before SPC expiry for a European day-one launch because that will give them enough stock to hit the market without giving the originator long enough to mount an effective investigation.
“That’s a very preliminary thought, however, and the timing could be very different depending on territory.”
Of course, generics companies have not yet started to plan for the potential increase in litigation because that surge will not occur for some time and the SPC Waiver has not yet been made law.
One industry source tells Patent Strategy that generics counsel appreciate the potential for additional court actions ushered in by the notification mechanism, however, and are mindful that it will be an important consideration for the future.
“That is the case with any new regulation or law because when you close one loop hole you open up another,” he says.
“We will be watching to see how the legislation is implemented in its final form and then working out how to manage the situation once it is implemented. It will take a while to work out how we’re going to get sued and how to sue in return.”

Sundermann adds that her firm will similarly focus on which new projects it wants to test the waiver on, to see how practical it is before it turns its attention to the potential challenges of litigation.


Staying put

But despite the looming prospect of increased litigation, generics companies are likely to take full advantage of the waiver because the pros far outweigh the cons.
The proposed regulation was initially condemned by both generics manufacturers, who wanted to be able to stockpile protected medicines for day-one launch in the EU, and originator companies, who foresaw infringement risks and a watering down of their IP.
“You can appreciate that from the perspective of the innovative pharmaceutical industry that there is nothing positive in the waiver”
But generics and biosimilar firms now largely back the waiver in its current form because of the day-one stockpiling compromise reached last month.
“I am very glad that the playing field is going to be levelled for European manufacturers,” says Shillingford at Insud Pharma. “There really was very little substantiated downside to this initiative and a huge amount to gain. It’s very important for my company.”
He adds that the only thing missing now is the ability to manufacture for export to non-SPC European markets. It is bizarre, he says, that this there should be one rule for export out of the EU, where no patent rights exist, and another for within the EU where there are also no rights.
Generics sources tell Patent Strategy that the main benefit of the regulation now is that they can keep their manufacturing plants in Europe. An industry source points out that European generics companies traditionally stationed their manufacturing plants in Eastern Europe before the fall of the Soviet bloc because certain IP forms did not exist and originators neglected to file patents there.
“But SPCs have extended to Eastern Europe since then and without the waiver a lot of that capacity would be made redundant. Generics companies were increasingly looking to relocate manufacturing resource elsewhere.”
He adds that there are obvious expenses that are accrued by such a move, and the waiver will stop the decline of generics manufacturing in Europe to a certain extent; but perhaps not extinguish completely.
Sundermann at Fresenius Kabi agrees and points out that her company similarly does not want to have to relocate its plants outside of Western Europe. She adds that the common argument: that it is cheaper to manufacture in places such as India or China, where equivalent European protections do not exist, does not carry much weight.
“It is not cheaper because you inevitably need to ship around employees from Europe with the necessary skills. And when they come home from a long trip, they need to recover for a while. It is much easier to send someone to Poland, for example, or to get someone from there that can do the job.”
Innovator firms are, of course, less enthusiastic about the SPC Waiver and its day-one clause. The assistant general counsel at a global originator drug company tells Patent Strategy that not enough has been done to ensure that SPC holder’s rights are not reduced.
“You can appreciate that from the perspective of the innovative pharmaceutical industry there is nothing positive in the waiver,” he says. “It is purely take and there are no balancing gives. It is disappointing that the EU, which is the home to a large amount of inventive pharmaceutical activity and manufacturing, has eroded the IP protections for medicines that benefit Europe’s population.”
The European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents originator interests on the continent, also strongly opposes the regulation.
The SPC Waiver is enormously beneficial to European generics and biosimilar makers, who no longer have to relocate manufacturing plants to stay competitive with drug companies outside of the continent. But increased innovator litigation emerging from a better knowledge of manufacturing details is a real possibility.
It may be several years away, but at the very least, generics firms and their external counsel should be aware of that possibility.

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