A new poll from Patent Strategy shows that some innovator drug makers support the EU’s SPC Manufacturing Waiver despite strong industry opposition, indicating a conflict of interests among companies invested in generics manufacturing in some way.
The survey, which polled 30 in-house counsel in European generics and originator companies, showed that respondents were unsurprisingly split on whether they supported the waiver: 47% each way (7% did not know).
In terms of who took the survey, however, those results show that there is some support for the new supplementary protection certificate (SPC) rules in the innovator industry.
Survey takers were first asked whether their business was more of a generic or original drug maker. Almost a third of self-assigned originator companies (30%) said they either supported the new regulation or did not know yet whether they supported it.
This result might seem surprising when the European Federation of Pharmaceutical Industries and Associations ardently came out against the SPC waiver when it was proposed by the European Commission in 2018 – and again when the European Parliament expanded its provisions. Innovator companies have also voiced their strong opposition to the new rules.
But the rules, which will allow businesses to manufacture SPC-protected drugs for sale outside the EU or to stockpile them for sale in the EU after the certificate expires, are supported by generics companies and their representative bodies – although they have only fully backed it since the stockpiling provision was introduced.
Patent Strategy’s data shows that most companies are still following these lines: 70% of innovators said they were against the waiver and all generics said they were for it.
In-house sources suggest that a key reason for this originator support could be that these respondents have interests in generics manufacturing; either because their company has a generics or biosimilar arm or has a generics company in its group. Novartis, for example, is an innovator company, but has Sandoz, a generics business, as a subsidiary.
“When I first saw the data I was astonished to see that some innovator companies were in favour of the waiver,” says Axel Braun, European patent attorney at F. Hoffman-La Roche in France. “But when you think about it, the results are not surprising. Only a few of these companies are still 100% innovators – most also have some sort of interest in generics or biosimilars.”
On innovator source agrees with Braun, adding that practical business realities might trump the official position against the waiver for some businesses. He adds that certain niche companies could also use the waiver without worrying about its negative effects, such as those businesses that focus on vaccines and typically have no generic competitors.
Positive wavesLooking at the companies that the pro-waiver innovator respondents work for, the generics-interests argument certainly holds ground. But an interest in generics manufacturing was not one of respondents’ top stated positive aspects of the waiver.
When we asked survey takers what they thought the most positive aspect of regulation was, these pro-waiver respondents said “fostering competition” and “benefitting the EU broadly”. One noted that the waiver will also open up the market for increased flexibility in terms of supply chain and manufacturing site allocation.
Two fifths of all innovator respondents said there was at least one positive aspect to the waiver, including respondents that said they were against the regulation. One respondent said it would be good to have more situations where generics manufacturers are not forced to move their production facilities to outside the EU.
Another said: “It is likely that people will try to play the new system and test or stretch its limits. If that stays within reason, the system will have some positives.
“If it just becomes a lawyer's playground, however, it is hard to see how this system will have any positives other than for my colleagues in the legal profession.”
Nine out of 20 innovator respondents (45%) said there were no positive aspects to the waiver at all.
Unsurprisingly, every generics company respondent said there was a positive aspect to the waiver. Most noted that it would allow them to enter different markets earlier and compete with non-EU companies.
Some notable responses were that the waiver could theoretically allow “for a day-one launch in the US while manufacturing in Europe” and “for manufacturing to take place in Europe and not force companies to move production to China or India”.
The latter respondent noted that it is more difficult than some people might think to get the necessary talent for biosimilar production in places such as India or China. As such, a relocation would require the company to bear the expense of moving staff or periodically sending them to manufacturing sites abroad.
Waiver challengesIn terms of challenges, generics and originator survey takers were far more divided on what the biggest feat of managing the SPC waiver’s provisions were. Patent Strategy previously interviewed generics and originator in-house counsel to find out how the waiver might affect their IP management; and litigation was a big concern.
But the two answers that got the biggest share of the votes in this survey were ‘managing notifications’ – when counsel have to manage the assembling or receiving and processing of intent-to-use notices for the regulation – and ‘managing waiver-use monitoring’ – when innovators make sure that generics are following the waiver’s provisions.
The data shows that half of respondents were more concerned with the administrative challenges presented by the waiver than the potential freedom-to-operate conundrums (3%) or the need to hammer out the regulation’s provisions in court (13%) or a boardroom (7%).
One source pointed out that litigation has long been rife in the pharmaceutical industry, and while a rise in litigation could be a challenge for counsel, it will not be the biggest challenge because of their experience in fighting cases.
Managing notifications and waiver-use monitoring, on the other hand, are new considerations for drug makers.
When we break the data down into generics and originator respondents, a majority of the former (56%) thought that managing notifications would be the biggest challenge, while 22% said increased litigation, 11% answered searching for secondary patents and another 11% said other.
Sources point out that these results are perhaps not surprising because generics will need to be careful to ensure that they are following the new rules to the best of their ability when stockpiling drugs in the EU or manufacturing for sale in jurisdictions where the product is not protected.
Originator sources previously told Patent Strategy that the introduction of the waiver might elevate the importance of secondary patents, which previously were more of a secondary consideration, as a tool to try to dissuade competitors from using the regulation. But survey data suggests that this potential tactic is either not a concern for generics or is not on their radar just yet.
For originators, ‘managing waiver-use monitoring’ got 44% of the vote, while ‘managing notifications’, ‘increased litigation’, ‘managing negotiations’ and 'other' got an even share of 10% (20% said they did not know).
Elise Melon, director of IP at UCB in Brussels, says that while all companies are worried about managing notifications, some may be more concerned about monitoring use of the waiver because it is not something they have had to do before. “We don’t know how many notifications there are going to be once use of the waiver becomes more common, but it is definitely going to be a challenge,” she says.
“But managing waiver-use monitoring is going to be an even bigger task, and it is much more important information to gather. For me, use monitoring is going to be more difficult.”
Peter Thomsen, global head of IP policy and senior manage or IP litigation at Novartis in Switzerland, adds that many respondents may not have chosen ‘managing notifications’ as the biggest challenge because many will have gained experience dealing with the paperwork that came when the special mechanism was introduced, which set out new provisions on the exhaustion of rights and parallel imports between the member states that acceded to the EU in 2004 and those that were already in the bloc.
“Businesses will prepare for these notifications with a similar set of procedures and tables on your products subject to the waiver, and they will have to make sure deadlines are set and that the necessary checks are done to ensure what the generics company say they are using it for is true – by, for example, creating a list of countries where the SPC has expired or never existed,” he says.
Litigation projectionsIn-house respondents were split on whether the SPC waiver would lead to a significant increase in litigation for their companies over the next five to 10 years. Most (73%) believe that the waiver will generate at least some increase as generics and originator companies battle over its provisions – although more than a quarter (27%) say there will be no increase at all.
The projected rise in litigation was higher among generics respondents, most of whom (67%) said the number of cases for their companies (emerging as a result of the waiver) would increase by between 10% and 50%. Only 11% said there would be no increase and almost a quarter "22%) said less than 10%.
One industry source says that the waiver’s 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,” he says. “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.”
By contrast, innovator respondents were more evenly split on this matter. Almost a third (30%) of innovators said there would be no increase in litigation; and a combined 55% said there would be less than a 10% increase or none at all.
Just short of a half (45%), however, said there would be between a 10% and 50% increase. Lars Kellberg, corporate vice president of patents at Novo Nordisk in Copenhagen, says such an increase is likely because of all the provisions that generics have to juggle around stockpiling and manufacturing for non-EU sale while ensuring that they are not infringing secondary patents.
“Litigation is something that could be high – but it is fair to say that we have a modest litigation portfolio and that, perhaps, while cases might rise between 10% and 30%, it might be on the lower end for us,” he says.
Of course, this data reflects the increase in litigation to individual businesses. Melon at UCB points out that if the entire pharma industry were to be considered, the overall increase in cases resulting from the SPC waiver could be much higher.
Preparation timeframesWith all the potential challenges and opportunities presented by the SPC waiver, businesses will soon have to start preparing; but there is a question of when.
And it seems that most pharma firms will prepare sooner rather than later. When we asked when businesses will start to make substantial preparations for the waiver now that it has come into force (July 1 2019), most respondents (53%) said this year or next.
But these results are somewhat skewed by the generics response. For in-house counsel employed by generics or biosimilar companies, which stand to benefit from the regulation, there is an obvious impetus to start preparing as soon as possible – and that drive is reflected in the survey data.
Almost all generics respondents (91%) said they would start to prepare this year, or have already started preparing, or would start in 2020 (9% said they did not need to prepare).
The timeframes for innovators, on the other hand, are a bit more spread out. A quarter of respondents are preparing this year or have already started, but another quarter will not start preparing until after the waiver grace period of three years is over: 20% said they would prepare in 2022, 15% in 2021 and 10% in 2020. Just 5% said they would never prepare.
Sources point out that the reason for this spread is that different businesses will have different portfolios and the waiver will start to apply to those SPCs at different times. The SPC waiver will not apply to any SPCs in effect before July 1 2019. It will apply to all SPCs filed for, but not in effect, before and after July 1 2019. It will apply immediately to all SPCs filed for after that date, but it will not apply to those filed before until 2023.
Clearly, the new regulation offers many exciting opportunities to companies with generics interests and some considerable challenges to innovator companies. Most innovators do not like it, but some do – and a shift of opinion will probably occur one way or another over the next few years and we discover whether things will be as bad for originators as some predict.
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