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Thursday, April 11, 2013

Bad news for pharma originators

By Senior Associate Tom Reid

The Pharmaceutical Patents Review Panel has released its draft report on Australia's pharmaceutical patents system, and while it remains to be seen what the final recommendations will be, and what will become of them in an election year, the draft will generally be unwelcome news for originators.

As we reported in an earlier Focus, the Review was commissioned by Mark Dreyfus, then the Parliamentary Secretary for Innovation and now the Attorney-General. The terms of reference were to evaluate whether the patents system 'is effectively balancing the objectives of securing timely access to competitively priced pharmaceuticals, fostering innovation and supporting employment in research and industry'. The draft report follows a period of public submissions and hearings in response to an issues paper issued last November. The issues paper and written submissions are available.

The focus of the review is the extension of term provisions in sections 70-79A of the Patents Act. To compensate the patentee for the time taken up with obtaining regulatory approval, a patentee may extend the term of a patent for a pharmaceutical substance per se, or a pharmaceutical substance produced by a process involving the use of recombinant DNA technology, by up to five years. The rationale is to make the patents system more technology-neutral. Even so, the provisions provide a maximum effective term for eligible patents of only 15 years.

The Review Panel's draft recommendations include cutting the maximum extension term to save cost to the Pharmaceutical Benefits Scheme. The savings could, it is suggested, be directed to subsidising the local pharmaceutical industry directly, the Review Panel's complaint being that the existing system is not effective in fostering local R&D. The draft report further recommends against making the patent term extension regime available for other types of pharmaceutical patents, such as patents for methods of manufacture or methods of treatment.

The draft report characterises the additional cost to the PBS of pharmaceutical patent term extensions as an 'indirect subsidy' to the pharmaceutical industry. We query whether any savings to the PBS generated by reducing that 'indirect subsidy' would, in reality, be used the way proposed. But in any event, any extension is a quid pro quo for the period at the front end of the patent term during which the patentee is unable to market the patented pharmaceutical. The cost to the PBS during that period is nil. Moreover, originators would contend that the fact extensions are available only for a limited class of pharmaceutical patents, the cap on the maximum effective term under the legislation, the time value of money, and the risk that pharmaceutical science will have moved on by the time the extension comes into effect all mean that the compensation they offer can never be total.

Another question is whether the recommendations take proper account of the value of Australia's strong IP regime to its overall trading position. As a net importer of technology, Australia's patent system is of proportionately greater benefit to foreign patentees. But Australia may reasonably expect that by offering foreign patentees substantially equivalent recognition and protection here as they may expect to receive at home – and the draft report finds that, on average, pharmaceutical patents generally have a similar effective term, resulting in a similar exclusive period in the market, in Australia, the US and the UK – it will receive favourable treatment in other areas of trade.

The Review Panel makes a number of draft findings and recommendations in other areas, including in relation to the efficacy of existing avenues to challenge patent validity, the granting of 'follow-on' patents (or 'evergreening'), the exclusivity provided in respect of safety and efficacy data submitted to the Therapeutic Goods Administration, contributory infringement, and an infringement exemption for manufacturing for export. Notably, the draft report includes recommendations that:
  • the Federal Government put in place financial incentives for generics to challenge patents;
  • the Federal Government establish two new permanent bodies, one an 'external patent oversight committee' responsible for reviewing IP Australia's decisions and processes to address concerns regarding the quality of 'follow-on' patents, and the other a 'Pharmaceutical System Coordinating Committee' responsible for reporting to Parliament on the success and effectiveness of the patent, marketing approval and PBS systems;
  • patentees voluntarily agree as an interim measure not to sue for infringement where a party manufactures solely for export to a country where no equivalent patent exists; and
  • a generic not be liable for contributory infringement where it takes reasonable steps to ensure that an unpatented product that it supplies is not used for a patented indication (with reasonable steps to be presumed where the product is not labelled as being for use for any patented indication) – this last being a recommendation that also received support from some originators.
Submissions in response to the draft report are due by 30 April 2013, with the final report expected in May 2013. This blog will follow the progress of the Review.

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