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The European Commission’s pharmaceutical innovation incentives review is at risk of serious overreach

The European Commission’s pharmaceutical innovation incentives review is at risk of serious overreach

October 2018

This article first appeared on the European Centre for International Political Economy’s website on October 8th 2018.

Over the summer, the European Commission (EC) outlined its plans to introduce a manufacturing waiver for Supplementary Protection Certificates (SPCs). If adopted, it would open the door for generic manufacturers to export medicines outside the EU while the SPC is still in force. Without it, the EC says, “the viability of the manufacture of generics and biosimilars” in the EU “could be under threat”.

SPCs are an increasingly important intellectual property right. Like patent term extension in the US and elsewhere they grant patent holders within the EU up to five years extra patent life to compensate for the lengthy mandatory regulatory approval process that erodes protection offered by the base patent. As regulators require increasingly

lengthy clinical trials, SPCs are a vital component of Europe’s innovation ecosystem. Similarly, European regulators ‘understand that new drugs should command prices that reward and provide incentives for R&D investment’.

For those of us concerned about Europe’s poor innovation track record, the fact that the EC is considering diluting Europe’s IPR framework is worrying. Europe in particular needs as much innovation as possible to boost its economic growth, and develop the new technologies needed to address the problems posed by an ageing society.

Yet Europe is becoming an innovation backwater, easily outspent on R&D by peer nations such as the United States, Japan, South Korea and Australia, according to the 2017 European Innovation Scorecard.

One bright spot in the European innovation picture is the successful life sciences sector. Biopharmaceutical companies invest an estimated €35 billion in R&D every year, putting them among the biggest contributors to European innovation.

This success is partly due to Europe’s high standards of protection of intellectual property, now at risk from policymakers. The EC’s own study into potential impacts of the SPC waiver show that reducing the patent protection period will mean less investment in R&D by EU life sciences companies.

Other independent studies support this. One concluded that the SPC waiver would cost the European innovative pharmaceutical industry up to 7,700 direct and 32,000 indirect job losses. It could also see a loss of €312 million in R&D investment.

Despite the risks posed by the proposed manufacturing waiver, others propose that the Commission should weaken European intellectual property rights even further by allowing generic companies to begin the process of manufacture and stockpile them while the SPC is still in force. The proponents of a stockpiling provision argue this would allow for launch in the EU the first day the SPC expires.

However, they may be surprised to learn that the EU has argued against manufacturing for stockpiling in previous trade disputes, acknowledging that it weakens intellectual property rights and thereby harming European innovators.

In a WTO dispute with Canada in 2000, the EU successfully argued that stockpiling would be a de facto shortening of patent protection and would therefore be inconsistent with Canada’s obligation under TRIPS.

Would the EC’s current changing of the rules to allow manufacturing for stockpiling not represent the same shortening of patent rights granted under an SPC? Absolutely.

This all points to a weakening of Europe’s reputation hospitable place for innovation, more concerned with protecting the low-value manufacturing industries of yesteryear. It’s hard to see Europe’s generics industry – with its razor thin margins – being competitive in the long term with the likes of India, China and elsewhere where costs are much lower.

The plan is doubly baffling considering that emerging competitors such as China are moving in the opposite direction and bolstering their IP frameworks in a bid to develop competitive advantage in knowledge-based industries.

The double hit of a SPC manufacture for export waiver and a potential stockpiling exemption would represent a significant weakening of the European intellectual property framework, sending the signal that the EU does not fully support innovation.

The Commission’s proposal for a manufacturing waiver is still at an early stage and requires adoption by both the European Parliament and the Council before it is implemented. European parliamentarians and the governments represented in the European Council should approach these proposals with considerable scepticism.

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