EC Proposal on SPC Manufacturing Waiver

On 28 May 2018, the European Commission (EC) issued the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 469/2009 concerning the supplementary protection certificate for medicinal products (Brussels, 28.5.2018, COM (2018) 317 final, 2018/0161 (COD)). The aim of the proposal is to institute an exception to the supplementary protection certificate (SPC) in relation to export to third countries (i.e. non-EU countries), known as ‘manufacturing waiver’ (MW) or ‘production privilege’. The SPC MW shall not in any way violate the protection guaranteed by patents in the EU.

The legal basis for the draft amendment to Regulation 469/2009 is provided by Art. 114 of TFEU. The amended regulation is expected to modify Art. 4 and Art. 11 of Regulation 469/2009 as well as to introduce Art. 21a and Annex -I (a logo to be attached to medicinal products intended for export). This proposal was forwarded to the EU Member States in order for them to submit the position of their governments regarding the assessment of the proposed change in terms of legal, social, economic and financial consequences.

Additionally, the EC has published a report indicating that introducing the SPC MW into EU law would result in faster access to generic and biosimilar medicines for European patients and increase the value of sales from European pharmaceutical companies from EUR 7.3 billion to EUR 9.5 billion by 2025, thereby creating between 20,000 and 25,000 highly specialized new jobs. This in turn would increase the innovative potential of European enterprises, which is crucial for the development of small and medium-sized businesses across the whole EU.

SPC MW – the rationale

Despite its significant role in the global pharmaceutical industry, in particular in the production of generic and biosimilar medicines, the EU is facing a real threat of losing its leading position and chances of proper competition on the market outside the Union. The internal market for pharmaceutical companies is also under pressure from generic companies based outside the EU (mainly small and medium-sized enterprises), where there is much less protection of the original medicinal products (no SPC or its shorter duration). On the day following the expiry of patent protection or the SPC, manufacturers of generic or biosimilar medicines are not prepared for the simultaneous with other entrepreneurs (outside the EU) placing on the market of generic drugs, because they are not allowed to produce generic or biosimilar drugs before the date of SPC expiration and to store them. The EC notes at the same time a negative impact on the labor market in this sector because the barriers identified for generic or biosimilar medicines companies discourage them from operating in the EU and force them to relocate production outside the EU.

SPC MW – the outline

The introduction of the SPC MW for exports would allow producers of generic and biosimilar drugs to manufacture medicines in the EU at an earlier stage, which means that the medicines could not only be introduced into the internal market as soon as the applicable patent protection has expired, but also be sold to third countries in which the SPC has expired or never existed. This solution would enable European producers of generic and biosimilar medicines to operate in markets outside the EU under exactly the same conditions as companies from other territories.

Although a number of major problems have been identified, the EC is in favor of a narrow regulation in the scope of the SPC exception, which:

(a) is intended to limit the privilege only to production for export outside the EU;

(b) is to be accompanied by a series of safeguards to ensure transparency and to avoid possible diversion onto the EU market, in particular to prevent re-importation and re-packaging;

(c) has a delayed entry into force: it may only apply to SPCs granted on or after the date of the date of the first day of the third moth that follows the month in which the amending Regulation 469/2009 is published in the Official Journal.

The regulation contains certain obligations on the part of producers to ensure transparency and counteract re-importation, infringements, etc., i.e.:

(a) obligation to notify the competent national authorities of using the SPC MW (the information contained in the notification will be made public);

(b) obligation to comply with due diligence requirements, chiefly to prevent goods manufactured for export from being diverted onto the EU market;

(c) obligation to comply with specific labelling requirements.

The draft amendment to Regulation 469/2009 assumes that in order to properly implement the rights flowing from the SPC MW it is possible to undertake any such upstream or downstream acts in the production and distribution chain by the maker or its contractors as are strictly necessary for making for export and for the export itself. Such acts could include, for instance, the supply and import of active ingredients for the purpose of making a generic product, or its temporary storage, or its advertising.

SPC MW – a brief commentary

Although very general, the above outline is sufficient to observe that the proposed regulation of the SPC MW exception is highly controlled. The aim of the draft amendment is clearly to achieve a compromise between representatives of two extreme groups of actors: defenders of relaxing the SPC and its opponents (producers of innovative drugs vs. generic and biosimilar drug makers).

Referring to the scope of the exception, three elements are worth emphasizing. Firstly, the proposal introduces a type of exception to the scope of law. Secondly, it expressly states that it covers production solely for export to third countries. Thirdly, activities related to the production itself are explicitly mentioned.

But even though the regulation is an awaited step in the diserable direction, it may be insufficient to put an end to all determined issues on the EU pharmaceutical market. In view of the issues identified by the EC, the proposed safeguards and their scope might be too broad and therefore discouraging to the generic and biosimilar pharmaceutical sector. According to the draft regulation, the production privilege is set to apply to export to third countries to the exclusion of stockpiling. This separation of export and stockpiling is bound to cause practical problems and preclude the regulation from achieving its assumed objectives. Nevertheless, a serious discussion involving both producers of innovative drugs and generic or biosimilar drug makers is required for the two groups to appreciate which solution is best for them as well as compatible with the interest of the general public (e.g. public health).