Welcome to the November 2015 edition of our newsletter. Previously known as the "European Pharmaceuticals and Healthcare Newsletter," the EMEA Healthcare Industry Group Newsletter is your monthly digest of legal developments affecting the life science and healthcare industries across the continent.
EC releases new manual on borderline medical devices and classification issues
The European Commission has released a new version (1.17) of its manual on borderline and classification in the Community regulatory framework for medical devices.
The updated manual gives clarification on the qualification and/or classification of a number of new products including a sweat card (class III medical device), fluid collection bowl (not a medical device), glycerine suppository (not a medical device), wound gel containing soluble beta glucan (class III medical device), software for information management and patient monitoring (medical device), software for interpretation of guideline (not a medical device), software for delivery and management of cognitive remediation and rehabilitation programs (class I medical device based on intended purpose).
The manual and each of its updates are the work product of the medical devices expert group on borderline and classification chaired by the European Commission and bring together experts from regulatory authorities, notified bodies industry associations and professional organisations. The manual is not legally binding but serves as one of many elements to support national regulators in the qualification and classification of individual products.
CJEU ruling harmonises SPC duration across the EU
On 6 October 2015, the Court of Justice of the European Union (CJEU) handed down its judgment in Case C-471/14, Seattle Genetics Inc. v Österreichisches Patentamt. This reference arose from confusion over how to calculate the duration of a Supplementary Protection Certificate (SPC).
Article 13 of Council Regulation (EC) 469/2009 concerning the creation of a supplementary protection certificate for medicinal products (the "SPC Regulation") sets out how the duration of an SPC may be calculated. Article 13(1) provides that the duration is calculated having regard to the "date of the first authorisation to place the product on the market in the Community", and Article 13(2) provides that the duration of an SPC may not exceed five years.
Some EU countries (including the UK) have adopted the practice of calculating SPC duration for the purposes of Article 13(1) of the SPC Regulation, using the date that the applicant for the marketing authorisation (MA) is notified of the decision by the relevant authority. While others (including Austria, where this reference stemmed from) use the date of grant of the MA. The date of notification is often a few days later than the date of grant of the MA, resulting in the calculation of different SPC expiry dates across the EU.
The CJEU has now held that Article 13(1) of the SPC Regulation should be interpreted as meaning that the "date of the first authorisation to place the product on the market" is:
- determined by EU law (rather than the national law of each individual Member State); and
- to be interpreted as meaning the date on which notification of the decision granting the MA was given. It is not the date on which the relevant authority adopts the decision granting the MA.
The CJEU ruling did not comment on its applicability to SPCs that have already been granted or applied for. However, this sort of retrospective application of the ruling does not seem out of the question. Originators should review their records to ensure the correct SPC expiry dates are diarised. Additionally, originators would be wise to notify the relevant Registries and competitors of any changes.
This is a welcome decision for originators, extending SPC protection in a number of jurisdictions by a few days. This slight delay to generic entrants could have a big financial impact, especially for blockbuster products and when measured across entire portfolios. However, there is even a bright side of this ruling for generics and biosimilars companies: it is now clear that there will be uniform SPC expiry dates across the EU, simplifying launch strategy and risk management.
Veering off the well-trodden path? European Merger Control and the Pharmaceutical Industry
Gavin Bushell, a partner in our European and Competition Law Practice in Brussels, considers how the European merger rules have been applied to the pharmaceutical industry. Recent trends indicate a higher level of intervention compared to other industries and an increasing focus on pipeline products. Read his article at the Kluwer Competition Law Blog.
Strengthening the Anti-Gift Law
On 6 October 2015, as part of the review of the bill of law on health currently before the French parliament (the “Bill of Law”), the French Senate has adopted an amendment introduced by the Government aimed at strengthening the anti-gift law provisions laid down by Law No. 93-121 of 27 January 1993, as modified by Law No. 2011-2012 of 29 December 2011 (the "Anti-Gift Law").
If the Bill of Law is adopted, this amendment, included as Article 43 quarter A in the Bill of Law, will allow the government, within one year from the adoption of the law, to expand and strengthen the provisions of the Anti-Gift Law by adopting governmental orders. Such orders come into force upon their publication. However, a bill of law must be tabled in order to ratify the orders within a predetermined timeframe, one year in the case of amendments to the Anti-Gift Law. Should a bill of law to ratify the orders not have been tabled within such timeframe, the relevant orders will be annulled. Should a bill of law to ratify the orders be presented in time, the orders can either become laws or remain in force as regulatory provisions.
Should the Bill of Law be adopted, the government would therefore be authorised to proceed with the following modifications:
- extending the scope of companies targeted by the Anti-Gift Law to any company manufacturing or selling health products or providing services relating to such products regardless of whether such products or services are reimbursed or not by the French Social Security System;
- extending the scope of individuals targeted by the Anti-Gift Law in particular to:
- any healthcare professionals ("HCP"s) and students, beyond the current limited list;
- any association composed of HCPs and/or students (i.e., not restricted to associations representing their members as is the case today);
- public officials, developing or participating in the development of a public policy on health or on social security, or having health policing powers, and individuals providing assistance to boards, commissions, committees and working groups working with the French authorities in this respect;
- redefining the exemptions to the prohibition to receive or offer benefits and the related regime of authorisation which could evolve from non binding advice to binding advice requiring authorisation;
- specifying the benefits excluded from the scope of the Anti-Gift Law and clarifying the conditions under which they may be granted;
- harmonising and developing consistency between provisions of the criminal code, the public health code and the social security code regarding criminal and/or administrative sanctions relating to non-compliance with Anti-Gift Law provisions; and
- adapting the prerogatives of the authorities responsible for controlling the compliance with Anti-Gift Law.
As at this date, no more official specific guidance has been issued as to the strengthening of the Anti-Gift Law provisions or any specific changes that could be contemplated. As a consequence, the evolution of the implementation of this amendment should be closely followed as it is likely to profoundly transform the processes implemented within health companies relating to Anti-Gift Law as well as the sanctions related to non-compliance with such law.
Bid rigging by Hungarian pharmaceutical wholesalers
The Hungarian Competition Authority (HCA) has fined three Hungarian pharmaceutical wholesalers and two Hungarian consultancy companies the aggregate amount of HUF2.5 billion for bid rigging relative to pharmaceutical products. This fine is the largest imposed by the HCA this year and the largest to date imposed on pharma sector players.
The HCA’s investigation started two years ago, after dawn raids at each company’s headquarters were conducted due to allegations of bid rigging in 12 tenders concerning the supply of 919 different active substances to Budapest area hospitals.
The HCA found that one of the consulting companies modified the terms of the tender to ensure that only the three wholesalers in question would be eligible to participate. The HCA also found that the pharmaceutical wholesalers colluded to fix their prices and share the market, before submitting their respective bids to supply HUF5 billion worth of medicines to 12 hospitals.
The three pharmaceutical wholesalers were fined HUF792 million each, which equates to three times the total value of the companies’ successful bids in the tenders. One consultancy company was fined HUF66.5 million, while the other – which is undergoing insolvency - was fined the nominal amount of HUF12,000.
In the case of bid rigging cartels, the public prosecutor may pursue criminal sanctions against the persons/companies involved. The HCA's decision may also have implications on the wholesalers' ability to participate in public procurements in the future.
Increased co-operation between Hungarian Competition Office and OGYÉI
On 13 October 2015, the Hungarian Competition Office (HCA) and the National Institute of Pharmacy and Nutrition (OGYÉI) concluded a co-operation agreement. The aim of the agreement is to foster the exchange of information, experience and knowledge between the two authorities in connection with matters relating to medicinal products, medical devices, food, food-supplements and cosmetics.
Each authority has undertaken to inform the other authority of market surveys, sector inquiries and analysis as well as of the initiation of proceedings against persons / entities that allegedly engaged in unlawful promotional practices or unfair commercial practices relative to medicinal products, medical devices, food, food-supplements and cosmetics.
The HCA committed to request expert opinion from the OGYÉI if needed during an ongoing investigation given that the OGYÉI has expert knowledge and the statutory authorization to do so.
It is anticipated that the agreement will contribute to a smoother and more productive and working relationship between the HCA and the OGYÉI.
Antitrust Authority criticises Italian rules on galenical exception
In its letter to the Italian Parliament dated 8 October 2015, the Antitrust Authority pointed out the importance to align Italian legislation with that of other EU Member States with respect to the exercise of the so-called "galenical exception" (also known as "galenical exemption") and proposed to repeal the prohibition on the use of industrially produced active ingredients that is currently provided for by article 68 of the Italian Code on Intellectual Property ("CIP").
Under Article 68 CIP, pharmacists manufacturing a galenical preparation (i.e., a drug prepared by a pharmacist on the basis of a specific medical prescription and intended for the use of a particular patient) are requested to autonomously develop the active ingredient necessary for the preparation of the drug whenever there is an industrially produced medicine under patent protection.
In its letter, the Antitrust Authority observed that the prohibition for the pharmacist to purchase from third parties the active ingredient for the preparation of drugs not only poses concerns in terms of possible infringements of the right to good health but also compromises the freedom of private economic initiative of an entire profession.
Indirect tax opportunities following BEPS report
Recently, the OECD and the G20 delivered their final report on their Base Erosion and Profit Shifting (BEPS) project. The BEPS project provides new, or reinforced, standards and measures to address harmful international tax practises. All multinationals will, to a certain extent, be affected by the adoption of these standards and measures, whether pharmaceutical or medtech companies operating globally.
However, BEPS also provides new opportunities, especially with regard to the indirect tax consequences for the supplies made by pharmaceuticals and medtech companies. Although these opportunities do not follow directly from the conclusions of the BEPS report, they do follow from the analysis preceding the BEPS report.
A striking example is the indirect tax treatment of integrated packages of hardware and software, such as modern medical devices. These devices are becoming more and more sophisticated; such devices can communicate with a patient's doctor(s) or a patient's own iPhone, collect data on specific body functions and in some cases, by using artificial intelligence, even diagnose a patient.
Action Plan I of the BEPS report analyses and - to a certain extent - addresses this development on integrated hardware and software packages. The OECD more or less acknowledges an economic value shift from hardware to software, for instance by pointing out that revenues flow primarily from operating the hardware, rather than the sales of hardware. This is where opportunities may arise for pharma and medtech companies.
To date, jurisdictions around the world are approaching these integrated packages as multiple individual supplies (i.e., the supply of the device and the added functions as the provision of discrete services). As a result, the low indirect tax rate, which in most jurisdictions applies on the separate supply of medical devices cannot be applied on the added functions, triggering a higher indirect tax burden on such devices.
The economical approach of Action Plan I on integrated hardware and software packages, however, in the long run, may prove to be a game-changer in this respect. It shows that the current approach on the applicable indirect tax rate on the supply of medical devices is becoming outdated. This is no wonder, because the current approach originates from a time when a medical device was a novelty in itself. The mere idea of such a device providing a diagnosis based upon artificial intelligence was unheard of.
By using the economical approach, the BEPS report is more or less providing pharma and medtech companies with an additional argument towards local (indirect) tax authorities to apply the low indirect tax rate or even an exemption from indirect taxes on the sale of integrated packages, such as modern form medical devices. The latter could mitigate the indirect tax burden on such medical devices substantially, making them more attractive from a commercial point of view.
Annual reference price list published
On 17 October 2015, the Official State Gazette ("BOE") published the yearly Order of reference prices, which entered into force the day after the publication, i.e., on 18 October 2015.
Every year the Ministry of Health shall publish an Order grouping the different presentations of the medicinal products with the same active substance and the same route of administration covered by the National Health System ("NHS"). The Order also establishes the maximum financed amount per presentation of medicinal product in each group.
The final version of the Order is the result of analysis undertaken by the Health Ministry, which began on 13 April 2015. This procedure included a 10-day consultancy period in which the pharmaceutical companies were able to submit their comments (and any allegations against) the draft Order. Only a few of these allegations were accepted by the authorities.
It should be noted that Annex 7 of the Order comprises the medicines included in the NHS after 13 April 2015 and therefore they were not included in the draft of the Order. The mentioned Annex determines the reference group and price for each of the medicines recently included in the NHS.
It is possible to appeal the Order for one month following its publication.