Government responds to the Productivity Commission Report and the Courts find “Swiss-style” claims not sufficient for a PTE

The Australian Government, in its highly anticipated response to the Productivity Commission’s Report, recommended only a minor change to the legislation relating to patent term extensions (PTEs). Almost simultaneously, in the equally eagerly-awaited decision of the Federal Court in Commissioner of Patents v AbbVie Biotechnology Ltd [2017] FCAFC 129, it was found that Swiss-style claims do not confer eligibility for a PTE.

Some context: pressure on the PBS budget

Pharmaceuticals are subsidised in Australia by the taxpayer-funded Pharmaceutical Benefits Scheme (PBS). With a population of about 24 million, the Government is under severe and sustained pressure to reduce PBS expenditure from its current level of $10bn, but it must do so in difficult circumstances: the average life-span of Australians is increasing as is the consumption of drugs, while the retirement age is not due to be lifted for some time.

Vertex, for example, appears to have recently borne the brunt of this downward pressure in a spectacular failure to reach agreement with the Pharmaceutical Benefits Advisory Committee (PBAC), the body that recommends new medicines for listing on the PBS. In a controversial decision, for the third time the PBAC refused to list Vertex’ combination cystic fibrosis drug Orkambi (lumacaftor/ivacaftor; understood to have been offered at around $300,000 per patient per year) because, as reported by Vertex’ General Manager Simon Bedson, the company would not agree to the PBAC request for a 90% discount on the price tag. Bedson has called on Greg Hunt, the Minister of Health and the person responsible for PBS expenditure, to step in and to over-rule the PBAC.

Tough price negotiations on individual items aside, however, it is clear that containing the PBS budget requires heavy reliance on entry of “cheap” generic products into the market, not least because an automatic reduction of 16% applies to the innovator company’s product once a generic drug is listed on the PBS. The need to contain costs, however, has to be balanced with allowing pharmaceutical companies to reap the benefits of the many years of research and testing required to bring a new product to market.

A tension arises, therefore, when the Patent Office, an instrument of Government, grants a PTE to compensate a patentee for time required to test and obtain regulatory approval for a drug covered by the patent, because the result is that the “high” price to the PBS is maintained for longer.

Government response to Productivity Commission recommendations in relation to PTE provisions

s70 Criteria for obtaining a PTE – Government rejects PC’s suggested restrictions

Under s70 of the Australian Patents Act 1990, a patent can be extended for five years beyond the standard 20-year term. A PTE is available for patents covering new active pharmaceutical ingredients, new formulations of known active pharmaceutical ingredients and new methods of producing known pharmaceuticals when the methods involve the use of recombinant DNA technology. In order to be eligible, more than five years must have elapsed between the filing date of the patent and the date on which regulatory approval for a product covered by the patent was obtained in Australia.

The Australian Productivity Commission Inquiry Report (PC Report), published in December 2016, recommended that PTE legislation be reformed such that extensions are only:

(i) available for patents covering an active pharmaceutical ingredient, and

(ii) calculated based on the time taken by the Australian regulatory approval body to approve the drug over and above 255 working days (one year).

Many thought that this recommendation was likely to be approved by the Government and that PTEs may even be phased out completely over time – remaining unpersuaded by the argument that abolishing the system was not a “genuine” option as it would be contrary to our obligations under international agreements.

In its Response to the PC Report, published on 25 August 2017, the Government noted the Commission’s finding that “extensions of patent term prolong market exclusivity and impose significant costs on consumers, Government and taxpayers. The Commission estimated that the cost to the Government (through additional costs to the Pharmaceutical Benefits Scheme) of providing extensions of patent term to pharmaceuticals is approximately $260 million per annum.” and further acknowledged that “the effective patent life of extended Australian patents is 12 months longer at the median than those in the United States and the average expiry date of extended Australian patents is 18 months later than those in the United States”.

It will come as a relief to innovators to note that, notwithstanding those comments, the Government indicated that it has “no plans to proceed with the recommendation in the form proposed by the Productivity Commission. The Government will discuss ways to improve the patent term extension system with the sector.”

For the foreseeable future, therefore, innovators will continue to enjoy up to five years’ additional protection beyond the 20-year term of their Australian pharmaceutical patent.

S76A Financial report by PTE recipients

Beneficiaries of PTEs will also be pleased to note that the Government will consider repealing s76A of the Patents Act 1990. This section of the Act is poorly worded and ambiguous in its intent. It relates to an obligation on the patentee to provide a financial report to the Government concerning the use of Government funds by organisations involved in the development of the relevant pharmaceutical product. However, due to its deficiencies, it was difficult for patentees to be certain of the requirements and attempts at compliance could, depending on the interpretation of the statute and the circumstances, be very onerous.

Notwithstanding the lack of any apparent penalty for non-compliance, through abundance of caution, Shelston IP’s advice to PTE recipients has always been to comply or at least to make an effort to comply with the requirements as we interpreted them. However, we understand that some patentees may have chosen to ignore the s76A requirements.

The PC Report recommended that the Australian Government “reform s76A of the Patents Act 1990 (Cth) to improve data collection requirements for extensions of term, drawing on the model applied in Canada.” and suggested rather sternly that “Thereafter no extensions of term should be granted until data is received in a satisfactory form.”

Since the present author has lobbied for the reform/abolition of s76A, the Government’s response is very welcome. Hopefully repeal of the section will be swift, particularly given that better methods of accumulating useful data are available as mentioned in the Government’s response.

In that regard, Benjamin Mitra-Kahn, the Chief Economist of the Australian Patent Office, recently indicated that a database linking pharmaceutical patents with PBS costs will be launched by the end of 2017. We understand that the database will be limited to connecting the IP Australia table of pharmaceutical extensions (Open Data IPGOD) with PBS expenditure data and hence patents that have not been extended would not appear.

Swiss-style claims do not confer eligibility for a PTE: relief for the PBS

From the moment the PTE provisions were introduced into the Patents Act 1990, the Patent Office Manual of Practice and Procedure clearly indicated that Swiss-style claims did not confer eligibility for a PTE and Patent Office practice was to refuse requests for PTE if they relied only on Swiss-style claims.

However, the case law developed in such a way that it became apparent that a claim to a method of producing a product (which could involve the use of recombinant DNA technology) could render a patent eligible for a PTE – even if the patent did not include a product-by-process claim directed to the registered pharmaceutical[1] and, further, even if the claim did not explicitly mention a recombinant DNA step[2].

AbbVie attempted to have three patents, namely AU2012261708, AU2013203420 and AU2013257402, extended. The patents include Swiss-style claims directed to use of the antibody adalimumab (AbbVie’s Humira) in the manufacture of medicaments for the treatment of ulcerative colitis, Crohn’s disease and rheumatoid spondylitis, respectively. It was argued essentially that the claims relate to a method of producing the pharmaceutical that involves the use of recombinant DNA and hence they fit within the criteria for PTE.

When the Patent Office refused to allow the PTE, AbbVie appealed to the Administrative Appeals Tribunal (AAT). It was a surprise to Australian attorneys, and presumably to the Patent Office, when they were successful. Given the number of patents that would have been eligible for a PTE and the consequent long-term impact on the PBS budget, not surprisingly, the Patent Office appealed the decision of the AAT to the Federal Court.

The Federal Court Appeal was upheld and the decision handed down on 18 August 2017 (Commissioner of Patents v AbbVie Biotechnology Ltd [2017] FCAFC 129). The Court found that Swiss-style claims “are not claims to pharmaceutical substances at all. […] adalimumab is a pharmaceutical substance produced by a process that involves recombinant DNA technology. However, the claims in suit are not directed to adalimumab produced by recombinant DNA technology. They are directed to different subject matter. First, they are directed to a method or process in which adalimumab is used to produce a medicament. Secondly, they are directed to a medicament containing adalimumab that is to be used for specific therapeutic purposes […]. These claims do not meet the requirements of [the relevant subsection of the PTE provisions]. (at 58 and 59)

The decision was anticipated given the longstanding practice of the Patent Office to refuse requests for a PTE based on such claims and the development of the precedent law surrounding PTE provisions. Nonetheless, Greg Hunt would have heaved a sigh of relief on hearing the news.

Conclusion

Granting of PTEs by the Patent Office impacts the already-stretched PBS budget. However, in rejecting the recommendation of the PC to amend the legislation to significantly reduce the number of patents that would be eligible for an extension, the Australian Government has sided with innovators … for now. The outcome of the Government’s foreshadowed consultation with the sector will not be known for some time and progress will be monitored with interest.

Meanwhile, the predictable return to “business as usual” in relation to the types of claims that confer eligibility for a PTE, while disappointing at one level, at least provides innovators with greater certainty regarding the life-expectancy of, and anticipated revenue streams from, their Australian patents.