The Productivity Commission’s draft report on Intellectual Property (IP) arrangements released on 29 April includes a chapter dedicated to pharmaceutical patent reform - Pharmaceuticals – getting the right policy prescription.

Further to our previous article, we now provide a summary and the authors' views on draft recommendations proposed:

Extension of Term

Australian law provides for extensions of patent term (EoT) of up to five years for certain patents relating to pharmaceutical substances where goods containing those substances are included on the Australian Register of Therapeutic Goods (ARTG), and where the time or ‘delay’ between filing a patent application and listing of the goods on the ARTG is more than five years.

Chapter 9 of the Productivity Commission Draft Report, Pharmaceuticals – getting the right policy prescription, provides the Commission’s view on the current arrangements for EoTs and protection of clinical data submitted in the process of obtaining regulatory approval, identifying deficiencies in most of the arrangements and therefore proposing recommendations for reform. Amongst the recommendations are:

  • that EoTs be “based only on the time taken for regulatory approval by the TGA over and above one year”
  • that EoTs be granted in a manner “which explicitly allows for manufacture for export in the extension period”
  • that there “should be no extension of the period of data protection”
  • that there should be “a transparent reporting and monitoring system to detect any pay-for-delay settlements between originator and generic pharmaceutical companies”
  • that the Patents Act be reformed to “improve data collection requirements” and that “ extensions of term should not be granted until data is received in a satisfactory form”

In coming to a number of these recommendations the Report identifies that EoTs “impose considerable costs on consumers, government and ultimately taxpayers through the Pharmaceutical Benefits Scheme”.1 However, data included in the Report also indicates that the annual cost of EoTs to the government, which contributes 80% of the cost of all PBS medicines, is only 2.7% of the government expenditure on the PBS.2 Consequently, as far as a savings initiative is concerned, it is the view of this article’s authors that the recommendations appear misplaced.

The Report also highlights the potential of the current system to be open to strategic timing by the patentee, in essence that a patentee can “choose to delay filing for regulatory approval, such that…a pharmaceutical product will be eligible for an EoT”.3 However in this authors' opinion, the Report’s asserted “strategic delay” lacks economic rationale. This is because a patentee can only get a return from their Australian patent after their product is approved for the Australian market. Any such deliberate delay in seeking approval, by definition, delays entry of the product to the market and therefore delays any returns to the patentee and/or its licensees (and imposes no financial cost to society). Due to the way in which the EoTs are calculated, it is the view of this article’s authors that any such deliberate delay will not result in a longer term to sell the approved product.

Whilst acknowledging that Australia’s policy flexibility in relation to EoTs is constrained by certain international agreements (including the Australian US Free Trade Agreement and the Trans-Pacific Partnership (TPP)), the Commission notes that it is ultimately required only to provide ‘compensation’ for ‘unreasonable curtailment’ of the patent term. To this end, the Commission has proposed that eligibility for an EoT should be based on the actions and delays of the ARTG, rather than those of the patentee, and goes on to state that a period of one year is ‘well within the bounds of a “reasonable” delay’ for the TGA to approve goods for inclusion on the ARTG.4 Accordingly, the Commission suggests that compensation for ‘unreasonable curtailment’ should be limited to those delays in excess of this one-year period that are attributable to the actions of the TGA.

Thus, Draft Recommendation 9.1 is:5

The Australian Government should reform extensions of patent term for pharmaceuticals such that they are calculated based only on the time taken for regulatory approval by the Therapeutic Goods Administration over and above one year.

In leading to this recommendation the Report notes that “the TGA’s approval time for new chemical entities varied between 88 and 251 working days”.6 As a result, implementation of Draft Recommendation 9.1 would eliminate the vast majority of EoTs if recent approval times are maintained. This recommendation is based only on the administrative handling and consideration of the application for approval. If the purpose of the EoTs is acknowledged to be to provide an effective patent term to a pharmaceutical product, the failure to take into account the significant time required for generating the clinical data that must accompany any application for regulatory approval may, in the view of the authors, be seen as a disservice to innovators.

In their review of EoT practice, the Commission also noted that recent case law.’7 ‘highlights the potential for future cases to further expand the definition [of “pharmaceutical substances”], allowing EoTs for progressively smaller advances’8 and proposes that there may be value in restricting EoTs to new active pharmaceutical ingredients only.

Manufacture for export

Under Australian law, patentees enjoy the exclusive right to exploit their inventions. ‘Exploit’ includes making, selling, using, importing and exporting a patented product (or product produced by a patented process). Accordingly, a drug protected by an Australian patent cannot be manufactured in, or exported from, Australia to other countries where corresponding patents have expired (or were never filed) by an unauthorised third party.

The Commission considers that Australian patents granted an EoT ‘often’ expire later than those filed elsewhere,9 which can impede the access of Australian generic manufacturers in overseas markets. Accordingly, the Commission proposes using sui generis protection, such as that used in other jurisdictions (e.g. the Supplementary Protection Certificate (SPC) in the European Union), to allow for manufacture of patented drugs in Australia during the EoT period if the drugs are for export to countries where patents are not in force.

The Commission notes that scope to use this form of protection ‘is clouded by ambiguous drafting within trade agreements’,10 but that a sui generis approach would at least appear to be consistent with Australia’s obligations under the TPP.

Accordingly, Draft Recommendation 9.2 is:11

Regardless of the method of calculating their duration (draft recommendation 9.1), extensions of term in Australia should only be granted through a tailored system which explicitly allows for manufacture for export in the extension period.

Data protection

In accordance with recent publicity surrounding Australia’s implementation of Articles 18.50 and 18.51 of the TPP, the Commission concludes that Australia is not required to change its current provisions in relation to data protection. In particular, the Commission states that Australia is not required to provide more than five years of exclusivity for data submitted for regulatory approval of a biologic, noting that the relevant TPP provision acknowledges that ‘biologics manufacturers rely on a suite of legal and market-based mechanisms to maintain a competitive advantage’.12

The Commission also discusses the benefits and implications of publishing clinical data relating to approval of pharmaceuticals, and concludes that whilst eventual publication has merit, publication would need to be internationally coordinated.

Accordingly, Draft Recommendation 9.3 is:13

There should be no extension of the period of data protection, including that applicable to biologics.

Further, in the context of international negotiations, the Australian Government should work with other nations towards a system of eventual publication of clinical trial data in exchange for statutory data protection.

Strategic behaviour

The Commission reviewed evidence for so-called ‘evergreening’, or strategic use of patents to maximise the exclusivity surrounding pharmaceutical products, and concluded that there are strong grounds for raising Australia’s inventive step threshold (see Draft Recommendation 6.1).

The Commission also reviewed evidence of ‘pay-for-delay’ settlements, in which a generic manufacturer is paid to keep a generic product out of the market after the relevant patent has expired. Whilst the Commission notes that “there is no evidence of ‘pay-for-delay’ settlements in Australia”,14 it is suggested in the Report that monitoring and transparency of pay-for-delay agreements should be improved. One option suggested is to follow a US-style system where agreements between pharmaceutical companies and generic manufacturers that involve the manufacture, marketing or sale of drugs are filed with the Federal Trade Commission, who review the agreements for potential anti-competitive behaviour.

Accordingly, Draft Recommendation 9.4 is:15

The Australian Government should introduce a transparent reporting and monitoring system to detect any pay-for-delay settlements between originator and generic pharmaceutical companies. This system should be administered by the Australian Competition and Consumer Commission.

The monitoring should operate for a period of five years. Following this period, the Australian Government should institute a review of the regulation of pay-for-delay agreements (and other potentially anticompetitive arrangements specific to the pharmaceutical sector).

Data collection for policy analysis

Patentees who have obtained an EoT for one or more patents will be aware that Australia has data reporting requirements (under Section 76A of the Patents Act 1990 (Cth)) that require them to lodge details of Commonwealth funds spent on R&D for the drug the subject of the extended patent, as well as relevantly contracted parties that have received Commonwealth funds, and the total amount spent on R&D for the drug, with the Australian Government Department of Health.

The Commission reviewed this system for data collection and concludes that it is ‘flawed, cumbersome and ineffective’ (noting that in the period 1 July 2009 to 30 June 2014, only 55% of EoT applicants submitted details under Section 76A).16 However, the Commission considers that reform of the current system, rather than abandonment, is appropriate. (pg 291)

Accordingly, Draft Recommendation 9.5 is:17

The Australian Government should reform s. 76A of the Patents Act 1990 (Cth) to improve data collection requirements. Thereafter, extensions of term should not be granted until data is received in a satisfactory form. After five years of data has been collected, it should be used as part of a review to consider the ongoing costs and benefits of maintaining the extension of term system.

Next steps

The draft recommendations point to a number of significant reforms for pharmaceutical patents, some of which, if legislated, will impact upon the effective patent term for innovators. The Productivity Commission is accepting submissions on the report until 3 June and will hand the report to the Australian Government in August, after the Australian Federal election on 2 July.