EFPIAs Response to The Pharmaceutical Sector Inquiry Preliminary Report Brian Healy, Ph' D Merck

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EFPIAs Response toThe Pharmaceutical Sector
Inquiry Preliminary ReportBrian Healy, Ph.
DMerck CoMember of EFPIA Sector Inquiry Task
Force
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Scope of the Inquiry

• Commissioner Kroes If innovative products are
  not being produced, and cheaper generic
  alternatives to existing products are being
  delayed, then we need to find out why and, if
  necessary, take action.
• Hugely burdensome and continuing interrogations
  of 43 innovative companies relating to 219 INNs
  over 8 years
• Interim Report maintains but fails to
  substantiate the underlying allegations and to
  analyse causation.

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The Interim Report

• Negative tone causes long-term reputational
  damage
• No evidence of systemic problems caused by
  innovator conduct
• 1. no decline in innovation
• 2. EFPIA supports immediate generic entry but
  calls for an objective assessment of the reasons
  for delay
• A missed opportunity to examine
• 1. the complexity/diversity of national
  regulatory regimes
• 2. the potential for more efficient generics
  markets

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Presentation

• The facts on generic entry
• The real reasons for the decline in innovation
  productivity
• The critical challenges the Interim Report fails
  to explore
• EFPIAs main policy recommendations

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• I. GENERIC ENTRY

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Generic Entry The Allegation

• Innovators recourse to a toolbox of tactics
  delays/blocks generic entry at a cost of 3bn
• Patent portfolios
• Patent litigation
• Settlement agreements
• Complaints to regulatory authorities
• Introducing marginally improved products towards
  end of patent life to switch demand

These are all common and lawful commercial
practices calling them into question creates
legal uncertainty and threatens innovation.
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Intellectual Property Protection

• DG COMP insists that it does not call into
  question the IP system
• But it repeats many of the allegations made by
  generics (too many patents, patents protecting
  incremental innovation are weak, etc.)

Strong IP protection is key in a sector where 2
out of 10 new medicines reaching the market cover
their RD costs.
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Patent Portfolios

• DG Competition implies that innovators file
  patent thickets and weak patents to create
  uncertainty
• What the EPO says
• the labels primary patents and
  secondary patents are not terms of art in the
  European patent system. Indeed, an invention
  claimed in a patent application is subjected to
  the conditions for patentability contained in the
  EPC and to those aloneThus, the suggestion of
  generic companies that the EPO should subject
  so-called secondary patents to a higher level
  of scrutiny is incompatible with the principles
  of the EPC, the letter and spirit of which
  require the EPO to carry out its work in a
  neutral and predictable manner free of arbitrary
  considerations, and to subject all inventions to
  the same standards of patentability under the
  EPC.
• Competition authorities should not judge the
  value of patents nor the patentees intent in
  filing for patents.

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Patent Portfolios

• DG Competition mis-states patent numbers
• 40,000 patents/applications in EU 27 You may be
  surprised how far they will go to extend the
  depth and duration of patent protection EU
  wide, up to 1,300 patents can be filed in
  relation to a single product
• What the EPO says
• this method of counting patents needlessly
  and artificially inflates applicable numbers,
  giving a distorted picture of the functioning of
  the system although this figure is presented in
  the section on the geographical scope of
  patenting, given the intuitive connection between
  granting levels and perceptions of quality, it
  automatically goes beyond the issue of the
  fragmentation of the European market and appears
  to imply a severe substantive dysfunction of the
  European patent system in qualitative terms. We
  consider this inappropriate and misleading
• EFPIA supports the Community Patent and a high
  quality single litigation system but DG COMP
  should acknowledge that today the system is
  national.

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Patent Portfolios

• DG Competition mis-states the patent system
• when the main patent is about to
  expireoriginator companies may apply for a
  subsequent patent for the same initial
  molecules 891
• What the EPO says
• A subsequent patent may well be granted for
  an incremental invention related to the initial
  molecules covered by the so-called primary
  patent, but it certainly would not contain a
  product claim for the same molecule per se
• Competition authorities must refrain from judging
  the volume of patent rights and the timing of
  patent applications or risk chilling innovation.

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Patent Litigation

• gt 26,000 patents for 219 top-selling INNs
• No litigation in relation to 151
• 700 litigations started in relation to 68 INNs
  involving 478 patents
• 149 final decisions
• This is not a large number nor a cause for
  competition law concern.

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Outcomes of Litigations and Oppositions

• Litigation (149 cases)
• Overall patentee loses in 62
• No comparative data with other sectors
• Approx. 50 cases which patentees brought and won
  at trial but then settled appear to be excluded
  from the data
• Oppositions (52 final decisions)
• 31 revoked
• 13 upheld non amended
• 8 upheld in amended form
• The checks and balances are working. These data
  do not reveal a systemic problem.

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Regulatory Complaints

• Interim Report questions lawfulness of complaints
  to regulatory authorities (e.g., on patent
  infringement, on safety concerns)

Bringing a good faith concern to regulators
attention is not a competition law violation.
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What the Interim Report Does Not Address Prices
in the Generics Markets / the Distribution Margin

• Generics represent approx 18 of value of EU
  prescription market and growing
• Commission rationale for generic entry concern is
  cost saving (0.90 per citizen per annum)
• Netherlands saved gt 25 per citizen by promoting
  price competition between generics on 33
  medicines
• Despite average of 7 generic competitors per
  product and very low production costs, prices
  only 20 lower after 12 months

Efficient generics markets offer a REAL
opportunity for significant cost savings and
headroom for innovation.
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What Else Does the Interim Report Fail to Address?

• The extent to which the practices under
  investigation had any effect
• The impact of regulation on the market
• The actual period of exclusivity that innovators
  have
• Absence of causality analysis is a fundamental
  flaw that deprives the Inquiry of any semblance
  of objectivity.

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The Facts on Generic Entry

• LOE is when a product no longer benefits from
  patent or data protection at which point generics
  can enter lawfully if they so choose
• Wide variation between Member States
• Delay is 6.6 months (weighted average) and 4
  months for blockbusters
• Generic entry is getting faster for high value
  products where interim report says there is most
  common use of the toolbox!

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Possible Causes of Delay (other than the
toolbox of lawful measures)

• Insufficient market incentives due to market size
  and variations in national price regulations
• Formulation difficulties or costs
• Law applicable during period of investigation
  (e.g., pre-Bolar)
• Regulatory and PR delays
• The cost of delayed generic entry assumes day 1
  generic entry that ignores many other factors,
  including recent legislative changes that will
  mean faster generic entry.

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Failure to Tackle the Biggest Single Delay to
Market Entry National Regulations

• National regulatory and price and reimbursement
  regimes mean average delay between marketing
  authorisation and pricing and reimbursement
  approval is as much as
• 140 days for generics and can be as much as 270
  days
• 478 days for innovative medicines and can be as
  much as 1300 days
• Simply put, Europes patients deserve better!

Requirements that cause a high administrative
burden without providing a clear public health
benefit have a strong negative impact on
competitiveness. Commissions December 2008
Pharma Communication
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• II. The Alleged Innovation Decline

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Impact on Innovation

• Allegation of defensive patenting strategies to
  block rivals rather than to protect meritorious
  developments, leading to obstacles to innovation
  in the form of higher costs or delays
• 1,100 reported overlaps in EU
• 99 requests to license, 80 granted or other
  solutions found
• Only one reported case of an RD project
  terminated for want of a license

There is no evidence of any hold-up. Strong IPR
protection is the bedrock of innovation.
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Pharmaceutical RD Expenditure in Europe, USA and
Japan (Million, at 2002 constant exchange rates,
bln ), 1990-2005
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The Number of Compounds in Development
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The First to Market is Generally Quickly Followed
by Many Others

• gt15 beta blockers
• 9 protease inhibitors
• 15 NSAIDs
• gt10 statins
• ... resulting in tangible benefits to patients
  well-being

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What the Interim Report Does Not Address the
Causes of the Decline in RD Productivity

• More complex scientific targets
• Investments in biotechnology retooling
• Increased costs and higher attrition rates in
  late stage development due to risk
  aversion/negative signals from pricing
  authorities not willing to pay for incremental
  innovation

Europe needs a holistic approach to healthcare
spending focused on the value of new medicines
and on savings from more efficient generic
markets being reinvested in innovative markets.
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Industry Investigations vs FDA Approvals
14,4
3,1
Success rate
From 2 NME per bln in 1996 to 0.4 NME per bln
in 2006
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Conclusions on the Interim Report

• Interim Report is fundamentally flawed and fails
  to meet DG COMPs stated objective
• Central allegations not substantiated and cause
  reputational damage
• Lack of understanding of how innovation occurs,
  how the patent system works, and the influence of
  the broader regulatory environment

The Final Report should be objective and advocate
reduced regulatory barriers, strong IP
protection, and real savings that allow more
patients faster access to therapeutic advances.
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EFPIA Policy Recommendations - Highlights

• Expedite benchmarking and propose free pricing in
  order to achieve more efficient generics markets
  to create headroom for innovation
• Ensure that PR processes are fair, swift and
  predictable promoting early and equal patient
  access and a fair reward for innovation
• Improve the patent system (EPC and specialised
  unitary litigation system)
• Allow innovators to take action to resolve
  disputes before generic launch to increase
  predictability and efficiency