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Hanover - Uncertain Times Require Uncommon Sense

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1 Jun 2018

Has the Commission shown its hand on the future of IP/incentives in the EU?

On 28th May 2018, the European Commission finally revealed the highly-anticipated legislative proposal for the Supplementary Protection Certificate (SPC) manufacturing waiver. The SPC manufacturing waiver is intended to allow generic manufacturers based in the EU to produce copies of medicines covered by the SPC, for exporting purposes outside the EU, where SPC protection has already expired or has never existed. What looks like a cosmetic amendment to the regulation could actually provide a strong indication of what the future of pharmaceutical policy in the EU could look like. Only by reading between the lines and beyond the proposal are we able to get a full picture of potential upcoming actions at EU level.

The proposal for a SPC waiver tackles the perceived problem that EU-based generic and biosimilar companies are at a disadvantage in the international market. Under current legislation, companies based outside the EU can produce and sell their copies to countries where SPC is not in place, unlike their EU peers. The introduction of a targeted and narrow exception is intended for purely trade purposes, focusing on increasing the competitiveness of EU SMEs, creating new jobs and bringing an additional €1b to the EU economy through the generics industry.

What impact will this have on the innovative industry? According to a study on the economic impact of pharmaceutical incentives and rewards in Europe, developed by Copenhagen Economics and published on the same day, the proposal will have a minimal impact on their business. The claim is that the decrease in their sales outside the EU will be minimal in comparison to the benefits that will be brought to the overall economy. But does this really mean that the industry has nothing to worry about?

This may well be the case, but the study is just one part of a larger ongoing process within the European Commission, otherwise known as the IP/incentives review. A broader reflection process and analysis on the future of pharmaceutical policy is a response to the invitation of Member States in the Council Conclusions of June 2016 to conduct an analysis of the functioning and actual use of current pharmaceutical incentives.

IP/incentives review – increasing uncertainty for the pharma business
Procedurally, the next steps for the SPC waiver proposal are clear:  it will be presented to the European Parliament and the Council for further debate. The Commission hopes that the proposal will be adopted by spring 2019, under the current Commission mandate. However, the future of the broader IP/incentives review remains uncertain.

By publishing the study on economic impact alongside the SPC waiver proposal, the Commission has caught public attention by the measurable and immediate proposal, while the study outlining the future of the IP/incentives review remains in the background. As set out in Hanover’s previous blogpost Is the EU in danger of undermining medicines investment in Europe?, the IP/incentives review will focus on reassessing EU legislation in three areas: orphan drugs, paediatrics and medicinal products. The content of the published study hints at anticipated changes to the current IP/incentives framework, which resonate strongly in the EU healthcare sector, and it seems that the EU legislator is motivated to go down this route.

Copenhagen Economics assessed more than 500 unique drugs to understand the interaction between different incentives provided to pharmaceutical companies and the effective protection period that medicines benefit from. A major question addressed by the study was the implication of additional protection on innovation, accessibility and availability, and maintaining the balance between them.

In terms of innovation, the incentives are recognised as an accelerator of research and development by pharmaceutical companies in the EU. However, the study questions the impact of the incentives on accessibility and availability of treatments in light of the way innovative companies are perceived to take advantage of the protection period versus the overall public interest.

No change without change – what should companies do? 
The key concern that has not been addressed by the study and is left to further assessment of the European Commission is whether the incentives are proportionate to the goals outlined in the legislation setting them up? Are companies really recouping their R&D investment during the protection period or are they just maximising their profits and harming the public interest? This is a political question, to be dealt with at a political level.

The Commission intends to set out their findings and potential solutions by 2019, to allow the next Commission to make an informed decision about possible policy and legislative changes. If companies want to demonstrate the importance of the current IP and incentives framework that stimulates their work, they need to fill the knowledge gap between business stakeholders and public authorities. Both currently possess asymmetric information on the role that pharmaceutical companies play and the role that they would like to play in a modern, healthy and ageing 21st century society.

There will not be any legislative change without a change in the way that companies communicate about their work and interact with policy-makers. The SPC waiver proposal is a proof that the current messaging is not being heard and that public authorities are continuing to blame business for the gaps in healthcare budgets. Companies should present themselves as partners and seek collaborative new solutions for the challenges that countries are facing, such as innovative pricing and reimbursement models, financing tools and new business strategies.