Last week's most read: SPC waiver may drive innovator investment in secondary patents and litigation

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UCB, GSK and other innovator drug firms explain how the EU’s SPC Manufacturing Waiver might drive larger investments in secondary patent fortresses for new products and strain resources on monitoring and litigation as they seek to interpret the legislation

The EU’s Supplementary Protection Certificate (SPC) Manufacturing Waiver could push innovator drug companies to build bigger portfolios for new products and spend more time and resource on monitoring and contesting generics’ use of the framework.

Current and former counsel at UCB, GSK and two other innovator firms say that last month’s European Parliament-approved waiver may drive more investments towards secondary patents for new products that would previously have been protected primarily by an SPC.

They add that these secondary patents could be used by drug makers to retain exclusivity over certain products that could be manufactured in the EU by generics for day-one launch in the bloc.

“Whether businesses will choose to buttress patents in the product pipeline is a complex matter,” says David Rosenberg, who left his role as vice president of IP policy at GSK in January 2019. “It will obviously be very difficult to get new patents on an existing product, but it may tempt innovators to build bigger portfolios of secondary patents around new products.”

The assistant general counsel at a global innovator company adds that the waiver has elevated the importance of additional patents on the product line. “Prior to this waiver, you might have a product patent and an SPC and file other IP within five years of the patent life on discoveries such as a process, a crystal form or a formulation,” he explains.

“You would never need to use or engage with those patents before because you would rely on the SPC – but now they have value in blocking potential manufacture in Europe in a way they did not before.”

He adds that there might therefore be more value in pushing those secondary patents through the EPO more vigorously and validating them more widely.

In-house sources say that the waiver could also push them to dedicate more resources to monitoring waiver use and perhaps litigation as well, if generics companies decide to push the boundaries of the legislation and innovators are compelled to start negotiation or litigation proceedings to clarify its provisions.

“For sure, the waiver and its notification provision will require companies to monitor use internally and take measures if necessary,” says Elise Melon, the associate director of IP policy and patent operations at UCB in Brussels.

She adds that those matters could be significant depending on generics’ uptake of the waiver and their intentions.

“If their intention is to export to a few countries, for example, it should be fine. But a more intensive use would require resources that we would rather direct to R&D.”

Generics businesses expressed similar concerns over a ramp up in litigation related to the waiver, but they put that potential increase at the foot of innovators using the notification provision to advantage their litigious goals.

While innovator in-house counsel are already considering the implications of the waiver to their businesses, they acknowledge that it may be a little while until they need to ramp up their responses.

“Innovators will start thinking about the implications of the SPC waiver in the next one to two years,” says Rosenberg. “Some SPCs will obviously be affected by the legislation earlier than others.”

Melon points adds that the regulation basically provides companies with three years to discuss and work out how they will deal with notifications and act to any misuse.

The innovator assistant general counsel warns, however, that the two-year implementation period will fly by.

"Validating secondary patents broadly is a significant budgetary event, because the costs between not validating widely and then validating in every EU member state are huge"

The SPC waiver was adopted by the European Parliament on April 17 2019, with 572 votes in favour, 36 against and 22 abstentions. The final text of the legislation was based on a provisional agreement between the European Parliament, Commission and Council during the trialogue negotiation period.

After intense lobbying from either side of the pharma industry, a compromise was reached with the Parliament on February 14 2019 that allowed generics businesses to stockpile small molecule and biosimilar drugs six months before SPC expiration for the EU market.

The legislation must still be adopted by the Council, but it has already signalled a willingness to approve the Parliament’s position. It is expected to come into force in June or July 2019, giving member states two years to implement the new rules.

Secondary thoughts

In-house sources say that decisions to build wider protection portfolios around new products to prevent generic manufacturing under the SPC waiver would have to be made on a case-by-case basis.

The global pharma assistant general counsel points out that the investment made in filing and broadly validating these secondary patents would be significant, so they must be sure that they are building more protection around the right products.

In the past, he adds, innovators would not have validated these secondary patents too broadly because they did not think they could get much out of them.

“Validating broadly is thus a significant budgetary event, because the costs between not validating widely and then validating in every EU member state are huge.”

He adds that this budgetary pinch would have a more profound impact on SME innovators, which usually have smaller budgets and fewer resources. 

“There will be shakedowns of how parties behave, and each business will need to make sure that the right people are telling innovators the right things about what they are doing"

One source agrees that the decision build up protection to combat the waiver will come down to a resources assessment, adding that businesses may decide a secondary-patent fortress is worth the money if it is covers a lucrative product

She points out that generics will still conduct due diligence when assessing the risks of market entry, and may or may not be deterred by a stronger arsenal of secondary patents.

Rosenberg, formerly of GSK, adds that the evidence in support of the SPC waiver was flimsy generally when it was presented to the EU, not least because it did not take secondary patents into account when it predicted the legislation’s economic and societal impact.

Time for shakedown

The waiver could also create a lot more work for innovator counsel in terms of managing waiver notifications, monitoring use and contesting generics’ use of the framework.

The global pharma assistant general counsel says that the situation for innovators under the waiver will be similar to that experienced when 10 European states joined the EU in 2004 and the specific mechanism was introduced to regulate parallel imports.

He adds that active monitoring was needed to ensure that generic versions of patent-protected or SPC-protected drugs were not being imported without notification from countries that did not have equivalent patent protection to pre-existing EU states, and that he had to sift through a lot of correspondence.

Innovators may also need to sit down with generics more regularly to agree how each party should behave when using or monitoring use of the waiver.

“There will be shakedowns of how parties behave,” he says. “Each business will need to make sure that the right people are telling innovators the right things about what they are doing so that, if there are any IP blocks in the way, such as secondary patents, there can be early communication to avoid a court battle.”

The new legislation has also compelled some innovators to look more closely now at when they want to file for SPCs. The global head of IP at a drug company says she is looking at making SPC applications sooner so that those rights are not caught up by the waiver when it comes into force.

The assistant general counsel adds that it is unlikely that in-house counsel will receive more funding from their businesses for these tasks and that they will “simply be added to the job list”.

Where counsel would have a case for increased funding is if the SPC waiver sparked a surge of litigation. But in-house sources say that while litigation to hammer out the terms of the waiver is inevitable, a potential court action surge will depend on generics’ attitudes and innovators’ appetites for litigation.

Rosenberg, formerly of GSK, agrees that the waiver will create more work for innovator counsel, but adds that it is difficult to tell exactly how much because of the question mark over litigation. Innovators feel strongly that the waiver will water down their rights and that they may be tempted to litigate extensively while generics may try to push the legislation’s boundaries on what is permitted.

“It is not difficult to see a number of issues emerging out of the waiver that are likely to have to be resolved by the Court of Justice of the EU. Questions might include what is a maker, what are related acts and what do drug makers have to do in terms of due diligence?” Rosenberg says.

“You can see areas where companies may very well want to litigate on both sides,” he adds.

But one innovator source argues that the waiver is probably not as big a threat to originators as some companies make out because it only gives European generics the same advantages enjoyed by drug makers outside of Europe.

“The waiver is not a big commercial threat to originators, so why would they spend the money on litigation?” they say. “You could well see an increase in litigation in the short term to hammer out the rules, but I question whether the legislation is commercially important enough to drive court battles in every case.”

Melon at UCB adds that a certain amount of litigation is inevitable because the final language of the waiver regulation is full of compromises and lacks clarity, and at some point it will need to be interpreted, much like any new piece of legislation.

“But the potential surge of litigation around and beyond interpretation cases is very difficult to predict and will depend on how the two sides will behave,” she argues.

Despite its potential to save a lot of money for generics businesses, the SPC waiver is clearly going to cause a headache for innovator companies – notwithstanding arguments that it will make Europe less attractive to pharmaceutical investors.

Managing notifications, monitoring use and clarifying provisions through meetings and litigation will suck up time and resources that patent departments would like to spend elsewhere. Whether a litigation surge erupts beyond establishing boundaries for the legislation depends on how generics and innovators react to the new rules.

In the meantime, innovators will be looking closely at their product portfolios to weigh up the pros and cons of building up a secondary patent fortress.