Pharmaceuticals — a better policy prescription
The pharmaceutical sector relies on IP protection more than most, since many pharmaceutical advances require large upfront investment in research and development and are easy to copy. In addition to the standard suite of IP protections, the pharmaceutical sector benefits from bespoke IP arrangements.
Extensions of term
Further to the 20 year term applying to all patents, pharmaceutical patents can qualify for an additional five years of protection. Extensions of term (EoT) are capped at an effective market life of 15 years. These bespoke arrangements were intended to attract pharmaceutical research and development investment to Australia and to improve incentives for innovation by providing an effective market life for pharmaceuticals more in line with other technologies.
However, Australia’s EoT scheme has had little effect on investment and innovation; Australia represents a meagre 0.3 per cent of global spending on pharmaceutical research and development. As pharmaceutical companies have acknowledged, the prospect of future returns in such a small market (accounting for only 2 per cent of global pharmaceutical revenues) provides little in the way of additional incentive. Moreover, the benefits sought from EoT arrangements have proven largely illusory, resulting in a costly policy placebo. Poor targeting means that more than half of new chemical entities approved for sale in Australia enjoy an extension in patent term, and consumers and governments face higher prices for medicines.
Rather than compensating firms for being slow to introduce drugs to the Australian market, extensions should only be allowed where the actions of the regulator result in an unreasonable delay. Timeframes (of around one year) set by Government for the Therapeutic Goods Administration (TGA) provide a ready benchmark for determining what constitutes a reasonable processing period. EoT should only be granted where the time taken by the regulator exceeds this period. The Commission estimates that this approach would lower the cost of pharmaceuticals in Australia and save consumers and taxpayers more than $250 million per year.
Sharing rather than protecting data
The confidential data submitted in support of regulatory approval processes are also protected for a period of five years. During this period, manufacturers of generic pharmaceuticals must independently prove that their products are safe and effective, even though they are chemically identical to already approved drugs.
Pharmaceutical companies have pressed the Australian Government to extend the duration of data protection. They view data protection as an insurance policy to guard against what they see as inadequate patent protection. Most recently, negotiations for the Trans Pacific Partnership Agreement saw (unsuccessful) calls to extend data protection for biologics from 5 to 12 years.
Despite decade long claims of inadequate patent protection, there is little evidence of a problem. Even if isolated cases were verified as genuine, extending protection to a broad class of products to address exceptional cases would represent a blunt and costly response. And using data protection as a proxy for patent protection has drawbacks. Beyond the obvious absence of disclosure of information to promote further innovation, data protection lacks other important balances that apply to patents. Data protection arises automatically and cannot be challenged in court.
As well as there being strong grounds for resisting further calls to extend the period of data protection, there is a case for making data more widely available. At present, not only are follow on manufacturers prevented from relying on clinical data for a period of five years, the data is kept confidential indefinitely. Allowing researchers access to this data could provide substantial public health benefits. But doing so unilaterally would have some downsides. Companies may respond by delaying the release of medicines in the Australian market. Accordingly, any moves to publish the relevant data need to be internationally coordinated.
Reducing the scope for strategic behaviour
The ability of companies to leverage their IP rights to forestall entry by generics — effectively extending the term of exclusivity — can have a significant negative impact on consumers and (through the Pharmaceutical Benefits Scheme (PBS)) on taxpayers. Firms can use a variety of strategies to further extend the commercial life of their products including (so called) evergreening and pay for delay.
Evergreening refers to the strategy of obtaining multiple patents that cover different aspects of the same product, typically on improved versions of existing products. Some of these patents relate to genuine improvements that increase consumer wellbeing, such as significantly reducing side effects of certain medications. However, some ‘improvements’ may involve a slightly different chemical combination or process of production, which show no appreciable difference to the user. An additional benefit of changing the inventive step is it would reduce the scope for the latter type of behaviour — by granting new patents only for genuinely inventive products.
Pay for delay refers to the practice whereby patent holders pay generic manufacturers, as part of a settlement for a patent infringement case, to keep their products off the market beyond the scope of a patent. Delays of this kind limit competition by restricting the number of products on the market and any subsequent price reductions, including those triggered under the PBS.
In contrast to the US and Europe, which have arrangements to detect suspect agreements, Australia has taken a ‘see no evil’ approach to pay for delay settlements. A transparent reporting and monitoring system should be put in place to detect pay for delay settlements. This would require reporting to the Australian Competition and Consumer Commission (ACCC) settlement arrangements between originator and follower pharmaceutical companies that affect the timing of market entry for a generic version of a product into the Australian market. To minimise compliance and transition costs, monitoring arrangements should be based on those employed by the US Federal Trade Commission.