Pharmaceuticals – getting the right policy prescription

According to a government report of the Department of Industry, Innovation and Science, in 2012-13, the pharmaceutical industry turnover in Australia was $23.4b. The value of pharmaceutical exports was $3.88b and, by contrast, the value of imports was $10.51b.  The industry employs well over 15,000 people in manufacturing, and countless more are engaged behind the scenes in the Australian academic and research sector making new discoveries that have underpinned Australia’s reputation for first class medical research. The Australian Government regularly lauds Australia’s world class medical research, indeed actively encourages it.

Underlying these statistics however, is a financial and social tension brought about by Australia’s heavily government subsidized healthcare system.  Health policy settings struggle to deal with the ever increasing cost to Government of pharmaceuticals, reflecting the increasing cost of pharmaceutical discovery and an aging population.  The Pharmaceutical Benefits Scheme exists to provide balance between cost and access to new drugs. But even this system is struggling to meet its objectives. Of the top five suppliers of drugs under the Pharmaceutical Benefits Scheme, three are generic pharmaceutical manufacturers accounting for 30% of market share.  The generic pharmaceutical sector is viewed by Government as enabling it to meet its objectives of lowering the cost of drugs and increasing exports.

Extension of Term, Data Protection Export Protection and Lifecycle Management

Releasing the Report, Commissioner Jonathan Coppel said ‘For pharmaceuticals alone, excessive protection costs the Australian Government, taxpayers and consumers over a quarter of a billion dollars each year’. It’s no wonder then that the Australian Government’s Productivity Commission (“The Commission”) has focussed on issues in intellectual property protection of innovator-originating drugs.

Four major recommendations are made:

  • The Commission recommends that extension of term provisions be better aligned to actual ‘unreasonably regulatory delay’. That is, that the calculation of extended term be altered from one based on the delay between patent filing and regulatory approval, to one solely dependent on the speed of the Australian regulatory regime.  It is argued that, extension of term periods would be shorter, and that the consequent cost of innovative drugs to the Australian public would be lower because patent term would be shorter.

It is also suggested that the scope of subject matter susceptible of an extended term be tightened so as to avoid the subject matter creep latterly observed toward medical devices.

  • In order presumably, to enable a better balance of trade between pharmaceutical imports and exports, and to support local manufacturing, The Commission recommends that ‘manufacture for export’ of drugs be an exemption from patent infringement. This recommendation is underpinned by The Commission’s perception that, because the rights are held by an Australian patentee, Australian manufacturers miss out on selling drugs into off shore markets where corresponding patents do not, or no longer exist.
  • The Trans Pacific Partnership discussions were almost derailed by the Australian Government’s insistence that it would not provide a term of data protection beyond the present 5 years. The Commission steadfastly supports this policy position in respect of both pharmaceuticals and biologics.

The interesting twist here is that since this report was commissioned in August 2016, the High Court has handed down its decision in Myriad from which has arisen practice guidelines from the Patent Office which make the patentability of biologically–based drugs considerably more difficult than was previously the case. In this context, data protection becomes an even more important tool through which an innovator can obtain a return on investment.

  • Lifecycle management is a strategic consideration for all originators of medicines so as to be able to maximise financial returns on research & development investment which can run to more than a billion dollars. However, strategic options founded on intellectual property management are often characterised by the broader market as ‘gouging’.  The Commission has considered the practices of (patent) evergreening and ‘pay-for-delay’ (an ostensibly US-based practice).  It has concluded that raising the bar on inventive step (again) to remove the requirement that a skilled person ‘be led as a matter of course’ to the invention, and to include ‘social’ factors such as the value of the invention to the community, might address what it perceives as an imbalance between the level of protection provided to pharmaceutical innovators and the cost of drugs to the market.  The Commission had also suggested a US-style system whereby generic companies are incentivised to challenge innovator patents albeit it found no evidence that ‘pay-for-delay’ strategies were utilised in the Australian market.

There is an inconsistency between The Commission’s recommendations on the issues surrounding intellectual property protection for pharmaceuticals, and the Government’s recent renewed interest in driving an innovation based economy. This is particularly so, considering Australia’s strength in delivering extraordinary research outcomes in the healthcare space over many decades.

We hope that in deciding whether or not to act on The Commission’s recommendations, the Government listens with care to both the innovative and generic sectors. Consideration must be given to the long term impact on one of the most significant of Australia’s research sectors should the recommendations eroding intellectual property protection be implemented.

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