The lie of the land: extending exclusivity for pharmaceuticals and biotech

Market exclusivity is a key incentive for pharmaceutical, agrichemical and biologics innovator companies to assume the enormous risks associated with their investments in R&D and marketing: once a new product comes to market, meaningful profits are possible only through at least some period of exclusive rights for the product.

Around the world, innovator companies use various mechanisms to achieve market exclusivity for any new product. The most pervasive mechanism is patent protection, which under the World Trade Organization Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement ensures patent owners exclusive rights “to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or importing” the patented product for the duration of the patent.

Other mechanisms are available in countries such as the US and in the EU, including patent term extension, data exclusivity and patent linkage.

Market exclusivity mechanisms in the US and EU

Patent terms for pharmaceutical and biologics products may be extended in the US and EU to compensate innovator companies for lost effective patent term due to regulatory delays during product approvals. In the US a patent term may be extended under the Hatch-Waxman Act, and in the EU an innovator company may be eligible for supplementary protection certificates (SPCs).

These patent term extensions and SPCs come into effect after a patent expires and normally have a maximum lifetime of five years. In the EU, SPC applications must be filed and approved in each EU country.

The US and EU also provide for some period of data exclusivity before a generic company may seek regulatory approval based on an innovator company’s data. Generic companies may not file applications for bioequivalents relying on innovator company data until the data exclusivity periods expire.

The US provides for a period of five years from the marketing approval of the innovator company’s product, while EU regulations provide that original medicinal products shall benefit from an eight-year period of data protection, a further two-year period of marketing protection, and a possible one-year extension if the originator company can show a new therapeutic indication for the product.

In the US, patent linkage is provided by statute under the Hatch-Waxman Act. The Food and Drug Administration (FDA) maintains and updates listings of pharmaceutical products protected by patents (known as the Orange Book).

The FDA will not approve an Abbreviated New Drug Application (ANDA) for a generic product that may infringe a patent listed in the Orange Book. For innovator drugs with Orange Book patent protection, patent linkage is an effective mechanism to protect market exclusivity pending the resolution of patent disputes.

In contrast, under EU law, patent linkage is considered a clear abuse of the EU regulatory system, and marketing authorisations may not be linked to the patent status of an innovator company’s reference product.

The situation in China

Patent term extensions are not available in China. In addition, although China’s Implementing Regulations of the Law of Drug Administration provide for six years of “data protection” for an innovator company’s clinical and testing data, in practice China’s Food and Drug Administration (SFDA) only requires a generic manufacturer to submit limited data for marketing approval, rendering the regulations ineffective from a data exclusivity standpoint.

Further, China does not have a US-type patent linkage system. The SFDA requires that a generic applicant declare that its marketing of the generic drug will not infringe any third party patents, and a generic drug application can only be submitted within two years of the expiration of patents covering the innovator drug.

Also, the SFDA is not supposed to approve a generic application before the patents covering the innovator drug expire. In practice, however, unless the patent covering the innovator drug is a compound patent, once the SFDA has the generic applicant’s declaration of patent noninfringement, the SFDA will move forward with the generic application’s review despite the potential for patent disputes.

China implements a “monitoring period” for new drugs manufactured in China during which the SFDA will not accept or approve new applications for the same drug. Although intended mainly as a mechanism to monitor the safety of the new drug in the interests of public health, this monitoring period can, in effect, provide a level of market exclusivity for a new drug. The monitoring period can be for three to five years, depending on the nature of the drug in question.

Innovator drug companies face serious challenges in extending market exclusivity in China due to ineffective data exclusivity and patent linkage, as well as lack of patent term extension. Although the monitoring period may be useful in obtaining partial market exclusivity, the requirement that the drug be manufactured in China may be impractical for many foreign-originated innovator drugs.

As such, a strong patent portfolio and an effective monitoring and enforcement programme remain vitally important to achieving market exclusivity in China.

The situation in Taiwan

Under Taiwan’s current Patent Act, if regulatory approval is obtained more than two years after the patent grant, the patentee may apply for a patent term extension for up to five years. The two-year threshold is eliminated under the amended Patent Act (which is reported to become effective later in 2012). Under the new Patent Act, a patentee may apply for patent term extension if regulatory approval is obtained any time after the patent grant.

Taiwan also provides for a data exclusivity period effective for five years from the date a drug licence for a new drug with new ingredients is granted. A generic company may apply for a drug licence three years after the date the innovator company drug licence is granted, and the generic drug licence can be granted upon expiration of the five-year data exclusivity period.

Taiwan has no patent linkage mechanism. The brand holder must file a patent infringement lawsuit against the generic manufacturer for civil remedies, including an injunction and damages. Taiwan’s Department of Health announces disclosed patent information provided by a drug applicant but will still issue a drug licence to generic companies even if a patent infringement dispute is ongoing.

With the availability of patent term extension and data exclusivity, Taiwan’s regulatory regime for market exclusivity is rather strong. Strong patents plus any available patent term extensions are a highly effective means to obtain and maintain exclusivity.

The situation in Japan

In Japan, a patent can be extended for up to five years if the patent cannot be exploited due to governmental examination for drug approval. The scope of patents eligible for extension is broader than in the US and EU, as all related compound, use, and process patents are extendable.

Although Japan does not have a data exclusivity mechanism, a similar effect is achieved through its “re-examination period”. Japanese authorities may request continuous investigation of the newly approved drug for a certain period after regulatory approval. A generic drug applicant cannot refer to the innovator company’s data until after the re-examination period of the original drug.

“PATENT TERM EXTENSIONS AND DATA EXCLUSIVITY (OR ITS EQUIVALENT) ARE THE KEY MECHANISMS FOR EXTENDING MARKET EXCLUSIVITY OF INNOVATOR DRUG COMPANIES IN THE US, EU, TAIWAN AND JAPAN.”

With regard to patent linkage, Japan’s Ministry of Healthcare, Labour and Welfare announced that it would not approve an application for a generic drug that cannot be manufactured due to the existence of patent rights.

But the regulatory authority will prevent approval only if infringement is clear, which generally applies only in the context of compound patents. Japan’s regulatory regime for market exclusivity is stronger than those of most Asian countries due to its re-examination period and patent term extension rules.

Japan’s patent term extension rules are to some degree more permissive than those in the US, allowing the extension of multiple patents for related compound, use, and process patents. As in other countries, strong patents (such as compound patents), plus any available patent term extensions, are highly effective at maintaining market exclusivity.

Key mechanisms

Beyond pure patent protection, patent term extensions and data exclusivity (or its equivalent) are the key mechanisms for extending market exclusivity of innovator drug companies in the US, EU, Taiwan and Japan. In the US, and to some extent Japan, patent linkage is also an effective means for maintaining market exclusivity when a pending dispute involves patents covering an innovator drug.

Generally speaking, the regulatory regimes for extending market exclusivity are not as strong in Asia as they are in the EU and US, so careful patent portfolio strategy, planning and enforcement are crucial for innovator pharmaceutical and biologics companies looking to market and sell products in Asia.

Although China has a “monitoring period” for new drugs—which provides a certain level of market exclusivity— the drug has to be manufactured in China for the monitoring period to apply, and China remains a challenging regime for obtaining and extending market exclusivity for innovator drugs.

The authors of the article thank the following for providing legal insights on market exclusivity: Grace Shao (partner, Taipei), Daisuke Tatsuno (partner, Tokyo), Stephen Jones (partner, London) and Guy Birkenmeier (of counsel, Dallas).