27 November 2014Jurisdiction reportsThomas Schmidt

The promise and pitfalls of data exclusivity

This intervention, designed to buttress existing rights for pharmaceutical patent holders, came in the form of the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), which broadly charged the signatory nations with protecting applicants from unfair competition. Specifically, there is a requirement (laid out in article 39[3]) to keep “undisclosed test or other data, the origination of which involves a considerable effort” secret. One result is the withholding of trial data for a number of years after the launch of the product protected by a pharmaceutical patent.

Generally, companies in the business of producing drugs do so either under the aegis of the enforced monopoly given to them by patent, or else wait until the drug in question has fallen into the public domain before releasing their own generic version to the market. This would seem like a poor trade-off for the generics, were it not for the fact that drug development and testing is monumentally expensive and time-consuming for the pioneer companies to undertake. To get a return on this investment, the pioneers must then raise the price of their drugs many times higher than the cost of production. For the generics, on the other hand, entry to the market is made significantly cheaper and easier by the fact that things such as safety and efficacy have already been proven by their competitors as part of the initial process of releasing a drug to the market.

The use of data exclusivity therefore represents a way to extend a monopoly by forcing generic companies to replicate their initial trials or wait for the exclusivity period to expire. It is, in essence, a reaction to an existing strategy used by generics to lower their cost of entry into a market.

Internationally, the ratification of TRIPs has not resulted in a uniform uptake of data exclusivity. Rather, there seems to be a clear split between more affluent countries and developing countries regarding their willingness to enforce an exclusion period. India, for instance, has generally used the wording of the TRIPs article 39(3) to argue that the release of trial data is both fair and represents the public good. EU member nations, by contrast, are almost universal in both their adherence to the concept of exclusivity and their willingness to use other mechanisms (such as the issuance of supplementary protection certificates [SPCs]) to extend the term of monopoly for pioneer companies.

"Internationally, the ratification of TRIPs has not resulted in a uniform uptake of data exclusivity. Rather, there seems to be a clear split between more affluent countries and developing countries regarding their willingness to enforce an exclusion period."

In South Africa, the market share of generic medicines has been slowly but steadily rising over time. On the whole, however, established multinationals still command the lion’s share of this space. Here, the prime advantage provided by the South African regulatory system to these pioneer companies is in the form of its relatively rapid patent registration process rather than any special protections offered afterwards.

Given this milieu, a number of options are available for policymakers. The first is to bring policy on data exclusivity more in line with the spirit of the TRIPs Agreement as understood by the developed world. This would potentially include a slew of other measures (such as patent extensions or SPCs) designed to shield pioneer companies from competition for an extended period over and above the normal patent term.

The second option is to follow the example of developing countries by arguing that the letter of the law is already being served by existing oversight mechanisms. This does not, however, do anything to resolve the conundrum that data exclusivity was created to solve in the first place. Indeed, it does not take much imagination to see the result of a situation in which one company bears the cost of long, arduous development that competitors can simply piggy-back off.

In the end, the best path for South African interests may be to judiciously pick and mix other approaches already practised by the international community. Data exclusivity, as one way of solving a specific problem, should therefore be judged against the other options available to achieve the same effect.

Thomas Schmidt is a patent candidate attorney at DM Kisch Inc. He can be contacted at: thomass@dmkisch.com

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