1. Rowan Freeland July 2009 The Pharma Sector Enquiry: Does it change things?

2. 2 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 European Commission Sector Enquiry Launch in January 2008 Rounds of Questionnaires Interim Report – 28 November 2008 Consultation ended – 31 January 2009 Final Report – 8 July 2009 http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html

3. 3 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Opening the Enquiry Reasons for Enquiry –Decline in number of new products –Delays in generic entry –Concern that these were the result of anti-competitive practices Enquiry started with Dawn Raids –Commission (i.e. Directorate General for Competition) assumed that companies had things to hide Questionnaires –Very substantial information-gathering exercise –Very substantial extra work for companies –Commission’s ignorance of issues increased work for companies

4. 4 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Interim Report Originator-originator competition –Commission concerned about “defensive patenting” Originator-Generic competition –A series of inherently lawful measures (the “toolbox”) to delay or block generic entry –Patent “clusters” –“A large number of litigation cases over patents” –Settlement agreements (especially with value passing from originator to generic) –Interventions before regulatory authorities –“Evergreening” - introducing improved products towards end of patent life Commission highly critical of Originator behaviour –“Shocking” –“Delays in generic entry added €3 billion to public health spending over ten years”

5. 5 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Consultation on Interim Report Uncritical support from generic industry and consumer groups Substantial and detailed criticisms from patent profession and from originators –EPO identified misunderstandings and mis-descriptions of patent law –“Toolbox” is routine and inherent in the system in all industries –Lord Justice Jacob said he had only ever seen one case where the patent system had been abused –Lack of understanding of how the pharmaceutical industry works BUT …

6. 6 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Major Criticism - Causation Interim Report did not show causal link between “toolbox” and delays –Use of “toolbox” increases for biggest-selling medicines –But generic entry for biggest-selling medicines is 4 months –Average for all medicines is 7 months –So the more the “toolbox” is used, the less delay it achieves! Other factors, not considered by Commission –Regulatory delays –Inefficiency of procedures to agree pricing and reimbursement –Issues with generic companies –Manufacturing issues, market size –Generic companies were not asked reasons for delay

7. 7 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Final Report Draft prepared by Enquiry Team in Competition Directorate General –Rumours: few concessions to criticisms, favoured compulsory licensing –Significantly watered down by European Commission Executive Summary – formal Communication from Commission –Accepts many “causation” criticisms –Originator practices will be monitored closely –Community Patent and Unified (supra-national) Patent Court will resolve some aspects of “patent cluster” and “excessive litigation” problems –Regulatory approval and Pricing/reimbursement systems need to be addressed “The least worst result we could have expected”

8. 8 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Worries European Commission watered down the Executive Summary But revisions to main Report between Interim and Final versions are more cosmetic (more form than substance) DG Comp is unrepentant –“Overall it is indeed a conclusion that there is something rotten in the state of the pharmaceutical industry.” – Neelie Croes, Competition Commissioner Only one competition investigation triggered by the enquiry –Servier and Teva, Krka, Matrix (Mylan), Niche Generics (Unichem) and Lupin –Issue of market definition –Most blockbusters compete with other blockbusters

9. 9 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Impact on Originator-Originator issues Commission still clearly concerned about “defensive patenting strategies” Scale of problem: –99 cases where overlapping patents led to licence approaches –Only 20 cases where licence refused –In some (“several”) of these cases, R&D project was discontinued –Minor factor in reduced number of new medicines –Commission does not seem to understand: –How patent mapping encourages research in new areas –Decision to patent usually precedes decision to exploit Commission on the lookout for –Strategies that focus on excluding competitors without pursuing innovative efforts –Refusal to license unused patents

10. 10 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Impact on Originator-Generic issues Causation: “The results … suggest that the behaviour of companies contributes to generic delay” (emphasis added) “One cannot exclude that these agreements could be used to anticipate generic entry …” (emphasis added) Commission’s message to Originators is “We are watching you” –But no clear guidance as to what is objectionable –“It is important to underline that … [the Report] does not … provide any guidance on the compatibility of the practices examined with the EC competition rules” –“The possible use of specific instruments by originator companies in order to delay generic entry will be subject to competition scrutiny if used in an anti-competitive way …” (emphasis added) Significant uncertainty for Originators –At least until we see some more decisions

11. 11 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Community Patent and Unified Patent Court These are seen as solution to many of the “uncertainty” problems Significant progress being made under Margot Fröhlinger –But 3 years before diplomatic conference to negotiate necessary Treaty changes –Many years before implementation

12. 12 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Patenting Policies The Commission thinks “patent clusters” and defensive patenting are potentially abusive But acknowledges that intent has no part in EPO examination –If it’s a patentable invention, patent it! Lots of patents can create uncertainty –But generics plan 10 years ahead – plenty of time to analyse all relevant patents

13. 13 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Enforcement Strategies “Enforcing patent rights in court is legitimate and a fundamental right guaranteed by the ECHR: it is an effective means of ensuring that patents are respected.” BUT “litigation can be an efficient means of creating obstacles for generic companies …” Due diligence as to prospects before litigation starts –Generics plan many years in advance –Originators need to plan more than 6 months in advance too –Avoid retrospective accusations that unsuccessful litigation was “sham”

14. 14 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Dealings with Regulators etc Particular concern about assertions of patent linkage –Not part of Directive 2001/83 Representations to market authorisation and pricing/reimbursement authorities about other companies’ applications must be: –Well documented –Transparent towards the applicant –Not necessarily leading to delays Once a (generic) drug is authorised, originator’s marketing must not criticise its quality

15. 15 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 “Evergreening” Switch to new (patented) presentation close to expiry of basic patent can be seen as anti-competitive –Generic companies rely on originator’s marketing, and suffer if originator markets a version of the product they cannot copy –Are originators obliged to help their generic competitors? Focus should be seen to be on improving the marketed product –Don’t delay research –Don’t delay launch –Get good data

16. 16 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Settlement Agreements US FTC hostile to “reverse payments”, US courts less so European Commission taking FTC’s battle to Europe –Looking closely at any transfer of value from patentee to generic where generic entry is limited –No resolution yet of question whether competition authorities can legitimately challenge an agreement that give patentee no more than he would have got if he won the case Assume that Commission will obtain all new settlement agreements –Compulsory notification ruled out –Information request or dawn raid? No clear line on authorised generic agreements

17. 17 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 Education Most patent-related activities have numerous objectives –Keeping competitors away is one objective among many But in the context of discussions of competitive threats, the ability to exclude competitors becomes important Important to ensure that managers understand that activities aimed solely at excluding competitors are dangerous and must not form the basis of company policies Problem of combinations of legitimate strategies –Difficult message for non-lawyers –Just because it’s legal, it doesn’t necessarily mean it’s legal

18. 18 / Doc ID: L_LIVE_EMEA1:6543765v1 © Simmons & Simmons 2008 rowan.freeland @simmons-simmons.com +44 (0)20 7825 4447