1. © 2008 Innovate Legal Services Limited The European Commission's Pharma Sector Inquiry: A Generic Industry Perspective on The Way Forward Dr Duncan Curley Director, Innovate Legal www.innovatelegal.co.uk ERA’s Biennial Conference on European Pharmaceutical Law Brussels, 15 April 2010

2. © 2008 Innovate Legal Services Limited Overview of presentation Part 1 Introduction Part 2 Patent Clusters and Patent Filing Strategies Part 3 Patent-Related Exchanges, Litigation and Settlements Part 4 Conclusions

3. © 2008 Innovate Legal Services Limited Introduction In its Inquiry, the Commission analysed the speed with which generic entry took place after loss of exclusivity. It took more than 7 months [ on a weighted average basis ] for generic entry to occur once originator medicines lost exclusivity. The time varies by Member State. The Commission equates this to €3 Billion in lost savings to the payers of EU healthcare provision for the period 2000 – 2007.

4. © 2008 Innovate Legal Services Limited Introduction A look at some of the best selling products – EU turnover for the year 2007 Lipitor® (Pfizer) – €1.917 Billion Clopidogrel (Plavix® - Sanofi-Aventis) – €1.62 Billion Herceptin® (Roche) – €1.345 Billion Pantoprazole (Nycomed) – €1.289 Billion Zyprexa® (olanzapine – Lilly) – €1.059 Billion

5. © 2008 Innovate Legal Services Limited Introduction Life cycle management In anticipation of the declining turnover following patent expiry, originator companies….[employ] strategies with broadly two aims: (1) extending the time of their market exclusivity without generic competition; (2) maintaining or expanding the market that the product covers during its exclusivity period. These strategies are generally developed by life cycle management plans for specific products and markets….Life cycle strategies can be considered as a tool-box for originator companies to use in order to maximise the return from their products. Sector Inquiry Final Report, paragraph (166)

6. © 2008 Innovate Legal Services Limited Introduction Main life cycle management strategies [inter alia] Creation of patent clusters/thickets - in particular through secondary patents Litigation against generic companies Settlements with generic companies Reformulation and second-generation launch Interventions with marketing authorities Sector Inquiry Final Report, paragraph (167)

7. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies The Commission studied the patent portfolios of the originator companies. Patents covering new active ingredients are referred to by the Commission as primary, basic or compound patents. Patents covering products containing active ingredients already covered by a primary patent, or covering new production processes for the production of active ingredients already covered by a primary patent, are referred to by the Commission as secondary patents.

8. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies Facts and figures - subject matter of secondary patents Subject-matter claimed Products81% of which formulations57% combinations7% polymorphic forms5% salts4% Processes38% Second/further medical uses24%

9. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies Information and data gathered in the course of this inquiry, in particular from companies’ strategy documents, indicate that the ultimate aim of protecting the market share of a product is pursued by some major originator companies by obtaining the most efficient, broadest and longest possible patent protection Sector Inquiry Final Report, paragraph (473) The Commission’s conclusion Patent strategies can form part of a company’s tool-box which are used in order to protect continuous revenue streams from pharmaceutical products by preventing or delaying generic entry.

10. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies …in some cases both patent clusters and divisional [patent applications] seemingly serve to prevent or delay generic entry. While this, during the period of exclusivity, is generally in line with the objectives of patent systems, it may in certain cases only be aimed at excluding competition and not at safeguarding a viable commercial development of own innovation covered by the clusters Sector Inquiry Final Report, paragraph (523)

11. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies Navigating the patent landscape to achieve a generic product launch – some practicalities, from a generic company perspective Step 1: define the patent landscape what patents are actually out there? request a patent search [from a professional patent searcher] what is the cost? – maybe €5000 - €10,000 for a well-protected molecule

12. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies Step 2: analyse the search results the search results may reveal anything from 1 to over 500 potentially relevant patents and patent applications they must each be reviewed by an appropriately qualified patent attorney what is the cost? – maybe €10,000 – €50,000 for a well-protected molecule BUT – many of the patents turned up by the search can often be quickly discarded as irrelevant

13. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies Step 3: determine the ‘freedom to operate’ it should be possible to narrow down the large number of patents and patent applications uncovered by the search to perhaps 10-12 key patents the 10-12 key patents must then be evaluated in careful detail, to determine whether they are ‘blocking’ patents [i.e. a complete bar to generic entry] or whether they can be avoided by a suitable generic development strategy sometimes, it may be necessary to develop a litigation strategy to remove a ‘blocking’ patent ( often involves lawyers…so can be very costly! )

14. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies Can the process of addressing patent clusters be improved? Prevent ‘weaker’ secondary patents from being granted? - ‘Patent quality’ issues - the role of the European Patent Office - Divisional patent applications – the rules have now been tightened up Penalise originator companies whose ‘underlying intent’ is to exclude generic competitors? - impact of competition law

15. © 2008 Innovate Legal Services Limited Patent Clusters and Patent Filing Strategies Can the process of addressing patent clusters be improved? A practical suggestion An ‘Orange Book’ public listing [perhaps a website?] for EU patents

16. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Enforcement of Patent Rights The use of patent clusters and divisionals by some companies may deter or delay generic entry merely by their existence. In other cases, companies may proceed with the development of generic versions with a view to enter the market at risk. In such cases, patent clusters and also divisionals are an indispensable asset for originator companies’ implementation of their procedural enforcement strategies. These strategies will typically lead to patent litigations…. Sector Inquiry Final Report, paragraph (538).

17. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Patent-related exchanges – out of Court Contacts and disputes between an originator and a generic company may have an impact on the decisions of the generic company regarding the launch of a competing product. Although not (always) leading to court proceedings, such patent-related exchanges can have a dissuasive effect and thus affect planned generic entry, in particular as a result of the threat of costly litigation and the risk of the grant of interim [preliminary] injunctions and eventually damages. Sector Inquiry Final Report, paragraph (553).

18. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Litigation - facts and figures The Commission found that there had been an overall increase in the number of patent litigation cases in the pharma sector, with an approximate 4-fold rise in the number of patent-related disputes between 2000 and 2007. Overall, the generic companies won 62% of all patent litigations in which a final judgment was delivered. These figures may reflect the fact that generic companies are good at litigating, or simply that for the originators, it may be worthwhile pursuing litigation with only a slim chance of success. Only 8% of disputes ended in a settlement.

19. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Patent-related exchanges – litigation The Commission acknowledges that enforcing patent rights in court is legitimate and constitutes a fundamental right guaranteed by the European Convention on Human Rights. But the Commission says that its findings in the Sector Inquiry show that, like in any other industry, litigation can also be an efficient means of creating obstacles, in particular for smaller companies. In certain instances originator companies may consider litigation not so much on its merits, but rather as a signal to deter generic entrants -“objectively baseless” litigation? Sector Inquiry Final Report, paragraph (549)

20. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Patent-related exchanges – litigation Some examples of ‘abuse’ of patent litigation procedures (in particular preliminary injunction procedures) were put forward by the European Generic Medicines Association (EGA) in a report in May 2008: gemcitabine (preliminary injunction obtained in the Czech Republic) alendronate (preliminary injunctions sought in Italy) venlafaxine (preliminary injunctions obtained in Spain)

21. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Preliminary injunctions The Commission noted in its Final Report that there were 255 requests for preliminary injunctions by originator companies in the period 2000 – 2007, of which 44% were granted. The Commission also observed that the subset of cases in which a preliminary injunction was sought had a high ratio of subsequent settlements (44 out of 60 cases, or 73%). The Commission concluded that in almost half of the closed cases, the grant of interim [preliminary] injunctions might not have been justified, whilst in another 25% of the cases that were settled the situation is unclear.

22. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Three identifiable problems: (1)Fragmented nature of the EU, insofar as patent litigation is concerned no single, unified EU patent; no central EU patents court; necessary to litigate separately in the national courts in all countries, which is time consuming, costly and duplicative; (2) Objectively baseless litigation (3) Abuse of procedures (especially preliminary injunctions)

23. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Problem (1) – Fragmentation Addressed by the Commission in its Final Report: - urgent need for the establishment of a Community Patent - urgent need for a unified, specialised patent litigation system

24. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Problem (2) – Objectively baseless litigation Competition law? But unilateral conduct – therefore only an issue for dominant companies? And only one relevant case [ITT Promedia: Case T-111/96]

25. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Problem (3) – Abuse of procedures Competition law? But unilateral conduct – therefore only an issue for dominant companies? And only one relevant Commission Decision – presently on appeal [AstraZeneca: Case T-321/05]

26. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Litigation settlement agreements The Commission announced on 12 January 2010 that it had asked certain pharmaceutical companies to submit copies of their recently concluded patent settlement agreements ( i.e. settlement deals done in the period since that covered by the Sector Inquiry ). The Sector Inquiry highlighted the risk that certain types of patent settlements may have negative effects on European consumers by depriving them of a broader choice of medicines at lower prices Commission Press Release IP/10/12

27. © 2008 Innovate Legal Services Limited Patent-Related Exchanges and Litigation Litigation settlement agreements The Sector Inquiry (and the ongoing monitoring activity by the Commission) has left many companies in a state of uncertainty and some types of patent settlement agreement are now perceived to be in a grey area. There are many kinds of clauses that can be found in patent settlement agreements, but the Commission seems to be taking a dim view of arrangements which involve an originator company paying a generic company a sum of money (or effecting some other form of ‘value transfer’ to the generic company) for the generic company to withdraw a patent challenge and to remain off the market for a defined period of time. “Pay for delay” settlement agreements – more on this later...

28. © 2008 Innovate Legal Services Limited Conclusions The Sector Inquiry has brought into sharp focus the patent granting system and the fragmented nature of patent litigation in the EU. However, many of the ‘issues’ uncovered by the Commission in the Pharma Sector Inquiry are common to other innovative industries e.g. patent quality; patent thickets; the expense of patent litigation; abuse of court procedures… Competition law is only likely to brought to bear on certain ‘extreme’ types of bad behaviour by dominant companies (in relatively rare circumstances). More radical solutions are needed to ensure rapid access of EU citizens to generic medicines.

29. © 2008 Innovate Legal Services Limited Conclusions In the USA, the Hatch-Waxman legislation of the early 1980s revolutionised the generic medicines industry, by providing a substantial financial incentive for the first generic to reach the market: 180 days of exclusivity [i.e. approx. 6 months as the sole generic on the market in competition with the originator ]. A similar 180 day exclusivity for the first generic to reach the market would represent a strong economic incentive, if such a regime was introduced in the EU. Likely to be far more effective at stimulating generic competition than tinkering with the patent system or bringing cases at the margins of competition law!

30. © 2008 Innovate Legal Services Limited Thank you for listening Dr Duncan Curley duncancurley@innovatelegal.co.uk 107 Fleet Street London EC4A 2AB Tel: +44(0)20 7936 9056 Fax: +44(0)20 7936 9111 www.innovatelegal.co.uk