1. Stewards’ Inquiry? The European Commission's Investigation into Generic Entry in the Pharma Sector Dr Duncan Curley Director, Innovate Legal www.innovatelegal.co.uk 26 November 2009

2. Overview of presentation Part 1 Introduction: Background to the Sector Inquiry Part 2 Patent Clusters and Patent Filing Strategies Part 3 Patent-Related Exchanges and Litigation Part 4 Implications of the Sector Inquiry and Conclusions

3. Introduction: Background to the Sector Inquiry Some facts and figures On average, approximately €430 was spent on medicines in 2007 for each European citizen. This amount is likely to increase as Europe’s population gets older. The pharmaceutical market accounted for close to 2% of annual EU GDP in 2007.

4. Introduction Purpose of the Sector Inquiry To consider alleged obstacles to market entry for prescription medicines for human use. It was a competition inquiry – an investigation and analysis into the behaviour of companies. The focus of the investigation was on barriers to entry for generic, small molecule products, although competition between the originators’ products was also considered [ will not be discussed here ].

5. Introduction Scope of the Sector Inquiry A sample of 219 substances was selected for in-depth investigation by the Commission. The selected molecules accounted for nearly 50% of the overall turnover of prescription medicines in the EU in 2007. Geographic scope: the EU 27 Member States. Timeframe for the investigation: 2000 to 2007.

6. Introduction: Stages of the Sector Inquiry The inquiry was launched on 15 January 2008 with a number of surprise raids for documents at the premises of a number of multinational companies. The Commission then sent out extensive questionnaires to stakeholders including originator companies and generic companies. It also consulted industry associations, patient groups, pharmacists, hospitals and the EPO. In November 2008, the Commission presented its Preliminary Report. There was then a short period of public consultation. The Final Report was published in July 2009.

7. Introduction A look at some of the players – EU turnover for the year 2007 Pfizer: €8.004 Billion Sanofi-Aventis: €11.064 Billion Roche: €6.981 Billion Lilly: €3.201 Billion Teva: €3.388 Billion Sandoz: €2.041 Billion Ratiopharm: €1.021 Billion Ranbaxy: €0.237 Billion

8. 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

9. Introduction Product lifecycles during patent protection Interesting finding #1: The effective protection period counted from the first launch of an originator’s product to first generic entry increased by approximately 3.5 years in the period 2000-2007. The average protection period moved from less than 10.5 years in 2000 to 14 years in 2007. Close to the goal set out in Recital (9) of Regulation (EC) No 469/2009 (the SPC Regulation for medicinal products) “ The duration of the protection granted by the certificate should be such as to provide adequate effective protection. For this purpose, the holder of both a patent and a certificate should be able to enjoy an overall maximum of 15 years of exclusivity…”

10. Introduction Impact on time to generic entry 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. This time varies significantly between EU Member States. The Commission equates this to at least €3 Billion in lost savings to the payers of EU healthcare provision for the period 2000 – 2007.

11. Introduction What the Commission says about 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)

13. 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 .

14. Patent Clusters and Patent Filing Strategies Facts and figures Of the 219 molecules that were analysed, nearly 40,000 patents had been granted (or patent applications were still pending). 78% of these cases were filed with the EPO. 22% were filed with the national patent offices in the EU 27 Member States. Of the 40,000 patent cases, some 87% were classified by the Commission as secondary patents.

15. Patent Clusters and Patent Filing Strategies Facts and figures - subject matter of secondary patents Subject-matter claimed Products 81% of which formulations 57% combinations 7% polymorphic forms 5% salts 4% Processes 38% Second/further medical uses 24%

16. Patent Clusters and Patent Filing Strategies Interesting finding #2 The majority of granted patents (and applications) held by the originator companies are for a small proportion of the 219 molecules that were analysed: - the top 20% of molecules studied accounted for 60% of all patents and patent applications - the top 50% of molecules studied accounted for 90% of all patents and patent applications Sector Inquiry Final Report, paragraph (440).

17. Patent Clusters and Patent Filing Strategies The pre-launch patent portfolio EFPIA* suggested in a report issued in June 2008 that pharma patent portfolios tend to develop over time, with many secondary patent applications filed in the years immediately following the first (basic) patent application for a given molecule, but before the launch of a drug product containing that molecule. The Commission describes this filing pattern as a pre-launch patent portfolio. *European Federation of Pharmaceutical Industries and Associations

18. Patent Clusters and Patent Filing Strategies The post-launch patent portfolio For the top 20 of the molecules analysed (by sales), the Commission found that – on aggregate – very few of the total number of patent applications were filed before the first product launch. According to the Commission, the post-launch patent portfolios of the top 10 molecules show a surge of patent applications in the years immediately preceding loss of exclusivity. Sector Inquiry Final Report , paragraph (452)

19. Patent Clusters and Patent Filing Strategies Divisional patent filings The Commission noted in its Final Report that the increased use of the filing of divisional patent applications by the originator companies at the EPO has been an object of complaints by the generic industry as a potential instrument to prevent or delay generic entry. The Commission noted an increase in the number of voluntarily created divisional applications in the pharma sector in the period 2000 – 2007. Sector Inquiry Final Report , paragraph (510)

20. Patent Clusters and Patent Filing Strategies The Commission’s conclusions 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. “ 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)

21. Patent Clusters and Patent Filing Strategies The Commission’s conclusions In the context of efforts made by companies to maximise patent coverage in such a way as to create a web of patents or patent cluster, the Commission notes that originators could use their web of patents to prevent or delay generic entry (my emphasis) . Sector Inquiry Final Report , paragraph (493) Intention is important ? See discussion later.

22. 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).

23. 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 injunctions and eventually damages”. Sector Inquiry Final Report, paragraph (553).

24. 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”. Sector Inquiry Final Report, paragraph (549)

25. Patent-Related Exchanges and 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. Germany had the highest number of cases, followed by the UK and Spain. The UK was the most expensive EU jurisdiction for litigation, with an average cost of approximately €993,000 per case.

26. Patent-Related Exchanges and Litigation Facts and figures The top ten molecules analysed by the Commission accounted for 59% of all of the contacts and disputes between originator and generic companies between 2000 and 2007. Interesting finding #3 The majority of the patents that were litigated were primary product patents, c.f. the commonly held IP practitioner view (prior to the Sector Inquiry) which was that secondary patents are most often the subject of litigation between originator and generic companies.

27. Patent-Related Exchanges and Litigation Facts and figures – who won? 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. Interesting finding #4 Only 8% of disputes ended in a settlement.

28. Patent-Related Exchanges and Litigation Facts and figures – interim injunctions There were 255 requests for interim injunctions by the originator companies in the period 2000 – 2007. 44% of these were granted. Interesting finding #5 The cases that involved interim injunctions had a relatively high ratio of subsequent settlements (73%). Also, these cases tended to end on conditions favourable to the generics: “ In almost half of the closed cases, the grant of interim injunctions might not have been justified”. Sector Inquiry Final Report, paragraph (657)

30. Implications of the Sector Inquiry The scope of EC competition law Article 81: prohibits anti-competitive agreements and joint conduct Article 82: prohibits abuse of a dominant market position (unilateral conduct) “ Much of the conduct highlighted [by the Commission in the Sector Inquiry] is likely to be legal under EC competition law for many companies” James Killick, White & Case (Brussels) at the C5 Pharma Patent Lifecycles Conference, London, 14 May 2009

32. Implications of the Sector Inquiry Patent Filing Strategies One relevant competition case: the AstraZeneca (Article 82) case (Case T-321/05), concerning ( inter alia ) applications by AstraZeneca for SPCs for the blockbuster omeprazole. This case is on appeal to the Court of First Instance of the European Communities and a decision is presently awaited. Should provide useful guidance in due course, but for now, it is worth noting that in this case, the Commission placed significant emphasis on internal company documents as demonstrating an anti-competitive intent . A similar approach seems to be have taken in the Sector Inquiry Final Report.

33. Implications of the Sector Inquiry Patent–Related Exchanges and Litigation Only one case: ITT Promedia (Case T-111/96), European Court of Justice Litigation may only be abusive (in the context of Article 82) in exceptional circumstances, specifically where (i) it cannot reasonably be considered as an attempt to establish legal rights and can therefore only serve to harass the opposing party and (ii) where it is conceived in the framework of a plan that is aimed at eliminating competition.

34. Implications of the Sector Inquiry Further guidance may be forthcoming, because the European Commission has instigated a formal investigation against the French originator company Les Laboratoires Servier and a number of generic companies for suspected breaches of the competition rules. See the Commission’s Press Release MEMO/09/322 (8 July 2009) The Commission’s investigations concern aspects of unilateral behaviour ( patent filing strategies? litigation against a number of generics? ) by Servier that may breach Article 82 and a series of settlement agreements that may breach Article 81. The proceedings relate to the entry on to the market of generic perindopril.

35. Implications of the Sector Inquiry “ It is the sort of patent which can give the patent system a bad name...” “ It is right to observe that nothing Servier did was unlawful. It is the court's job to see that try-ons such as the present patent get nowhere. The only sanction (apart, perhaps, from competition law which thus far has had nothing or virtually nothing to say about unmeritorious patents) may, under the English litigation system, lie in an award of costs on the higher (indemnity) scale if the patent is defended unreasonably”. Jacob, L.J. in Les Laboratoires Servier v Apotex [2008] EWCA Civ 445

36. Conclusions The economists who work in the Commission are passionate about promoting price competition; they seem to believe that every month following loss of exclusivity in which there is no generic competition is a loss to consumer welfare. The Commission appears to be concerned that the patent system is functioning sub-optimally. One can expect the European Commission to continue to be an active interventionist in the knowledge-based industries where IP and patents in particular are important.

37. And finally... A number of biologicals (Herceptin®, Enbrel® and Aranesp®) feature in the Commission’s list of the top ten best selling molecules (and the proportion is likely to increase, with time), but the Sector Inquiry appears to have focused almost exclusively on small molecule pharmaceuticals. Why? “ Rapid access to the market on patent expiry is not a phenomenon that has yet been seen in the context of biosimilars...to date, patents and SPCs have been of less importance – in terms of barriers to entry for competitive products – than the strictures imposed by the regulatory framework”. Extending Rewards for Innovative Drug Development – A Report on Supplementary Protection Certificates for the Intellectual Property Institute, August 2007

38. Biologicals, biosimilars and the Sector Inquiry But note…. “ Generic companies see their future in the biosimilars segment. More than half of the respondents [to the Pharma Sector Inquiry] are, or will in the near future be, involved in the biosimilars market. Furthermore, generic companies considered that biosimilar products will achieve fundamental cost savings for national health care systems, as existing biopharmaceutical products are generally highly priced medicines”. Sector Inquiry Final Report (paragraph 104).

39. Questions?

40. Thank you for listening Dr Duncan Curley [email_address] 107 Fleet Street London EC4A 2AB Tel: +44(0)20 7936 9056 Fax: +44(0)20 7936 9111 www.innovatelegal.co.uk