EU Pharma Package: Sharp New Tools With Limited Protections

Last week, concluding a seven-year process, the Council of the European Union and the European Parliament agreed on the EU Pharma Package consisting of a new Pharmaceutical Directive and Pharmaceutical Regulation. The Package introduces pivotal changes to the EU pharmaceutical legislation, most significantly the introduction of new launch and supply obligations with only limited safeguards and a reduction and modulation of regulatory data protection and market protection, requiring companies to re-think their pipeline strategies. The provisional agreement now needs to be endorsed by both the Council and the Parliament before being formally adopted and entering into force upon publication in the Official Journal of the European Union. The final text is expected to become available in the coming weeks.

Background

The Pharma Package process started in 2016, with the Council’s call to “strengthen the balance” of the EU pharmaceutical legislation. Since then, stakeholders have seen a range of proposals to reduce and “modulate” regulatory protections, introduce new launch/supply obligations, expand the Bolar exemption to accelerate generic and biosimilar entry, overhaul the orphan incentives regime, and create a new incentive model for priority antimicrobials.

While the final wording of the new legislation is yet to be published, press releases of the Council and the Parliament and related statements provide preliminary insight into whether the new legislation will improve or deteriorate the business case for developing and launching new medicinal products in the EU (when calculating the risk-adjusted Net Present Value or rNPV, in particular against the emerging risk of the Most Favored Nation (MFN) policy in the U.S. (see link to previous Sidley Blog). Transition periods of 24 to 36 months are expected.

The key elements of the adopted legislation and their impact on the pharmaceutical industry

1. new launch and supply obligations with limited safeguards
2. reduction and modulation of regulatory data protection and regulatory market protection
3. expansion of the Bolar exemption to accelerate generics and biosimilars
4. reduction of orphan market exclusivity period
5. risk of increased use of pharmacy compounding and hospital exemption
6. transferable data exclusivity voucher for priority antimicrobials
7. shortened European Medicines Agency (EMA) review timelines and other procedural reforms
8. specific rules on comparative advertising

 

1. Launch obligations: a new and uncertain compliance regime

Under current law, companies are not obliged to launch their products in all Member States, but once they do, they are obliged to supply sufficient quantities.

The Council and the Parliament have agreed that Member States can, in principle, oblige companies to launch a newly authorized medicinal product on their national market within three years “within the limits of their responsibility” (an undefined and unclear term). If companies do not comply, and cannot invoke “exceptional circumstances” that are fully outside their control, they can lose regulatory data protection (two years earlier validation and assessment (but not granting) of generic/biosimilar marketing authorization (MA) applications) and market protection in that Member State, thereby fragmenting the internal market.

These new tools (removal of regulatory data protection (RDP) and market protection) are sharp. The effectiveness of the safeguards against misuse of these tools remains to be seen because the limits of companies’ responsibilities and the relevant “exceptional circumstances” have not been defined or clarified.

It is not certain that the new tools will be applied in compliance with the Treaty on the functioning of the EU and the Charter of Fundamental Rights. The text is expected to refer to the protective effect of the “free movement of goods” rules, which, under decades-old case law from the Court of Justice of the EU, prohibit Member States from forcing companies to sell imported products at a loss.

However, it is unclear how this protection would be applied in practice to the planned obligations to launch in all Member States that require the product. The key factor will be the price. For example, will Member States and payors seek to apply a “cost-plus” approach to negotiate a net price (incorrectly, in our view), or will they take into account broader costs and risks of a forced launch of a product on the (national) market? The potential impact of this question is massive. As calculated by a European consultancy (here), out-of-pocket research-and-development costs amount to only 7% of the overall cost of drug development, and the majority of costs are represented by financing costs (53%) and by out-of-pocket “failure costs” (40%). And if the MFN policy initiatives of the U.S. government materialize, will Member States take into account the global losses that could result from an obligation to launch in an EU Member State qualifying for U.S. MFN benchmarking? This uncertainty is already being considered to affect the rNPV of many pipeline products.

2. Reduced and modulated protections

Current EU law provides an “8+2+1” system, with eight years of RDP (during which other companies cannot rely on the MA holder (MAH) data for generic/biosimilar approval) and two years of market protection (MP) resulting in a total of 10 years of protection until generic/biosimilar launch. In addition, one year of MP is granted for a new indication that brings significant benefit.

The compromise text will reduce baseline protection by one year, by shortening MP from two years to one year, maintaining the option of a prolongation for a new indication (8+1+1). Therefore, baseline protection is reduced to nine years until generic/biosimilar launch. The lost year of MP can be regained in the following circumstances:

• The product addresses an unmet medical need or
• The product contains a new active substance, and
  • the company conducts comparator trials and files the product for approval first in the EU or within 90 days of the first global filing or
  • the company conducts comparator trials and clinical trials supporting the MA application in more than one Member State or
  • where comparator trials are not possible or appropriate, the company conducts the clinical trials supporting the MA application in more than one Member State and files the product for approval first in the EU or within 90 days of the first global filing.

Although in theory this could lead to the same MP protection compared with the current rules, the impact of the conditional 1 year of MP is uncertain because it depends on the interpretation of the term “unmet medical need,” and the economic feasibility of an EU-first launch will depend on numerous factors, including whether Member States will apply obligations to launch without safeguards (see Section 1 above).

3. Expanded Bolar exception - tenders and listings

Under current law, the so-called Bolar exception provides that studies and trials conducted to prepare abbreviated MA applications, and the “consequential practical requirements,” shall not be regarded by Member States and their courts as infringement of patents or supplementary protection certificates (SPCs).

The (draft) compromise text contains an expansion of the Bolar exception, aiming to ensure that generics and biosimilars can be launched on “Day 1” after expiry of patent and SPC rights. Under the expanded Bolar exception, generic and biosimilar companies can conduct studies, trials, and other activities necessary for MA applications, preparing health technology assessment submissions and pricing and reimbursement (P&R) applications. The key novelty, however, is the possibility for generics and biosimilar companies to submit bids in public procurement procedures, to the extent that it does not entail the sale or offering for sale or marketing of the product prior to expiry.

This leads to two uncertainties. First, no mechanism is foreseen to determine Day 1, and there is no time limit to prevent listings of “tendered” generic or biosimilar prices by Member States prior to patent/SPC expiry.

4. Orphan medicinal products

Today, the current baseline protection is effectively about 11 years. Under current law, 10 years of orphan market exclusivity (OME) must pass before authorities can “accept” a generic/biosimilar MA application. The current protection therefore also includes the time between the acceptance of that MA application and the grant of the MA, which can be about one year.

The (draft) compromise text restructures orphan incentives around a new baseline with nine years OME for standard orphan medicinal products and 11 years for “breakthrough” orphan medicinal products (in areas where no authorized medicinal product exists). Therefore, current protection is maintained only for breakthrough products. Moreover, generic, biosimilar, and hybrid applications can be submitted and assessed within the last two years of OME and granted with suspension until expiration of the OME period.

Under current law, orphan products can obtain a new OME period of 10 years for a new indication. However, under the compromise text, orphan medicinal products no longer benefit from separate baseline OME periods for different orphan designations. Instead, an orphan medicinal product may only gain a one-year extensions twice for new orphan indications if the MAH obtains authorization for a different orphan condition (and none if applied in the last two years). Together, these changes reduce the baseline predictability and weaken incentives for multi-indication orphan medicinal product development.

5. Pharmacy compounding and hospital exemption

Current law recognizes two principal “compounding” exceptions to the general rule that a medicinal product may not be placed on the market without a MA and the requisite manufacturing and wholesale distribution authorizations. These are (i) the magistral formula, meaning a preparation made contemporaneously in a pharmacy for an individual patient in accordance with a doctor’s prescription, and (ii) the officinal formula, referring to a stock preparation manufactured in advance in accordance with the prescriptions of a pharmacopoeia (the Pharmacopoeia Requirement) and supplied directly to patients of that same pharmacy (the Direct Supply Requirement).

The final wording of the new provisions is not available yet. As discussed in a previous blog, all options proposed by the Commission, the Parliament, and the Council increased the scope for “replacement compounding,” negatively affecting the rNPV for all products that can be made (or approximated) in a pharmacy. There are multiple risks here: not only the physical and commercial replacement of products by “replacement compounding” products (effectively blocking access to national markets) but also the use by P&R authorities of perceived costs of compounded products as a benchmark for pricing or reimbursement levels for the authorized products.

For advanced therapy medicinal products (ATMPs), risks previously highlighted include whether manufacturing of so-called “hospital exemption” products can occur on a large scale or only on a “nonroutine” basis and whether Member States will continue to fund (invoking exceptions to state aid notification rules for Services of General Interest) large-scale clinical trials that can result in large-scale replacement of authorized ATMPs by locally produced products.

6. Voucher for antimicrobials

The Pharma Package introduces an incentive intended to boost AMR innovation while limiting Member State budgetary impact: a transferable 12-month data-exclusivity voucher for “priority antimicrobials,” subject to tightened criteria. Key criteria:

• The product must address a multi-drug-resistant organism causing severe or life-threatening infection and meet novelty/clinical benefit thresholds.
• The MA application must be filed first in the EU, or within 180 days of the first global filing.
• The MAH must demonstrate sufficient supply capacity and disclose all direct public financial support.
• The voucher may be used only in years 5–6 of RDP for the chosen product — and only if annual EU sales do not exceed €490 million for the previous four years (“blockbuster clause”).
• Only five vouchers may be granted EU-wide; unused vouchers expire after five years or may be revoked if supply obligations are not met.

7. Streamlining of MA procedures

The agreed text is expected to provide two elements that can shorten or streamline regulatory procedures. First, the EMAs’ scientific review timeline is reduced from today’s 210 days to 180 days. Second, some paediatric investigation plans (PIPs) could be developed in an “evolutionary” manner rather than in a cumbersome process of amendments to existing PIPs. However, on these points, the full text needs to be available to assess the impact.

8. New provisions on comparative advertising

The agreed text is also expected to add a specific provision on comparative advertising, effectively prohibiting any form of advertising that aims to highlight negatively another medicinal product, as well as advertising that suggests that a medicinal product is safer or more effective than another medicinal product, unless demonstrated and supported by the summary of product characteristics. This would reflect recent decisions of the European Commission on alleged denigration of competitor products and recent case law of the EU Court of Justice on advertising of medicinal products, but it would limit companies’ ability to discuss peer-reviewed publications reporting on head-to-head clinical trials.

Next steps

The provisional agreement now needs to be endorsed by both the Council and the Parliament before being formally adopted and entering into force upon publication in the Official Journal of the European Union. Transition periods of 24 to 36 months are expected. The final text is expected to become available in the coming weeks.

Sidley’s Global Life Sciences team continues to closely monitor the Pharma Package, and we are available to assist companies in anticipating and managing related opportunities and challenges.