European Commission proposes ‘export manufacturing waiver’ to SPCs

Drivers for change

During the SPC period of protection in the EU, EU-based manufacturers are currently not able to manufacture for any purpose, including for export to third countries outside the EU where protection has lapsed or does not exist. The Commission’s proposal aims to strike a balance between preserving the market exclusivity afforded by the SPC regime which incentivises the research-based pharmaceutical industry, whilst at the same time increasing the competiveness of EU-based pharmaceutical and biotech companies in the global generics and biosimilar markets. Traditionally, the EU has been a hub for pharmaceutical research and development, aided by a strong intellectual property rights framework. However, the Commission argues that the SPC regime coupled with a general shift towards an ever-greater market share for generics and biosimilars and a large increase in global demand for such medicines, is putting the EU at a disadvantage with pharmaceutical companies based elsewhere.

According to the Commission’s Impact Assessment accompanying the proposal, the manufacturing waiver is expected to generate growth of at least €1 billion per year in net additional export sales in the EU pharmaceutical sector, and will be particularly beneficial to small and medium-sized enterprises which cannot easily outsource or relocate production outside the territory of the EU during the period of SPC protection.

Safeguards

Whilst EU-based manufacturers of generics and biosimilars generally support the proposal, SPC holders fear additional competition in export markets from manufacturers based in the EU. There has been much concern that a manufacturing waiver would enable the diversion of drugs onto the EU market that were intended for export outside of the EU.

However, the Commission states that the proposal contains clear safeguards. Companies intending to manufacture under the waiver will be obliged to notify the competent authorities and the manufacturer will also be required to inform its supply chain that the product is intended for export only. Furthermore, any export of SPC-protected products outside the EU will be subject to compliance with specific labelling requirements which involve affixing a logo (e.g. ‘EU Export’).

Whether these safeguards will be sufficiently effective remains to be seen. The Commission does acknowledge that the waiver is expected, over time, to increase the competitiveness of EU markets for generics, as the manufacturing capacity established for export purposes could be quickly deployed to enter the EU market as soon as the SPC expires.

The proposal also has some limitations for the generics industry despite SPCs being national rights. For example, the manufacturing waiver will only allow EU-based manufacturers to export to ‘third countries’ outside the EU, and not to other EU Member States where the application for an SPC was not successful. In contrast, non-EU based manufacturers would of course be able to market their product in any EU Member State where there was no SPC in force. It is unclear if the Commission limited the waiver to non-EU countries in anticipation of an EU-wide unitary SPC regime in the future, or whether it is intended as a further safeguard to EU-based SPC holders. The proposal also has implications for the UK market once it ceases to be an EU Member State and returns to being a ‘third country’.

Next steps

The Commission has stated that the proposed waiver will only apply to SPCs granted on or after the amendment comes into force, providing SPC holders with time to consider their SPC strategies. Once adopted by the European Parliament and Council, it will be directly applicable in all EU Member States.

These developments recognise the ongoing debate about the right way to improve the SPC regime, and this shows how, with the UK departing the EU, the U.K. could begin to diverge from the EU position in the medium term as these changes are likely to come into effect after the UK leaves the EU.  We will be monitoring the UK’s plans in our future updates.

The Commission’s proposal for a Regulation can be read here, its Impact Assessment here, and an FAQ has been posted here.