EU-wide SPC Export Exemption: A Race To the Bottom for Weak IP Standards

As an industry, Europe’s research-based biopharmaceutical sector is a true success story. Not only has the sector delivered life-saving medical innovations for patients around the world, it has also driven sustained economic prosperity. Led by companies like Roche, Sanofi Aventis, Novo Nordisk, AstraZeneca and GSK, Europe’s biopharmaceutical sector in 2015 provided nearly 740,000 direct jobs (over 113,000 in high-skill R&D jobs), over €33.5 billion in R&D investments, and over €238 billion in production, as estimated by the European Federation of Pharmaceutical Industries and Associations.

And yet, the European Commission is now considering ways to weaken intellectual property protections that have long supported these tremendous social and economic benefits. In October 2015, the Commission announced plans to review certain elements of Europe’s supplementary protection certificate (SPC) system, which extends the life of certain patents on innovative medicines to compensate for regulatory approval delays. This system provides critical incentives that enable Europe’s biopharmaceutical innovators – and the many scientists and factory workers behind them – to invest in research and development that leads to new treatments and cures.

One idea on the table is an SPC export exemption that would allow generic drug companies to produce copies of innovative medicines during the SPC period and export them to countries where intellectual property protections have already expired. Incredible claims have been made to promote such an exemption. For example, a study the Commission funded says it could add billions in revenue and create thousands of jobs while cutting the cost of medicines across Europe. In reality, the economic gains from early market entry of generics and biosimilars would come at the expense of novel products and breakthrough advances – a tremendous risk to patients and the economy.

What the Commission is losing sight of is that market exclusivity is a key incentive for companies that invest billions of euros and many years in R&D to produce new and improved medicines and technologies. Without these incentives in place, the biopharmaceutical sector is threatened, and lifesaving treatments and hundreds of thousands of jobs may be gambled away.

In fact, a recent Pugatch Consilium study found that implementation of an EU-wide SPC exemption could lose the global biopharmaceutical industry up to USD 5.35 billion, with approximately USD 2 billion (€1.14 to €1.93 billion) of these losses from Europe alone. Moreover, the effect of an SPC exemption could bring 4,500-7,700 lost jobs (with an additional 19,000-32,000 indirect lost jobs) and a decrease of €215 million to €364 million in R&D investment.

Further, while the proposed SPC exemption assumes there is an international demand for European generics, it’s not at all clear if or where this demand exists. In all likelihood, generic follow-on products already exist in potential markets. Indeed, in Brazil and India, generic products are already on the market for some of the world’s top selling products with expiring or expired patents. In fact, an EU-wide SPC exemption would likely cause more countries to follow suit, further weakening the market entry prospect of European generics, and kick-starting a mad race towards weakening global IP standards.

When the proverbial rubber hits the road, the practical consequences of an EU-wide SPC exemption could be disastrous. Not only would an SPC exemption weaken the biopharmaceutical industry – one of Europe’s most competitive industries – but the gains for Europe’s generic industry are highly questionable.

To read the full study and modelling results click here.