Pharmaceuticals, Patents, Data protection and the TPP
Following the latest round of Trans-Pacific Partnership (TPP) negotiations in Hawaii, there has been a significant public interest in pharmaceutical patents. In this article we attempt to clarify and/or correct some of the information that is available in the draft Intellectual Property (IP) Chapter of the TPP agreement as it applies to pharmaceuticals. In particular we discuss the distinction between patent protection (and patent term extension) for pharmaceuticals, data protection and patent linkage, the proposals for each, and where the current law in New Zealand stands in relation to these proposals.
New Zealand Prime Minister John Key has been quoted as stating, in relation to pharmaceuticals that “It's possible and in fact highly probably that patents will run for a little bit longer and that means the Government will have to pay for the original drug as opposed to the generic for a little bit longer".
What Mr. Key is talking about is the likelihood that New Zealand, if it signs up to the TPP agreement, will be required to provide for a pharmaceutical patent term extension. While we cannot know the length of time this extension will be for, it is likely to be for the length of time which it takes to get marketing approval after the filing date of the patent application, but with a maximum limit of 5 years.
What is a patent?
A patent is a registered intellectual property right which can protect an invention. A patent provides the inventor(s) or the inventor’s successors in title with the exclusive right to make use or sell the invention for a period of up to 20 years. In exchange for this right, the applicant provides a specification (or specifications) with a sufficiently detailed description of the invention to the Intellectual Property Office. The specification will be made publicly available during the process of applying for a patent.
What are patents granted for?
A patent will only be granted if the subject matter relates to an invention. An invention is something of practical commercial application. Purely artistic and literary works are not patentable, but a wide range of subject matter is able to be protected by patent. Examples of subject matter which has been patented include: mechanical devices, including saw mills and side lifters; chemical compounds, including those useful as pharmaceuticals such as amoxicillin; protein and DNA molecules; methods of manufacturing or preparing any of the preceding; horticultural methods, such as a process of killing weeds; new uses of known compounds; and biochemical processes, such as processes of producing acetone by fermentation.
In terms of pharmaceuticals, it is possible to patent a new active ingredient, often called a new drug molecule, a new formulation containing a known drug molecule (for instance an enteric formulation rather than a parenteral formulation) and a new use of a known active ingredient (for instance the use for the treatment of a tumour rather than for the treatment of an immune disorder).
What is the current term of a pharmaceutical patent in New Zealand?
Each New Zealand patent, whether it be for a pharmaceutical, a pesticide, a washing machine or a toilet seat, has a life of 20 years from the date on which the application for the patent was filed. This is the standard life time of a patent in most countries.
What is a pharmaceutical term extension?
A pharmaceutical term extension is an extension of the 20 year life of a patent where the patentee has been unable to sell the pharmaceutical due to a delay in receiving marketing approval by the relevant regulatory agency to sell the pharmaceutical in a country. In most cases this is limited to five years although method of calculating the extension varies between countries.
As an example, Australia calculates the length of the extension as being the length of time between the date of filing of the patent application and the date of approval to market the pharmaceutical by the Therapeutic Goods Agency (TGA), provided the period between the two is at least 5 years. The maximum term of any extension is 5 years.
New Zealand does not currently offer any extension of the patent term for pharmaceuticals or any other subject matter. Canada is another notable country which does not provide for a term extension of a pharmaceutical patent. Most other countries in the OECD already do provide for a patent term extension of some fashion for a pharmaceutical patent.
What is the justification for pharmaceutical term extensions?
Before it can be sold, a pharmaceutical must be approved for market. Marketing approval involves substantial clinical tests to determine if the pharmaceutical is safe and effective. In New Zealand marketing approval is governed by the Medicines Act 1981 and administered by Medsafe. However, the best-known form of marketing approval (and for which the most data is available) is the United States’ Food and Drug Administration approval (FDA approval). It can take 10 to 15 years and billions of dollars for a pharmaceutical based on a new drug molecule (an ‘innovative pharmaceutical’) to get from the laboratory to the pharmacy under the FDA system. The cost of safety and efficacy trials alone runs into the hundreds of millions of dollars.
A patent lasts for 20 years from the date on which the patent application is filed. The nature of the patent system means that a patent application must be filed as early as possible after invention of the new drug molecule, and certainly prior to undertaking any of the clinical trials necessary to make marketing approval possible. This means that if we take the average period for approval of a pharmaceutical discussed above, once the inventor is able to sell the product a period of between 5 and 10 years of patent protection remains.
Patent protection is a key driver of drug development, since the monopoly period allows pharmaceutical companies to recover the substantial costs of getting an innovative pharmaceutical to market. Too short a protection period is likely to mean a reduction in the development of innovative pharmaceuticals. Most countries in the OECD have sought to redress this problem by providing a limited extension of up to 5 years. The length of the extension of term is usually calculated as the period between the date of the patent application in question and the first marketing approval for that product.
Why does New Zealand not currently grant pharmaceutical term extensions?
Until 1994 New Zealand did allow patent term extensions. In 1994, as a part of New Zealand’s accession to the TRIPS agreement, amendment of the Patents Act 1953 by the Patents Amendment Act 1994 extended the general patent term from 16 to the present 20 years. At the same time it abolished term extensions of up to 10 years. These extensions were usually, although not exclusively, used for pharmaceuticals. The average extension of term was approximately 7.5 years.
However, during the TRIPS amendment and again during the parliamentary debate on the Patents Act 2013, the New Zealand government decided that the costs of having a patent term extension to New Zealand outweighed the benefits to New Zealand. Extending the term of a patent means a longer period under which a generic pharmaceutical manufacturer cannot enter the market. This means that the innovative pharmaceutical company (the one who invented the drug) can charge higher prices for longer.
In the case of New Zealand, the Pharmaceutical Management Agency of New Zealand (Pharmac) is responsible for negotiating prices and setting subsidy levels of pharmaceuticals. An increase in the price of a pharmaceutical will likely mean either an increase in the portion of prescription pharmaceuticals the consumer has to pay, a decrease in the number of pharmaceuticals Pharmac can fund, or require increased funding from the government for Pharmac.
The argument has also been made that the New Zealand market is so small on a global scale that the lack of a patent term extension is unlikely to make any difference to investment in drug development. (This would not be the case if, for example, a patent term extension were not offered in the United States or Europe.) Thus, according to this argument, the lack of a patent term extension does not impair the development of innovative pharmaceuticals, and therefore the access of New Zealanders to these pharmaceuticals. It is worth noting, however, that some studies have shown that the access of New Zealanders to innovative pharmaceuticals is amongst the worst in the OECD.
In summary, the New Zealand government has previously considered that the benefit of having extensions of term for pharmaceutical patents is outweighed by the increased cost of pharmaceutical access to New Zealanders.
Another issue surrounding pharmaceuticals is data protection. Data protection is only peripherally related to patents.
Data protection, is also known as data exclusivity. A topical issue is whether data protection for biologics should be extended from the current period (in New Zealand) of 5 years to 12 years.
What is Data Protection?
As discussed above, during the process of obtaining marketing approval for a new pharmaceutical, the innovative pharmaceutical company must undertake a number of clinical trials showing that the pharmaceutical is safe and effective, and submit the data to the relevant regulatory authority. These trials are a major cost in the development of a pharmaceutical.
A manufacturer of generic products who can rely on the data generated by the innovative pharmaceutical company does not need to undertake the same tests in order to get marketing approval. Thus the process for obtaining marketing approval for a generic pharmaceutical is substantially quicker and cheaper.
Data protection, or data exclusivity, is the term given to the period in which other pharmaceutical manufacturers cannot rely on the data generated by the innovative pharmaceutical country in order to gain marketing approval for their own generic, products. Thus when data protection is in place, a generic manufacturer must either wait until the protected period lapses, or undertake its own trials.
A common misconception is that data protection is an extension of the monopoly period of a patent. This is not the case. Data protection applies from the date of marketing approval, regardless of whether approval is granted before or after the expiry of the patent. Thus if the innovative pharmaceutical company obtains marketing approval 8 years before its patent expires, and data protection of 5 years is granted, then the pharmaceutical will still be under patent when the data protection period expires.
Data protection is of a different scope to a patent right. A patent will stop a generic product from entering the market. In contrast, during the period of data protection, a generic manufacturer can still get marketing approval even if the data protection period remains pending, but it will need to undertake the necessary trials on its own product.
New Zealand patent law allows for a generic manufacturer to undertake the necessary tests prior to patent expiry. Thus, in theory, the generic manufacturer will be able to gain marketing approval and begin selling its products immediately on expiry of the patent. This “springboarding” provision is also at issue in the TPP, although it appears as though some type of exclusion for regulatory review is acceptable.
What is the data protection term in New Zealand?
New Zealand currently provides data protection of 5 years from the date of marketing approval for a new pharmaceuticals (section 23B of the Medicines Act 1981). It also provides data protection of 5 years for agricultural and veterinary products (section 73 ofthe Agricultural Compounds and Veterinary Medicines Act 1997).
Australia also provides a period of 5 years for protection of new drugs, while the United States provides a period of 5 years for a new chemical entity and a period of 12 years for biologics. In the European Union, which has a slightly different system, up to 11 years data protection can be obtained.
What is a biologic and why should it be treated differently?
Much of the controversy around the TPP in this area corresponds to the push for all signatory countries to provide a data exclusivity period of 12 years for biologics. Most parties to the TPP do not distinguish between a new chemical entity and a new biologic in assessing data protection.
A biologic is a large molecule produced by living cells and organisms through highly specific processes. Examples of biologics include toxins, vaccines, antibodies and cell-based therapies.
Biologics are distinct from traditional small molecule drugs in that they are more difficult to develop and manufacture than molecules made by chemical synthesis. Patent protection for biologics is often narrower than for traditional small molecule drugs and not well defined.
Generic biologics are usually referred to as “biosimilars”. Because of the methods by which they are made, biosimilars are not identical to the innovator product, thereby creating uncertainty as to whether they would infringe the patent for the innovative biologic. However, when they are similar enough to the innovative biologic they can take advantage of the safety and efficacy trials of the innovative product in order to obtain marketing approval.
In the United States it was determined that the combination of patent protection and a 5 year data protection period was not sufficient to encourage innovation in biologics, which are seen as the next big frontier in drug development. For this reason data protection was extended to 12 years for biologics, although the Obama administration is considering reducing this to 7 years.
What other issues are there around data protection?
In addition to data protection for new drug molecules, biologic or otherwise, some countries, for example the United States, also provide data protection for newly discovered uses of a known pharmaceutical. A newly discovered use of a known pharmaceutical is commonly referred to as a label extension. Currently data protection for newly discovered uses of a known drug is not provided in New Zealand, but it is a possibility that the TPP will introduce this.
Another issue which is relevant to the protection of pharmaceuticals under the TPP is patent linkage. New Zealand does not currently provide for a system of patent linkage.
Patent linkage is intended to prevent marketing approval being granted a product while a patent is in force. In certain cases, such as the US ‘Orange Book’ system it requires the registration that a pharmaceutical has a particular patent associated with it. In a contrasting system Australia requires that a generic manufacturer must declare whether a product would infringe the rights of a patent. Generic applications for marketing approval for that drug will then not be granted unless either the patent has expired, the patent is not infringed, or the patent is invalid. The various mechanisms by which patent linkage works are beyond the scope of this article.
Patent linkage is often criticised as requiring the marketing approval agency to do the patent enforcement which is usually the domain of the patentee. Moreover some of the mechanisms have been criticised as being used to create delays of marketing approval of generic pharmaceuticals.
Subject matter restrictions
An area which was mentioned in the earlier stages of the TPP is restrictions on the subject matter which can be considered patentable.
Under New Zealand law, methods of medical treatment, diagnosis and surgery practiced on a human being are not currently patentable. In contrast, in the United States all of these classes of invention are patentable. It is possible that the TPP will require that New Zealand also grant protection for this subject matter. However it appears that, at least in the most recent leaked text, the status quo for New Zealand will be preserved in this regard.
The proposals in the draft IP chapter of the TPP Agreement, and in particular those relating to pharmaceuticals have received considerable attention in the media and are likely to continue to do so in the future. The current New Zealand provisions for the protection of intellectual property relating to pharmaceuticals are currently provide very restricted cover in comparison to other developed countries and are seen as an area where New Zealand may have to cede some ground.
New Zealand does not provide any extension of patent term on the grounds of a delay in gaining marketing approval of pharmaceuticals. Thus the patent term of a new pharmaceutical is limited to 20 years even if it takes 10 to 15 years of that period to obtain approval to sell the pharmaceutical.
New Zealand does provide 5 years protection for data provided to Medsafe in obtaining marketing approval for a new drug molecule. However, there is no distinction between a traditional small drug molecule and a large molecule produced by cells or living organisms. New Zealand does not recognise data protection for subsequent uses of known drugs.
The proposals in the draft IP chapter of the TPP agreement, to provide an extension of term for pharmaceutical patents of up to 5 years, to provide up to 12 years data protection for biologics, and to link marketing approval to patent term (patent linkage) are likely to have an impact on the cost and availability of pharmaceuticals in New Zealand. Whether this impact is acceptable in the context of the broader TPP Agreement is another question altogether.
David Nowak - August 2015
 A new text of the IP Chapter of the TPP Agreement was leaked on 4 August 2015. This text appears to represent the negotiating position of participant countries as at 11 May 2015, i.e. prior to the Maui round of negotiations. A copy of the text can be found herehttp://keionline.org/tpp/11may2015-ip-text.
 Section 77(1) Patents Act (Aus) 1990
 Section 77 (2) Patents Act (Aus) 1990
 J.A. DiMasi, “New Drug Development in U.S. 1963–1999,” Clinical Pharmacology & Therapeutics 69, no. 5 (2001): 286–296; M. Dickson and J.P. Gagnon, “Key Factors in the Rising Cost of New Drug Discovery and Development,” Nature Reviews Drug Discovery 3 (May 2004): 417–429; J.A. DiMasi, R.W. Hansen, and H.G. Grabowski, “The Price of Innovation: New Estimates of Drug Development Costs,” Journal of Health Economics 22 (2003): 151–185.
 Estimates from the 1990’s are that the time period to achieve regulatory approval in New Zealand was an average of over 10 years - John Parker "Pharmaceutical Patent Term Restoration in New Zealand," Prometheus, Vol. 18, No. 3, 2000.
 J.A. DiMasi, R.W. Hansen, and H.G. Grabowski (Ibid)
 John Parker Pharmaceutical Patent Extensions in New Zealand 1953 to 1995: An Appraisal, Economics
Discussion Paper No. 0111, University of Otago, 2000.
 See for example the speech of the Hon David Cunliffe during the second reading here http://www.parliament.nz/en-nz/pb/debates/debates/50HansD_20120912_00000016/patents-bill-—-second-reading
 For an example of the cost saving for Pharmac of generic entry to the market as a result of expiry of patent protection, see the 87% reduction in price for imatinib (Glivec) discussed at page 12 of the Pharmac Annual Review here: http://www.pharmac.health.nz/assets/2014-Annual-Review.pdf.
 See for example Review of the Patents Act 1953: The Pharmaceutical Patent Term in New Zealand, MED Discussion paper 2003 at 22 (available here https://www.med.govt.nz/business/intellectual-property/pdf-docs-library/patents/review-of-patents-act/patents-act-1953-pharmaceutical-patent-terms-pdf)
 Section 145, Patents Act 2013
 See Article QQ.E.13 of the leaked text dated 11 May 2015 (Ibid)
 In https://www.pharmac.health.nz/assets/Biosimilars-fact-sheet.pdf, it is reported that spending on biologics grew 367% over the period 2007-2012, in contrast to 24% on all medicines.
 See Article QQ.E.17 in the leaked text dated 11 May 2015, (Ibid)
 For a full description of the differences between US, Canadian and Australian patent linkage provisions see Faunce T and Lexchin J ‘Linkage’ pharmaceutical evergreening in Canada and Australia Australia and New Zealand Health Policy 2007, 4:8 (available here http://www.anzhealthpolicy.com/content/4/1/8)
 Faunce T and Lexchin J (Ibid)
 See Article QQ.E.1 (3) (Ibid) “Each Party may also exclude from patentability: diagnostic, therapeutic, and surgical methods for the treatment of humans or animals”.