1. 1 EFPIA’s Response to The Pharmaceutical Sector Inquiry Preliminary Report Brian Healy, Ph. D Merck & Co Member of EFPIA Sector Inquiry Task Force

2. 2 Scope of the Inquiry Commissioner Kroes: “ If innovative products are not being produced, and cheaper generic alternatives to existing products are being delayed, then we need to find out why and, if necessary, take action. ” Hugely burdensome and continuing interrogations of 43 innovative companies relating to 219 INNs over 8 years Interim Report maintains but fails to substantiate the underlying allegations and to analyse causation.

3. 3 The Interim Report Negative tone causes long-term reputational damage No evidence of systemic problems caused by innovator conduct: 1. no decline in innovation 2. EFPIA supports immediate generic entry but calls for an objective assessment of the reasons for delay A missed opportunity to examine: 1. the complexity/diversity of national regulatory regimes 2. the potential for more efficient generics markets

4. 4 Presentation The facts on generic entry The real reasons for the decline in innovation productivity The critical challenges the Interim Report fails to explore EFPIA’s main policy recommendations

5. 5 I. GENERIC ENTRY

6. 6 Generic Entry – The Allegation Innovators’ recourse to a “toolbox” of tactics delays/blocks generic entry at a cost of €3bn: –Patent portfolios –Patent litigation –Settlement agreements –Complaints to regulatory authorities –Introducing marginally improved products towards end of patent life to switch demand These are all common and lawful commercial practices: calling them into question creates legal uncertainty and threatens innovation.

7. 7 Intellectual Property Protection DG COMP insists that it does not call into question the IP system But it repeats many of the allegations made by generics (too many patents, patents protecting incremental innovation are “weak”, etc.) Strong IP protection is key in a sector where 2 out of 10 new medicines reaching the market cover their R&D costs.

8. 8 Patent Portfolios DG Competition implies that innovators file patent thickets and “weak” patents to create uncertainty What the EPO says: “…the labels “primary patents” and “secondary patents” are not terms of art in the European patent system. Indeed, an invention claimed in a patent application is subjected to the conditions for patentability contained in the EPC and to those alone…Thus, the suggestion of generic companies that the EPO should subject so-called “secondary” patents to a higher level of scrutiny is incompatible with the principles of the EPC, the letter and spirit of which require the EPO to carry out its work in a neutral and predictable manner free of arbitrary considerations, and to subject all inventions to the same standards of patentability under the EPC.” Competition authorities should not judge the value of patents nor the patentee’s intent in filing for patents.

9. 9 Patent Portfolios DG Competition mis-states patent numbers: 40,000 patents/applications in EU 27: “You may be surprised how far they will go to extend the depth and duration of patent protection – EU wide, up to 1,300 patents can be filed in relation to a single product” What the EPO says: “…this method of counting patents needlessly and artificially inflates applicable numbers, giving a distorted picture of the functioning of the system… although this figure is presented in the section on the geographical scope of patenting, given the intuitive connection between granting levels and perceptions of quality, it automatically goes beyond the issue of the fragmentation of the European market and appears to imply a severe substantive dysfunction of the European patent system in qualitative terms. We consider this inappropriate and misleading…” EFPIA supports the Community Patent and a high quality single litigation system but DG COMP should acknowledge that today the system is national.

10. 10 Patent Portfolios DG Competition mis-states the patent system: “…when the main patent is about to expire…originator companies may apply for a ‘subsequent’ patent for the same initial molecules” §891 What the EPO says: “A subsequent patent may well be granted for an incremental invention related to the initial molecules covered by the so-called “primary patent”, but it certainly would not contain a product claim for the same molecule per se…” Competition authorities must refrain from judging the volume of patent rights and the timing of patent applications or risk chilling innovation.

11. 11 Patent Litigation > 26,000 patents for 219 top-selling INNs No litigation in relation to 151 700 litigations started in relation to 68 INNs involving 478 patents 149 final decisions This is not a “large number” nor a cause for competition law concern.

12. 12 Outcomes of Litigations and Oppositions Litigation (149 cases): Overall patentee loses in 62% No comparative data with other sectors Approx. 50 cases which patentees brought and won at trial but then settled appear to be excluded from the data Oppositions (52 final decisions): 31 revoked 13 upheld non amended 8 upheld in amended form The checks and balances are working. These data do not reveal a systemic problem.

13. 13 Regulatory Complaints Interim Report questions lawfulness of complaints to regulatory authorities (e.g., on patent infringement, on safety concerns) Bringing a good faith concern to regulators’ attention is not a competition law violation.

14. 14 What the Interim Report Does Not Address – Prices in the Generics Markets / the Distribution Margin Generics represent approx 18% of value of EU prescription market and growing Commission rationale for generic entry concern is cost saving (€0.90 per citizen per annum) Netherlands saved > €25 per citizen by promoting price competition between generics on 33 medicines Despite average of 7 generic competitors per product and very low production costs, prices only 20% lower after 12 months Efficient generics markets offer a REAL opportunity for significant cost savings and headroom for innovation.

15. 15 What Else Does the Interim Report Fail to Address? The extent to which the practices under investigation had any effect The impact of regulation on the market The actual period of exclusivity that innovators have Absence of causality analysis is a fundamental flaw that deprives the Inquiry of any semblance of objectivity.

16. 16 The Facts on Generic Entry LOE is when a product no longer benefits from patent or data protection at which point generics can enter lawfully if they so choose Wide variation between Member States Delay is 6.6 months (weighted average) and 4 months for blockbusters Generic entry is getting faster for high value products where interim report says there is most common use of the toolbox!

17. 17 Possible Causes of Delay (other than the “toolbox” of lawful measures) Insufficient market incentives due to market size and variations in national price regulations Formulation difficulties or costs Law applicable during period of investigation (e.g., pre-Bolar) Regulatory and P&R delays The cost of delayed generic entry assumes day 1 generic entry that ignores many other factors, including recent legislative changes that will mean faster generic entry.

18. 18 Failure to Tackle the Biggest Single Delay to Market Entry – National Regulations National regulatory and price and reimbursement regimes mean average delay between marketing authorisation and pricing and reimbursement approval is as much as: 140 days for generics – and can be as much as 270 days 478 days for innovative medicines – and can be as much as 1300 days Simply put, Europe’s patients deserve better! “Requirements that cause a high administrative burden without providing a clear public health benefit have a strong negative impact on competitiveness.” Commission’s December 2008 Pharma Communication

19. 19 II. The Alleged Innovation Decline

20. 20 Impact on Innovation Allegation of defensive patenting strategies to block rivals rather than to protect meritorious developments, leading to obstacles to innovation in the form of higher costs or delays –1,100 reported “overlaps” in EU –99 requests to license, 80% granted or other solutions found –Only one reported case of an R&D project terminated for want of a license There is no evidence of any hold-up. Strong IPR protection is the bedrock of innovation.

21. 21 Pharmaceutical R&D Expenditure in Europe, USA and Japan (Million, at 2002 constant exchange rates, bln €), 1990-2005

22. 22 The Number of Compounds in Development

23. 23 The First to Market is Generally Quickly Followed by Many Others >15 beta blockers 9 protease inhibitors 15 NSAIDs >10 statins...resulting in tangible benefits to patients’ well-being

24. 24 What the Interim Report Does Not Address – the Causes of the Decline in R&D Productivity More complex scientific targets Investments in biotechnology retooling Increased costs and higher attrition rates in late stage development due to risk aversion/negative signals from pricing authorities not willing to pay for incremental innovation Europe needs a holistic approach to healthcare spending focused on the value of new medicines and on savings from more efficient generic markets being reinvested in innovative markets.

25. 25 Industry Investigations vs FDA Approvals 14,4% 3,1% Success rate From 2 NME per bln $ in 1996 to 0.4 NME per bln $ in 2006

26. 26 Conclusions on the Interim Report Interim Report is fundamentally flawed and fails to meet DG COMP’s stated objective Central allegations not substantiated and cause reputational damage Lack of understanding of how innovation occurs, how the patent system works, and the influence of the broader regulatory environment The Final Report should be objective and advocate reduced regulatory barriers, strong IP protection, and real savings that allow more patients faster access to therapeutic advances.

27. 27 EFPIA Policy Recommendations - Highlights Expedite benchmarking and propose free pricing in order to achieve more efficient generics markets to create headroom for innovation Ensure that P&R processes are fair, swift and predictable promoting early and equal patient access and a fair reward for innovation Improve the patent system (EPC and specialised unitary litigation system) Allow innovators to take action to resolve disputes before generic launch to increase predictability and efficiency