European Parliament adopts its Position on EU Pharma Law Review: 8 Key Takeaways for Industry

European Parliament adopts its Position on EU Pharma Law Review: 8 Key Takeaways for Industry

April 11, 2024, Covington Alert

On 10 April 2024, the European Parliament adopted its position on the Commission proposal to reform the core EU pharmaceutical legislation (see here and here).  In doing so, the European Parliament has met its ambitious timeline to adopt its position before the upcoming Parliamentary elections and marks a significant step in the legislative process. 

Parliament’s position comes less than a year since the Commission published its proposal, which consists of a new directive replacing Directive 2001/83/EC and a new master regulation replacing Regulation 726/2004, which will also consolidate the orphan and pediatric medicines regulations (see our prior EU Pharma Legislation Review blog series).  Many of Parliament’s amendments to the Commission proposal will be seen as improvements by the innovative industry, but there remain challenges and unresolved questions.

We provide below the top 8 takeaways for industry to consider during the next phase of the legislative process, which is a detailed review by the Council.

1. Reduction in Regulatory Data Protection – Baseline down 0.5 years and a cap

In the EU, innovators currently benefit from 8 years of regulatory data protection (“RDP”), after which generic or biosimilar manufacturers may file a marketing authorization application (“MAA”), followed by 2 (and possibly 3) years of marketing protection before they can launch – the so-called “8+2+1” year regime.  The Commission’s proposal included a two-year “reduction” in baseline RDP providing a standard “6+2” year regime.  However, innovators could claw some of these losses back to achieve greater levels of protection than they have today – up to 10 years of RDP.  Specifically, an additional (i) 12 months if the authorization holder gains approval of significant new indications; (ii) 6 months if the product is deemed to address an unmet medical need (“UMN”); (iii) 6 months if the innovator conducts comparative clinical trials; and/or (iv) 2 years if the innovator launched the product in all Member States (“launch condition”).  These potential extensions of RDP were cumulative with no proposed cap.  However, as discussed in our prior blog post, there were many challenges and uncertainties associated with these extensions making some not realistically achievable.

Innovators are likely to welcome the fact that Parliament has strengthened RDP compared to the Commission proposal and adopted a baseline RDP of 7.5 years.  This, however, still represents a decrease of 0.5 years in the default level of protection currently offered.  Innovators can potentially increase baseline RDP, as Parliament has maintained the Commission’s RDP modulation system with some amendments: (i) an additional 12 months (instead of 6 months) if a product is deemed to address an UMN; (ii) 6 months if the innovator conducts comparative clinical trials; and (iii) a new incentive of 6 months if the innovator conducts “a significant share” of research and development (including preclinical and clinical studies) within the EU in part at least in collaboration with public entities.  Parliament has scrapped the controversial launch condition, which was generally considered unachievable and replaced it with an obligation to file nationally for pricing and reimbursement (“P&R”), which is de-linked from the incentive framework.  RDP is followed by 2 years of marketing protection, which can be extended by 12 months for an important new indication (instead of the additional 12 months of RDP proposed by the Commission).

Notably, Parliament has proposed that overall RDP be capped at 8.5 years.  This means that innovators can at best achieve 6 more months of RDP than currently, but with the uncertainty as to whether any additional period will be granted.  Questions remain concerning the concept of UMN with the Commission’s criteria-based definition (see prior blog post) being unchanged.  The Parliament did introduce some clarifications on UMN in the draft directive’s recitals to: (i) broaden the concept of “morbidity” to include various factors, such as quality of life, burden of disease and treatment, and to take into account patient experience data; and (ii) state that UMN status should not have an “automatic” effect on P&R decisions at a national level.  Parliament’s amendments also clarify that all key stakeholders, including industry, will be involved in setting EMA guidelines on the application of the UMN criteria.  Notwithstanding these improvements versus the Commission proposal, there remain concerns on the potential impact of UMN status.

2. Transferable Exclusivity Vouchers – Stricter Conditions

To incentivize the development of priority antimicrobials, the Commission proposal introduced the possibility for innovators to be granted a transferable data exclusivity voucher (“TEV”) following the approval of a new priority antimicrobial (see prior blog post).  The Parliament has retained TEVs but they will be subject to stricter conditions.  The Commission proposal provided TEVs with 1 year of added RDP without any cap.  However, Parliament has proposed that TEVs will now be granted for 12, 9 or 6 months of added RDP as a reward for developing ‘critical’, ‘high’ or ‘medium’ priority antimicrobials, respectively.  The criteria for such designations will be set out in subsequent delegated acts.  In addition, TEVs will be prohibited from being applied to medicinal products that have already benefited from the maximum duration of RDP (i.e., the 8.5 years cap applies).  Should the antimicrobial manufacturer choose to sell its TEV to a third party, the consideration paid for the TEV will be held by the Commission and paid to the manufacturer in yearly instalments, which is intended to ensure manufacturing capacity and supply of the relevant antimicrobial.  A TEV may only be transferred once and must be used within 4 years from issue.

Separate to TEVs, Parliament has introduced a new milestone payment reward scheme to support the development of potential priority antimicrobials.  The criteria for such payments and milestones will be set out in subsequent delegated acts.  Manufacturers will be prohibited from benefiting from the milestone payment scheme in addition to the grant of a TEV with respect to the same product.  The milestone payment reward scheme will also be complemented by a subscription model-based voluntary joint procurement scheme for antimicrobials, under which manufacturers would be guaranteed a fixed payment per year for antimicrobials regardless of the level of use (with the intention to restrict overuse and antibiotic resistance).

3. Reduction in Orphan Market Exclusivity

Orphan medicinal products currently benefit from 10 years of orphan market exclusivity (“OME”) (plus the time needed for the review and approval of MAAs for similar products, including generics or biosimilars, which can only be submitted once the exclusivity expires).  The Commission proposal introduced a new concept of a modulated OME with varying exclusivity periods depending on the type of orphan product.  Parliament maintains this modulation approach but amends the periods.  The baseline period of OME is set at 9 years.  Products addressing high unmet medical need (“HUMN”) will benefit from the longest OME of 11 years (1 year longer than in the Commission proposal) and products based on bibliographical applications will benefit from 4 years of OME (1 year less than in the Commission proposal).  As with the concept of UMN, the exact scope of the HUMN definition remains uncertain.

Parliament also maintains the Commission proposal of the global orphan MA which means that separate OME periods for different orphan designations will no longer be available for the same product.  As with regulatory exclusivity protection, to which the global MA principle applies, new orphan indications will form part of the same global orphan MA, but if an MA holder (“MAH”) obtains an approval for a new therapeutic indication for a different orphan condition, the OME will be extended by an additional 12 months.  Such a prolongation may be granted twice provided that the new therapeutic indications are each time for different orphan conditions and the approval is granted at least 2 years before the end of the exclusivity period.  The OME for products based on a bibliographical application cannot be extended.

The Commission proposal introduced a major change to the scope of OME allowing MAAs for a similar medicinal product (including generics and biosimilars) to be submitted before the market exclusivity expires i.e., “where the remainder of the duration of the market exclusivity is less than two years.”  Parliament went even further allowing the granting of a MA for a similar medicinal product “where the remainder of the duration of the initial market exclusivity is less than two years.”  This is inconsistent with the basic provisions on market exclusivity in Article 71 and thus will need to be corrected in the next legislative phases.

Parliament scrapped the proposal to empower the Commission to set out different orphan designation criteria for certain types of diseases (if the criteria “are not appropriate due to the specific characteristics of certain conditions or any other scientific reasons”).  The possibility of alternative criteria for orphan designations would contribute further to the uncertainty of the orphan incentives regime.

An uncertainty that has not been resolved by Parliament relates to transitional provisions for the OME periods.  While the Commission proposal clarifies what medicinal products will continue to benefit from the RDP granted under the old framework, such clarity is missing for OME, in part because the situations are more complex.  To limit the uncertainty for the industry, specific transitional provisions clarifying this issue should be introduced during the next steps of the legislative process.

4. Pharmacy and Hospital Exemptions – Expanded Scope

The current legislation provides for a number of specific exemptions from the MA requirement, including pharmacy preparations (magistral and officinal formulations) and custom-made advanced therapy medicinal products (“ATMPs”) used in a hospital setting for an individual patient (“hospital exemption”).  As discussed in our prior blog post, the Commission proposal expanded the scope of application of pharmacy and hospital exemptions to make products more easily available to individual patients.  The Parliament amendments build on this policy goal and extend the application of these exemptions even further.

Pharmacy Exemptions:  The Parliament proposes to further expand the possibility that pharmacies may prepare so-called magistral formulations, i.e., compound product in response to a prescription in advance of having received the prescription.  The Commission proposal extended such possibility by allowing “in duly justified cases” hospital pharmacies to prepare such medicines based on estimated medical prescriptions for the following 7 days.  Parliament’s amendments build on this expansion and propose to add that “when duly justified based on the stability of the medicinal product” pharmacies will be allowed to prepare limited stocks of products in advance of receipt of a prescription for an individual patient “within a different time limit”.  If this amendment is retained, further clarification is required to better understand the practical implications, but it seems that the intention is to allow pharmacies to compound more than 7 days’ worth of stock, provided this is justified based on the stability of the product. 

Parliament also proposes to broaden the application of the exemption for officinal formulations, i.e., pharmacy compounding in accordance with a pharmacopeial monograph.  While the Commission proposal exempted officinal formulations only if prepared in a pharmacy in accordance with a pharmacopeia and intended to be supplied directly to the patients served “by the pharmacy in question”, Parliament seeks to extend the exemption to also cover supplies to patients of “another pharmacy.”   

Finally, Parliament has introduced a new and separate exemption for hospital formulations (“hospital formula”), which can be prepared in advance, in duly justified cases, for supply once a medical prescription is available.

Although most of these exemptions apply only in “duly justified cases”, the expanded scope of pharmacy exemptions increasingly threatens the market for approved innovator products.  Pharmacy preparations can also be used as pricing reference for reimbursement of products with an MA and may in certain cases also be relevant as existing treatment methods for the purposes of orphan designation.

Hospital Exemption for ATMPs:  Under the current regime, the hospital exemption for ATMPs applies only to custom-made ATMPs used in a hospital for an individual patient.  These products must be prepared under the exclusive professional responsibility of a medical practitioner and should only be used within the Member State where they are prepared. 

Parliament has introduced a few additional requirements for the hospital exemption, such as the requirement of a “special need” of an individual patient.  Applications for a hospital exemption approval will also have to provide evidence on quality, safety and expected efficacy of the ATMPs prepared under the exemption. 

Other Parliament amendments, however, significantly expand the scope of the hospital exemption for ATMPs.  Under the new rules, it will also be possible to prepare ATMPs under the hospital exemption not only under the exclusive professional responsibility of a medical practitioner, but also of a “hospital pharmacist.”

The new rules allow the “cross-border exchange” of ATMPs in case of “absence of other solutions for the individual patient.”  This amendment is clearly in contrast with the original national geographical scope of the exemption.  In case of cross-border exchange, the proposed new rules provide that a second medical practitioner and a hospital pharmacist in the receiving Member State will be designated as having exclusive professional responsibility for the use of the product and collection of follow-up data.  Information about the cross-border exchange will have to be submitted to the competent authorities of both Member States, and will be shared in a public repository (see prior blog post) by the competent authority of the Member State of origin of the ATMP.

5. Bolar Exemption – Expanded Scope Maintained

The “Bolar exemption” is an exemption for generic or biosimilar manufacturers to make use of the patent rights underlying an innovative medicinal product when preparing a corresponding generic or biosimilar MAA.  As we discussed previously under the Commission proposal, the Bolar exemption was expanded to expressly include within its scope: (i) MAAs and variations for generic, biosimilar, hybrid or bio-hybrid applications, (ii) health technology assessments; and (iii) pricing and reimbursement activities, and the activities conducted exclusively for such purpose, which may include the “offer, manufacture, sale, supply, storage, import, use and purchase of patented medicinal products or processes by third party suppliers and service providers.”  Subject to minor clarifications, the updated Bolar exemption language remains unchanged in the version adopted by Parliament.  The language of the directive further confirms that any procedures and decisions referenced above will be considered as “regulatory or administrative procedures,” and are “independent from the enforcement of intellectual property rights.”  The protection of intellectual property rights therefore will not be a valid ground for a regulator to refuse any such decisions (although this confirmation is nonetheless without prejudice to EU and national intellectual property legislation).

6. Interplay with other IP Reforms

In parallel to the EU pharmaceutical law reform, a new EU compulsory license Regulation, and Regulations governing a new unitary supplementary protection certificate (“SPC”) and a recast of the existing SPC Regulation (see previous blog post) have been proposed and debated by Parliament.  These new Regulations were voted through Parliament on 13 March 2024 and 28 February 2024, respectively.

Under the SPC reforms, eligible medicinal products granted through the centralized procedure will use a centralized SPC application to obtain: (i) a single unitary SPC based on a unitary patent protecting the underlying medicinal product; (ii) a bundle of national SPCs where the underlying patent is not a unitary patent; or (iii) a mix of the two.  The recast of the SPC text also includes certain clarifications based on previous CJEU case law concerning SPCs.  For example, the grant of multiple qualifying SPCs per medicinal product will now only be allowed where patentees are not economically linked.  Additionally, so-called “hostile SPCs” will be abolished.  It was previously uncertain whether a patentee could seek an SPC in respect of a product covered by an MA granted to a third party, but the new text confirms that this will not be permitted.  There are also certain clarifications regarding the scope of SPC protection that is available for derivatives (such as salts, esters, isomers, etc.), and biosimilar products.

The new EU compulsory license proposal introduces a new mechanism for the Commission to grant an EU-wide compulsory license under patent rights without the consent of the patent holder in response to EU crises or emergencies.  Current compulsory license regimes are regulated at the national level in each Member State and vary significantly between jurisdictions.  In the text of the new Regulation passed by Parliament, the Commission will also have the power to compel patent holders to share their trade secrets with licensees, under a compulsory license if “strictly necessary” to achieve the objective of the compulsory license.  This is a new feature, as the vast majority of national compulsory license regimes currently in force are restricted to patent and SPC rights only and do not address access to trade secrets.

7. Additional Obligations to Prevent Shortages

As discussed in our prior blog post, the Commission proposal introduced a series of measures and obligations aimed at securing the supply of critical medicinal products across the EU and at preventing shortages.  Parliament’s amendments set out additional obligations for MAHs, distributors and national competent authorities.  

Parliament has updated the shortage notification obligations for MAHs.  Under the new rules, MAHs must “explain the reasons” of any supply disruptions or suspensions.  Also, MAHs are required to notify a temporary suspension or supply disruption “as soon as possible” and no later than six months in advance, if “foreseeable” by the MAH or national competent authorities, or as soon as the MAH becomes aware in case of an “unforeseeable” disruption.  

Parliament has also strengthened the reporting obligations for wholesale distributors by requiring distributors to report shortages and submit regular information on available stocks of medicinal products they supply to competent authorities.  When an MAH notifies a temporary supply disruption, wholesale distributors will also need to provide information upon request in a timely manner on the reasons for the temporary disruption in supply.

Parliament’s amendments have reinforced the obligations for national competent authorities to provide shortage information.  New rules require national authorities to publish information and regular updates on actual shortages of medicinal products and ensure that such information has been actively communicated to representatives of healthcare professionals and patients.  National authorities will also need to inform “as soon as possible” the EMA of any measure planned or taken at national level to mitigate shortages.  Besides, competent authorities will create a system allowing patients to report shortages and request pharmacies supplying hospitals and hospital pharmacies to communicate data on available stocks.  Finally, to encourage the exchange of information between national and EU authorities, Member States will need to set up IT systems that are interoperable with the European Shortages Monitoring Platform (“ESMP”).

8. Environmental Risk Assessments – Renewed Focus and Transparency

Parliament’s amendments bring environmental issues front‑and‑center for EU pharmaceutical legislation, and the EMA specifically.  The amendments broaden the role of the EMA to provide Member States and the institutions of the EU with the best possible scientific opinion on any question relating to the evaluation of the quality, safety, efficacy “and environmental risk” of medicinal products.  To assist the EMA in that role, Parliament has proposed the establishment of a new ad hoc Environmental Risk Assessment (“ERA”) working party within the Agency.

Parliament has also adopted an expanded view of environmental risk. The Commission proposal included specific measures to tackle environmental risk arising from the release of medicinal products into the environment during use and disposal. Many of the Parliament’s changes expand the scope of those provisions to cover the entire life‑cycle of medicinal products.

Applicants for marketing authorizations (“MA Applicants”) have been required to submit an ERA with their applications since 2006. The Commission proposal strengthened the existing requirement and stipulated that the ERA had to evaluate the risks posed by the release of the medicinal product into the environment during the use and disposal of the product (see earlier blog post). Parliament has expanded the scope of the ERA to also cover risks arising during the manufacture of the product. Parliament’s amendments also require an ERA to describe how discharges of medicines, especially in manufacturing effluents, will be reduced.

Parliament’s renewed focus on the entire life‑cycle of medicinal products extends to disposal. Member States will be obliged to draw up national plans to inform the public and healthcare professionals about the environmental risks associated with the incorrect disposal of unused or expired medicinal products. The plans must also include measures to monitor the rates of correct and incorrect disposal, and to increase the rate of correct disposal.

Parliament has also built on the Commission’s policy goal of tackling the risk of antimicrobial resistance (“AMR”) and has proposed that ERAs must evaluate the risk of AMR in the entire manufacturing and supply chain (inside and outside of the EU), to use and disposal, including by healthcare professionals and patients.

In addition, Parliament has proposed that where an MA is granted, the EMA should publish the full ERA (with commercially confidential information deleted), rather than a summary of the ERA only.

These additional ERA obligations were balanced somewhat by Parliament making it more difficult for a MA to be refused or revoked based on a serious environmental risk.  A MA can only be refused or revoked if there is no justification for an insufficient ERA, and only “if the risks cannot be mitigated via conditions” (following a decision of suspension), and any such decision should “take into account the clinical benefits of the medicinal product and the needs of patients, including alternative treatments available.”

What’s Next?

Discussions on the Commission proposal are ongoing in the Council.  Once the Council has adopted its position, trialogue negotiations between the Commission, Parliament and Council can begin.

Many of the issues are emotive for many, if not all stakeholders and we can expect the negotiations to be complex.  The legislation is unlikely to make it through to adoption before 2026.  Transitional and implementation periods are then likely to be lengthy, and the phasing in of the new rules risks creating additional uncertainty for industry.  Innovator pipelines may become affected, and companies should be keeping a close eye on legislative developments.

If you would like to discuss any of the developments mentioned in this client alert, please contact our specialist EU life sciences lawyers.