Ref. Ares(2018)2736845 - 28/05/2018

Study on the economic impact
of supplementary protection
certificates, pharmaceutical
incentives and rewards in
Europe
Final Report

Written by Copenhagen Economics
May – 2018

EUROPEAN COMMISSION
Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs
Directorate F — Innovation and Advanced Manufacturing
Unit GROW-F.5 — Intellectual property and Fight against Counterfeiting
Contact: Denis Dambois
E-mail: denis.dambois@ec.europa.eu
European Commission
B-1049 Brussels

EUROPEAN COMMISSION

Study on the economic impact
of supplementary protection
certificates, pharmaceutical
incentives and rewards in
Europe
Final Report

Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs

2018

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The information and views set out in this study are those of the authors and do not necessarily reflect the
official opinion of the European Commission or of the Commission. The Commission cannot guarantee
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Luxembourg: Publications Office of the European Union, 2018
ISBN 978-92-79-68050-2
doi: 10.2873/886648
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Reproduction is authorised provided the source is acknowledged.

Printed in Belgium

Abstract

In this study, we utilise a unique, new dataset to assess the economic impact
of supplementary protection certificates (SPC’s) and the pharmaceutical
incentives and rewards in the EU. We develop a measure called the ‘Effective
protection period’. It reflects the time that elapses from a medicinal product
obtains a marketing authorisation until the last measure of protection on it
expires; this could be the original patent, an SPC or one of the other
incentives and rewards in the pharmaceutical legislation. We find that 45%
of the medicinal products in our dataset have obtained an SPC in at least one
of the European countries. We find that the SPC has added years to the
effective protection period for those innovator products where the SPC is the
last measure of protection to expire. While the protection for medicinal
products in the EU is amongst the strongest in the world, we find that for the
medicinal products in our dataset the average effective protection period has
decreased by approximately two years from 15 to 13 years since 1996 (with
variations in individual cases). We find that a longer effective protection
period stimulates research and development into new medicinal products.
We also find that it delays an average price drop of approximately 50 pct.
following the entry of generics. We find that companies choose to launch
more medicinal products faster in larger and wealthier countries. Hence, not
all new products are made available in all European countries and not at the
same time.

5

Reading guide
OUR TASK AND MANDATE
The information and views set out in this study are
those of Copenhagen Economics and do not
necessarily reflect the official opinion of the
European Commission. The Commission cannot
guarantee the accuracy of the data included in this
study. The Commission or any person acting on its
behalf cannot be held responsible for the use which
may be made of the information contained therein.”
Reflecting the statement above, we take full
responsibility for our work and the contents of this
report.
It is, however, important for the reader to know the
limits to the scope of the study, which are defined in
combination by the technical specifications (publicly
available)1, the winning proposal written by
Copenhagen Economics and specific requests from
the European Commission. Based on this, there are a
number of issues that we have not analysed. We
cannot rule out that including one or more of these
issues could affect one or more of our conclusions.
In the following, we briefly list relevant issues that
we have not analysed due to them being beyond the
scope of our study, given the technical specifications
and/or requests from the European Commission:
Taxation is regarded as a member state issue and is
as such beyond the scope of this study even though it
is recognised as a driver of (localisation of)
innovation (R&D).
Parallel trade is regarded as an issue related to the

internal market in general and not to IP rights or
pharmaceutical incentives and rewards in the EU
specifically and thus beyond the scope of our study.
This is despite the fact that the feasibility of parallel
trade is likely to have a significant impact on the
price setting and launching behaviour of
pharmaceutical companies.

by Copenhagen Economics.
Together with interviews, literature review and the
analyses conducted, this forms the base of
knowledge utilised in the present study.

IP rights other than patents and SPCs are (or
could become) important to the pharmaceutical
industry. For example, companies use copyrights,
database protection, trademarks and trade secrets to
protect their intellectual property. While analysing
the prevalence and impact of these rights is beyond
the scope of this study, the shift from product to
process-oriented R&D is likely to influence the
importance and application of both patents and
SPCs. Process-oriented R&D is for example a feature
of biological medicinal products where the
production process itself is pivotal for the effect of
the product. For clarity, it should be emphasised
here that in addition to patents and SPC’s we do, of
course, analyse the incentives and rewards in
European pharmaceutical legislation.
Competition law is an important factor in the
pharmaceutical sector. One application area is
collusion (e.g. pay-for-delay schemes). However, a
review of the impact of competition law falls outside
the scope of this study.

INPUT BY STAKEHOLDERS

During the course of the study, all input, including
comments and relevant studies provided by Member
States and other stakeholders have been considered

1 https://etendering.ted.europa.eu/cft/cft-display.html?cftId=2025

7

Table of contents (1/2)
Executive summary

10

Chapter 2

88

Glossary

18

2.1 Impact on innovation

91

2.2 Impact on availability

112

Chapter 1

19

2.3 Impact on accessibility

141

1.1 Current EU legislative instruments

22

2.4 Pricing drivers

149

1.2 Interaction between incentives

39

2.5 Effect on generic medicines and fiscal
sustainability of health systems

158

1.3 IP framework and pharmaceutical
incentives in other countries

46

Chapter 2 Appendix

164

1.4 Actual use of the above incentives and
rewards by the pharmaceutical innovators

55

Chapter 1 Appendix

75

Chapter 3

176

3.1 Objectives of the SPC regulations

186

3.2 SPC scope

221

3.3 Term of SPC protection

227

3.4 Impact of SPC fragmentation

239

3.5 SPCs for plant protection products

247

Chapter 3 appendix

251

8

Table of contents (2/2)

Chapter 4

254

Chapter 5

305

4.1 Impact on effective protection period

257

5.1 List of medicines

310

4.2 Effect on innovation

276

5.2 Blockbusters

312

4.3 Effect on availability

284

5.3 Orphan medicinal products

320

4.4 Effect on accessibility

292

5.4 Generics

340

4.5 Effect on pricing strategies

294

5.5 Antibiotics

343

4.6 Effect on healthcare budgets

297

5.6 Vaccines

347

4.7 Proportionality of incentives to goals

301

5.7 Conditional marketing authorisations

351

5.8 Paediatric use marketing authorisation

354

5.9 SPCs across countries

357

Chapter 5 Appendix

361

References

383

9

Executive summary
Motivation
In April 2017 the European Commission awarded
Copenhagen Economics the task of carrying out the
study entitled ‘Study on the economic impact of
supplementary protection certificates,
pharmaceutical incentives and rewards in Europe’
(call for tender 590/PP/GRO/SME/16/F/121). This
report represents the results of the study.
Two recent events prompted the need for the study
as spelled out in the tender specifications.
First, the European Commission Single Market
Strategy of October 2015 had identified a need to
“…consolidate and modernise the intellectual
property (IP) rights as a way to stimulate
innovation and growth within the European Union
and to engage in a reflection on ways to improve
the patent system in Europe…for pharmaceuticals…”.
Second, Council Conclusions of 17 June 2016, invited
the Commission to prepare an analysis of the impact
of the pharmaceutical incentives and rewards on
innovation, availability and accessibility of medicinal
products.

Incentive and rewards
So what are supplementary protection certificates
and pharmaceutical incentives and rewards? In total
there are five. We now go through each of them.
1: The supplementary protection certificate
(SPC) adds years of patent protection to an
innovative medicinal product. In 1992, the then 12
Member States of the European Union decided to

introduce SPCs. The motivation was that the patent
protection period of 20 years a new molecule enjoyed
universally, in practice provided less than 20 years of
protection for the resulting medicinal product. The
reason was, and still is, that it takes several years for
a company to develop an actual product based on a
patented molecule. During that period, the medicinal
product undergoes important testing regarding
quality, safety and efficacy, but at the same time it
implies a ‘loss of patent time’. The SPC adds up to a
maximum of 5 years of additional patent time in the
cases where the medicinal product has lost more
than 5 years of patent time. This means that if it
takes longer than 5 years from the patented molecule
is discovered until it ends up in a product for
patients, companies can get up to 5 years of extra
protection of the product. In essence it works like an
extension of the patent. Since 1992, with the growth
of the EU, all current 28 Member States (plus
Iceland and Norway) have introduced the SPC.

4: Market exclusivity for orphan medicinal
products is an incentive relevant only for orphan
medicinal products, i.e. products that are intended
for the diagnosis, prevention or treatment of lifethreatening or very serious conditions that affect no
more than 5 in 10,000 people in the European
Union. The incentive protects such medicinal
products from competition from similar medicinal
products targeting the same rare disease for 10 years.
5: Paediatric investigations of medicinal
products is rewarded 6 months of extension of the
SPC if an SPC exists. Paediatric means that it can be
used for treating children aged 0 to 18. If the
paediatric investigation concerns an orphan
medicinal product, the market exclusivity (incentive
4 above) may be extended from 10 to 12 years.

2+3: Data Protection (DP) and Market
Protection (MP) basically guarantee the innovator
pharmaceutical company a minimum of protection of
its new medicinal product of 10 years even in the
cases where the original patent and the SPC would
sum up to fewer than ten years. Each of the two
measures play specific roles. As the name indicates,
DP makes sure that another pharmaceutical
company cannot re-use the clinical trials data for 8
years and MP makes sure that the medicinal product
cannot be copied and marketed until after 10 years.
More precision is added in the body of the report,
but here it suffices to say that together they
guarantee a pharmaceutical company protection
from generic (copy) products for 10 years.

10

Executive summary
Parallel use
The original patent and the 5 incentives and rewards
work in combination with each other for each
innovative medicinal product.
For example, one medicinal product may experience
a short time from discovery of a new patented
molecule until a medicinal product is ready to be
marketed to patients. In this case, even with an SPC
and in light of the DP and MP, it is still the patent
protection that expires last and thus provides the
longest period of protection. If it took two years from
the patented molecule discovery to a marketed
product, this product would be protected from
generic competition for 18 years. That is a result of
the 20 years of patent protection minus the 2 years it
took to go from molecule to an actual product.

Another medicinal product may experience many
years from discovery of a new patented molecule
until a medicinal product is ready to be marketed
and reach patients. In this case, the MP’s protection
period of 10 years may be the longest one and thus
the one that applies to the medicinal product. In that
case, the product will enjoy 10 years of protection.
In between ‘very short’ and ‘very long’ from molecule
to product, a pharmaceutical company will find use
for the SPC. For example, if it took 12 years from the
patented molecule discovery to a marketed product,
this product would be protected from generic
competition for a total of 13 years exploiting the SPC
as the longest lasting measure. That is a result of the
20 years of patent protection minus the 12 years it
took to go from molecule to an actual medicinal
product resulting in an initial 8 years of protection.

On top of that the SPC adds 5 additional years in this
case. The final result is 13 years of protection from
generic competition (8+5 years). The MP would
provide 10 years of protection, but since the
company in this example had applied for and
received an SPC resulting in 13 years in total, the
SPC dominates the other incentives and rewards.

A unique dataset
In order to comply with the study objective of
evaluating the economic impact of supplementary
protection certificates, pharmaceutical incentives
and rewards we measure the combined effect on
protection offered by the patent and the 5 incentives
and rewards.
For that purpose we have gathered and combined
data from more than six databases in order to finally
arrive at the study dataset. At its core, the dataset
covers 558 unique medicinal product names
including all relevant information to allow us to
identify for each of them, which of the patents,
incentives and rewards expires last and how many
years of protection that implies. The dataset covers
the period from 1996 to 2016 and 28 European
countries.
The dataset is supplemented with additional data in
order to carry out certain of the more complicated
statistical analyses in the study.
Hence, the dataset(s) represent the core analytical
basis for the study. However, the analyses carried
out based on the dataset(s) have been supplemented
with more than 20 interviews with stakeholders, a
EU Member State workshop, 21 case studies on

specific medicinal products and a wealth of
literature.
We will now delve into our findings. First we will
present the novel measure of ‘effective protection
period’ and the insights it has provided. Second, we
will present the results of the statistical analyses
where we aimed for identifying the effect of the
‘effective protection period’ on innovation,
availability and accessibility – the three main
objectives of the study.

Effective protection period
For all 558 unique medicinal products in our dataset,
we have developed a novel measure, which we
throughout the report refer to as the effective
protection period. It measures the time that elapses
from a product obtains a marketing authorisation
until the last measure of protection expires; i.e. the
period where the medicinal product enjoys
protection from primarily generic competition in any
of the EU countries.
The effective protection period also allows us to
identify which of the 5 incentives and rewards and
patent(s) is last to expire. This is interesting when
assessing the practical implication for the protection
period of patent and the 5 incentives and rewards.

Consequently, the effective protection period is a
very helpful way of looking at the commercial
implications for pharmaceutical companies of the
patent and the 5 incentives and reward regime.

11

Executive summary
So what are the results when looking at the effective
protection period?
We find that the effective protection period for the
medicinal products in our dataset has declined from
an average of 15 years to 13 years during the period
1996 to 2016.
We speculate that part of the reason for this decrease
may be attributed to the increase in regulatory
requirements both at the EU and national level. The
decrease in the average effective protection period
could also reflect that companies have been taking
on more complex and risky research and development projects with longer expected development
times. Both fit with our finding that the average
development time of a medicinal product – defined
as the time that elapses from the first patent filing
protecting the molecule to the first marketing
authorisation of the final product in the EU – has
increased from 10 years to 15 years in the analysed
period based on our dataset. Increased risk taking
would be further supported by a general growing
global demand for health care services.
A higher risk profile of investments requires a higher
expected revenue and profit. Since some (many) of
the investments will fail to secure a marketed
product in the end, it is not uncommon to witness
very profitable single medicinal products, as
witnessed in the blockbuster section of the case
studies in chapter 5.
When looking at the entire period in our dataset and
across all 28 countries where the 558 unique
medicinal products have been made available, we

find that the bulk of the medicinal products enjoy an
effective protection period of between 10 and 15
years. This is the case for 62% of them. Very few
(4%) enjoy less. It makes sense that 10 years is a
minimum since the MP always provides 10 years of
protection (the reason that 4% in our dataset enjoy
fewer than 10 years of protection reflects the regime
prior to the introduction of the MP incentive in
2005).
An additional 24% enjoy an effective protection
period between 15 and 20 years, the 20 years being
the original patent protection period.
Then comes the last 10%, which enjoy more than 20
years of protection. At first this is surprising as the
maximum period of protection is 20 years offered by
the original patent. However, the explanation is the
existence of the so-called secondary patents. A
secondary patent is a patent taken out after the
initial patent. The secondary patent is just like any
other patent and provides 20 years of protection. But
since it is taken perhaps years after the initial patent
it effectively pushes the effective protection period
beyond 20 years. Some of the case studies in chapter
5 demonstrate this implication of secondary patents.

rewards are the last measure of protection to expire.
The SPC
Looking at the timing of the SPC, we focus on the
558 medicinal products alone. We want to know for
how many of these products an SPC has been
granted in at least one country.
We find that an SPC has been granted in at least one
country to 45% of the 558 unique medicinal products
in our dataset equal to 251 products. The average
duration of protection for all granted SPC’s is 3.5
years. Analysing cumulative incentives, where the
SPC expires last it adds on average 2.6 years beyond
the patent, market or data protection, whichever
would have been the final one to expire in the
absence of an SPC.

Data protection (DP) and market protection (MP)
Looking again at the 558 medicinal products but now
across all 28 European countries, we find that for
39% of the medicinal products in our dataset either
DP or MP is the last measure of protection to expire.
They have provided an average of 4.8 years of
additional protection.

We now turn to the marginal properties of each of
the patent and the 5 incentives and rewards.
Patents
We find that for 51 % of the 558 medicinal products
across all 28 countries a patent is the last measure of
protection to expire (omitting any secondary patents
this share drops to 38%). For the remaining 49%
either the SPC or one of the other incentives and

12

Executive summary
Market exclusivity for orphan medicinal products
Since the introduction of the Orphan Regulation, the
yearly number of applications for orphan medicinal
product designation submitted by pharmaceutical
com-panies has risen from 72 in the year 2000 to
329 in 2016. This has resulted in a total of 128
products with a marketing authorisation as an
orphan medicinal product during that period. Our
dataset covers 24 of these. For those where the
market exclusivity is the last measure of protection
to expire, it has added 1.6 years of additional
protection to the medicinal products.
Paediatric rewards
Seen across all pharmaceutical products in our
dataset, the extra effective protection obtained
through the rewards for paediatric investigation is
very limited. Focusing only on the products with a
positive paediatric investigation plan compliance
check does not change this picture. However, for
individual medicinal products in the market for adult
use the added (marginal) effective protection can be
up to 6 months.
Summing up
We have now presented main insights from
analysing the measure called ‘Effective protection
period’. We have presented results reflecting the
entire protection period of the medicinal products in
our dataset. We have also presented results for each
of the incentives and rewards showing how often
they are the last measure of protection to expire and
the corresponding additional number of years of
protection they provide.
The incentives and rewards are quite often the last

measure to expire, not the original patent. Hence, a
first conclusion is that the incentives and rewards
provide the additional protection that they were
designed to do. However, what have been the
implications of that additional protection? That is a
question to be answered empirically.

We therefore now turn to the results of the empirical
analysis. We estimate, using statistical models, the
effect of the effective protection period on the three
objectives of the study namely innovation, availability and accessibility (although we design the
analysis slightly different for the accessibility
analysis due to data constraints).

Impact on innovation
Before diving into the results of the statistical modelling, we first highlight the outcome of our literature
review. We find that existing empirical evidence is
ambiguous with respect to the effect of patents,
incentives and rewards on innovation in the
pharmaceutical sector. The literature covers different
samples of medicinal products in different countries
over different time periods, using different methods.
We now turn to our statistical modelling, which
together with insight from 21 case studies embodies
our empirical research. We test empirically the
relationship between the length of the effective
protection period for all the medicinal products in
our dataset across 28 European countries and the
companies’ level of pharmaceutical research and
development in the individual countries.

represents a consistent way of concluding on the
impact of the 5 incentives and rewards, which was
the main objective of this study.
The results from our statistical modelling point to a
positive relationship between the effective protection
period and the level of pharmaceutical research and
development. Specifically, we find that when
medicinal products experience a longer effective
protection period in the markets where they are sold,
pharmaceutical companies increase their innovation
efforts. The implication is that a reduction of the
effective protection period will negatively affect the
investments in research and development inside the
EU. It will also reduce the pharmaceutical investments in research and development outside of the
EU, e.g. for the pharmaceutical companies located in
the USA and Japan as they also sell their medicinal
products in the EU. The global reach of medicinal
products means that changes in incentives and
rewards in one jurisdiction have implications for
pharmaceutical investments in other jurisdictions.
We also find that as wealth, measured by income per
capita, increases in the countries that constitute the
most important markets for medicinal products,
pharmaceutical companies increase their innovation
efforts. We interpret this to mean that when
countries become wealthier their demand for
healthcare services including medicinal products
increase. As companies anticipate this, they will
invest more in innovation.

Since the effective protection period consists of the
patent and the 5 incentives and rewards, it

13

Executive summary
Zooming in on the 28 individual European countries
in our sample, our empirical analysis does not find
any relationship between the effective protection
period in one country and investments in
pharmaceutical research and development in that
same country. This means that incentives and
rewards in a specific European country have no
direct effect on pharmaceutical location and
spending in that same country. We interpret this to
mean that pharmaceutical research and development
location decisions are primarily driven by other
factors than the protection period provided in a
given country. Such other factors could be the quality
of the labour force, the tax level and research and
development subsidies. Only in the case where the
protection regime in a country mirrors its general
view on the industry might there be an indirect
effect. For example, a company might consider a
country that tightens its protection regime more
likely to also tighten other regulations more
important for the company’s decision on where to
locate its innovation activities, such as tax level and
research and development subsidies.

Impact on availability
We find that companies do not launch medicinal
products in all countries in the EU and not at the
same time. We find that companies choose to launch
more medicinal products faster in wealthier
countries, a trend, which is reinforced in countries
with larger (patient) populations.
This launch sequence fits with how some wealthier
countries include poorer countries in their ‘external
reference pricing’ basket. This practice incentivises
pharmaceutical companies to launch first and

foremost in (large) wealthy countries as these
countries have then no poorer country benchmark to
refer to when bargaining for lower prices.
Analysing the launches based on level 1 ATC codes
(Anatomical Therapeutic Chemical Classification
System - classification of active ingredients of
medicinal products according to the organ or system
on which they act) shows that availability varies
greatly across this categorisation. The pharmaceutical products with the highest availability belong
to the ATC1 category of “Antineoplastic and immunomodulating agents”, which contains many
cancer medicines. These products launch in more
than half of the EU Member States within 2 to 3
years. The pharmaceutical products with the lowest
availability belong to the ATC1 category of “Dermatologicals” (skin care products). These products
launch in less than a quarter of the Member States
even after 15 years of first market introduction.

Impact on accessibility
Once a medicinal product is available in a country,
actual accessibility often becomes a matter of price.
We find that as protection from generic competition
runs out, generic medicinal products enter the
market at a significantly lower price than the original
medicinal product pushing down the price of the
original product as well.
Based on a small sample of products, we find that the
prices of innovator medicinal products drop by
approximately 40% on average in the period from 6
quarters before to 5 quarters following generic entry.
However, innovator companies may find it optimal
to increase prices even in light of generic entry. This

is for example the case if healthcare professionals are
reluctant to switch existing patients to new medicinal
products. Furthermore, we find that when generic
medicinal products enter the market their price is on
average 50% lower than the initial price of the corresponding innovator product in the first five quarters
after the launch of the generic product. This means
that the innovator product remains more expensive.
We find some evidence to suggest that the regulation
spurs innovator-on-innovator competition. By this
we mean competition between two or more medicinal products that are protected from generic competition by patents or the 5 incentives and rewards. We
base this insight on the previous finding that the
regulation stimulates innovation, and that more
innovation, all else equal, leads to more medicinal
products, which eventually result in more innovatoron-innovator competition. Our data on competition
between innovator and generic medicinal products
does not allow us to analyse competition between
innovator medicinal products.

Unintended consequences
This study also identifies examples of consequences
of the regulation that might not have been the
intention of lawmakers when they passed the
legislation.
Secondary patents
Secondary patents may for example cover improved
variants of the basic product, new therapeutic
indications, or new combinations.

14

Executive summary
Still, the fact that some medicinal products are
eventually protected by multiple and in some cases a
large number of patents can be argued to be against
the intention of the original 20-year patent
protection period. It is of course important to note
that these patents are being granted by the national
patent offices (NPOs). Initiatives have been taken to
ensure that NPOs and the European Patent Office
(EPO) only grant patents when this is warranted by
actual novel innovation (see e.g. the EPO ‘Raising the
Bar’ initiative).
Market exclusivity
There have been concerns from some Member States
that the market exclusivity granted to orphan medicinal products provides too much protection, driving
up prices. We have not been able to test this empirically. However, from a theoretical perspective the
small market size for orphan medicinal products
might in some cases yield a natural monopoly, while
the protection from competition from similar medicinal products through the market exclusivity also
discourages the development of similar alternatives
to the medicinal product, which comes to market
first for a given indication. This may allow the companies a very strong bargaining position in price
negotiations with payers.
Paediatric investigation plans
The reward introduced by the paediatric regulation
aims to compensate the obligation introduced by the
paediatric regulation for pharmaceutical companies
to conduct paediatric studies for every medicinal
product developed. However, when agreeing on a
paediatric investigation plan the paediatric
committee under the European Medicines Agency

may grant a waiver instead (e.g. based on lack of
significant therapeutic benefit).
The reward for non-orphan medicinal products
equates to an extension of 6 months of the SPC.
Thus, there are examples where the reward for
conducting paediatric studies is zero (e.g. because
there is no SPC to extend) and other examples where
it is very high (e.g. for medicinal products that are
blockbusters for use in adults). This value
proposition may not always be optimal for the
development of medicinal products for children.

A trade off
The empirical analysis in this study finds a trade off
between innovation of new medicinal products and
lower prices of medicinal products through faster
availability of generics.
On the one hand, the protection offered by the IP
rights and incentives and rewards stimulate
innovation in the EU (and abroad). We find that the
5 pharmaceutical incentives and rewards in the EU
are the most attractive when compared to Canada,
China, India, Japan and the United States.
On the other hand, the protection delays entry of
generic medicinal products and a subsequent
downward push on prices. Hence, later entry of
generic medicinal products pushes up total
expenditure on medicinal products, which, all else
equal, drives up overall healthcare expenditure.
In an attempt to shed light on possible savings
generated by faster entry of cheaper generic
medicinal products, we have applied scenario

analysis. Today, around 76% of the EU expenditure
on medicinal products goes to originator products
and the remaining 24% to generic products. In a
hypothetical scenario, we calculate the immediate,
short term effect on health care expenditure of
changing this split to 66% and 34%, respectively, i.e.
reducing spending on originator products by 10%points and instead using that money to buy the same
volume of cheaper generic products. The result is a
saving of less than 1% of the total EU health care
expenditure. The scenario includes no long term
effects. However, implications of reducing protection
in order to pave the way for faster generic product
availability are many and complex. One obvious one
is that on development of future originator products.
We have described possible implications in detail in
the report.

In the end, it is not within the scope of this study to
advise on the ‘right’ balance between innovation and
lower prices of medicinal products through faster
availability of generics; it is ultimately a political
decision.
Summing up, it would seem that one cannot exploit
the regulation around protection to get the best of
both worlds; more innovative medicinal products
and faster generic entry to push down prices. A first
best policy path seems to be one where the trade off
is circumvented. It would be ideal to secure a
sufficient period of protection and reduce
uncertainties associated with developing medicinal
products in order to incentivise innovation, while
finding other ways of curbing high prices.

15

Glossary
MARKETING AUTHORISATION

Before a medicinal product can be placed on the
market, a marketing authorisation for the given
product must be obtained. This is done to ensure
that medicinal products are safe, of sufficient quality
and efficacious. The decision on whether to grant
marketing authorisation is made by the appropriate
authorities based on an application supported by
data such as pre-clinical data and data from clinical
trials, submitted by the a pharmaceutical company.

DATA PROTECTION

Period during which pre-clinical data and data from
clinical trials handed in to the authorities by one
company cannot be referenced by another company
in their regulatory filings.

MARKET PROTECTION

Period during which generic companies cannot place
a generic version of the medicinal product on the
market. However, an application for marketing
authorisation of the generic medicinal product may
be submitted (providing data protection has
expired), and the authorities are allowed to process
the application, but the product cannot be placed on
the market until the end of the market protection
period.

MARKET EXCLUSIVITY

Specific regulatory exclusivity period relevant only
for orphan medicines. Period during which the
authorities cannot grant a marketing authorisation
to a similar medicinal product treating the same
orphan indication, unless a derogation applies1.

EFFECTIVE PROTECTION PERIOD

Period from marketing authorisation is granted until
expiry of the last protection scheme protecting the
medicinal product. Protection schemes are both IP
rights, such as patents and SPCs as well as all
regulatory protection such as data and market
protection, market exclusivity and any extensions
thereof.

general, healthcare systems need to better respond
to patient needs”.

DEVELOPMENT TIME OF
MEDICINAL PRODUCT

Time elapsed from the first date on which the first
patent grants protection until the product is
introduced on the market.

PRIMARY PATENT

The first patent applied for (and granted), protecting
a given medicinal product against imitation by other
companies. For medicinal products, the primary
patent primarily protects the active ingredient.

SECONDARY PATENT

All patents granted at a later point in time than the
primary patent, protecting any part of the same
medicinal product. Secondary patents could e.g. be
granted for chemicals related to the active
ingredient, methods of use, formulations or dosages.

PERSONALISED MEDICINE

In Council conclusions on personalised medicine for
patients (2015/C 421/03) point 8, personalised
medicine is described as
“…a medical model using characterisation of
individuals’ phenotypes and genotypes (e.g.
molecular profiling, medical imaging, lifestyle data)
for tailoring the right therapeutic strategy for the
right person at the right time, and/or to determine
the predisposition to disease and/or to deliver
timely and targeted prevention. Personalised
medicine relates to the broader concept of patientcentred care, which takes into account that, in

1 There are three derogations which are given in Regulation (EC) 141/2000, Article 8(3).

18

CHAPTER
1
Overview of economic incentives
and rewards supporting
pharmaceutical innovation and
analysis of their actual use by
pharmaceutical innovators

Outline of chapter 1

1.1 Current EU legislative instruments
1.2 Interaction between incentives
1.3 IP framework and pharmaceutical incentives in other countries
1.4 Actual use of the above incentives and rewards by pharmaceutical innovators

20

Chapter 1 – Main conclusions
REVIEW OF INCENTIVES

In the European Union additional protection
mechanisms and legislative incentives concerning
medicinal products exist. The various schemes
protect medicinal products to a varying degree and
have different duration.

Patents protect a given invention for 20 years. An
SPC is an IP right, that extends the duration of the
protection provided by a patent by a maximum of 5
years. An SPC is attached to a patent and a product 1.
Besides these IP rights, regulatory incentives
running from the date of marketing authorisation
exists. These are data and market protection. Market
protection runs for 10 years, while data protection
runs in parallel for 8 years. For orphan medicinal
products a market exclusivity, which runs for 10
years, can be obtained given that certain conditions
are met.
If paediatric studies are completed, a 6 month
extension of an existing SPC or a 2-year extension of
market exclusivity can be obtained. Furthermore,
there are other extensions and further protection
periods available, to incentivise pharmaceutical
innovation.

IP FRAMEWORK IN OTHER
COUNTRIES

In the US, Canada and Japan the possibility of patent
term restoration exists. This is comparable to the EU
regulation on SPC. India and China generally have
less regulatory incentives for medicinal products
than the other countries.

DEVELOPMENT TIME

ACTUAL USE OF INCENTIVES

Development time of a medicinal product is defined
as the time from the first patent to the first
marketing authorisation anywhere in the EU. To a
certain degree, this measure shows the time elapsed
from discovery of a new invention until
commercialisation.

The number of granted SPCs has been slightly
increasing over time, which is in part a consequence
of the fact that the SPC framework has been
implemented in more countries over time.

Our dataset indicates that from the 1990s to the
2010s the average development time across EU
countries has increased from around 10 years to
around 15 years. 50% of the products introduced
during this period had a development time between
5 and 15 years.

From 2013 to 2016 the number of new medicines
introduced using the centralised procedure per year
has been fairly stable.

The number of paediatric investigation plans has
likewise been increasing over time. The same goes
for orphan designations. The number of orphan
marketing authorisations have been increasing in the
period from 2000 to 2016; the EU orphan legislation
was adopted in 2000.
Our analysis shows that especially two regulatory
incentives find limited use. These are the one-year
extension for a well-established substance and the
one-year data protection for a classification change.

A UNIQUE DATASET

In the US, incentives granting exclusivity to the first
generic to enter the market exist. This works to
motivate generic manufacturers to enter the market
as soon as possible and in many cases challenge
patents held by originator companies.

incentives within the European Union.

For the analysis in the present report a unique
dataset as been compiled using several sources. The
dataset exploits the connection between products
and patents available in the Orange Book2 in the US,
to link patents and products within the EU. To our
knowledge this report is the first of its kind to utilise
such as dataset. The final unique dataset links
products with patents, SPCs and regulatory

EFFECTIVE PROTECTION PERIOD

The effective protection period is defined as the time
from marketing authorisation until the last form of
protection in the form of patents, SPCs, or regulatory
incentives and rewards expire. I.e. the effective
protection period measures the time a product is on
the market and enjoys protection from generic
competition via either IP rights or regulatory
incentives and rewards.
Our dataset indicates that since the 1990s the
average effective protection period in the EU has
decreased from around 15 years to around 13 years.
The conclusion that the average effective protection
period has decreased over time is robust to the
exclusion of secondary patents. This means that even
if we exclude all secondary patents in the data the
conclusion that the average effective protection
period has declined, stands.

1 The SPC framework has been gradually implemented in more countries over time..
2 The Orange Book is the common name for the FDA publication “Approved Drug Products with Therapeutic Equivalence Evaluations”. It is a
publication and an online database which identifies medicinal products and their related patents and exclusivity information in the US.

21

1.1 CURRENT EU
LEGISLATIVE INSTRUMENTS

Patents (1/5)
INTELLECTUAL PROPERTY

A fundamental characteristic of innovation is that
discovery in the first place might take an ample
investment, whereas using the knowledge obtained
after discovery might involve minimum effort.
Coming up with the idea of e.g. penicillin was rather
coincidental, and the development process took
more than 15 years and included intense research
and development. However, copying the compound
when the right formula was finally found was easier
than developing it in the first place1.
If an entity copies a novel invention, it has not
endured the often high R&D cost of developing the
invention and hence might be able to sell any wouldbe resulting product at a price significantly below the
originator.
The prospect of this happening might discourage
innovation, as without any protection from copying,
the inventor cannot be sure to recoup the initial
investment that has gone into the R&D process, i.e.
the risk associated with the investment is
considerable.
It is important to realise that IP protection does not
necessarily protect against competition. There might
e.g. be several ways of curing a given disease, and
obtaining IP protection for one such way does not
prevent others from entering the same market, as
long as their product does not use the same molecule
as the one already patented.

PATENT

The basic way of protecting a new invention is
through patenting it.

In the EU, as is the case in most of the rest of the
world, a patent is valid for 20 years2.
A patent confers the negative right for the owner to
prevent third parties from using, making, selling or
importing the invention without the consent of the
patent holder.
When an innovator takes out a patent on a new
innovation, the invention becomes the intellectual
property (IP) of this individual or legal entity. For a
new innovation to be patented, it must first and
foremost fulfil the requirements of being eligible for
a patent.
This means that the patent application must cover
subject matter which is deemed patentable. Subject
matter which is excluded from patentability
comprises e.g. discoveries, scientific theories and
mathematical methods; aesthetic creations;
schemes, rules and methods for performing mental
acts, playing games or doing business, and
programs for computers; presentations of
information3.
If the eligibility requirement is met, the invention
must fulfil the three additional requirements of
being new, involve an inventive step and being
susceptible of industrial application4.
This means that if e.g. a new use of an existing
medicinal product, a new formulation, a new form or
a new dosage fulfils these criteria it is possible to
take out a patent protecting this. The implication of
this is that in some cases a medicinal product, or its
subcomponents and processes might be protected by

several patents, granting a patent protection period
of more than 20 years.

Patentability requirements
•

•

•

New means that there cannot exist any
prior public documents describing the
invention. This is known as prior art.
Involve an inventive step means that the
invention must be non-obvious to a
person skilled in the art. Thus, it cannot
cover common knowledge within a given
trade.
Susceptible of industrial application
means that it can be made or used in any
kind of industry including agriculture.

Built in to the patent scheme is a ‘social contract’,
where in turn for the IP protection provided, the
patentee must provide full disclosure of the
invention, making it possible for others to make and
use it at the end of the patent protection period.
This quid pro quo is meant to provide profit
incentives for innovating firms, while promoting
more disclosure than would be the case if only trade
secrets could protect innovations.
A patent is granted by a sovereign state or an
international entity such as the European Patent
Office and is geographically bound. A consequence of
this is that for the IP behind an innovation to be
completely covered by legal protection, the inventor
has to seek patent coverage in all relevant markets.
Realising that this is quite a task, several
international agreements simplifying this process
have been enacted5.

1 Tan, S. Y. and Tatsumura, Y. (2015), Alaxander Fleming (1881-1955): Discoverer of penicillin.
2 Article 33 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and Article 63 of the European Patent Convention.
3 Article 52(1) of The European Patent Convention.
4 Article 52(2), (a), (b), (c) and (d) of The European Patent Convention.
5 E.g. the Paris Convention for the Protection of Industrial Property and World Intellectual Property Organisation and the Patent Cooperation Treaty
described on the next page.

23

Patents (2/5)
THE PARIS CONVENTION FOR THE
PROTECTION OF INDUSTRIAL
PROPERTY

This agreement was the first major step taken to
ensure that intellectual property is protected in other
countries besides the country of the originator.

The Paris Convention applies to industrial property
in a wide sense. This includes patents, trademarks,
industrial designs, utility models, service marks,
trade names and geographical indications 1.
There are three main elements in the agreement.
treatment
1 National
Countries partaking in the agreement must

grant the same protection to nationals from
other contracting states as it would to its
own nationals.

of priority
2 Right
After applying for a patent in one

contracting country, the applicant may,
within 12 months file for a patent in other
contracting states. If the patents are
granted, the applicant has the option of
using as the date of commencement of the
patent the date the application for a
patent was filed in the first country of the
agreement, the so-called priority date.

rules
3 Common
Mainly these rules state that the process of

granting patents in each contracting state
is independent of each other.

Being a contracting state to the Paris Convention
gives access to participation in the Patent
Cooperation Treaty managed by the World
Intellectual Property Organisation (WIPO).

WORLD INTELLECTUAL PROPERTY
ORGANISATION AND THE PATENT
COOPERATION TREATY

The World Intellectual Property Organisation
(WIPO) manages the Patent Cooperation Treaty
(PCT), which first entered into force in 1978. From
the original 18 contracting states, the PCT has grown
to include 152 countries.
Participation in the PCT is open to all states party to
the Paris Convention for the Protection of Industrial
Property from 1883.

Through the PCT it is possible for an applicant to file
an international patent application, which is then
processed by the WIPO.

After the search, the ISA files a written opinion on
the patentability of the invention, along with the
search report. After the international process is
concluded, the inventor must decide where to file for
national patents. Hereafter the national procedure
begins.

The advantage of the international procedure is that
the international search carried out can be used by
the national patent offices. Another advantage is that
as the national procedures are delayed, this provides
the applicant more time to assess the value of the
patent and how best to commercialise it and in which
countries to seek national patents.
If national patents are granted in the end, the date
from which the patents are in force can be that of the
earliest filed patent application (the so-called
priority date).

An important point is that the PCT system is a patent
filing system, not a patent granting system. No PCT
or international patent is granted at the end of the
process, nor does something like that exist.
During the process, an international search for prior
art is carried out by an International Searching
Authority (ISA). Prior art is the existence of any
evidence that the invention is already known. This
need not be in the form of an actual product. Any
description in any form of the invention previously
made can be prior art.

1 WIPO website on the Paris Convention http://www.wipo.int/treaties/en/ip/paris/ (accessed 1 December 2017).

24

Patents (3/5)
THE TRIPS AGREEMENT

The Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) came into effect
in 1995 and is a multilateral legal agreement
managed by the World Trade Organisation (WTO),
setting out common rules for the patent framework.

The agreement sets out a range of minimum
requirements for the protection of intellectual
property in the participating countries. Furthermore,
it sets out domestic procedures for the enforcement
of intellectual property rights as well as dispute
settlement.
Among the requirements is e.g. a minimum patent
period of 20 years, for all fields of technology
without discrimination.

All WTO member countries must adhere to the
TRIPS agreement. However, certain Least Developed
Countries (LDC) have been given some leeway
regarding the latest date by which the TRIPS
provisions must be implemented. This is especially
important in the case of pharmaceuticals as this has
been one of the main areas of concern1.
Before the TRIPS agreement came into force, some
countries did not provide any IP protection for
pharmaceuticals on the grounds that providing
affordable medicine to the general public was a more
pressing concern than providing a legal framework
for the protection of IP2.

1 Kyle, M. and Qian, Y. (2014), Intellectual property rights and access to innovation: Evidence from TRIPS.
2 Kyle, M. and McGahan, M. (2012), Investment in pharmaceuticals before and after TRIPS.

25

Patents (4/5)
THE EUROPEAN PATENT OFFICE
AND THE UNIFIED PATENT

In Europe, the supranational European Patent Office
(EPO) has the authority to grant European patents. A
European patent is examined and granted centrally
by the EPO. However, after being granted, European
patents must be validated and maintained in each
member state separately. Fees and requirements
differ between countries.
Work has been undertaken to establish a Unitary
Patent within the EU. This would give the EPO the
possibility of granting a Unitary Patent which
uniformly conveys IP protection in up to 26 member
states through a single request filed with the EPO 1.
The Unitary Patent will build on the current
European patent. After being granted a European
patent, the patentee will be able to request unitary
effect by filing an application with the EPO. If
granted, the patent will apply uniformly in all EU
member states having signed the agreement. The
EPO will as such act as a one-stop-shop to obtaining
and maintaining patent protection in all of Europe.
The Unitary Patent agreement is, however, still
awaiting ratification in some countries, and the
process has been postponed several times.
In the same vein, a Unified Patent Court is to be
established to address questions of infringement etc.
The date of its enactment is, however, still uncertain.

Number of European patents granted by the European Patent Office in
the field of pharmaceuticals
3.500

3,089
3.000

2.500
2.000

2,106

1.500
1.000
500
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: Graph showing the yearly number of individual European patents granted by the European Patent Office, classified as being
within the technology area of pharmaceuticals. The classification builds on the International Patent Classification (IPC) codes. The
codes for each patent are based on the product or process which is to be patented and/or on the possible use of it. Being done on a case
by case basis, secondary patents receive their own IPC code. This might be the same as the IPC code of the primary patent or not,
depending on what they actually protect.
Source: European Patent Office

1 Croatia and Spain have not yet signed the agreement. Croatia entered the EU after the agreement was signed, but can sign it at a later time.
Spain has chosen not to sign the agreement but may in principle do so at any time. The unitary patent may enter into force before all countries have
ratified the agreement as long as 13 countries, including France, Germany and United Kingdom have done so. Initially, the unitary patent may
therefore cover less than 26 countries.

26

Patents (5/5)
MULTIPLE PATENTS

Quite often a medicinal product is protected by more
than one patent1. This may be the case if the
characteristics of the product can be shown to fulfil
the previously discussed patentability requirements
of being eligible, new, involve an inventive step and
be susceptible of industrial application.

and secondary patent, as the terms are wellestablished in the literature on pharmaceutical
patents. We use them merely to indicate the order in
which patents are applied for and as an assessment
of the legal ‘strength’ of patents2.

A primary patent is chronologically the first
patent applied for to protect a certain
medicinal product.

SECONDARY PATENTS

for after the primary patent, protecting
different inventions to the primary patent.

One example of when it is possible for the same
product to be protected by multiple patents is if both
the molecule itself is patented and also the process
with which the medicinal product is produced. The
latter is then called a process patent.

the ratio of primary to secondary patents within
pharmaceuticals was 1:74. This means that for every
primary patent protecting a product, there were
found to be 7 patents applied for at a later point in
time.

NOMENCLATURE

Secondary patents can e.g. cover production
processes, dosage forms, alternative formulations of
the medicinal product, routes of administration, uses
in new therapeutic classes, new combinations etc.

The literature on patents protecting pharmaceuticals
often talk of primary and secondary patents. In the
example above, the patent on the molecule would be
the primary patent, while the patent on the
manufacturing process would be a secondary patent.
It is, however, important to mention that in the eyes
of patent law, there are no such things as primary
and secondary patents. The statutory patentability
criteria are the light in which patents are viewed, not
the order in which they are applied for.
Referring to a patent as a secondary patent should
not be understood to mean that it is of lesser ‘quality’
or protecting the product to a lesser degree than the
primary patent. It merely means that chronologically
it was applied for a at later stage and protects
different inventions.

In the Sector Inquiry3 from 2009, it was found that

Secondary patents are all patents applied

Having secondary patents protecting more
inventions in a medicinal product might extend the
‘total’ IP protection period beyond the 20 years
conferred by the primary patent. If e.g. the primary
patent protects the molecule, while the secondary
patent protects the process used to produce the
product and the product cannot possibly be
produced using any other production processes, the
secondary patent effectively protects the product
against imitation. If the date of commencement of
the secondary patent is e.g. three years later than
that of the primary patent, the total IP patent
protection period for the product would be 23 years
instead of 20 years.

In this report, we will use the terms primary patent
1 European Commission (2009), Sector Inquiry – Final Report.
2 The legal ‘strength’ of a patent is to be understood as indicating the probability that the patent would hold up in court. However, only a court of
law can actually decide this based on patent litigation, and as such any conjecture as to whether a patent is ‘strong’ or ‘weak’ will always be a
subjective assessment, until a court decision exists.
3 European Commission (2009), Sector Inquiry – Final Report.
4 This ratio includes both patents granted and patents applied for. The unique dataset used in this study does not include patent applications and
hence it has not been possible to calculate a corresponding ratio.

27

Supplementary Protection Certificates (1/3)
The Supplementary Protection Certificate (SPC)
scheme is an intellectual property right protection
scheme applicable to pharmaceutical and plant
protection products in the EU. An SPC is always
linked to a patent and a product.

R&D PERIOD

a limited period before generics can enter the market
does not necessarily mean that the R&D investment
cannot be recouped. This also depends on e.g. the
price obtained and the size of the market.
Furthermore, the originator company might still
earn considerable revenue after generic entry.

SPCs with zero or negative duration have been
granted5). If the time from patent filing to first MA is
between 5 and 10 years, the inventor is compensated
fully for the ‘loss’ of protection period after MA. If
the time between patent commencement and MA is
more than 10 years, the maximum SPC period of 5
years is granted, regardless of the exact development
period beyond 10 years. As such, when both a patent
and an SPC are granted, the maximum combined
protection period is 15 years (plus possibly 6 months,
see next page).

Developing pharmaceuticals is a process involving
extensive research and development (R&D) both in a
laboratory setting (pre-clinical) and later in a realworld clinical setting (clinical trials) to assess the
efficacy and safety of a medicinal product1. As the
process is often lengthy and the potential gains high
if the resulting medicinal product shows
considerable clinical potential, pharmaceutical
companies tend to patent their discoveries rather
early in this development process.

However, seen in isolation the protection period
provided by a basic patent might discourage future
innovation by pharmaceutical companies, compared
to a situation where a longer protection period was
obtainable.
To address this, the EU has enacted Regulation (EC)
No 1768/92, followed by Regulation (EC) No
469/2009 regarding Supplementary Protection
Certificates.

1 patent

However, due to the often lengthy R&D processes
and the legally mandatory testing to protect
consumers, the period in which a product is both on
the market and protected by IP schemes is shorter
than the 20-year patent protection period2.

SPC

2 already exist

The conditions for granting an SPC are:

An SPC extends the IP protection period by up to 5
years, depending on the duration of the R&D and
testing processes4.
The SPC period is calculated as:

A medicinal product can be sold in the market once it
obtains a marketing authorisation (MA) from the
relevant authorities. The shorter the period between
the granting of the marketing authorisation and the
expiry of the patent, the shorter the period during
which the pharmaceutical companies can recoup
their R&D investments before generics enter the
market.

With the restriction that an SPC can maximally last
for 5 years.

When generics enter, competition increases. This
might result in prices being driven down or
decreasing market share for the originators3. Having

This means that no SPC is granted if the period
between patent filing and marketing authorisation is
less than 5 years (there are exceptions to this and

ࡰ࢛࢘ࢇ࢚࢏࢕࢔ ࢕ࢌ ࡿࡼ࡯
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢙࢚࢘ ࡹ࡭ ࢏࢔ ࢚ࢎࢋ ࡱࡱ࡭
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢒࢏࢔ࢍ ࢕ࢌ ࢉ࢕࢘࢘ࢋ࢙࢖࢕࢔ࢊ࢏࢔ࢍ ࢖ࢇ࢚ࢋ࢔࢚
െ ૞ ࢟ࢋࢇ࢙࢘

The product must be protected by a basic

A valid marketing authorisation must

An SPC for the product cannot already

3 exist

The valid marketing authorisation is the

4 first to place the product on the market
NATIONAL GRANT

SPCs are granted nationally by the competent
domestic authorities in each member state. Even
though there is work being undertaken to establish a
Unitary European Patent, a unification of the
granting of SPCs is not part of this process6.

1 In the case of e.g. an abridged marketing authorisation application, the company relies on data already in the hands of the authorities and hence the development
process is limited.
2 See e.g. Prasad, V. and Mailankody, S. (2017), who find development times ranging from 5.8-15.2 years, or Keyhani, S., Diener-West, M. and Powe, N. (2006), who find
development times ranging from 2-17.3 years.
3 There are many nuances to the effect of generic entry. See literature description in section 2.3.
4 Regulation (EC) No 469/2009.
5 See next page and e.g. Merck - Case C 125/10.
6 However, the possibility of a European SPC title is a topic of the current “Public consultation on supplementary protection certificates (SPCs) and patent research
exemptions”.

28

Supplementary Protection Certificates (2/3)
SPC AND PATENT

SPCs are distinct from patents in multiple regards.
As has been documented in the previous sections,
the requirements for obtaining a patent and an SPC
are very different.
Moreover, a patent does not necessarily protect a
certain product, but more often the chemical moiety
(the active molecule or part of it) in it. Legally, an
SPC confers the same protection as the patent on
which it is based, but extends this only to a product
with a valid marketing authorisation1.
Unlike patents in the EU, no centralised procedure
exists for the granting of SPCs. As such, an SPC must
be applied for individually in each EU member
state2.

The start date of an SPC is always the expiry date of
the patent on which it is based. It is, however, not an
extension of the patent, but an IP protection scheme
in itself.
As is the case with the protection granted by a
patent, the SPC is independent of and runs parallel
to any regulatory protection periods (e.g. market
exclusivity, data protection and market protection.
See next pages for further explanation).

EXTENSION OF AN SPC

Should the inventor undertake studies agreed upon
with the authorities in a Paediatric Investigation
Plan (PIP), a 6-month extension of the SPC can be
granted, regardless of the outcome of the study.

The possibility of obtaining a paediatric extension
provides a reason for seeking an SPC even if the
calculated duration should be negative.
The Court of Justice of the European Union (CJEU)
has established that SPCs with a negative duration
may be granted3. If a paediatric extension is
subsequently granted to an SPC with a negative
duration, the negative duration of the SPC must be
subtracted from the 6-month duration of the
paediatric extension. As such, if an SPC has a
negative duration of 2 months, a paediatric extension
will extend the protection period by 4 months.
If the product for which a PIP is undertaken is an
orphan medicinal product, a 2-year extension of the
regulatory market exclusivity period enters into force
instead of the 6-month extension of the SPC even if
an SPC has been granted4.
If the product is an orphan medicinal product, the
company cannot choose to have the paediatric
reward in the form of a 6-month extension of the
SPC, rather than the 2-year extension of the market
exclusivity if an SPC has been granted. This applies
for as long as the product is registered in the orphan
register. However, the company can ‘choose’ to
request that the product be removed from the
orphan register.
If an SPC plus a 6-month extension expires later
than the market exclusivity plus 2 years, the
company would be able to obtain a longer total
protection period, if allowed to choose between the
two forms of paediatric rewards. However, the

protection conferred by the two instruments
discussed here is not the same. Market exclusivity is
a protection against similar products granted by the
regulatory authorities, while the protection provided
by the an SPC confers the same IP rights as the
patent to which it is connected.

PRICING CONSIDERATION

If a company’s only concern is to recoup its initial
investment, the longer the IP protection period, the
lower the price the company ought charge for its
products.
However, if a company aims to maximise its profits,
as standard economic theory would suggest, a longer
IP protection period will have no effect on pricing,
and the company will charge the highest price
possible given the competitive status of the market
for a longer period5. This would mean increased
profits for the pharmaceutical companies at the
expense of payers.
This is a key concern when interfering with the
competition situation by granting protection periods,
either in the form of patents and SPCs or data and
market protection (or exclusivity).
The problem is the asymmetric information
possessed by the parties. Generally, the authorities
will not be able to check whether the pharmaceutical
companies have recouped their R&D investment and
obtained a return on investment sufficient to
reinvest in developing new innovative medicinal
products in the future.

1 Regulation (EC) 469/2009, Article 4.
2 Regulation (EC) No 469/2009, Article 9(1).
3 See CJEU ruling on case C-125/10, Merck Sharp & Dohme v DPMA.
4 Regulation (EC) No 1901/2006, Article 37.
5 The competitive status of the market reflects whether there are other medicinal products available for treating the same indication.

29

Supplementary Protection Certificates (3/3)
Facts on the SPC

The legislation covering the SPC was enacted
in 1993 and adopted immediately in nine
countries. Since then, several countries have
joined, and the agreement is now in force in
all EU member states and the EEA countries
Norway and Iceland1.
Since the enactment in 1993 an up until 2015,
applications had been made for 20,900 SPCs
for medicinal products in the participating
countries2.
SPCs are applied for in the individual member
states, independently of each other. In many
cases, this practice leads to contradictory
decisions on the granting of rights. In Finland,
Italy and the Czech Republic, less than 5% of
applications are refused, while in Germany,
Sweden and Spain, more than 15%3 of
applications are refused2.
Twenty separate entities filed 57% of all SPC
applications in 20152. The three companies
having filed the most SPC applications in the
past 10 years are Novartis, MSD and GSK2.
Market size seems to influence decisions to
seek an SPC. In smaller markets, fewer SPCs
are applied for than in larger markets. As such,
less than 40 SPCs where applied for in Croatia,
Malta and Norway in 2015, while more than 80
were applied for in Spain, Italy, Germany, the
UK and France2.

1 SPCs are governed by Regulation (EC) No 469/2009.
2 Alice de Pastors (2016), Latest news on medicinal product SPCs in Europe.
3 Germany, Sweden and Spain all have a rather high number of filed SPCs. However, so does Italy.

30

Data protection and market protection (1/3)
Patents are granted by the appropriate patent offices
in each country and confer intellectual property
rights to patent holders. In the case of
pharmaceuticals, patents are often taken out early in
the development process, when the invention is still
far from being an actual product.

In parallel with patents and SPCs, regulatory
protection is enshrined in EU pharmaceutical
legislation. For medicinal products in the EU, the
schemes include e.g. data protection and market
protection1. These two legal protection schemes
relate directly to the final medicinal product, and the
protection periods provided by them are
independent of any patents and SPCs, and hence run
parallel to any such IP protection.
The periods of both data and market protection run
from the date of granting of the marketing
authorisation.

DATA PROTECTION

The data produced by a pharmaceutical company
during testing and clinical trials of a new innovative
medicinal product is private knowledge. However,
for the medicinal product to obtain a marketing
authorisation, this data has to be handed over to the
relevant authorities.

If a generic manufacturer wishes to market a generic
version of an existing medicinal product, the generic
company can refer to the data already produced by
the originator company, in its application for

marketing authorisation. This is called the abridged
procedure2.
In recognition of the substantial investments made
by originator companies to produce the pre-clinical
and clinical trial data needed to obtain marketing
authorisation, a period of 8 years of data protection
is granted. During these 8 years, generic
manufacturers are prohibited from referring to the
data produced by the originator company and
enclosed in its application for marketing
authorisation. After 8 years, generics can obtain a
marketing authorisation based on the data produced
by the originator company.

MARKET PROTECTION

Parallel to the 8 years of data protection run 10 years
of market protection3. During these 10 years, a
generic medicinal product cannot be placed on the
market even though a marketing authorisation has
been obtained.
This, however, does not completely protect against
competition4.
Firstly, originators with another distinct product for
treating the same indication may enter the market.
This is known as competition by innovation or
originator-originator competition.

provided that no patents or SPCs are infringed upon.
An example of this would be the following. Company
A has placed product M on the market, containing
molecule Z. Molecule Z is not protected by either a
patent or an SPC. However, product M has data and
market protection. Company B now creates their
own product, called N containing molecule Z.
Company B undertakes clinical trials and creates
their own proprietary data on the efficacy and safety
of product N. Company B now applies for marketing
authorisation for product N using its own data
material. Marketing authorisation is granted. Now
there are two products on the market, both
containing molecule Z, even though product M by
company A is covered by data and market protection.
Through our interviews with key stakeholders and
experts within the area of pharmaceuticals, we have,
however, not found any readily available examples of
this happening. As such, this seems to be a rather
theoretical possibility and not something that often
takes place in practice.
If the above were to take place, it means that the
second company entering the market must expect
the market to be large enough for them to recoup the
extra costs of running clinical trials to produce the
data required for marketing authorisation.

Secondly, a second company willing to undertake
studies to create their own full dossier with which to
apply for marketing authorisation may do so,

1 Generally there is no consensus as to which nomenclature to use. In Regulation (EC) No 726/2004, Article 14(11), the wordings data protection and marketing
protection are used. However, in the literature and the field in general, several other terms are used to describe the same incentives. To avoid any confusion as to the
terms, we consistently use the terms data protection to describe the 8 years where generics cannot refer to the data created by the originator and market protection to
refer to the 10 (+1) years where a generic product cannot obtain marketing authorisation. For orphan medicinal products we use the term market exclusivity as this is in
many ways distinct from the market protection granted to non-orphan medicinal products.
2 See Regulation (EC) No 726/2004, Article 3(3), Directive 2001/83/EC, Article 10 and Directive 2001/82/EC, Article 13.
3 The 8 years of data protection and 10 years of market protection running in parallel combined with the possibility of an extra year of market protection for authorisation
for a new indication are often referred to as the 8+2+1 scheme.
4 Directive 2001/83/EC, Article 10.

31

Data protection and market protection (2/3)
Furthermore, if only the first originator company is
in the market, the second company is entering into
price competition with an incumbent company. The
incumbent has the advantage of currently having full
market share, and also it might already have
recouped the R&D investment. This means that the
incumbent company might be able to dump the price
to drive competitors out of the market.
On the other hand, if a second company undertakes
clinical trials to create its own data on the efficacy
and safety of a product which is already on the
market, but protected by market protection and
perhaps data protection, but no patent and SPC, the
outcome of the trials is already known. This
significantly reduces the second company’s risk in
undertaking the development.

These considerations taken together imply that the
possibility of placing the same product on the
market, even though the first originator company
has data and market protection, is probably most
interesting for blockbusters or at least products
profitable enough to give an expected positive profit
despite competition.

EXTENSIONS

If a product is approved for one or more new
therapeutic indications during the 8 years of data
protection, and if it brings significant benefits
compared to existing therapies, the market
protection period can be extended by an additional
year1.
According to Directive 2001/83/EC, a granted

marketing authorisation is to be considered as being
global, in the sense that “When a medicinal product
has been granted an initial marketing authorisation
in accordance with the first subparagraph, any
additional strengths, pharmaceutical forms,
administration routes, presentations, as well as any
variations and extensions shall also be granted an
authorisation in accordance with the first
subparagraph or be included in the initial
marketing authorisation. All these marketing
authorisations shall be considered as belonging to
the same global marketing authorisation, in
particular for the purpose of the application of
Article 10(1)”2.
This means that any change which belongs in the
above legal provision is to be considered as being
included in the ‘original’ marketing authorisation. As
such, if a company already has a medicinal product
on the market and subsequently obtains a marketing
authorisation for the same product, but with a new
strength, this does not trigger a new period of
regulatory market protection or data protection. A
combination of two existing active molecules in the
same pharmaceutical form is not included in the
above, and hence such a product would obtain its
own new period of market protection and data
protection3.

INTERACTION BETWEEN DATA
PROTECTION AND MARKET
PROTECTION4

The collective effect of the data protection and
market protection period is that 8 years after the
originator’s medicinal product has obtained

marketing authorisation, generic companies can
submit an application for marketing authorisation
using the abridged procedure, whereby they refer to
the data produced by the originator company.
Should they obtain marketing authorisation, they
are, however, not allowed to put the product on the
market before the remaining two years of market
protection have elapsed.
The process of being able to obtain marketing
authorisation before the expiry of the market
protection period, however, does effectively mean
that it should be possible to put a generic medicinal
product on the market as soon as the market
protection period has expired, without further delay.

INTERACTION BETWEEN PATENTS
AND SPCS

The above considerations regarding entry of generics
at the end of the data protection and market
protection period are, of course, only relevant in
cases where a patent or the combination of a patent
and SPC has expired at an earlier date than data
protection and market protection (or market
exclusivity in the case of orphan designation).

BOLAR EXEMPTION

The strategy of entering the market as soon as the
market protection period has expired would in many
cases not be possible without the Bolar exemption5.
Before the Bolar exemption was introduced in 2004,
producers of generics could not commence research
before the patent and SPC had expired, because of
the risk of infringing IP rights6.

1 Regulation (EC) No 726/2004, Article 14(11).
2 Directive 2001/83/EC, Article 6(1).
3 See Notice to Applicants, Volume 2A, Chapter 1, Revision 7, December 2017, section 2.3.
4 Or Market exclusivity in the case of orphan medicinal products.
5 Directive No 2004/24/EC, 8(6).
6 See e.g. the current “Public consultation on supplementary protection certificates (SPCs) and patent research exemptions”.

32

Data protection and market protection (3/3)
This put European generic manufacturers at a
disadvantage as it meant that they had to delay their
research longer than companies in countries without
patent protection or e.g. the United States where a
Bolar exemption already existed. As such, it could
force some manufacturers to place their facilities in
locations where no patents had been taken out or in
other non-EU locations. This potentially moved
employment out of the EU.
The Bolar exemption at least partly remedied this.
Following its enactment in 2004, generic companies
are allowed to research generic products before the
original patent (and potential SPC) has expired,
without infringing the patent1.
The Bolar exemption, however, only allows
production of a patent-protected active ingredient
for experimental use. This means that stockpiling,
i.e. mass producing the medicinal product during the
protection period, for immediate sale after end of
said period is not allowed2.

Practice (GMP), which ensures that imported
products live up to EU quality standards.
This means that if a generic manufacturer wants to
be able to market its product in the EU as soon as the
patent protection period expires, there is an
incentive to undertake the manufacturing outside
the EU, in countries with less patent protection,
unless adherence to the GMP rules prevent this.

ADDITIONAL DATA PROTECTION
INCENTIVES

If a marketing authorisation is granted for a new
indication for a well-established substance, a noncumulative one-year period of data protection is
granted3. A well-established substance is a substance
where at least 10 years have elapsed since the
granting of the first marketing authorisation for it.
If a classification change in the legal status of a
medicinal product has been granted, a period of one
year of data protection is granted4.

The effect of this is that generic producers can
develop their generic version of a medicinal product
even though it is patent-protected, but they cannot
commence large-scale manufacturing in the EU until
after the expiry of the patent.
Stockpiling while the product is protected by a
patent (and SPC) in the EU might be possible in a
non-EU country where less extensive patent
protection rules are in place. However, production
facilities outside the EU wishing to export products
to the EU must comply with Good Manufacturing

1 Directive 2001/83/EC, Article 10(6) and Directive 2001/82/EC, Article 13(6).
2 Directive No 2004/24/EC, Article 8(6).
3 Directive 2001/83/EC, Article 10(5).
4 Directive 2001/83/EC, Article 74a.

33

Rules and incentives for orphan medicinal products (1/3)
ORPHAN DESIGNATION CRITERIA
For a medicinal product to be able to obtain an
orphan designation, the product must fulfil the
following criteria in the EU:

“that it is intended for the diagnosis, prevention or
treatment of a life-threatening or chronically
debilitating condition affecting not more than five
in 10 thousand persons [0.05%] in the Community
when the application is made, or that it is intended
for the diagnosis, prevention or treatment of a lifethreatening, seriously debilitating or serious and
chronic condition in the Community and that
without incentives it is unlikely that the marketing
of the medicinal product in the Community would
generate sufficient return to justify the necessary
investment; and that there exists no satisfactory
method of diagnosis, prevention or treatment of the
condition in question that has been authorised in the
Community or, if such method exists, that the
medicinal product will be of significant benefit to
those affected by that condition.” 1
This means that firstly the medicinal product must
be intended for the diagnosis, prevention or
treatment of a life-threatening or chronically
debilitating condition which affects no more than 5
in 10,000 (0.05%) persons within the EU, or that
without the orphan incentives the pharmaceutical
company will be unable to earn a sufficient return on
the product to justify the initial investment.
Furthermore, no satisfactory and authorised method
of diagnosis, prevention or treatment of the
condition concerned may already exist. An exception

to this criteria is if the new medicinal product brings
significant benefit to those affected by the condition.
To summarise, a medicinal product must meet the
following criteria to be able to obtain an orphan
designation in the EU:
disease must be life-threatening or
1 The
chronically debilitating

possibility of a 2-year extension if research is
undertaken according to an agreed paediatric
investigation plan (PIP)4.
However, the market exclusivity period can be
reduced to 6 years, if after 5 years it is established
that the medicinal product no longer lives up to the
criteria on which an orphan designation was granted.

prevalence of the disease must be less
2 The
than 5 in 10,000 persons, or there is no hope

For the prevalence criteria, this could e.g. be if the
number of individuals affected by the condition has
increased beyond 5 in 10,000 citizens.

must currently be no way of treating,
3 There
diagnosing or preventing the disease, or

For the criteria based on the non-return on
investment argument, it could e.g. be if the
generated revenue can be shown to have been much
higher than expected and thus sufficient to generate
enough of a return within the first 5 years to justify
the initial investment5.

of recovering the initial investment without
the orphan medicinal product incentives

the new medicinal product must be of
significant benefit compared to existing
methods

Proving that a given medicinal product complies
with the prevalence criteria can sometimes be
challenging. The prevalence of no more than 5 in
10,000 citizens is for the union as a whole, and it is
conceivable that prevalence levels in the individual
Member States differ. Another challenge can be
finding reliable prevalence measures, as some of
these diseases are very rare, and hence reliable data
records might be scarce2.

The review process can be initiated by a member
state and is handled by the EMA.
It is possible for a medicinal product to be
authorised both for treating an orphan indication
and a non-orphan indication. In such cases the
product must have two different marketing
authorisations with different names.

MARKET EXCLUSIVITY

If a medicine obtains an orphan designation and
maintains it through the authorisation stage, it
enjoys 10 years of market exclusivity3 with the
1 Regulation (EC) No 141/2000, Article 3.
2 COMP (2002), Points to consider on the calculation and reporting of the prevalence of a condition for orphan designation.
3 Regulation (EC) No 141/2000, Article 8(1).
4 Regulation (EC) No 1901/2006, Article 37.
5 Regulation (EC) No 141/2000, Article 8(2).

34

Rules and incentives for orphan medicinal products (2/3)
If a medicinal product is authorised for treating both
an orphan and a non-orphan indication, the different
regulatory protection periods run in parallel. This
means that when the product is authorised for an
orphan indication, it obtains market exclusivity.
When it is authorised for a non-orphan indication, it
obtains data and market protection. The market
exclusivity period of 10 years for the orphan
medicinal product runs in parallel with and
independently from the 10 years of data and market
protection for the product authorised for the nonorphan indication.
The purpose of the EU Orphan Regulation1 is to
encourage the development and innovation of
medicines targeting diseases which only affect a
small part of the population. Logically, the lower the
number of people affected by a disease, the fewer
people to share the cost of the R&D investment
undertaken to develop the medicine. The likelihood
of recouping an R&D investment depends on the
obtainable price and the patient base. As such, if the
patients’ willingness to pay is high enough, a small
market is not necessarily an unattractive market.
However, without special incentives, it is sometimes
argued that far fewer treatments for diseases
affecting smaller patient groups would have
sufficient commercial incentive to be developed2.
The market exclusivity period for orphan medicinal
products is different from the market protection
period for non-orphan medicinal products as during
the market exclusivity period for orphan medicinal
products

“…the Community and the Member States shall not,
for a period of 10 years, accept another application
for a marketing authorisation, or grant a
marketing authorisation or accept an application to
extend an existing marketing authorisation, for the
same therapeutic indication, in respect of a similar
medicinal product.”3
This means that during the period of market
exclusivity for an orphan medicinal product, another
similar medicinal product used for the same
indication cannot obtain marketing authorisation
within the EU.
This is a crucial point as it means that an orphan
medicinal product is essentially protected from
competition from similar medicinal products.

However, during the period of market exclusivity,
marketing authorisation may be granted to a similar
medicinal product for the same therapeutic
indication if
“(a) the holder of the marketing authorisation for
the original orphan medicinal product has given his
consent to the second applicant, or
(b) the holder of the marketing authorisation for the
original orphan medicinal product is unable to
supply sufficient quantities of the medicinal
product, or
(c) the second applicant can establish in the
application that the second medicinal product,
although similar to the orphan medicinal product

already authorised, is safer, more effective or
otherwise clinically superior.”4
This means that during the market exclusivity period
it is possible for a new applicant to obtain market
authorisation if one of the following three criteria are
met.
1. The current holder of a marketing authorisation
granting market exclusivity allows the second
applicant to apply.
2. The current holder of a marketing authorisation
granting market exclusivity cannot supply
sufficient quantities of the orphan medicinal
product to the Community.
3. The new applicant can show that the new
medicinal product brings benefits to patients
beyond what the product which currently is
authorised and enjoys market exclusivity does.
From a theoretical point of view, this might give rise
to an increased ex ante risk in the R&D decisions
made by pharmaceutical companies. This is so if two
companies are working on two similar medicinal
products simultaneously5. The company that obtains
marketing authorisation first will gain the whole
market, while the second company will not be able to
enter the market because of the regulatory market
exclusivity. This will potentially reduce the value of
the second companies’ R&D to zero if it cannot be
repurposed.
However, this will also increase the potential
revenue as the company which is first to reach the
market, in the example above, obtains the full
market share.

1 Regulation (EC) No 141/2000.
2 EMA website on orphan designation.
3 Regulation (EC) No 141/2000, Article 8(1).
4 Regulation (EC) No 141/2000, Article 8(3).
5 In Regulation 847/2000, Article 3(3) it is defined that “(a) ‘active substance’ means a substance with physiological or pharmacological activity; (b) ‘similar
medicinal product’ means a medicinal product containing a similar active substance or substances as contained in a currently authorised orphan medicinal
product, and which is intended for the same therapeutic indication; (c) ‘similar active substance’ means an identical active substance, or an active substance
with the same principal molecular structural features (but not necessarily all of the same molecular structural features) and which acts via the same mechanism”.

35

Rules and incentives for orphan medicinal products (3/3)
As such, from a theoretical viewpoint, when making
the ex ante R&D decision the company faces a higher
risk because of the regulatory market exclusivity
period but does likewise face a higher potential
revenue.
Besides the market exclusivity granted to medicinal
products with orphan designation, once they obtain
marketing authorisation there are protocol
assistance (scientific advise) and the possibility of fee
reductions. For micro, small and medium-sized
enterprises there are further incentives, such as
administrative and procedural assistance and further
fee reductions. Medicinal products receiving an
orphan designation are also eligible for certain
earmarked research grants administered by e.g. the
EU1.

DESIGNATION AND MARKETING
AUTHORISATION

An important point is that obtaining an orphan
designation and a marketing authorisation for an
orphan medicinal product are two distinct processes.
The request for orphan designation can be filed
anytime during the medicinal product development
process before the application for marketing
authorisation is made, while the application for
marketing authorisation typically demands more
clinical data. This means that multiple medicinal
products can receive an orphan designation for the
same indication, while only the first to obtain
marketing authorisation can enjoy the 10 years of
market exclusivity, unless one of the derogations
described on the previous page exist2.

MULTIPLE DESIGNATIONS

A single medicinal product may obtain multiple
orphan designations and can obtain marketing
authorisation for one or more orphan as well as nonorphan indications. Obtaining multiple designations
for the same medicinal product is very positive for
patients, as this means that more people can receive
treatment. However, it does raise questions about
the incentives enjoyed by orphan designation.
As an objective of the orphan regulation is to
promote R&D into medicines with supposedly low
revenue, obtaining multiple marketing
authorisations and perhaps even reaching
blockbuster status, can seem to be detrimental to
this objective.
However, when a medicinal product is undergoing
development it might often not be possible to predict
whether it in the future can be proven to treat more
than one indication. As such, it is crucial to
distinguish between an ex ante and an ex post view3.
This means that before undertaking the R&D process
there might be much uncertainty as to the final effect
of the substance in question. After developing the
substance and testing it, much of this uncertainty
disappears. As such, there is a large difference
between evaluating whether development of a
certain substance makes up a good business case
before development and after.

1 Giannuzzi, V., Conte, R., Landi, A., Ottomano, S. A., Bonifazi, D., Baiardi, P., Bonifazi, F. and Ceci, A. (2017), Orphan medicinal products in Europe
and United States to cover needs of patients with rare diseases: and increased common effort is to be foreseen.
2 Regulation (EC) No 141/2000, Article 8(3).
3 See section 4.1.2 for a further discussion of this.

36

Marketing authorisation (1/2)
MARKETING AUTHORISATION
In the EU, there are four different routes to
obtaining a marketing authorisation.

Through the centralised procedure it is possible
to obtain marketing authorisation in all EU member
states at the same time1. For products containing a
new active substance that are orphan medicinal
products, products derived from biotechnology and
products intended for the treatment of AIDS, cancer,
neurodegenerative disorders and diabetes, the
centralised procedure is mandatory2.
Using the mutual recognition procedure, a
company can seek to have an existing national
marketing authorisation recognised in one or more
other member states.

The decentralised procedure is identical to the
mutual recognition procedure, with the exception
that it can only be used when no member state has
yet granted a marketing authorisation for the
product.
The national procedure is a country-specific
approval procedure.
When marketing authorisation is granted, the period
of data protection and market protection begins.
A medicinal product might be authorised for new
therapeutic indications if it is shown to have an effect
in this area after the original authorisation was
granted3. Most often this is based on new clinical
trials conducted by the sponsor, but this can

sometimes be based on literature which may capture
off label use.

CONDITIONAL MARKETING
AUTHORISATION4

If a medicine falls into one of the following
categories, it is eligible for a conditional marketing
authorisation:
1) It is aimed at treating, preventing or diagnosing
seriously debilitating or life-threatening diseases,
2) it is intended for use in emergency situations or
3) it is designated as orphan medicines.

shorter period of patent protection when they did. It
would also mean that some patients would have to
wait longer before they could receive the medicinal
product.
Conditional marketing authorisations are valid for
one year. Holders of conditional marketing
authorisations are obliged to continually provide
data and evidence that support the conclusion that
the benefits continually outweigh the risks. As such,
it is expected that a comprehensive set of data will be
generated by a certain deadline.

If a conditional marketing authorisation is applied
for, certain rules regarding e.g. documentation
requirements apply. This could be for lifethreatening orphan diseases, where so few people
are affected that clinical trials with the same data
requirements as for other medicinal products simply
are not feasible within a satisfactory time frame.
The medicinal products obtaining a conditional
marketing authorisation are authorised based on the
assessment that the expected benefits outweigh the
possible risks. Furthermore, it must be likely for the
applicant to be able to provide comprehensive data
at a later point, unmet medical needs must be
fulfilled, and the benefit to public health of the
medicinal products’ immediate availability on the
market must outweigh the risks due to need for
further data5.
Without this possibility some products would take a
longer time to reach the market and hence have a

1 Regulation (EC) No 726/2004, Article 3.
2 Regulation (EC) No 726/2004, Annex point 3.
3 If this happens during the 8 years of data protection for a new active substance, this prolongs the market protection period to 11 years. See
Regulation (EC) 726/2004, Article 14(11).
4 See Regulation (EC) No 726/2004, Article 14(7), Regulation (EC) No 507/2006 and EMA website
http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/q_and_a/q_and_a_detail_000167.jsp&mid=WC0b01ac0580b18196 section 1.9.
5 Regulation (EC) No 507/2006, Article 4.

37

Marketing authorisation (2/2)
In the period from July 2006 to June 2016, 30
medicines were granted a conditional marketing
authorisation1. None of these have been revoked or
suspended.
The typical basis for granting a conditional
marketing authorisation has been results from two
main phase II or III studies, with further studies
ongoing1. As clinical testing before marketing
authorisation goes through phases I, II and III, the
medicinal products receiving conditional marketing
authorisation have all been relatively far in that
process.
The conditional marketing authorisation is granted
in cases where it is believed that comprehensive data
can be collected within an agreed time frame after
the authorisation is granted. As such, a conditional
authorisation is granted in the belief that it should
not remain conditional indefinitely.

AUTHORISATION UNDER
EXCEPTIONAL CIRCUMSTANCES2

If it is not believed that comprehensive data
regarding the efficacy and safety of a medicine can be
obtained even after the product is marketed, a
marketing authorisation might be granted under
exceptional circumstances.

It might e.g. be that collection of data is either
impossible or unethical.
An authorisation granted under exceptional
circumstances is initially valid for five years, but
must be reassessed annually.

With1out this possibility some products might never
have reached the market, whereby some patients
might never have been treated.

this route4.

PAEDIATRIC-USE MARKETING
AUTHORISATION

Through the paediatric regulation in the EU, a
paediatric-use marketing authorisation (PUMA) is
available. The PUMA is available for medicines
fulfilling the following three criteria.

1 Is already authorised
no longer covered by an SPC or a patent
2 Isqualifying
as an SPC
to be developed exclusively for use in
3 Ischildren
The PUMA confers an 8-year period of data
protection and a parallel period of 10 years of market
protection3. This protection period is for a medicinal
product which has already enjoyed the same
protection schemes once when it was first approved
for use in adults. Through the further development
exclusively for children it can now obtain another
period of market protection and data protection.
Furthermore, certain fees are reduced.

This scheme was introduced to strengthen the
incentives for developing pharmaceuticals for use in
the paediatric population.
The first product to be granted a PUMA was in 2011
and by 2017 three products had been approved by

1 EMA (2016), Conditional Marketing Authorisation – Report on ten years of experience of the European Medicines Agency.
2 See Regulation (EC) No 726/2004, Article 14(8) and EMA website
http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/q_and_a/q_and_a_detail_000167.jsp&mid=WC0b01ac0580b18196 section 1.10.
3 Regulation (EC) No 1901/2006, Article 38.
4 Numbers provided by the European Medicines Agency.

38

1.2 INTERACTION BETWEEN
INCENTIVES

Combining and stacking incentives
On the following pages, the interactions between patent, SPC, market protection and data protection are presented. The examination also looks as the
incentives for paediatric and orphan designations.
For convenience, a short recap of the various protection mechanisms is presented here.

Patent and SPC

Data and market protection

Orphan medicinal products

A patent runs for 20 years in the EU. At the end
of this period, it is possible to obtain an SPC for
up to 5 additional years of protection. The SPC
can then be extended by a further 6 months,
following studies in the paediatric population.
This effectively means that the maximum
protection period provided by IP law is 25.5
years.

Independently of and parallel to patents and
SPCs, 8 years of data protection and 10 years of
market protection can be obtained for medicinal
products. These periods start when the product
obtains a marketing authorisation, and market
protection can be extended by an immediate
extra year if the medicinal product is authorised
for a new indication during the 8-year data
protection period.

If a medicinal product receives a marketing
authorisation for an orphan medicinal product, a
market exclusivity period of 10 years is granted,
with the possibility of a further 2 years if studies
following a PIP are carried out and approved.

The protection period described above runs
from filing of the patent. Until marketing
authorisation is obtained, the company cannot
directly capitalise on its IP rights1.

If a change in classification is made on the basis
of new clinical evidence, another year of data
protection can be obtained.

If more than one patent protecting different
inventions concerning a given medicinal product
is taken out, the period during which a product
enjoys IP protection for some associated
invention can be longer than the 25.5 years
described above.

If a medicinal product has been in use for at
least 10 years, and new clinical evidence shows
that the medicinal product can be used to treat a
new clinical indication, another year of data
protection can be obtained.

A patent gives the owner intellectual property
rights to an invention.

Market protection and data protection are
granted for the product when marketing
authorisation is obtained. These protection
periods are often referred to as the 8+2(+1) rule.

SPCs are attached to a patent and a product.

An orphan designation can be obtained at any
time during the development process. Having an
orphan designation confers certain incentives
and allows the holder to seek marketing
authorisation for an orphan indication.

The orphan market exclusivity period runs from
the marketing authorisation for an orphan
medicinal product is granted and in parallel to
any protection period in effect if the medicinal
product is also authorised to treat non-orphan
diseases2.

The market exclusivity granted for medicinal
products treating an orphan indication prevents
other companies from marketing similar
medicinal products for treating the same disease
unless clinical superiority can be proven.

1 The company can, however, license or sell the research to capitalise on it before marketing authorisation. Furthermore, successfully progressing
through the different phases of clinical trials might increase the market value of the company and attract investors or potential buyers.
2 An exemption to this is if studies following a PIP are completed. In that case, a 6-month extension of the SPC cannot be combined with a 2yearextension of orphan market exclusivity. For a medicinal product to obtain both a marketing authorisation for treating an orphan indication and
a non-orphan indication, the product must have two different marketing authorisations and hence different names.

40

Incentives for medicinal products

Paediatric extension
6 months

Protects the
invention

SPC

Patent

max 5 years

20 years
Runs from filing
date of patent

Marketing authorisation can be granted at
any point during the life of the patent
(and even before or after)

Runs from
expiry of
patent

These two incentives cannot be
combined (see p. 44).

Medicinal products obtaining marketing authorisation
8

Protects the
product
Protects the
data

Market protection
10 years

Data protection
8 years

Runs from grant of
marketing
authorisation

+2

Runs from
expiry of SPC

Periods separate from the periods
running from marketing authorisation

+1

Market protection
extension
1 year

If authorised for new
therapeutic indication and
significant benefit
compared to existing
therapies during the 8-year
data protection period can
be proven

Data
protection

Data
protection

1 year

1 year

Classification
change
(prescription to
over the
counter)

New therapeutic
indication for
well-established
substance (used
for 10 years or
more)

Orphan medicinal products obtaining marketing authorisation

Protects the
product per
condition

Market exclusivity

Market exclusivity
extension
2 years

10 years

Runs from grant of
marketing
authorisation

If studies following a
Paediatric investigation
plan (PIP) are completed
Regulation (EC) No 726/2004, Article 14(11).
Regulation (EC) No 469/2009, Article 13.
Regulation (EC) No 141/2000, Article 8.
Regulation (EC) No 1901/2006, Article 36.
Directive 2001/82/EC and Directive 2001/83/EC.

41

The effective protection period is an interaction between the various
protection schemes
If a product e.g. obtains
marketing authorisation 7
years after the priority date
of the primary patent, the
effective protection period
will be 15 years

23

21

Resulting years of effective protection based on
time from patent to marketing authorisation

20

The minimum regulatory protection period of 8+2(+1)
entails that the effective protection period can almost
never be less than 10 years

If a product e.g. obtains
marketing authorisation between
10 and 15 years after the priority
date of the primary patent, every
additional year of development
reduces the effective protection
period 1 to 1

19

17

15

15

If a product e.g. obtains
marketing authorisation 18
years after the priority date
of the primary patent, the
effective protection period
will be 10 years

13
If a product obtains marketing authorisation
between 5 and 10 years after the priority
date of the primary patent, the SPC
regulation curbs the loss of effective
protection. This means that no matter
whether the development time is 5 or 10
years or anywhere in between, the effective
protection period is 15 years

11

9

10

7
0

1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

…

Time from patent to marketing authorisation
Notes: Graph showing the total effective protection period depending on the time that has elapsed from a patent protecting the product or part hereof was granted, until marketing authorisation has been
obtained. The effective protection period is the time from marketing authorisation is granted, until the last scheme protecting the product or the market expires. Extension of SPC due to paediatric studies,
extension of market protection due to new therapeutic indication, extension of data protection due to classification change or new use of well-established substance and orphan incentives are not depicted
in the graph.
Source: Copenhagen Economics based on Regulation (EC) No 726/2004, Article 14(11), Regulation (EC) No 469/2009, Article 13 and Regulation (EC) No 141/2000, Article 8.
42

Mutually exclusive and non-cumulative incentives (1/2)
In some cases, incentives can be mutually exclusive
meaning that they cannot be combined. If a company
is entitled to the benefits from two mutually
exclusive incentives for the same medicinal product,
the company will have to choose whether to go for
one or the other. In the European pharmaceutical
legislation we have identified two examples of
mutually exclusive incentives, which are analysed
here.

DATA PROTECTION FOR NEW
INDICATIONS FOR WELLESTABLISHED SUBSTANCES

The European pharmaceutical legislation on
incentives and rewards for pharmaceutical
companies stipulates that:
“Where an application is made for a new indication
for a well-established substance, a non-cumulative
period of one year of data protection will be
granted, provided that significant pre-clinical or
clinical studies were carried out in relation to the
new indication”.1
This incentive, however, differs from most other
incentives in that it does not extend the existing
protection for other indications:
“The data protection period is non-cumulative to
other periods of protection: it refers exclusively to
the data concerning the new indications. Therefore,
the concerned medicinal product could be used as
reference medicinal product with the exclusion of
the indication(s) which is covered by this data
protection if the medicinal product fulfils the

general requirements of reference medicinal
product. Such data protection period is an incentive
for development of new indications whilst data
protection would not otherwise apply”.2
This is contrary, for example, to the way in which the
incentives to conduct a paediatric investigation plan
(PIP) extends the SPC and thus the protection for all
pharmaceuticals affected by the part of the patent on
which the SPC is based (typically a specific
molecule).
While this is a clear example of a non-cumulative
incentive, there is not much of a choice between the
two incentives involved, since the choice is really
between whether to apply for the data protection for
the new indication or not. If the market for the new
indication is already covered by another type of
protection during the period which would be covered
by the extension of data protection, there is no
incentive to apply for the extra protection.
The extra protection is thus only relevant for wellstablished pharmaceuticals that can apply for a new
indication. In this case, the extra protection creates
an economic incentive to incur the costs of obtaining
the new indication, since the costs may be recouped.
This might otherwise have been difficult, since
generic competitors could enter the market (almost)
immediately.
No such extensions have been granted3.

1 Directive 2001/83, Article 10(5).
2 Notice to Applicants, Vol. 2A, chapter 1, p. 44.
3 Data provided by the European Medicines Agency.

43

Mutually exclusive and non-cumulative incentives (2/2)
SIX-MONTH SPC EXTENSION AND
ONE-YEAR EXTENSION OF
MARKET PROTECTION FOR
PAEDIATRIC INDICATIONS1

previous treatments
• The paediatric authorisation must be obtained
during the 8 years of data protection

The incentives related to the development of
pharmaceuticals for use in children will in some
cases lead to the pharmaceutical company having to
choose between the use of two incentives:

If these five criteria are all met, the company must
choose between either extending its SPC by 6
months or extending its market protection by one
year.

“In the case of an application under Article 8 [in
Regulation (EC) No 1901/2006], which leads to the
authorization of a new paediatric indication,
paragraphs 1, 2 and 3 [i.e. 6 month extension of
SPC] shall not apply if the applicant applies for, and
obtains, a one-year extension of the period of
marketing protection for the medicinal product
concerned, on the grounds that this new paediatric
indication brings a significant clinical benefit in
comparison with existing therapies, in accordance
with Article 14(11) of Regulation (EC) No 726/2004
or the fourth subparagraph of Article 10(1) of
Directive 2001/83/EC”.2

This case is an interesting choice between two types
of protection. Besides the obvious difference in the
duration of the extra protection, the protection
yielded is also different. The SPC extension is a wider
protection as it extends the protection of the part of
the patent that the SPC is based on (e.g. a specific
molecule), which means that it also protects the use
of the patented innovation in other medicinal
products for use in other therapeutic areas.

This means that for this to be relevant for a company
several criteria must be met:
• The medicinal product must be authorised in the
adult population
• The company must hold a valid, non-expired SPC
for the product
• The company must have undertaken studies in the
paediatric population and on the basis of this have
obtained marketing authorisation for paediatric
use
• The medicinal product must provide significant
clinical benefit for paediatric use, compared to

Contrary to the above, the extra year of market
protection covers more narrowly the medicinal
product for which the market authorisation was
granted. This means that the choice is between the
shorter, but wider protection from the SPC and the
longer but narrower market protection.
The optimum choice for the pharmaceutical
company depends on several market factors:
• If, for example, the market is expected to be taken
over by a new innovative pharmaceutical from the
pipeline of a competitor in six months, then the
last six months of market protection beyond that
has little value.
• If the patent on which the SPC is based has no

relevance beyond the medicinal products to which
the PIP and the new indication relate, then the
wide scope of the SPC protection has little value
and is to be seen as similar to the market
protection.
• In the case above, the SPC extension is only
relevant if it expires after the market protection
including the possible one-year extension would
have expired.
To analyse the choice between the two incentives,
data would be needed for medicinal products which
were eligible for both. There are two situations
where this is the case, but only one of them is
(partly) observable in the data available:
1. If a medicinal product obtains the 6-month
extension of the SPC based on a new paediatric
indication, we cannot know whether it provides
sufficient clinical benefit such that it would have
been awarded an extra year of market protection,
since the company cannot apply for this.
2. If a medicinal product obtains the one-year
extension of the market protection based on
significant clinical benefits and the company has
conducted a PIP beforehand, we know that the
company chose to go for this incentive instead of the
6-month SPC extension. However, as elaborated
upon above, in the available data it is not possible to
identify the firms which had the choice, but chose
the 6-month extension of the SPC instead. As such,
identifying those that had the choice and chose
market protection does not allow us to calculate the
frequency with which this choice is made.

1 The two incentives discussed in this section are the 6-month extension of SPC based on completion of paediatric studies (Regulation (EC) No
1901/2006, Article 36(1)) and the one-year extension of market protection if a medicinal product is approved for a second indication within the first 8
years after marketing authorisation where it brings significant clinical benefit (Regulation (EC) No 726/2004, Article 14(11)).
2 Regulation (EC) No 1901/2006, Article 36(5).

44

Safeguards ensuring proper use
In some cases, European pharmaceutical legislation
provides so-called ‘safeguards’ that allow regulators
to intervene if an incentive yields results which are
different from what was expected when the incentive
was granted. We have identified two such
safeguards, which are analysed in the following.

REVIEW OF CLAUSE FOR ORPHAN
MEDICINAL PRODUCTS

Pharmaceutical companies receiving an orphan
designation for a medicinal product must prove that
the requirements for the orphan designation are met
at several instances1:
At the time of application for orphan
designation

1
2

At the stage of application for marketing
authorisation

state informs the EMA that
3 Ifthea member
requirements may no longer be

fulfilled

Item 1 comes before the granting of marketing
authorisation for the orphan medicinal product, item
2 coincides with the time of processing of an
application for marketing authorisation, while item 3
comes after the market authorisation is granted.
While item 2 is part of the procedure leading up to
the marketing authorisation for medicinal products
based on an orphan designation, item 3 is a
‘safeguard’ that ensures that action can be taken if
the criteria on which orphan designation is granted
are no longer met after authorisation. Item 3 is thus
the only ex post measure of the three.

If by the end of the fifth year of market exclusivity for
an authorised orphan medicinal product based on a
request from a member state it is established that
the criteria on which the orphan designation is
granted are no longer met, the market exclusivity
period can be reduced to 6 years. The decision is
made by the Committee for Orphan Medicinal
Products under EMA2.
Example of request from a Member State not
yielding a reduction of the period of market
exclusivity:
“During its meeting of 21 to 23 March 2016, the
Committee for Orphan Medicinal Products (COMP)
assessed whether Plenadren (hydrocortisone) still
met the criteria for orphan designation as there
appeared to be an increase in the prevalence of the
condition. Plenadren has been authorized in the
European Union for the treatment of adrenal
insufficiency since November 2011. At the time,
because Plenadren met the criteria for orphan
designation, it was granted 10 years of market
exclusivity in the EU.
A Member State can ask that this period of market
exclusivity be reduced to 6 years if at the end of 5
years the criteria for orphan designation no longer
apply and the medicine is sufficiently profitable.
At the request of the United Kingdom, the COMP
therefore reviewed the criteria for orphan
designation for Plenadren. The Committee looked at
the seriousness and prevalence of the condition and
the existence of other methods of treatment. As
other methods of treatment are authorized in the
European Union (EU), the COMP also considered
whether the medicine is of significant benefit to

patients with adrenal insufficiency. As these criteria
continue to be met, the COMP recommended that
the 10-year period of market exclusivity granted to
Plenadren in 2011 for the treatment of adrenal
insufficiency should not be reduced.”3
Based on present research, the above example seems
to be the only example of a review initiated at the
request of a member state. Thus, there do not seem
to be any examples of a review initiated by a member
state leading to the period of market exclusivity for
an orphan medicinal product being reduced.

OBLIGATION TO SUPPLY
SUFFICIENT QUANTITIES

A marketing authorisation can legally be granted to
another similar medicinal product, during the 10year market protection period, if:
“… the holder of the marketing authorization for the
original orphan medicinal product is unable to
supply sufficient quantities of the medicinal
product”4.
This obligation could effectively deter the holder of
the marketing authorisation from choosing not to
supply specific markets.
Through research input by stakeholders, we have not
identified any cases where the inability to supply
members states actually led to a loss of market
exclusivity. This could be either due to the strong
incentive to supply, due to barriers to or lack of
enforcement or difficulty in demonstrating lack of
supply.

1 Regulation (EC) No 141/2000.
2 Regulation (EC) No 141/2000, Article 8(2).
3 http://www.ema.europa.eu/docs/en_GB/document_library/Orphan_review/2016/05/WC500205975.pdf
4 Regulation (EC) No 141/2000, Article 8(3, b).

45

1.3 IP FRAMEWORK AND
PHARMACEUTICAL
INCENTIVES IN OTHER
COUNTRIES

United States (1/2)
Patents granted in the United States convey 20 years
of protection. As is the case with the European SPC,
there is a possibility of obtaining Patent Term
Restoration for marketing time lost during
development and government approval. The patent
restoration period and the other schemes available
for pharmaceuticals in the US, which are reviewed in
the following section, are governed by the HatchWaxman act1.
The maximum period of patent restoration is 5 years,
but depends on the total effective patent life after
marketing authorisation. The effective patent
protection period, i.e. the time between granting of
marketing authorisation and expiry of the patent,
cannot exceed 14 years (15 years in the EU).
The calculation of patent restoration is done as
follows. The regulatory period is divided into a
testing phase and an agency phase. The testing phase
is the time the company spends developing the
medicinal product. The agency phase is the time the
authorities spend reviewing the marketing
application and attached data and documents.
All the time spent in the agency phase (unless the
company has not acted with due diligence) plus half
the time spent in the testing phase is eligible for
restoration. Limitations are that the total effective
protection period cannot exceed 14 years and that
the restoration period cannot exceed 5 years.

EXCLUSIVITY PERIOD

In the US, there are multiple types of exclusivity,
whereas in the EU there are mainly data and market
protection as well as market exclusivity.

New chemical exclusivity runs for 5 years. It is
granted to medicinal products containing no active
moiety (molecule or part thereof) that has previously
been approved by the FDA. Prevents submission of
an abridged new drug application (ANDA) by generic
firms. As the protection prevents an ANDA (see next
page), it corresponds to the 8 years of data
protection in the EU.
New clinical investigation exclusivity runs for 3
years. It is granted to medicinal products where the
active moiety has already previously been approved
by the FDA, but new clinical studies have now been
undertaken and the application is based on results
from these. This could e.g. be for new strength, new
dosage form, route of administration or new
indication2.The exclusivity precludes the FDA from
approving an ANDA, but does not prohibit
companies from submitting it.
Orphan medicinal product exclusivity runs for 7
years. It is granted to medicinal products treating
diseases affecting fewer than 200,000 individuals in
the US population (around 0.06%, compared to
0.05% in the EU). As is the case in the EU, the
designation can also be granted if there is no hope of
recovering the initial investment, even though the
disease affects more than 200,000 patients.
Treatments for e.g. bioterrorism might fall in this
category. If a competitor can prove clinical
superiority to the medicinal product, the competitor
can bypass the exclusivity of the lesser effective
medicinal product and obtain a marketing
authorisation.
Paediatric exclusivity adds 6 months to either
existing patent or exclusivity, whichever expires at

the latest date. It is granted when studies in the
paediatric population are carried out, as requested
by the FDA, regardless of the outcome of the trial. As
such, the duration of the extension is equivalent to
that granted in the EU, but its addition to either
patent or exclusivity is distinct3.

Biologic License Application (BLA) exclusivity
runs for 12 years. The special period of protection for
biologics4 seeks to accommodate the fact that the
development of biologic medicine is often a very
lengthy process. Biologic pharmaceuticals can also
receive orphan medicinal product designation as well
as paediatric extension. In the EU, there are
currently no special protection incentives for biologic
medicinal products specifically, but they can in some
cases be classified as orphan medicinal products or
advanced therapy medicinal products and hence
enjoy the incentives of these classifications.
First biosimilar exclusivity. In the US, there is a
market exclusivity provision for the first approved
interchangeable biologic product (biosimilar3). It
varies between 12 and 42 months, depending on
ongoing litigation. This blocks future subsequent
biosimilar products from entering the market in the
designated period. The rationale behind this is that it
provides an incentive for manufacturers to get their
subsequent product approved as fast as possible,
both to take advantage of the exclusivity period and
to make sure that others do not come first.
Generating Antibiotic Incentives Now (GAIN)
exclusivity, adds 5 years to certain exclusivities for
products having received a Qualified Infectious
Disease Product designation.

1 The Hatch-Waxman act is the informal name of the “Drug Price Competition and Patent Term Restoration Act” from 1984.
2 FDA: https://www.fda.gov/drugs/developmentapprovalprocess/smallbusinessassistance/ucm069962.htm (accessed on 1 December 2017).
3 This essentially builds upon the same line of thinking used in this study, namely that what matters to pharmaceutical companies is the total effective protection period, not
whether protection necessarily stems from patent or regulatory protection periods.
4 A biologic product is a medicinal product manufactured using biotechnology methods and other cutting-edge technologies. Biologic products are often highly complex
mixtures. Biologic products include vaccines, blood and blood components, gene therapy, tissues etc. As biologic products are highly complex entities, direct copies of a given
drug are often impossible to make. As such, in the area of biologics, a “generic” version is called a biosimilar, as it can never be exactly the same, but provides the same effect.

47

United States (2/2)
ABRIDGED NEW DRUG
APPLICATION

An ANDA uses the data produced in studies of an
innovative medicinal product to show safety and
efficacy of a generic version of the originator
medicinal product. An ANDA may be submitted after
4 years, if it contains a paragraph 4 challenge to a
medicinal product holding a new chemical
exclusivity.

ANDA
To obtain approval of a generic medicinal
product, an “abridged new drug application”
(ANDA) can be filed. In this application, the
generic manufacturer has to state, for each
patent protecting the innovative medicinal
product, that either
1. the required patent information has not
been filed
2. the patent has expired
3. the patent will expire on a given date
4. the patent is invalid or the new medicinal
product will not infringe the patent.
If 1) or 2) is applicable, the medicinal product
can be approved immediately. If 3) is applicable,
the medicinal product can be approved at the
given date. If 4) applies, it constitutes a socalled paragraph 4 challenge, and a legal process
begins.

PARAGRAPH 4 CHALLENGE

When filing a paragraph 4 challenge, the generic
manufacturer must inform the patent holder of the
application. The patent holder can then file a patent
infringement lawsuit. If this is done, a 30-month stay
on the approval of the generic medicine is in force.
This can change if the court reaches a verdict before
30 months or decides to prolong the period.

If the generic manufacturer wins the court case
against the originator firm, or if no court case is
started, a 180-day exclusivity period before other
generics can enter the market is granted to the
generic company filing the paragraph 4 challenge.
During this period, only the originator company and
the generic company having won the paragraph 4
challenge can supply the given medicinal product to
the market.
This potential exclusivity period awarded to a generic
company which challenges an existing patent creates
an incentive for generic companies to keep close
check of whether the patents taken out by originator
firms are strong enough to keep generics out of the
market. Furthermore, it creates the incentive to be
the first generic company to enter the market.

It is a combination of the metaphorical ‘stick and the
carrot’. Additional risk is created for generic
manufacturers as others might reach the market
before them. In the most extreme case, possible
market entry by the second generic may be delayed
by 30 months due to a court case (maybe even
longer) plus an additional 180 days of exclusivity for
the first generic, giving a total delay of 3 years.
However, being the first generic to reach the market
is rewarded with 180 days of exclusivity before the
next generic can enter. An incentive granting
protection from further competition for being the
first generic to enter the market does not exist in the
EU.

DIFFERENCES BETWEEN THE EU
AND THE UNITED STATES

As a large share of the global R&D within
pharmaceuticals is undertaken in the US, it is worth
noting the differences in various elements between
US and EU legislation1.

The US is often highlighted as a very large market,
but the sheer size of the population is actually
smaller than the total number of people living in the
European Union2. However, as a share of GDP, no
country in the world spends as much on healthcare
as the US3.

Through the FDA, it is possible to get access to the
whole US market through one marketing
authorisation, but this is likewise the case with the
centralised procedure going through the EMA in the
EU. The patent protection period is likewise the
same, the only difference being that the patent
“restoration” period is capped at a total maximum of
14 years of protection in the US, while it is 15 years in
the EU.
There are certain differences in the protection
periods conferred by the authorities after
authorisation. Here, it seems that the data protection
period is much more favourable to firms entering the
EU market, than in the US. However, the US has a
provision for biologics that enjoy a rather long data
protection period compared to the other protection
periods. The EU has not implemented special rules
in this area.
Another major difference is the possibility of a
generic company issuing a paragraph 4 challenge in
the US. The EU has no similar scheme. The US
scheme was introduced to enhance generic
competition by providing a further incentive to be
first on the market.
Research into what these differences in schemes
have meant for the location of R&D would be quite
useful in guiding any future changes to the incentives
provided in the EU.

1 In OECD (2015), "Research and development in the pharmaceutical sector", in Health at a Glance 2015: OECD Indicators, OECD Publishing, Paris, p. 188 it is reported that world industry
spending on pharmaceutical R&D was USD 92 billion and that in the US alone spending on pharmaceutical R&D was close to USD 50 billion.
2 There are around 323 million people living in the US, while the EU is home to around 508 million people.
3 World Health Organization Global Health Expenditure database, 2014 available at the World Bank website https://data.worldbank.org/indicator/SH.XPD.TOTL.ZS?year_high_desc=true

48

Japan
A Japanese patent is valid for 20 years. Furthermore,
Japan offers the possibility of patent term
restoration of up to 5 years (same as the EU). The
possible restoration period is calculated from the
start date of clinical trials or patent, whichever is the
latest, and ends on the day before the authorities
send the final authorisation to the company1.

POST-MARKETING SURVEILLANCE
PERIOD

After a medicinal product is granted marketing
authorisation in Japan, it enters a period of Post
Marketing Surveillance (PMS), also called the reexamination period. It is a period for carrying out
post-marketing examination of the efficacy and
safety of a medicinal product. During this period, no
generic company can apply for marketing
authorisation. Hence, it effectively conveys much the
same protection as the data protection period in the
EU.
However, the Japanese system has a different way of
viewing the exclusivity period. The re-examination
period is constructed so that companies can gather
additional information on the efficacy and safety of a
medicinal product in a larger population. After
expiry of this period, the additional data is reexamined by the authorities to determine continued
use. The fact that generics cannot enter the market
during this period is thus, at face value, a
consequence of the fact that the medicinal product is
still being tested and not a specific policy to grant
protection to the innovative pharmaceutical
company. However, the effect in terms of possible
entry by generics is the same as for the system used

in the EU.
It should be noted, that as no generic company can
apply for a marketing authorisation during the reexamination period, the effective protection period
conveyed is the re-examination period plus the time
it takes for the authorities to approve a generic
application once the re-examination period has
expired. As such, it is equivalent to the data
protection period in the EU.

RE-EXAMINATION PERIOD

The duration of the re-examination period varies for
different designations. For a medicinal product
containing a new active entity, i.e. an innovative
medicine, the re-examination period is 8 years (same
as the data protection period in the EU). New
combination medicinal products have a 6-year reexamination period1.
Medicinal products approved for a new indication
are subject to a 4-year re-examination period from
subsequent approval if less than 4 years remain of
the original re-examination period (1 additional year
granted in EU, if significant clinical benefit)2.
If a medicinal product is approved as having a new
route of administration, and if less than 6 years
remain of the original re-examination period, a new
6-year period takes effect from the new approval2.
The re-examination period is 10 years for orphan
medicinal products (less than 50,000 patients in
Japan, which is around 0.04%, compared to 0.05%
limit in the EU). Orphan medicinal products
obtaining a new orphan indication are subject to a

10-year re-examination period for the subsequent
approval. As such, this is the same coverage as in the
EU3.
Japan offers an additional 2-year re-examination
period for the production of paediatric data.

Biologics do not enjoy a longer re-examination
period than regular small-molecule medicinal
products.

PRICE LISTING

Japan has a so-called Price Listing System,
controlling the prices of medicinal products. Under
this regime, patients can only receive National
Health Insurance reimbursement for medicinal
products that are listed. Generic medicinal products
can only be listed twice a year. This, plus the fact that
generic marketing applications cannot be filed until
after the expiry of the re-examination period,
effectively grants the patent holder an extra period of
market exclusivity beyond that conveyed by the reexamination period.

DIFFERENCES

As such, even though the Japanese system is based
on a principle of post-marketing surveillance, the
effective working of the system is similar to the
system in the European Union. Generally, there is
not much difference between the protection periods
provided; however Japan has a more granulated
system for granting further protection for new
indications.

1 See e.g. https://uk.practicallaw.thomsonreuters.com/6-560-2578?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
2 See e.g. http://tokyo-acti.com/2015/09/26/how-long-is-pms-post-marketing-surveillance-period-in-japan/
3 EMA presentation by Daisuke Tanaka of the Ministry of Health, Labour and Welfare, Japanese Orphan Drug Designation, available at
http://www.ema.europa.eu/docs/en_GB/document_library/Presentation/2013/10/WC500152531.pdf

49

Canada
THE CANADIAN FRAMEWORK

A patent is valid for 20 years in Canada. Three
components make up the legal framework
surrounding IP protection for pharmaceuticals. The
Patent Act, the Patented Medicines (Notice of
Compliance) Regulation and Data Protection.

Until 1992, Canada had readily been using the
possibility of compulsory licensing. The changes
made in 1992 eliminated compulsory licensing in
Canada to prepare the legal framework for the TRIPS
agreement in 1994.

MARKET PROTECTION AND DATA
PROTECTION

Pharmaceuticals receiving marketing authorisation
in Canada are subject to 6 years of data protection
and 8 years of market protection which run in
parallel1. Both periods are 2 years shorter than in the
EU. The market protection period is extendable by 6
months if paediatric studies are undertaken. No
distinct period exists for biologic pharmaceuticals.
Canadian law offers no distinct protection for orphan
medicinal products.

patent is invalid or not infringed. If this path is
chosen, the originator company can trigger a judicial
process which stalls the approval of the generic
medicinal product for 24 months or until the court
has settled the matter, whichever comes first. This
procedure is somewhat similar to the paragraph 4
challenge generic companies can file in the United
States3.
Triggering the judicial procedure of the Patented
Medicines (Notice of Compliance) Regulation
described above does not confer a complete
infringement case, but merely a summary judicial
review aimed at determining whether the allegation
is justified. This is in contrast to the similar laws in
the US, where proceedings continue as a regular
infringement court case.

DIFFERENCES

The key differences between Canada and EU is that
market and data protection are both 2 years shorter
in Canada than in the EU. Furthermore, Canada
provides no distinct protection for orphan medicinal
products. Besides this, patent restoration is available
for a maximum of 2 years compared to up to 5 years
in the EU through the SPC.

In conjunction with the EU-Canada Comprehensive
Economic and Trade Agreement (CETA), Canada has
recently passed a bill enacting a patent term
restoration period of up to 2 years2. Patent term
restoration corresponds to the SPC in the EU.
Generic manufacturers can seek market
authorisation before the patent protecting the
originator medicinal product expires if they claim the
1 Food and drug regulations, section C.08.004.1. See Guidance Document on Data Protection under C.08.004.1 of the Food and Drug Regulations,
available at https://www.canada.ca/en/health-canada/services/drugs-health-products/drug-products/applications-submissions/guidancedocuments/guidance-document-data-protection-under-08-004-1-food-drug-regulations.html
2 https://openparliament.ca/bills/42-1/C-30/
3 See p. 48.

50

India
In India, 22% of the population lives below the
poverty line1. As such, there is some increased focus
in India on helping the poor. The policies on IP
protection are no different. One of the focal points
for changing Indian governments has been to
provide the general public with easy and affordable
access to essential medicine. This goal seems to have
been pursued at the expense of protection of
intellectual property.

PATENTS

The international Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS),
agreed upon by all WTO members sets out minimum
standards for intellectual property protection to be
enforced by the participating countries.
One of the main provisions in the TRIPS agreement
is that patents must have a minimum term of 20
years without discrimination towards any
technological field. To comply with these
requirements, the Indian government introduced
product patents on pharmaceuticals in 2005. Before
this, no such patents existed in India, contributing to
growing the domestic generic pharmaceutical
industry.

such protection.
As such, the only protection enjoyed by medicinal
products in India is the 20-year patent period.

PATENT ENFORCEMENT

Despite India’s 20-year patent period on
pharmaceuticals, the US 2017 Special 301 Report on
IP in various countries described it as “… one of the
world’s most challenging major economies with
respect to protection and enforcement of IP”2.
One recurring matter of concern for global
pharmaceutical companies is their claim that the
patent courts of India are applying narrow
patentability criteria.

Facts on India’s pharmaceutical
industry
The pharmaceutical industry in India is the thirdlargest in the world in terms of volume and ranks
number thirteen in terms of value.
70% of revenue in the Indian pharmaceutical
sector comes from generics.
The Indian pharmaceutical industry attracted USD
14.53bn between 2000 and 2016 in foreign direct
investments.
Supplying 20% of global generic pharmaceutical
export volume, the Indian generic industry is the
largest in the world.
Revenue of the Indian pharmaceutical
sector
Billion
USD

DATA PROTECTION

India does not provide a period of data protection for
newly authorised medicine. Under TRIPS, member
countries must provide safeguards against “unfair
commercial use” of data produced by an innovator.
However, nowhere in the agreement is it mentioned
that this is equivalent to a period of data protection,
and hence India has not been obliged to enact any

CAGR
17.46%

36,7
30

12
6

2005

2013

2015

2016

Note: CAGR is the Compound Annual Growth Rate.
Source: India Brand Equity Foundation.

1 http://www.iiprd.com/2017/01/11/india-need-patent-term-extension-non-patent-exclusivities-pharmaceuticals/
2 Office of the United States Trade Representative (2017), 2017 Special 301 Report, p. 42.

51

China
China is the second-largest pharmaceutical market
in the world. The Chinese population is growing,
and at the same time the percentage of citizens
older than 65 is increasing rapidly.
The value of the Chinese market is forecast to grow
from USD 108bn in 2015 to USD 167bn by 2020.
This would equate to annual growth of 9.1%.
During the same period, the global market for
pharmaceuticals is predicted to grow by 4.3%
annually.
Source: Department of Commerce, USA, International Trade
Administration and Evaluate Pharma, World Preview 2017,
Outlook to 2020.

11%

1,48

An interesting provision granted by the Chinese
Patent Law is that for medicinal products patented in
China generic manufacturers may submit their
application for marketing authorisation two years
prior to the expiry of the patent.

1,44

CHINESE IPR IN THE FUTURE

1,24

10%

1,4

9%

1,36

8%

1,32
1,28

7%
6%
2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

1,2
2000

A draft order published on 12 May 20173 proposed
additional data protection beyond the current 6-year
period for orphan medicinal products, paediatric
medicinal products, biologic products and first
generic product. The draft order proposed to provide
10 years of data protection to orphan and paediatric

Percentage
65+

Billion
people

2005

Currently a patent provides intellectual property
protection for 20 years in China. Besides patent
protection, the Chinese authorities provide a period
of 6 years of regulatory data protection2.

As such, the draft order seems to suggest that the
Chinese authorities might be moving towards more
IP protection in the future.

Pharmaceuticals in China

2004

The amendment in 1992 added pharmaceuticals to
the list of patentable subject matter. The second
amendment in 2000 made sure that the Chinese
Patent Law was in compliance with the TRIPS
agreement. The third amendment in 2008 included,
among other things, changes to the novelty
requirement for patentability and the patentability
possibilities of inventions relying on genetic
resources or traditional knowledge. Furthermore,
the third amendment made it more feasible for the
Chinese authorities to issue compulsory licenses1.

medicinal products, with three years for an
improvement medicinal product within these two
classes. Furthermore, it proposed 10 years of data
protection for biologic products. It likewise proposed
18 months of data protection for generics, if a generic
is either the first domestic generic or has proved a
linked patent to be invalid (bears certain similarities
to the on paragraph 4 challenge in the US)3.
regulation

2003

The Chinese Patent Law was first enacted in 1984
and has since been amended three times, in 1992, in
2000 and in 20081.

2001

CHINESE IPR UNTIL NOW

Population (left axis)
Percentage of the population 65+ (right axis)

Source: World Bank.

1 https://www.hg.org/article.asp?id=33387
2 https://www.ip-watch.org/2016/03/15/chinas-pharmaceutical-sector-and-the-ip-puzzle/ and
http://www.managingip.com/Article/3322867/Following-pharmaceutical-data-protection-in-China.html
3 Relevant Policies to Encourage Innovation and Protect Innovators’ Rights (Order 55). See e.g.
https://www.bakermckenzie.com/en/insight/publications/2017/09/cfda-drug-registration-china/ for description.

52

IPR scheme

European Union

United States

Canada

Japan

India

China

Patent term

20 years.

20 years.

20 years.

20 years.

20 years.

20 years. Application for
generic authorisation can
be submitted 2 years prior
to expiry for products
patented in China.

Patent term
restoration

Up to 5-year SPC.
Combined with patent
conveys a maximum of
15 years of effective
protection.

Up to 5 years.
Combined with
patent conveys a
maximum of 14 years
of effective
protection.

Up to 2 years.

Up to 5 years.

n/a.

n/a.

8 years.
+1 year for change of
classification.
+1 year for new
indication for wellestablished substance.

5 years for new
chemical substance
(only 4 years if a
paragraph 4
challenge is lost).
12 years for biologics.
+5 years for products
having received a
Qualified Infectious
Disease Product
designation.

6 years.

8-year re-examination
period for new
chemical substance.
6 years for new
combination.
4 years for new
indication.
6 years if approved for
new route of
administration.

n/a.

6 years for new
chemical entity.

Market
protection

10 years.
+1 year for new
indication with
significant clinical
benefit.

3 years for new
clinical studies.
180 days for first
generic to file a
paragraph 4
challenge and win.
12-42 months for first
biosimilar.

8 years.

n/a.

n/a.

n/a.

Orphan
medicinal
product
incentives

10 years of market
exclusivity.

7 years.

n/a.

10 years reexamination period.

n/a.

n/a.

Paediatric
incentives

+ 6-month extension of
SPC.
+ 2-year extension of
orphan medicinal
product market
protection.

+ 6-month extension
of either patent or
exclusivity, whichever
lasts longest.

+ 6-month extension
of market protection.

+ 2-year reexamination period.

n/a.

n/a.

Data
protection

53
Source: See previous pages for references.

Comparing incentive frameworks
In the following, we compare and describe
differences and similarities between the incentive
framework in the different countries/regions,
described in the table on the previous page.

PATENT TERM

A period of 20 years duration of a patent is present
in all the countries/regions, compared in the table on
the previous page.

PATENT TERM RESTORATION

The EU, US and Japan all have up to 5 years of
patent term restoration. In the EU this is conveyed
by the SPC. A main difference between the EU and
the US is that, in the US the maximum period of
protection from marketing authorisation until expiry
of the patent term restoration is 14 years. In the EU
it is 15 years. Canada only provides up to 2 years of
patent term restoration. India and China provides no
possibility of patent term restoration.
As such, the patent term restoration provided in the
EU is the most generous in this comparison.

DATA PROTECTION

The EU and Japan both provide 8 years of data
protection for a new substance. However, Japan
provides fewer years of data protection if the
authorised product is a new combination, for a new
indication or if it is approved for a new route of
administration.
In the US, the period of data protection is 5 years,
possibly only 4 if a paragraph 4 challenge is lost 1.
However, for biologic products, the period of data

protection is 12 years.
China and Canada provides 6 years of protection,
while India provides none.
The data protection scheme in the EU seems to be
the most generous, except for biologics, where the
US provides a longer period of protection.

MARKET PROTECTION

In the EU the market protection period is 10 years.
The US only provides 3 years. However, if a
paragraph 4 challenge is won by a generic company,
they receive 180 days of market protection, before
other generics can enter the market1. This creates an
incentive for generic companies to be the first to
market, and challenge the patents of originator
companies.
Canada provides 8 years of market protection, while
Japan, India and China provides none.
The market protection period provided in the EU is
the most generous among the compared
countries/regions. However, the US in some cases
provide market protection to the first generic to
enter the market.

ORPHAN MEDICINAL PRODUCTS
INCENTIVES

In this case, the EU and Japan provide the same
coverage of protection of orphan medicinal products.

PAEDIATRIC INCENTIVES

Japan provides an extension of the protection period
of 2 years, following paediatric studies. The EU
provides the same period, but only for orphan
medicinal products. For non-orphan medicinal
products the EU provides a 6 month extension of the
SPC. The US and Canada likewise provide 6 month
extensions.
The extra period of protection, provided for carrying
out paediatric studies is the most generous in Japan.
For non-orphan medicinal products the extra period
of protection provided, is the same in the EU and the
US. However, the US ‘attaches’ the period of
protection to the protection scheme that last longest.
In the EU the extension is always provided in
extension of the SPC. As such, the US rules are
likewise more generous than the EU.

COMPARISON

On many of the parameters reviewed here, the
incentive framework in the EU is the most attractive
one. However, regarding e.g. biologic medicinal
products and the paediatric incentives for nonorphan medicinal products, other countries have
more attractive frameworks.

The EU and Japan both provide a 10 year protection
period for orphan medicinal products. The US
provides 7 years, while Canada, India and China have
no special protection period for orphan medicinal
products.

1 See p. 48 for a further description of this.

54

1.4 ACTUAL USE OF THE
ABOVE INCENTIVES AND
REWARDS BY THE
PHARMACEUTICAL
INNOVATORS

1.4.1 USE OF THE
INDIVIDUAL INCENTIVES

Stable numbers of new medicines in the past four years
During the years 2013-2016, the European
Medicines Agency issued an average of 84 positive
opinions recommending marketing authorisation per
year1, including an average of 36 new active
substances each year1. Both these figures pertain to
centrally authorised medicinal products.

Some of the new active substances might be used to
treat more than one indication. Additionally, some of
the positive opinions might comprise already known
active substances for use in the treatment of more
indications. These are the reasons for the number of
positive opinions being more than twice as high as
the number of new active substances.
There seems to be a fall in the number of new active
substances approved in 2016 compared to the other
years. However, as there are only four years of
available data, it is not possible to derive any robust
conclusions based on this. At the same time, the
number of new medicines does not seem to deviate
from the other years in 2016.

Number of new medicines and new active substances centrally
approved by the European Commission, 2013-2016
Number

100

93
82

81

Average
new active
substances
= 36
50
37

Average new
medicines = 84

41

81

39
27

0
2013

2014

2015

2016

New active substances
New medicines (positive recommendations by EMA)
Note: Graph showing the number of new active substances centrally approved per year by the European Commission for the years
2013-2016. New active substances are substances that have never previously been authorised in a medicinal product in the EU. The
number of new medicinal products signifies the number of positive recommendations provided by the EMA.
Source: European Medicines Agency annual reports 2013-2016.

1 European Medicines Agency annual reports 2013-2016.

57

The number of SPCs granted has been increasing slightly over time

The overall trend shows a slight increase over time.
One should keep in mind that the number of
countries offering the possibility of obtaining an SPC
is likewise increasing over time, which might explain
much of the general increase.
The total number of SPCs granted in all countries
within the European union is depicted in the graph
to the right as the columns with the navy colour. If a
product is granted SPCs in multiple countries, each
of these SPCs counts.
The columns with the light turquoise colour depict
the number of individual products having obtained
one or more SPCs. If a product is granted SPCs in
multiple countries, it only counts once. The product
is counted in the year it is granted the first SPC.
From the graph it can be seen that the number of
unique products receiving an SPC has been fairly
stable over time, and hence the fluctuation in the
total number of SPCs is mostly driven by the number
of countries in which a given product obtains SPCs.

Number of SPCs granted in Europe, 1992-2015
Frequency
1.200
1.000
800
600
400
200
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

The number of SPCs granted shows some variation
across the years, with noticeable spikes in e.g. 1992,
2007 and 2013. Each time a country implemented
the SPC regulation, medicinal products approved in
the country in the years leading up to this year
became eligible for applying for an SPC. This e.g.
explains the spike in 1992 as this is when the
regulation entered into force in the first EU member
states. Notably, the spike in 2007 is not driven by
any one country in particular, but rather a general
increase in applications across most countries. The
same is true for 2013.

Total number of SPCs granted across countries
Number of products having been granted at least one SPC
5-year moving average of granted SPCs
Notes: Includes human and veterinary use. Excludes plant protection products. Covers 1991 to April 2016. The “Number of products
having been granted a least one SPC” depicts the unique number of medicinal products having been granted an SPC. As such a SPC
given to the same product in multiple countries is only counted once in this series.
Source: Alice de Pastors dataset.

58

Signs of increasing use of paediatric investigation plans
Since the introduction in 2006 by Regulation (EC)
No 1901/2006, the number of decisions regarding
paediatric investigation plans (PIPs) has increased,
with an all-time high in the latest year, 2016.
At face-value, the increase signals a success in
incentivising more studies undertaken to assess the
use of medicinal products for children. The graph to
the right covers all decisions regarding paediatric
investigation plans. As such granting of waivers and
deferrals are e.g. likewise included. The peak in 2016
thus reflects a peak in the total number of decisions
regarding paediatric investigation plans.
A key driver behind the increase in PIPs is probably
the fact that Article 7 of Regulation (EC) No
1901/2006 means that PIPs have to be agreed upon
for most new medicinal products1.

Number of decisions regarding paediatric investigation plans, 2007-2016
350
314
300

250

200

183

183
155

150

As can be seen later, only eight orphan products have
obtained a positive PIP compliance check.

130

122
106

104

2011

2012

100
66
50

3
0
2007

2008

2009

2010

2013

2014

2015

2016

Note: Covers only centrally approved products. Covers all decisions regarding paediatric investigation plans; decision agreeing on
a paediatric investigation plan, with or without partial waiver(s) or deferral(s), decision granting a waiver in all age groups for the
listed condition(s), decision on the application for modification of an agreed paediatric investigation plan, decision referring to a
refusal on a proposed paediatric investigation plan, decision referring to a refusal on a request for waiver in all age groups for the
listed condition(s), decision referring to a refusal on the application for modification of an agreed paediatric investigation plan.
Source: Data from the European Medicines Agency website.

1 Another possibility is likewise for a deferral or waiver to be granted.

59

Increasing use of the orphan designation
Number of applications for orphan designation submitted and granted,
as well as number of orphan marketing authorisations granted, 20002016

329 2,714

It is important to note, that the increase in orphan
designations does not necessarily equal an increase
in the number of orphan marketing authorisations
granted. However, the number of orphan marketing
authorisations have increased over the period.
The increase in the number of granted orphan
marketing authorisations can by itself be seen as an
indication that the orphan regulation has helped to
promote the development of medicinal products for
the treatment of rare diseases.

72
128

14
2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

3
2002

14

2001

As orphan designations are granted before marketing
approval, there is a lag between designation and
possible grant of marketing authorisation. As such,
the fact that the yearly number of marketing
authorisations granted for orphan medicinal
products has not increased hugely since 2000 might
to a great extend be due to said lag.

209 1,805

2000

In the years from 2000 to 2016, 2,714 applications
for orphan designation were submitted. Out of these,
1,805 had been granted by the Commission by the
end of 2016. During the same period, 128 orphan
marketing authorisations were granted.

Total

2016

The number of applications and the number of actual
grants of orphan designations have risen
significantly since the introduction of the orphan
regulation in 20001.

Orphan designations granted by the Commission
Orphan designation applications submitted
Orphan marketing authorisations granted
Note: Graph showing the yearly number of submitted and granted applications for orphan designation as well as the number of
orphan marketing authorisations granted from 2000 to 2016.
Source: European Commission, DG SANTE (2016), Inventory of Union and Member State incentives to support research into, and the
development and availability of, orphan medicinal products and EMA (2017), Orphan Medicines Figures 2000-2016.

1 Regulation (EC) No 141/2000.

60

Increasing number of one-year extensions of market protection for new
indications with significant clinical benefits
Under current regulation, it is possible to obtain a
one-year extension of the 10-year regulatory market
protection period1. The extension can be obtained if a
given medicinal product is approved for a new
therapeutic indication within the first 8 years of
marketing authorisation being granted for the
original indication1. Furthermore, the company must
be able to show that the medicinal product has a
significant clinical benefit for the new indication
compared to existing therapies within the area.
Since 2008, there has been an increase in the use of
this option, both in terms of the total number of
applications and the number of applications accepted
(i.e. products being granted the extension).
The data covers only centrally approved products,
and as such there is the possibility that the increase
could be driven by the increasing use of the
centralised procedure during the same period.

Outcome of applications for one-year extensions of market protection,
2008-2017
12

10
2
8

1

1

6

1

3

4

8
6
5

2

2

4
3

1

2
1

1

1

2008

2009

2010

1

0

Accepted

2011

2012
Refused

2013

2014

2015

2016

2017

Withdrawn

Note: Covers all medicines which are centrally approved. Data provided before the end of 2017, hence final figures might be higher for
this year. See Regulation (EC) No 726/2004 for the legal framework.
Source: Data provided by the European Medicines Agency.

1 Regulation (EC) No 726/2004, Article 14(11).

61

The use of certain incentives is sparse
Some incentives providing additional regulatory data
protection or market protection have only been used
sparsely. The extreme case is the one-year extension
of data protection provided if a well-established
substance (used for 10 years or more) is approved for
a new therapeutic indication. This instrument has
never been applied for for any centrally approved
substance.
The table covers only centrally approved products,
and as such the incentives might be used more often
for products approved through the mutual
recognition procedure or nationally.
Even if use of the incentives is sparse, they might
have a large effect for the few individual medicinal
products, which are eligible. This would be the case if
the extra years of protection are decisive in turning
the ex ante development decision from a negative
business case into a positive business case.

Use of incentives from enactment year until June 2017

Accepted

Refused

one-year data
protection for wellestablished
substance1

0

0

one-year data
protection for
classification
change2

1

2

2-year market
exclusivity for
completion and
compliance with a
paediatric
investigation plan3

5

0

Note: Covers all medicines which are centrally approved.
Source: Data provided by the European Medicines Agency.

1 Directive 2001/83/EC, Article 10(5). No such extensions have been granted.
2 Directive 2001/83/EC, Article 74a.
3 Regulation 1901/2006, Article 37. According to data from the EMA 8 orphan medicinal products had completed a PIP by 2016. Five of them
obtained the 2-year extension of the market exclusivity period. The remaining three products no longer have orphan status.

62

1.4.2 THE COMBINED
EFFECT OF INCENTIVES
AT PRODUCT LEVEL

Effective protection and development time
PATENT-PROTECTED MEDICINES

Innovative medicinal products frequently require
substantial up-front financial expenditures to fund
their invention, development, testing and approval
process1. The pharmaceutical innovation process
involves numerous critical steps and can fail in any of
the phases mentioned above.
Regulation (EC) No 469/2009(4) states that “At the
moment, the period that elapses between the filing
of an application for a patent for a new medicinal
product and authorisation to place the medicinal
product on the market makes the period of effective
protection under the patent insufficient to cover the
investment put into the research”. As such, the
introduction of SPCs seeks to remedy this.

EFFECTIVE PROTECTION

Counting patents, marketing exclusivities,
supplementary protection certificates and further
potential protection term extensions, a plethora of
legal instruments are available to a pharmaceutical
innovator wanting to obtain exclusive commercial
exploitation rights. However, a newly developed
medicinal product can only be launched
commercially once the company trying to market the
product has received approval to do so. The approval
process is a time-consuming endeavour that requires
time and resources to complete. However, it is
needed to ensure the safety, quality and efficacy of
medicinal products. As such, the period in which a
product is both on the market and enjoying certain
legal protection instruments is shorter than the total
period of protection. The timeframe theoretically
relevant to companies, and therefore also to the

initial decision to pursue the innovation process, is
the effective period of legal protection. This means
that the cumulative nominal protection period of
exclusive commercial exploitation net of the
authorisation(s) to commence doing so by launching
the developed product on the marketplace is the time
period that innovators should consider in their
decision-making process.

COMPUTING EFFECTIVE
PROTECTION FOR MEDICINES

In principle, computing the effective period of
protection for a medicinal product is relatively
straightforward. To compute the protection period,
one would subtract the date of grant of the
authorisation to market a product in the country in
question from the date of expiry of the last legal
instrument establishing exclusive commercial
exploitation privilege to the company holding the
authorisation to market. From that point onward,
the product would no longer be protected by
exclusivity rights, and generic competition could
ensue.
Due to their nominal protection period of 20 years,
patents or legal instruments extending them – such
as supplementary protection certificates or
paediatric extensions – regularly constitute the last
incentive scheme to provide protection to a product.

DATA AVAILABILITY

Calculating the effective period of protection
therefore requires a mapping of medicinal products
with the patents and additional protection schemes
protecting them.

Unfortunately, a comparable mapping is not
available for the European market as companies are
not required to disclose the patents protecting their
products. The situation is further complicated by the
many-to-many nature of the relationship between
medicinal products and patents in particular: a
single medicine can be – and usually is – protected
by numerous patents. However, using a novel
technique, utilising the legally mandated linkage
between medicinal product and patent(s) in the US
and subsequently identifying European patents from
this, it is possible to create a unique dataset
containing products and their patents for the
European Union, which is what we have done2.

DEVELOPMENT TIME

Besides calculating the effective protection period,
the information contained in the data allows us to
calculate the development time for a given medicinal
product. In this study, the development time is
calculated as the period elapsed from first patent to
first marketing authorisation in the EU.
Medicinal
product A

PATENT
1

Medicinal
product B

PATENT
2

Medicinal
product C

PATENT
3

The following pages analyse the development time
and effective protection period.

1 The literature shows estimated costs of bringing a medicinal product from the lab to the market of between USD 648m and USD 2.6bn. See Prasad,
V. and Mailankody, S. (2017), Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After Approval and Di
Masi, J. A., Grabowskib, H. G. and Hansen, R. W. (2016), Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs.
2 For a thorough description of the technique used to create the dataset and the dataset itself, see the appendices of chapter 1 and 2.

64

Calculation of development time
Development time is calculated as the period elapsed
from first patent to first marketing authorisation in
the EU. This can be seen in the ‘illustrative example
1’, depicted to the right.
This period is likewise called the ‘patent period lost’.
It is the period used when calculating whether an
SPC is possible and what length it potentially should
have.

Illustrative examples of calculation of development time
Illustrative example 1
Primary patent
for molecule Z
begins

Marketing
authorisation for
product A containing
molecule Z

Year 0

Year 12

A result of the above definition is that secondary
patents do not influence the development time.
As development time is calculated as the period
elapsed from first patent (usually protecting the
molecule) until marketing authorisation in the EU of
a given product (identified by tradename), products
which reuses ‘old’ molecules will have a longer
development time, than the product in which the
molecule originally was present. This can be seen in
the ‘illustrative example 2’, depicted to the right.
As such, if there has been an increase in the reuse of
‘old’ molecules over time, this will contribute to an
increase in the calculated development time.

Development time
for product A
12 years
Illustrative example 2
Primary patent
for molecule Z
begins

Marketing
authorisation for
product A containing
molecule Z

Marketing
authorisation for
product B containing
molecule Z

Year 0

Year 12

Year 14

Development time
for product A
12 years
Development time
for product B
14 years

65

The development time of pharmaceuticals seems to have increased over
time (1/3)
In this study, the development time of a product is
defined and calculated as the time elapsed from the
time of the first patent protecting the product
anywhere in the EU to the first marketing
authorisation anywhere in the EU.

Average time from patent to marketing authorisation, 1996-2016

ࡰࢋ࢜ࢋ࢒࢕࢖࢓ࢋ࢔࢚ ࢚࢏࢓ࢋ
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢙࢚࢘ ࡹ࡭ ࢏࢔ ࢚ࢎࢋ ࡱࢁ
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢒࢏࢔ࢍ ࢕ࢌ ࢉ࢕࢘࢘ࢋ࢙࢖࢕࢔ࢊ࢏࢔ࢍ ࢖ࢇ࢚ࢋ࢔࢚
Thus, the definition of development time applied in
this study focuses not on the number of years where
the innovator was, in fact, directly engaged in
developing the specific medicinal product, but on the
‘patent time lost’, which is an important factor in the
commercial decision on whether or not to invest in
R&D projects. It is likewise the period used to
calculate the duration of any would be SPC.
From the graph to the right it seems that the
development times of medicinal products have
increased from around 10 years in the first half of the
period, to around 15 in the last half of the period.
In a recent study, Kyle (2017) likewise analyses
development time of new pharmaceuticals. However,
there are several differences between this study and
that of Kyle.
Firstly, the definition of development time is
different. In the Kyle study, development time is
defined as time elapsed from first patent, until first
international launch. In the present study,
development time is defined as time elapsed from
first patent until first launch in the EU. In the case
that a medicinal product is launched in the EU as the
first place in the world, the two coincide, otherwise
they will differ.

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described
above. The sample consists of medicinal products which are either centrally approved or approved through the mutual recognition
process. Medicinal products with development time below zero are not included in the figure. The development time is calculated from
the date of the first patent anywhere in the EU, to the date of the first marketing authorisation anywhere in the EU. As such, there is
one observation per medicinal product as identified by trade name. Development time is counted in the year the product obtains
marketing authorisation. The 5-year moving average is calculated as the average of the two years before and after a given year as
well as the value in that year.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI.

66

The development time of pharmaceuticals seems to have increased over
time (2/3)
Secondly, the data sources differ. Kyle (2017) relies
on data from IMS Health, while the present study
uses a novel dataset, linking patents and products
from a range of different sources1.
Thirdly, the time period analysed in the two studies
differ. Kyle (2017) studies the period 1990-2015,
while the present study analyses the period 19962016.
As the calculation method, the sample and the time
period differ between the two studies it is thus not
surprising that the calculated development times do
not completely coincide in absolute number.
In Kyle (2017), development times have increased
from around 10 years in the period 1990-1994 to a
little more than 12 years in the period 2010-2015. As
such, even though the calculated years of
development time differ, both Kyle (2017) and the
present study find an increase in development time.
Looking at the graph, it is however difficult to draw a
clear conclusion as to whether the development time
has stabilised at a new stable level, will increase even
further or follow the bend in 2016 decreasing again.

INCREASE IN DEVELOPMENT TIME
The visible historical increase in development time
depicted by the graph on the previous page might
have several explanations.

Over the period, there might have been an increase
in the regulatory requirements for documentation
when submitting an application for marketing

authorisation, i.e. the clinical data needed to obtain a
marketing authorisation might have increased. An
increase in the requirements for showing efficacy
and safety of a new medicinal product might e.g.
prolong the clinical trial period as more extensive
data needs collecting. It is reported that between
1999 and 2005 the median number of procedures
per clinical trial protocol increased from 96 to 158,
and the duration of clinical trials increased from 460
to 780 days2.
Another possibility is that the approval time has
increased. However, according to reports from the
Centre for Innovation in Regulatory Science (CIRS),
an independent research organisation, the median
approval time in the EU fell slightly between 2004
and 2017, though with some variation between
years3,4.
In its reports, CIRS defines approval time as the time
from the submission date until the granting of the
marketing authorisation. The approval time thus
includes time spent by both the EMA, the company
in question and the European Commission.

during the period. In that case, the patent protecting
the molecule might have been taken out long before
the repurposed medicinal product enters the market.
The new medicinal product with the repurposed
molecule will appear to have had a very long
development period, as it is calculated as the time
elapsed from the first patent protecting the molecule
until first marketing authorisation for a unique
product5. The company has not necessarily spent all
this time developing the new product, but rather
undertaken additional R&D into the use of the
molecule after the original product was placed on the
market.
This means that if there is an increase in the use of
old molecules, with old patents, in new products in
our sample, this might entail an upward bias in the
estimation of development time.
Another possibility might also be that the products
on average are becoming more complex and hence
take longer to develop. This could be the case with
more biological medicines with complex research
and manufacturing processes.

Notably, the median approval time in Europe fell
each year between 2004 and 20073. This seems to
indicate that changes in approval times cannot
explain the increase in development time seen on the
previous page. Rather, the decrease in median
approval times should, all else being equal, indicate a
decrease in development time in these years.
There might also have been an increase in
repurposing of old molecules for new purposes

1 See pp. 82-87 for more information about the dataset.
2 Rollins, T. (2016), “How Europe’s SPC regime works in practice” reports these figures provided by EFPIA. Getz, K. A., Campo, R. A. and Kaitin, K. I. (2011), Variability in
Protocol Design Complexity by Phase and Therapeutic Area likewise reports an increase in procedures per clinical trial from 2000 to 2007.
3 Bujar M, McAuslane N. 2014. R&D Briefing 55: The impact of the changing regulatory environment on the approval of new medicines across six major authorities 20042013. Centre for Innovation in Regulatory Science.
4 Bujar M, McAuslane N, Liberti L. 2016. R&D Briefing 59: The impact of the evolving regulatory environment on the approval of new medicines across six major authorities
2006-2015. Centre for Innovation in Regulatory Science.
5 See e.g. the case studies on Revatio and Viagra in chapter 5. These two medicinal products contain the same molecule but are approved 7 years apart. This means
that the development time as defined in this study for Revatio is 7 years longer than the development time for Viagra.

67

The development time of pharmaceuticals seems to have increased over
time (3/3)
This might happen for two reasons. Firstly, it might
be that many of the ‘low-hanging’ fruits within the
medical sciences have already been picked. This
would entail that as more treatments are being
discovered, new and better treatments become more
difficult and time-consuming to identify.

However, more knowledge and advances within the
technological and medical sciences might conversely
entail that the research community today has
previously unseen potential for discovering new
radical and beneficial medical innovations.
Secondly, it might be that the underlying structural
consolidation of minimum protection periods has
allowed pharmaceutical companies to pursue
innovations that take longer, but perhaps likewise
offer bigger benefits to patients.
The formalisation of a minimum protection period of
10 years for new innovative products in the EU
through the market protection period might be an
important parameter in this1.
Being guaranteed a protection period of at least 10
years can be said to limit the downside to
undertaking innovations with a potentially long
development period. The protection period can never
be completely lost as there is a guaranteed ‘floor’.
At the same time, there is no established cap on the
upside both in terms of benefits for patients and
potential profit, and this might incentivise
commencement of longer expected R&D projects2.

It is not certain that one of the above explanations is
the whole reason for the increase in development
time. Rather, the increase could be ascribable to a
combination of two or more of the above
explanations.
Unfortunately, the available data does not allow us to
conclude which of these explanations or combination
of explanations might be the reason for the apparent
increase in development time. As such, based on the
currently available data, we cannot conclude which
of the explanations reviewed above might have
contributed to the increase in development time.

If there has been an increase in the reuse of known
molecules over time in new medicinal products, this
would tend to increase the reported development
time. This is so, as development time is calculated
from first patent of the molecule until a product
obtains marketing authorisation. If a known
molecule is used in a new product, the development
time will be calculated as the period elapsed from the
first patent until launch of this new product4. This is
thus parallel to the calculation method used when
calculating the length of a possible SPC.

To sum up, from 1996 to 2016 there was an increase
in development time, defined in this study as the
time from first patent to first marketing
authorisation, as identified in the available data
material. An increase is also found in Kyle (2017).

CALCULATION METHOD

In the dataset utilised for the analysis, a medicinal
product is identified by its tradename. Hence, if a
product has different tradenames in different
countries for e.g. linguistic reasons, the product will
exist in the dataset as a unique observation for each
tradename. If a product is launched in some EU
countries under one name and later launched in
other EU countries under another tradename, this
would cause the calculated development time to be
biased in an upward direction. However, according
to the EMA this has only ever occurred twice for
centrally approved products, as it can only happen in
exceptional circumstances3. As such, we view any
possible bias from this exception to be negligible.

1 Market protection is enshrined in Regulation 726/2004, Article 14(11). Before this, 10 years of data protection existed for the centralised procedure
and likewise in some EU member states.
2 There is, of course, a certain limit to what payers will be able to pay for a certain innovative pharmaceutical treatment. However, there is a
relationship between the benefit to patients and the willingness to pay. In the extreme case that a company e.g. discovered a vaccine for all
cancers, this would entail enormous value for patients, and most payers would probably be willing to pay a rather high price for such a treatment.
This is what is meant when we say that there is no established cap on the upside.
3 See the EMA document “Guideline on the acceptability of names for human medicinal products processed through the centralised procedure”.
4 See p. 65 for further elaboration on this.

68

Development times seem to be centred around 10 years
The development time determines the term of the
SPC and is thus crucial to the impact of the SPC on
the total period of protection from generic
competition which a medicinal product can enjoy.

Distribution of time from patent to marketing authorisation for medicinal
products with development times of less than 20 years, 1996-2016

ࡰࢋ࢜ࢋ࢒࢕࢖࢓ࢋ࢔࢚ ࢚࢏࢓ࢋ
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢙࢚࢘ ࡹ࡭ ࢏࢔ ࢚ࢎࢋ ࡱࢁ
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢒࢏࢔ࢍ ࢕ࢌ ࢉ࢕࢘࢘ࢋ࢙࢖࢕࢔ࢊ࢏࢔ࢍ ࢖ࢇ࢚ࢋ࢔࢚
A development time of less than five years means
that the SPC is not relevant (except in special cases),
while a development time of ten years or more
means that the pharmaceutical company can apply
for the maximum of 5 years of SPC protection1.
The figure to the right shows that the development
times have a wide distribution ranging from close to
zero to up to 20 years (where it is censored in this
graph). In most cases, the development time is more
than five years, meaning that a possible SPC can
impact the total protection period.
The development times of the medicinal products in
the sample seem to be centred around 10 years, but
with common deviations from this.
In the graph to the right, all products in the sample
are combined together regardless of the year of
authorisation. As such, this is another way of viewing
the data than in the graph on p. 62, where the
average development times where distributed by
years, instead of being consolidated.

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described
above. The sample consists of medicinal products which are either centrally approved or approved through the mutual recognition
process. Medicinal products with development times below zero and above 20 years are not included in the figure. The development
time is calculated from the date of the first patent anywhere in the EU, to the date of the first marketing authorisation anywhere in the
EU. As such, there is one observation per medicinal product as identified by trade name. Development time is counted in the year the
product obtains marketing authorisation.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI.

69

Some products in the sample seem to have a rather long development
time
The sample includes a small number of products
with a rather long development time. This can e.g. be
the case if an already known molecule is repurposed
for inclusion in a new medicinal product1.

Distribution of time from patent to marketing authorisation, 1996-2016

In these cases, it is likely that a patent would have
been taken out when the molecule was first
discovered. The development time from the patent to
the first marketing authorisation for a product
containing the molecule might be e.g. 10 years.
However, if the molecule is later used in another
medicinal product with a new trade name, the first
patent will still protect the molecule. Hence, the time
elapsing from the first patent to the marketing
authorisation for the new product with the new trade
name might be e.g. 20 years.
ࡰࢋ࢜ࢋ࢒࢕࢖࢓ࢋ࢔࢚ ࢚࢏࢓ࢋ
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢙࢚࢘ ࡹ࡭ ࢏࢔ ࢚ࢎࢋ ࡱࢁ
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢌ࢏࢒࢏࢔ࢍ ࢕ࢌ ࢉ࢕࢘࢘ࢋ࢙࢖࢕࢔ࢊ࢏࢔ࢍ ࢖ࢇ࢚ࢋ࢔࢚
In the case of the above example, in our calculation
this will be recorded as one product having a
development time of 10 years and another product
having a development time of 20 years.
In the dataset shown in the graph to the right, 50%
of all products have a development time of between 5
and 15 years.

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described
above. The sample consists of medicinal products which are either centrally approved or approved through the mutual recognition
process. Medicinal products with development time below zero are not included in the figure. The development time is calculated from
the date of the first patent anywhere in the EU, to the date of the first marketing authorisation anywhere in the EU. As such, there is
one observation per medicinal product as identified by trade name. Development time is counted in the year the product obtains
marketing authorisation.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI.

1 See p. 65 for further elaboration on this.

70

Calculation of effective protection period (1/2)
EFFECTIVE PROTECTION PERIOD

For each product-country combination for which
information has been obtained, we identify the last
protection scheme to expire, i.e. taking account of
the IP incentives patent, SPC and the regulatory
incentives market protection (taking account of
market exclusivity for orphan medicinal products
and paediatric extensions) and data protection. From
the EMA and MRI data on market authorisations
through the centralised procedure as well as the
mutual recognition process and decentralised
procedure, we are able to obtain information on the
date of marketing authorisation for each product, in
each country.
The time elapsed from the identified marketing
authorisation until the last IP protection scheme
expires is designated to be the effective protection
period.
Both patents and SPCs are granted at the national
level. This means that a given medicinal product
does not necessarily have the same amount of
protection in all countries, where it is launched.
In this study, the effective protection period is
calculated as the time elapsed from marketing
authorisation until the last protection scheme
expires, in each country, the product is launched in.
A product is identified by its tradename.
In some countries an SPC might be granted, while in
others it might not. To make sure that we capture all
aspects of this, we calculate the effective protection
period for each product, in each country in which it

has been launched. If a product is launched in e.g. 20
countries, it counts 20 times in the calculation of the
average effective protection period. This is so, as the
protection period might differ for the same product,
between countries.
For each country-year combination, we take the
mean of all observations on effective protection
periods. The effective protection period of a given
medicinal product is recorded in the year it obtains
marketing authorisation.
This provides us with a variable containing the
average effective protection period for each country
in the sample in each year.
This is one of the key measures utilised in the
econometric studies undertaken in chapter 2. Where
possible (depending on data availability), the
effective protection period will likewise be reported
in the case studies in chapter 5.

Note on effective protection period
During the lifetime of a patent, there is some
uncertainty as to how long the effective
protection period will be. The uncertainty is
greatest at the start of the lifetime of the
patent, when it is unknown when marketing
authorisation will be obtained and whether any
SPC or other extensions can be applied for.
During the lifetime of the patent, this
uncertainty is reduced. For example, on the
date of granting of a marketing authorisation, it
is known whether the product is orphan or not,
and after obtaining a marketing authorisation,
an application for SPC must be handed in
within six months.
Paediatric extensions and extensions for e.g.
new therapeutic indications for well-established
substances and classification changes are not
known until later.
Because of the above, calculating effective
protection periods for the future can be subject
to some uncertainty.
In the worst-case scenario, e.g. an orphan
medicinal product obtains a paediatric
extension after our sample period has ended,
and hence our effective protection period
calculation is off by two years (if a patent
protecting the invention does not run for
longer, in which case the calculation is still
correct).

71

Calculation of effective protection period (2/2)
Illustrative examples of calculation of development time and effective protection period
Example 1
In this illustrative example,
marketing authorisation is
granted 12 years after the
primary patent begins.
This gives a development
time of 12 years.

Primary
patent
begins

Marketing
authorisation

Year 0

Year 12

An SPC of 5 years is
granted. 7 years after the
primary patent, a
secondary patent
protecting the product is
taken out. As such, the
total effective protection
period is 15 years.

Year 20 Year 22

SPC
expires
Year 25

Market protection
Data protection

An SPC of 5 years is
granted and as such, the
total effective protection
period is 13 years.

Example 2
In this illustrative example,
marketing authorisation is
granted 12 years after the
primary patent begins.
This gives a development
time of 12 years.

Patent
expires/SPC
begins

Effective protection period
13 years

Development time
12 years

Primary
patent
begins
Year 0

Marketing
authorisation
Secondary
patent begins

Year 12

Patent
expires/SPC
begins
Year 20 Year 22

Year 7

SPC
expires
Year 25

Secondary
patent expires
Year 27

Market protection
Data protection

Development time
12 years

Effective protection period
15 years

Note: Graphic showing illustrative examples of how development time and effective protection period are calculated.
Source: Copenhagen Economics.
72

The effective protection period has decreased over time
The figure to the right shows that the duration of the
effective protection period for medicinal products
has been falling since the 1990s from a level of
around 15 years down to around 13 years by the end
of the sample period1. This result should be seen in
the light of the increase in the development time in
the same period, which despite the partial
compensation through the SPC seems to have
resulted in a decrease in the effective protection
period offered to new medicinal products.

Average effective protection period in Europe 1996-2016

ࡱࢌࢌࢋࢉ࢚࢏࢜ࢋ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢖ࢋ࢘࢏࢕ࢊ
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢒ࢇ࢙࢚ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢚࢕ ࢋ࢞࢖࢏࢘ࢋ
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢓ࢇ࢘࢑ࢋ࢚࢏࢔ࢍ ࢇ࢛࢚ࢎ࢕࢘࢏࢙ࢇ࢚࢏࢕࢔
The findings are in line with the findings of Kyle
(2017), where it is observed that for a sample of
medicinal products which have been granted an SPC,
the effective protection period fell from 13.8 years to
12.5 years between 1990 and present (2015). The
difference between the Kyle (2017) study and the
present analysis is that Kyle restricted her sample to
only include products with an SPC, whereas the
sample in the present study also includes medicinal
products without an SPC.
This development in isolation could drive down the
economic reward for developing new innovative
medicinal products since the companies will have a
shorter time period in which to recoup their
investments. However, the prices charged and the
patient base covered are likewise crucial elements in
determining the profitability of developing new
medicinal products. As such, when taking this into
account, the fall in the effective protection period
shown in the graph to the right does not necessarily
mean that the motivation for developing new
medicinal products has decreased.
The rather sharp drop in 2010 might, at least partly,
be explained by a peak in development times for
medicinal products approved in that year2.

Note: Based on the unique dataset described in the appendix to chapter 1 and 2. The sample consists of medicinal products which are
either centrally approved or approved through the mutual recognition process. Medicinal products with a development time below
zero years are not included in the figure. The sample consists of unique combinations of trade name and country, i.e. each product is
present in the sample once for each EU member state in which it has obtained a marketing authorisation. This is imperative when
analysing protection periods as the effective protection period might differ between countries because of differences in marketing
authorisation dates, patents and SPCs. The 5-year moving average is calculated as the average of the two years before and after a
given year as well as the value in that year. The overall conclusion of a decrease in the average effective protection period is robust to
the exclusion of all secondary patents, however the size of the fall decreases slightly when secondary patents are excluded.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI.
1 The overall conclusion of a decrease in the average effective protection period is robust to the exclusion of all secondary
patents, however the size of the fall decreases slightly when secondary patents are excluded. See the appendix to chapter
1 for more on this.
2 See previous graph of development times. Several robustness checks have been carried out to analyse the sharp drop. It
can be concluded that it is due neither to a lower number of observations than in the other years, nor to extreme outliers.

73

Large spread in the distribution of effective protection period
As illustrated previously, the combined protection
from generic competition yielded by both IP
protection and pharmaceutical incentives is called
the effective protection. This term does not
distinguish between the types of protection as it only
focuses on whether or not generics/biosimilars can
enter the market.
ࡱࢌࢌࢋࢉ࢚࢏࢜ࢋ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢖ࢋ࢘࢏࢕ࢊ
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢒ࢇ࢙࢚ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢚࢕ ࢋ࢞࢖࢏࢘ࢋ
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢓ࢇ࢘࢑ࢋ࢚࢏࢔ࢍ ࢇ࢛࢚ࢎ࢕࢘࢏࢙ࢇ࢚࢏࢕࢔
The figure to the right shows that the duration of the
effective protection period is distributed from a
minimum of less than 10 years, stemming from the
market protection yielded by the marketing
authorisation to all products, up to 30 years
stemming from the combination of multiple types of
IP protection, secondary patents and incentives.
The fact that some medicinal products enjoy up to 30
years of protection might seem rather surprising as a
patent lasts 20 years. However, for some medicinal
products pharmaceutical companies take out several
patents protecting different inventions associated
with the products. Some of these patents might be
taken out later in the development process than
others, and some maybe even after marketing
authorisation is obtained1.

Some of these might be more or less peripheral and
as such could be difficult to defend in a patent court
if challenged by e.g. a generic manufacturer.
However, all patents have to live up to the same
requirements when applied for, and in our sample
we thus do not have a measure for the legal ‘strength’
of a patent, and as such the effective protection
period is calculated on the basis of all patents taken
out on a given product2.

Total effective protection period in Europe from 1996-2016

10-15
years:
62%

of
products

15-20
years:
24%

of
products

>20 years:
10%
of products

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described
above. The sample consists of medicinal products which are either centrally approved or approved through the mutual recognition
process. Medicinal products with development times below zero, i.e. first identified patent is taken after first launch, are not included
in the figure. Before 2005 the effective protection period could be shorter than 10 years due to some countries providing less
regulatory protection, in the form of data protection, than currently. The sample consists of unique combinations of trade name and
country, i.e. each product is present in the sample once for each EU member state in which it has obtained a marketing authorisation.
This is imperative when analysing protection periods as the effective protection period might differ between countries because of
differences in marketing authorisation dates, patents and SPCs.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI.
1 For examples of medicinal products with an average effective protection period across the European member states of
more than 20 years see e.g. case studies on Humira and Herceptin in chapter 5. See also European Commission (2009)
Pharmaceutical Sector Inquiry, figure 55, p. 175.
2 As all patents live up to the same requirements when applied for, the legal “strength” or enforceability of a patent can
only be decided by a court of law.

74

CHAPTER 1 APPENDIX

Utilising US Regulatory Disclosure Requirements
A GLOBAL PHARMA MARKET

Big pharmaceutical companies developing new and
patent-protected medicinal products operate and
compete on a global scale. Many companies market
their products not only in their home market, but
also in other geographical regions of the world where
consumers, governments and/or insurance
companies are capable of paying a sufficiently high
price for the medicinal products.
When trying to identify which patents cover which
medicinal products in Europe, we are faced with one
overarching problem; no such direct link exists in
any readily available database.

products exists in the US. Moreover, due to the
reporting requirements1, the available data on patent
protection in the US pharmaceuticals market
extends to cover the many-to-many relationship
between the products and the protection schemes.
Consequently, if a pharmaceutical company offering
a medicinal product has decided to launch a
particular product both in the European market and
in the US market, and if the medicinal product in
question can be identified in both European and US
regulatory approval records, a European product can
– through its US counterpart – be connected to a US
patent protecting the US-approved version of the
European product.

As such, we need to create this link, through a crosscountry approach.

The US Food and Drug Administration authority
(FDA) mandates that innovators disclose the key
patents protecting their products in the so-called
FDA Orange Book1 when they apply for marketing
authorisation of a newly developed medicine.

European
Patents

PATENT
FAMILY

Hence, a link between medicinal product and patent
exists in the US. The following section describes how
we utilise this linking of information in the US to
construct a unique dataset containing a similar link
for the EU.

MEDICINAL PRODUCTS AND THE
PATENTS PROTECTING THEM ARE
LINKED IN THE US
A mapping of medicinal products and the patents
and patent extension schemes protecting these

US
Patents

FDA

Requirement

European
Products

TRADE
NAME

US
Products

INTERNATIONAL PATENT SYSTEM

Once a European product has been linked to a US
patent, one can use so-called patent family
connections to identify international patents that
protect the same technical invention as an identified
US patent.

Using the European Patent Office’s (EPO) worldwide
patent information database PATSTAT2, the US
patent’s family identification can be used to obtain
and identify European patents that protect the same
technical invention – and as such the same
pharmaceutical or medicinal product. In this way, a
mapping of products and patents can be created for
European medicinal products that are launched in
both the US and Europe and that are patentprotected.

ADDITIONAL PROTECTION
SCHEMES

To compute effective protection periods, one has to
account for additional protection schemes and term
extensions that might be in force. Once the European
patents covering a European medicinal product have
been identified, supplementary protection
certificates extending the terms of these patents can
be identified in the EPO’s PATSTAT database and
can be factored into the effective protection period.

Further protection schemes granted, namely orphan
medicinal product designations for rare diseases and
exclusivity extensions for compliance with an
paediatric investigation plan, can be identified via
the medicinal product’s trade name via the EMA
website3.

1 The Orange Book is the common name for the FDA publication “Approved Drug Products with Therapeutic Equivalence Evaluations”. It is a
publication and an online database which identifies medicinal products and their related patents and exclusivity information in the US.
2 Spring 2017 online version. See https://www.epo.org/searching-for-patents/business/patstat.html#tab-1
3 http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/landing/epar_search.jsp&mid=WC0b01ac058001d124

76

Patent families and the international patent system
LINKS BETWEEN INVENTIONS
ACROSS GEOGRAPHIES

Facing the lack of available links between medicinal
products and patents in Europe, the US regulatory
requirements for disclosure of such links when
applying for marketing authorisation can be used to
identify the respective connections at least for
medicinal products that are launched in both Europe
and the US under the same trade name.
Once a medicinal product launched in Europe has
been identified in US records, the US patents
protecting the medicinal product’s US counterpart
can be identified. Using the respective patent title’s
patent number, the patent can be identified in the
EPO’s PATSTAT database.
Each US patent can be identified by its unique patent
number and patent application identifier. Moreover,
each patent is connected to a so-called patent family.
Generally, a patent family can be defined as “a
collection of related patent applications that is
covering the same or similar technical content. The
applications in a family are related to each other
through priority claims.”1
In essence, this means that a properly defined patent
family2 can be used to identify the worldwide
population of patents protecting the same invention
based on the fact that they refer to a joint initial
‘priority’ application. Hence, the European patent
family members related to a US patent represent the
patents protecting the very same invention in Europe
– and thus also protect the medicinal products using
said invention.

Priority claims3
When trying to protect a patentable invention
in more than one country, applicants can
make use of so-called priorities. Once an initial
application has been filed with a patent office,
subsequent applications with other patent
offices can claim the first application as
priority. If claimed validly, the applications will
be linked and events occurring in the interval
will not invalidate the second application.
International patent system
The Patent Corporation Treaty (PCT), ratified by
152 countries, and the Paris Convention
scheme are the pillars of the international
patent system that allows applicants to
“simultaneously seek protection for an
invention”3 in its member countries.
Different paths are open to applicants:
• An applicant can use the Paris Convention
system and file separate patent
applications in different countries referring
to the first of these as a priority filing.
• An applicant can use the PCT system and
file a single application through the
international system referencing an initial
local application as the single priority.
PCT applications then enter a national phase,
where local patent offices decide about
grants based on an international patentability
assessment.

DOCDB simple patent families
The definition of a patent family can be rather
wide or narrow, depending on the extent of
the direct or indirect priorities considered. The
definition of a family might differ, for instance,
based on whether applications are considered
when they share any priority or only when they
share all priorities.
The EPO maintains two definitions of patent
families:
• INPADOC extended patent families
covering similar technical content, and
• DOCDB simple patent families covering the
same technical content.
This study uses the narrower definition of a
DOCDB simple patent family to identify
relevant patents. Patents belonging to such a
family have the exact same priorities and are
subject to expert quality control.5

European patents
As of spring 2017, a European patent is “a
‘bundle’ of individual national patents. […] For
the patent to retain its protective effect and
be enforceable against infringers, it must be
validated nationally”.4 Currently, the EPO
counts 38 member countries, meaning that a
single US patent can have up to 38 different
European counterparts in addition to
corresponding national-level patents.

1 EPO (2017), What is a patent family?
2 Here: DOCDB simple patent families.
3 See for instance the WIPO’s PCT FAQ at http://www.wipo.int/pct/en/faqs/faqs.html
4 EPO (2015), European Patents and the Grant Procedure.
5 Martinez (2010), Insight into different types of patent families.

77

Iterative matching procedures and compiling European data
ISSUES OF IDENTIFICATION

While medicinal products are frequently launched in
different markets across the world, pharmaceutical
companies often apply different trade names or
specifications to the same medicinal product in
different countries.

A medicinal product launched in both the US and in
Europe might have the same name in both regions, a
slightly amended name in one of the regions, a
localised/translated name in one of the regions, or
even completely different trade names in the two
regions. The medicinal product called Regaine in
Europe is e.g. marketed as Rogaine in the US, the
medicinal product Champix is called Chantix in the
US, while the medicinal product Glivec is called
Gleevec in the US. In addition, the same
pharmaceutical might be launched by different
pharmaceutical companies (related or not). Different
labelling and identification obligations might further
differentiate the ways that one and the same
pharmaceutical might be branded in various
markets.

DATA ANALYSED

To nonetheless be able to match products from US
and European records, iterative string-based
matching procedures are applied to the different sets
of records.
The data analysed to obtain the maximum number of
product-level matches encompasses:
• 33,620 US FDA-approved new drug approval
applications encompassing 6,572 different trade
names
• 26,506 drug approval applications through the
mutual recognition procedure within the EU,

differentiated through variation on the trade
name/product variation level
• 972 trade name-differentiated drug approval
applications through the centralised marketing
authorisation procedure steered by the European
Medicines Agency (EMA)
• 1,497 paediatric investigation plan (PIP) proposals
documented by the EMA
• 1,880 applications for rare disease (orphan
medicinal product) designations documented by
the EMA
European Medicines Agency (EMA) data
Since 1995, the EMA has been responsible for
evaluating, supervising and ensuring the safety
and high quality of medicinal products in the
EU and the EEA.
This study uses the following EMA data:
• Applications for an authorisation to market
a product, varying on the trade name level
• PIP applications for active substances, partly
connected to trade names
• Orphan designation applications for active
substances and indications, partly
connected to trade name

DATA MATCHING APPROACH

Final data compilation is achieved using an iterative
matching procedure. European applications for
authorisation to market a product are matched to US
authorisation applications using the European
products’ trade names and active ingredients.
In a first step, a product is matched to the trade

name that constitutes the longest sequence of
alphanumerical characters which in its entirety and
exact order can be identified within the reciprocal
trade name. This procedure is repeated for the active
substances listed as ingredients in the medicinal
product.

In a second step, the matching result is reviewed on
a case-by-case basis. The combination of matched
names and substances is then used as multi-item
primary code to combine the product and patent
databases. This approach has the advantage of
identifying pairs of medicines even though the
sequence of alphanumerical characters constituting
their trade name in the records might include
additional information (e.g. dosages or
administration forms) or be subject to name
extensions or modifications.

PATENT DATA

Once US patents have been linked to European
products, the population of distinct US patents can
be identified in the patent data available on
PATSTAT. Subsequently, US patent numbers are
matched with their corresponding DOCDB1 simple
patent family identifier. Finally, European patents
are added by forming all pairwise combinations
between all European regional and national patent
family members and the DOCDB simple patent
families protecting a medicinal product.
PIP and orphan designation data are matched to the
data in an additional step. Here, only approved and
compliant applications are kept. The link between an
application and a medicine is completed using the
medicinal product’s trade name.

1 See previous page, Martinez (2010), Insight into different types of patent families and https://www.epo.org/searching-forpatents/technical/docdb.html#tab-1

78

Dataset description: levels of variation in effective protection data1
DATA SOURCES USED

The present study generally uses three distinct
categories of data:
• Regulatory and medicinal data on medicinal
products in Europe
• Patent protection and filing data (incl. SPCs)
related to medicinal products in Europe
• Linked patent and medicinal product data (incl.
exclusivities) on medicinal products in the US

EUROPEAN DATASET

Regulatory data on medicinal products in the
European market mainly consist of authorisation
data and exclusivity extension data. Data on the
centralised marketing authorisation procedure, on
rare disease designations, and on paediatric
investigation plans are obtained from the EMA.
The EMA marketing authorisation data contains
information on different medicines as identified by
the trade name that the medicines are marketed
under. Usually, the following information items are
available per medicinal product:
• Trade name
• EMA product number
• Active substances and generic or common name
• ATC codes
• Authorisation applicant
• Application status
• Authorisation date (if applicable)
• Pharmaceutical indications of the medicine
• Flags for orphan, generic or biosimilar medicinal
products and for exceptional circumstances.

EMA PIP data contains:
• Trade name (if applicable)
• Active substances
• Decision date, number and outcome
• Pharmaceutical form and route of administration
• Diseases/conditions targeted
• Therapeutic area
• Date and outcome of compliance assessment
The mutual recognition authorisation data
encompasses the following information items:
• Trade name
• Application number
• Active substances
• Authorisation applicant
• Authorisation status
• Authorisation date (if applicable)

EMA orphan designation data contains:
• Active substances
• Diseases/conditions targeted
• Decision date and outcome
• Trade name (if applicable)
The relevant PATSTAT patent data contains:
• Patent filing and application identifiers
• Authority receiving the application filing
• Type of IP protection
• International application and phase flags
• Patent family numbers (DOCDB/INPADOC)
• First filing and priority dates
• Patent family size
• Patent and family-level citations
• Applicants and inventors
• SPC filings and legal events per patent application

Data

Source

Maintained by

European Marketing Authorisations
(centralised)

European public
assessment reports

EMA

Marketing Authorisations in Europe
(mutual recognition)

MRI

HMA

European Exclusivity Extensions

Paediatrics, Rare disease
designations

EMA

European Patents

PATSTAT

EPO

US Drug Approvals

DrugPatentWatch

Private

US Patents

DrugPatentWatch

Private

1 For further description of the dataset see appendix to chapter 2.

79

Strengths and weaknesses of the data compilation approach
A comprehensive dataset encompassing European
medicinal products, patents and additional
exclusivity rights is not feasibly available. The
compilation of such a database by combining data
from different sources therefore inherently comes
with a set of caveats and drawbacks. This page
illustrates some of these concerns.

RISK FACTOR: MISMATCHED DATA
FRAGMENTS

The employed data matching approach relies on
identifying medicinal products by their trade name
in various databases. If names coincide only in part,
or if products sold under the same name differ in
their pharmaceutical usage and effect, mismatches
can occur, e.g. linking a European product and a US
product that do not actually belong together.

RISK FACTOR: UNOBSERVED
VARIATION

Exclusivity protection depends on the different IP
protection schemes that are applied and connected
to a specific product or patent. Unreported patents
or patent term extensions would therefore lead to
unobserved exclusivity that may bias the results of
this study. In a worst-case scenario, differences in
reporting regimes across time, countries or types of
medicinal products might lead to clustered errors
and skewed data that leaves important parameters
unobserved.

Mismatches

Errors

Case-by-case reviews and multi-key merges are used
to mitigate this risk factor.

RISK FACTOR: REPORTING
ERRORS AND MISSING VALUES
(ESP. PATENT DATA)

The final dataset uses data that come from different
and in part aggregated sources. The different source
files use diverging formatting and coding practices
and are subject to varying and at best limited
amounts of quality control. Some information items
vary across jurisdictions and within jurisdictions
over time. Data is subject to publication lags,
aggregation errors, and displays missing values.

Sorting

RISK
FACTORS

Omitted
Variation

Protection
Strength

RISK FACTOR: SORTING

This study only includes medicinal products that are
launched and identifiable in both Europe and the US.
While this constraint is imposed for technical
reasons, it might lead to a sorting bias among the
pharmaceuticals considered. On the one hand, there
may be sorting by profitability so that the medicines
included in the sample are on average more
successful than the ones excluded. This in turn might
impact the exclusivity and patenting strategies
employed by the respective companies. On the other
hand, additional sorting factors, such as lifestyle,
social security schemes, prominence of diseases etc.,
may impact the launch of medicinal products but
also other aspects such as medicine naming practices
that have a bearing on the matching outcome.

RISK FACTOR: PROTECTION
STRENGTH AND INCENTIVES
Attrition

RISK FACTOR: ATTRITION

to doubt as to whether they are valid.

While recursive and iterative matching may lead to
mismatched, and in that sense additional but invalid
observations on the one hand, the same procedure
can also lead to superfluous attrition in the datajoining procedures. Narrow definitions of patent
families and further constraints on data that is
allowed to match can in some cases lead to the
exclusion or non-reporting of observations that
would actually qualify for inclusion. This means that
in being conservative in our data matching
procedure, we might exclude some observations due

Using economic theory, pharmaceutical companies
can be expected to behave according to profit
maximisation objectives. In consequence, they have
incentives to extend legal exclusivity for as long as
possible. To this end, they might take out additional
patents protecting other inventions relating to the
product or IP rights that may protect the product in
question with a lower ‘legal’ strength1. These IP
rights might be subject to invalidation proceedings
or in other fashions cease to maintain effective
protection. However, weaker titles cannot
necessarily be separated from stronger ones. As
such, exclusivity might no longer effectively be the
case – even though nominal protection is still in
place.

1 If the patent is challenged in court by e.g. a generic company, it might not hold up.

80

The effective protection period has decreased over time, when excluding
secondary patents as well
The figure to the right depicts the development of the
effective protection period, when excluding
secondary patents. The effective protection period
has been falling since the 1990s from a level of
around 13.5 years to around 12 years by the end of
the sample period. A fall of around 1.5 years

Average effective protection period in Europe, when excluding
secondary patents, 1996-2016

ࡱࢌࢌࢋࢉ࢚࢏࢜ࢋ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢖ࢋ࢘࢏࢕ࢊ
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢒ࢇ࢙࢚ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢚࢕ ࢋ࢞࢖࢏࢘ࢋ
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢓ࢇ࢘࢑ࢋ࢚࢏࢔ࢍ ࢇ࢛࢚ࢎ࢕࢘࢏࢙ࢇ࢚࢏࢕࢔
Previously the effective protection period when
including secondary patents was reported. It showed
a drop from around 15 years to around 13 years.
Hence, a fall of around 2 years.
As such, when excluding secondary patents the
conclusion of a fall in the effective protection period
stands, however the fall is slightly smaller. Not
surprisingly, the effective protection period is
shorter, when excluding secondary patents.

Note: Based on the unique dataset described in the appendix to chapter 1 and 2. The sample consists of medicinal products which are
either centrally approved or approved through the mutual recognition process. Medicinal products with a development time below
zero years are not included in the figure. The sample consists of unique combinations of trade name and country, i.e. each product is
present in the sample once for each EU member state in which it has obtained a marketing authorisation. This is imperative when
analysing protection periods as the effective protection period might differ between countries because of differences in marketing
authorisation dates, patents and SPCs. The 5-year moving average is calculated as the average of the two years before and after a
given year as well as the value in that year. Secondary patents are excluded.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI.

81

Datasets used in the report (1/2)
The following contains a description of the two
datasets utilised in the present study.

IMS DATASET

One dataset stems from IMS and has been provided
by the European Commission. The dataset contains
all medicinal products sold in Europe. Variables
included are e.g. drug name, launch date (both
international and in a given country), sales volume
and turnover as well as molecule of the drug. When
using the IMS dataset analysis is mainly carried out
on the molecule level1.
The IMS dataset is used to undertake the
econometric analysis of launch in section 2.2.
The unedited IMS dataset contains 310,590
observations. Each observation constitutes a product
introduced in a country. The time period of product
introductions present in the dataset is 1900 to 2006.
However, scrutinising the data, the further back in
time, the less reliable the data seems.
Keeping only unique molecule-country combinations
for molecules having first international launch in the
period from 1st January 1996 to 31st December 2015
leaves us with 8,102 unique observations. These
cover a total of 907 unique molecules.

The pricing analysis in section 2.3 likewise utilises
the IMS dataset. However, here the unit of interest is
the product. Generic entry is identified by finding
entry of new products, containing the same molecule
as the first product2.

The subset of the IMS dataset used for the
econometric analysis in section 2.3 is highly
restricted. This is the case, as analysis of the volumes
sold and the revenue from sales revealed several
problems and unexplainable variations across years.
As such, to ensure credibility of the data, the subset
had to be restricted only to contain capsule products.
The final dataset used in section 2.3 contained 3,500
observations covering around 600 medicinal
products. The data on sales revenue and volume
covers the quarters from 4th quarter 2013 to 3rd
quarter 2016.

UNIQUE STUDY DATASET

The other dataset is a unique dataset compiled from
several sources, by Copenhagen Economics. It
contains information regarding specific products,
their marketing authorisation date, patents and
SPCs. When utilising this dataset analysis is mainly
carried out on the product (and country) level.
The dataset contains products authorised either by
the centralised procedure or the mutual recognition
process with a marketing authorisation in the period
spanning from 1996 to 2016.
The point of departure is the EMA dataset3 on
centrally approved products. This dataset is merged
with the MRI dataset4 on products approved through
the mutual recognition procedure.
As there is no direct link between products and
patents in the EU, it has been necessary to utilise an
American database (Drug Patent Watch) to obtain

patent information on the products in the combined
dataset.
In the US, the Orange Book5 contains information
linking a product with the patents protecting the
inventions utilised in it.

By identifying the product names found in the EMA
dataset on centrally approved products and the MRI
dataset on mutually recognised products, in the US
Orange Book it has been possible to identify the
patent families.
Through PATSTAT it was possible to use the patent
families to identify European patents. This made it
possible to create a dataset with products authorised
in the European Union either centrally or through
the mutual recognition procedure and their related
patents and SPCs.
For a product to be included in the final dataset it
must be the case that it was possible to identify the
same product in the US dataset, as the US data is
what links a product and its related patents.
In some instances a medicinal product might have a
different name in the EU and the US. For some
products these differences are small, while for others
the names might be very different. The medicinal
product called Regaine in Europe is e.g. marketed as
Rogaine in the US, the medicinal product Champix is
called Chantix in the US while the medicinal product
Glivec is called Gleevec in the US.

1 For a further description of the IMS dataset and the molecule focus, see section 2.2.
2 See section 2.3.
3 http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/landing/epar_search.jsp&mid=WC0b01ac058001d124
4 http://www.hma.eu/mriproductindex.html
5 The Orange Book is the common name for the FDA publication “Approved Drug Products with Therapeutic Equivalence Evaluations”. It is a
publication and an online database which identifies medicinal products and their related patents and exclusivity information in the US.

82

Datasets used in the report (2/2)
To make sure the dataset includes as many products
as possible, an iterative string-based matching
algorithm is used. This procedure makes sure that in
spite of small differences in names between the US
and EU, the product can be included.
The data analysed to obtain the maximum amount of
product level matches encompass:
• 33,620 US FDA approved new drug approval
applications encompassing 6,572 different
tradenames.
• 26,506 drug approval applications through the
mutual recognition procedure within the EU,
differentiated through variation on the
tradename/product variation level.
• 972 tradename-differentiated drug approval
applications through the centralised marketing
authorisation procedure steered by the European
medicines agency (EMA).
• 1,497 paediatric investigation plan (PIP) proposals
documented by the EMA.
• 1,880 applications for rare disease (orphan
medicinal product) designations documented by
the EMA.

The dataset containing information at the product
level is used to create most graphs in chapter 1. It is
likewise utilised to create the graphs in chapter 3.
For the econometric analysis in section 2.1 the data is
consolidated at the country level. Here it is merged
with information on GDP, spending on
pharmaceutical R&D, etc.2 The sources used to
obtain information at the country level, besides the
aforementioned data on medicinal products and
patents, are OECD and the World Bank.
The dataset with countries as the unit of analysis is
the dataset used to analyse the impact on innovation
in section 2.1.

Conducting the above described matching procedure
across sources creates the unique study data utilised
in the present report. This dataset encompasses 558
unique products. When looking at the number of
unique combinations of countries and products this
gives a total of 7.130 combinations.
This is the information utilised when calculating the
effective protection period1.

1 The period from marketing authorisation until the last protection scheme expires.
2 See section 2.1.

83

Details on the unique dataset compiled by Copenhagen Economics for
this study
The table to the right reports information about the
unique dataset compiled by Copenhagen Economics
for this study.

Number of observations in the unique dataset
Unit

Number

The dataset contains 558 unique tradenames. This
covers 465 unique molecules. As such there are some
products which have different tradenames, but
contain the same molecule. This is not uncommon
for medicinal products1.

Unique tradenames

558

Unique tradenames with an SPC in at least one
country

251 (45% of the above)

Of the 558 unique tradenames, 45% have an SPC in
at least one country.

Unique molecules

465

Of the 465 unique molecules, 50% have an SPC in at
least one country.

Unique molecules with an SPC in at least one
country

231 (50% of the above)

Unique tradename/country combinations

7,130

Unique tradename/country combinations with
SPC

1,190 (17% of the above)

Unique molecule/country combinations

6,280

Unique molecule/country combinations with
SPC

1,138 (18% of the above)

As patents and SPCs are granted at the national level,
the unit of observation in the dataset used to
calculate e.g. the effective protection period, is
unique tradename/country combination. This means
that a given product has an observation for each
country in which it is launched. There are 7,130
unique tradename/country observations in the
dataset. Of these 17% have an SPC.
Correspondingly, if focusing on molecules instead of
tradenames, there are 6,280 unique
molecule/country combinations in the dataset. Of
these 18% have an SPC.

Note: Table reporting information on the unique dataset compiled and used in the study.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA
and MRI.

1 See e.g. case study on Cometriq/Cabometyx on pp. 336-337.

84

Number of observations per year in the unique dataset
The graph to the right depicts the number of
tradenames by year, for the unique dataset, used for
the calculation of development time and effective
protection period.

Number of tradenames by year of marketing authorisation, 1996-2016

A medicinal product is counted in the year it obtains
marketing authorisation.
Not surprisingly, the number of observations vary
between years. However, there is a tendency for
more observations towards the end of the sample
period.

Note: Graph depicting the number of observations by year in the unique dataset, used for calculation of development time and
effective protection period.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

85

Number of observations per year and country in the unique dataset
The graph to the right depicts the number of unique
tradenames identified in each country, in the sample
period 1996-2016.

Number of tradenames by year of marketing authorisation, for each
country, 1996-2016

Some of the countries depicted in the graph, joined
the EU during the sample period. However, as this
information is used to analyse a general picture
regarding development time and effective protection
period, over time, they have been included in all
years, where there are observations available.
Norway has likewise been included as a member of
the EEA.
In the analysis in chapter 2, only a subset of the
countries depicted in the graph to the right is
included. This is due to e.g. data availability of
control variables1.

Note: Graph depicting the number of observations by year and country in the unique dataset, used for calculation of development
time and effective protection period.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

1 See chapter 2 appendix for more information on this.

86

Details on the IMS dataset used for the availability analysis
The IMS dataset is used for the availability analysis
in section 2.2. It contains 907 unique molecules
having first international launch in the period from
1st January 1996 to 31st December 2015. When
including the country dimension, this gives 8,102
unique molecule/country observations.

Unit
Unique molecules
Unique molecule/country
combinations

Number
907
8,102

The table to the right reports the number of unique
molecules by ATC code for the molecules in the
sample with only one ATC code.

The dataset contains most molecules with the ATC
code ‘Antineoplastic and immunomodulating agents’
and fewest molecules with the ATC code ‘Systemic
hormonal prep, excluding sex hormones’

Number of observations in the IMS dataset by ATC code
ATC code

Number of unique
molecules*

Alimentary tract and metabolism

105

Blood and blood forming organs

38

Cardiovascular system

50

Dermatologicals

56

Genito urinary system and sex hormones

37

Systemic hormonal prep, excluding sex
hormones

11

General antiinfectives for systemic use

93

Antineoplastic and immunomodulating agents

117

Musculo-skelatal system

39

Nervous system

88

Antiparasitic products

16

Respiratory system

41

Sensory organs

34

Various ATC structures

42

Note: Table reporting information on the IMS dataset used in the study. * Includes only the 767 molecules which only has one ATC
code in the dataset.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

* For molecules with only one ATC1 code.

87

CHAPTER
2
Analysis of the overall economic

effects of incentives and rewards
and their impact on innovation,
availability and accessibility of
medicinal products

Outline of Chapter 2

2.1 Impact on innovation

2.2 Impact on availability
2.3 Impact on accessibility
2.4 Pricing drivers
2.5 Effect on generic medicines and fiscal sustainability of health systems

89

Chapter 2 – Main conclusions
INNOVATION

Using a dynamical panel data model for the years
1996 to 2014 the impact of changes in the effective
protection period on pharmaceutical innovation in
the European Union is analysed. Three main
conclusions are drawn from the econometric model.

1. The average effective protection period that
medicinal products enjoy in a country is found not to
have a statistically significant effect on the level of
spending on pharmaceutical R&D in that country.
2. The average effective protection period for
medicinal products in the other EU countries with
which a given country trades the most in
pharmaceuticals is found to have a positive and
statistically significant effect on the level of spending
on pharmaceutical R&D in that country; i.e. the
protection period provided in foreign markets where
companies sell their products seems to have a
positive impact on domestic spending on
pharmaceutical R&D.
3. The wealth of the other EU countries with which a
given country trades the most in pharmaceuticals
seems to have a positive impact on domestic
spending on pharmaceutical R&D; i.e. the wealth of
the foreign nations in which companies sell their
medicinal products seems to have a positive impact
on domestic spending on pharmaceutical R&D.

AVAILABILITY

To assess the availability of pharmaceuticals, the
launch delay of new innovative molecules is analysed
by estimating duration models.

In general, new molecules are only launched in half
of the EU member states within 20 years from the
first international launch. There is large variation in
the launch delay across the EU Member States.
The time until 25% of new molecules are launched
varies from 0.8 to 6.4 years across Member States,
while the time until 50% of new molecules are
launched varies from 2.6 years to more than 20 years
for some countries.
Cancer medicines are generally launched earlier and
in more countries than medicines for any other kind
of illness.
We do not identify a statistically significant effect of
the domestic effective protection period on the
probability of product launch.
We do find that countries with a large GDP and
population have more launches of new
pharmaceutical molecules and have them earlier,
than countries with smaller GDP and population.
This suggests that, launch decisions to a certain
degree are guided by market attractiveness.

ACCESSIBILITY

For a medicinal product to be accessible to a given
patient, it not only has to be available in the given
country, it likewise has to be affordable to the payer.
Hence, accessibility is analysed using a price
perspective. The section analyses the prices of
originator and generic products, before and after the
first generic entry into the market.

Prices for generic medicinal products entering the
market after the original medicinal product loses
exclusivity are on average around 50% of the price of
the original medicinal product over the first five
quarters after the generic entry.

On average, the prices of originator medicinal
products decrease by 40% during the period six
quarters prior to and five quarters after the loss of
exclusivity.

HEALTH BUDGETS

Scenarios for a change in spending between
originator and generic pharmaceuticals are explored.
As an illustrative example, we find that if it is
possible to change 10% of total spending on
pharmaceuticals within the European Union, from
originator products to the corresponding quantity of
generics, it will yield savings of approximately USD
12.4bn. This corresponds to 0.7% of the total
expenditure on healthcare within the EU. This
example can be extrapolated further, according to
the percentage change in spending from originator
products to corresponding generics.
This insight is based on scenario analysis relying on a
number of assumptions to counter the very complex
nature of such a scenario.

90

2.1 IMPACT ON INNOVATION

The effects of IP rights and incentives on R&D levels in pharma (1/4)
EXISTING EVIDENCE

There is a vast body of literature studying the
relationship between pharmaceutical incentives (as
well as IP rights) and stimulation of domestic
innovation. However, the results are ambiguous, as
the following literature review will demonstrate.

Qian (2007) exploits cross-country variation in the
IP framework over time and matching techniques to
study whether national patent protection spurs
domestic innovation.
The study utilises information on citation-weighted
US patent awards, domestic pharmaceutical R&D
and pharmaceutical industry exports as proxies for
domestic innovation within the pharmaceutical
industry.

The data used covers the period from 1978 to 2002
for 26 countries. To study the effect of the IP regime,
the paper analyses the effect of a country going from
no pharmaceutical patents to the implementation of
national laws providing this form of IP protection. To
circumvent the issue of different countries
implementing national IP regulation that is different
in scope, the author matches countries that
implement a certain extent of IP regulation with
countries where regulation to this extent is already
implemented. A fixed-effects analysis is then carried
out for these country pairs.
The author finds that, in itself, national patent
protection does not stimulate domestic innovation.
This conclusion is robust across model formulations.

However, in countries with higher levels of
education, economic development and economic
freedom, patent protection seems to accelerate
domestic innovation – i.e. pharmaceutical patents
have more effect on innovation the more developed
the country is.

Furthermore, the author finds that there seems to be
an optimal level of IP rights beyond which further
bolstering is detrimental to domestic innovation.
This optimal level relates to the period of the patent
protection period. However, the author does not
report what the optimal period seems to be, as this
depends on other factors such as development,
educational level and market freedom in the given
country.
Sakakibara and Branstetter (1999) use the
extensive Japanese patent reforms of 1988 to study
how the R&D decisions of companies respond to
changing R&D regime. The study utilises interviews
and a sample of 307 Japanese firms.
On the basis of the interviews the authors find that
companies recognise that the reforms expanded the
patent scope in Japan.
Studying both companies’ R&D spending and
innovative output, measured as claims per patent,
the authors are unable to decisively identify a
statistically significant effect of the patent reforms.

can be said to be more “idea-rich” than cohorts
before the reforms.
Pazderka (1999) studies two reforms undertaken
in Canada in 1987 and 1992. The two reforms
reinstated full IP protection for medicinal products,
after almost two decades of compulsory licensing.
Comparing interindustry trends within Canada,
intercountry trends within the pharmaceutical
industry as well as Canada’s share of foreign R&D
spending of US-owned multinationals, the author
finds that the reform of 1987 had a significant
positive effect on pharmaceutical R&D spending. The
reform of 1992 was too close to the end of the study
for any conclusion to be drawn.
In a study with a somewhat different but still related
aim, Kumar (1996) examines the determinants of
overseas R&D activities by US multinational
enterprises. The author finds that larger markets,
technological resources and infrastructure influence
the choice of R&D placement.
As such, it seems to be the case for much of the
literature in this field that it has proven difficult to
show a direct relationship between the protection
offered by IP rights and incentives in a country and
the measures of innovation in the country (e.g. R&D
spending levels).

The effect on R&D expenditure is close to or equal to
zero, while it does appear that the patents taken after
the reforms have more claims per patent and hence

92

The effects of IP rights and incentives on R&D levels in pharma (2/4)
IP PROTECTION AND SPENDING
ON R&D

As the literature study in the previous section shows,
detecting a direct empirical relationship between the
extent of IP protection and the amount of innovation
undertaken in a given country has proven difficult.

In theory, the effect of IP protection is likewise
difficult to predict. The IP rights conferred by a
patent prevent others from using the protected
innovation without the consent of the patent owner.
Seen in isolation, that might deter or postpone
innovation, because a certain time period has to
elapse before others can use the new knowledge
protected by the patent (for instance, in areas where
innovation is cumulative, i.e. built directly on
previous innovations).
However, without any rights to protect an innovation
against uncontrolled use by others, innovators will
be reluctant to invest in R&D in the first place, as the
expected return on investment will be very uncertain
and probably quite small or even negative if it is easy
to copy the innovation.
On the other hand, an innovator applying for a
patent must describe the innovation in great detail in
the patent application. If the patent is granted, this
document becomes publicly available. Hence, the
patenting scheme has a built-in mechanism of
knowledge-sharing through full disclosure. This
mechanism may be conducive to innovation, as it
entails everybody having access to all new knowledge
created and patented.
This brief discussion has highlighted just a few

aspects of the many opposing elements in IP
protection and the incentives for investing in R&D.
In compiling the knowledge obtained from our
literature review and the previous discussion, we
believe that a range of econometric specifications can
help to shed more light on the many nuances of the
impact of IP protection and incentives on innovation.

R&D IN THE PHARMACEUTICAL
SECTOR

The pharmaceutical industry is the most R&Dintensive sector in the world. In 2016, the sector's
global spend on new R&D equalled 15% of sales 1.
R&D within the sector is highly risky and as a
consequence some of the successful projects are
highly profitable2.
Several things have an influence on companies
incentives’ to undertake R&D. One of these is the
profitability of the products that the inventions
eventually lead to. The more profitable the products
are expected to be, the better sense it makes to spend
on the R&D process while still preserving a
satisfactory return on investment.
The profitability of new medicinal products is
likewise influenced by a broad range of elements.
Among these is the period of protection from generic
competition that new products enjoy.
During the period that a new medicinal product
enjoys protection against competition from generics,
the company is freer to set the price it prefers than it
would have been had there been multiple generics

with which to compete in the market.
This means that the longer the protection period a
new product enjoys, the more profitable that product
is likely to be to the company.3
According to this line of reasoning, a longer
protection period for new products should have a
positive effect on the R&D investments made by
firms.

EFFECTIVE PROTECTION PERIOD

Following the reasoning in the previous section,
when making their R&D decisions pharmaceutical
companies should, among other things, be
concerned with the period of protection from generic
competition their new products can expect to enjoy.

The IP rights, incentives and rewards in the
pharmaceutical sector consist of an extensive range
of legal rights, extensions and schemes running in
parallel. For instance, patents and SPCs run in
parallel to, and independently of, market exclusivity
(for orphan medicinal products) and data protection.
These schemes have different periods, scopes and
starting points.
The patent protection period begins when the
company applies for a patent,4 typically quite early in
the development process. An SPC begins when the
patent ends, while market exclusivity and data
protection begin when a marketing authorisation is
obtained and the product is ready for launch. This
means that the scheme that protects the product at a
given time depends on a combination of a wide range
of factors.

1 European Commission, Industrial Research and Innovation, The 2016 EU Industrial R&D Investment Scoreboard, table 3.2 p. 57.
2 According to BIO, Biomedtracker and Amplion (2016), Clinical Development Success Rates 2006-2015, only 1 out of 10 products entering phase 1
of clinical trials makes it all the way to approval.
3 Unless the company seeks to earn back a fixed amount of profit on the product, in which case a longer protection period will not change profits
but instead mean a lower price during that period. This is, however, in contrast to profit-maximising behaviour.
4 Or more specifically on the priority date of the patent.

93

The effects of IP rights and incentives on R&D levels in pharma (3/4)
However, continuing in the mind-set of
understanding pharmaceutical companies as profitmaximising entities, what ultimately matters is
whether the company can recoup their initial R&D
investment and earn a return on investment. At the
extreme, the period in which this can be done can be
said to be the time running from marketing
authorisation being granted until the last protection
scheme runs out and generics can enter the market.1
The period from marketing authorisation being
granted until the expiration of the last protection
scheme, whatever the form, is known in the
literature as the effective protection period.2
Effective protection period
The time from marketing authorisation is
obtained until the last protection scheme
expires and generics can enter the market.
The notion of the effective protection period being
the term of interest is exceedingly important as this
captures the interaction between all protection
schemes as well as regulatory processes and
authorisation procedures. This means that even
though two member states have the same protection
schemes on paper and running for the same period
of time, the effective protection period may differ
due to e.g. the propensity to grant SPCs and
marketing authorisations.
Accordingly, in order to gain the most relevant
insights into what matters in the R&D decisionmaking of pharmaceutical companies, we have
examined the effect of the effective protection period
on innovation.

Difference in protection across schemes
It is important to note here that the schemes for
data protection and market protection protect
against competition from generics in the sense
that other companies cannot obtain a
marketing authorisation using the data of the
innovator when these schemes are in effect.
However, companies willing to undertake their
own clinical testing to obtain their own dossier
of data with which to seek marketing
authorisation of the same medicinal product
can lawfully do so if they do not infringe on any
patents or SPCs.
This means that the market protection and
data protection schemes do not protect
against competition in the same way as a
patent or SPC.

DIFFERENCES IN EFFECTIVE
PROTECTION PERIODS

Most pharmaceutical companies sell their products
in many countries around the world. In the EU there
is a European agency for the evaluation of medicinal
products, the European Medicines Agency (EMA).
Applications for union-wide marketing
authorisations can be handed in to the EMA, which
forms an opinion on the basis of which the
Commission decides whether or not to grant
authorisation.
Much of the regulation governing the pharmaceutical
sector is undertaken at the EU level. However,
pricing legislation and reimbursement policies are

still member state competences.3 Moreover, a
unitary patent does not yet exist within the union4
and the granting of SPCs is likewise done at the
national level.
This means that the previously mentioned effective
protection period may differ between countries, even
within the European Union, due to a range of factors,
including institutional and regulatory differences.

EFFECTIVE PROTECTION PERIODS
IN PARTNER TRADE COUNTRIES

As many medicinal products are sold in multiple
countries worldwide, it is not only the characteristics
of a single market that matter for the profitability of
pharmaceutical companies, but rather the different
characteristics of all the various markets in which
they sell their products.5
As such, one might assert that what matters to
pharmaceutical companies is not necessarily the
extent of IP protection in their home country or the
countries where their R&D and manufacturing
activities are situated, but rather the IP protection
schemes in the countries where they sell most of
their products; i.e. the interaction between the
extent of IP protection and market size in export
markets may play a crucial role in influencing the
R&D decision (the IP protection in the country
where their R&D is situated, for example, may
however be important, if, say, most of their
competitors are situated in the same country).
There are two main pivotal observations which go to
support this hypothesis.

1 When generics enter the market they usually do so at a price well below that of the innovator medicinal product. This creates competition pressure for the innovator,
often resulting in a decrease in price or market share or both.
2 In the general literature regarding the subject effective patent life is often mentioned, but this applies only to the time that a pharmaceutical is protected by a patent
(or SPC) and does not take regulatory protection periods into account.
3 See the Treaty on the Functioning of the European Union, Article 168(7) and Directive 2001/83/EC, Article 4(3).
4 Much work has been undertaken in this area, but ratification has not yet been obtained in all required countries and as such it is still unknown when or whether a unitary
patent will come into effect.
5 Characteristics of markets in which the companies do not yet sell their products may also affect their future investment decisions if they have plans to expand their sales
to more markets.

94

The effects of IP rights and incentives on R&D levels in pharma (4/4)
Firstly, through the findings in the existing
literature, it can be seen that a relationship between
domestic IP rights and innovation has not been
clearly identified. At the same time, in several
studies market size has been found to be a significant
determinant of pharmaceutical companies’ R&D
activities. Combined with the economic theory that
firms are profit-maximising entities, it follows that
IP rights in some form should influence the R&D
decision, as they effectively confer a period when
higher profits can be obtained.
Secondly, the literature shows the estimated costs of
bringing a medicinal product from the lab to the
market of between USD 648m1 and USD 2.6bn.2 This
means that for a pharmaceutical company to
undertake the initial investment, the management
must expect that, by bringing the product to the
market, they can recoup the initial investment plus
the costs of e.g. marketing and distribution, as well
as ensure a satisfactory return on investment.
Bringing matters to a head, the profit a company can
earn on a product depends on the interaction
between the price obtained and the number of
products sold. As such, to recoup a large investment,
it takes either a lot of patients paying a small price, a
few patients paying a high price, or some
combination of the two.
The number of patients reached by entering the
market of a given country depends on many factors.
Two of the more important ones are the size of the
population and market share.

The price a company can charge likewise depends on
a range of things, one of these being the period of the
effective protection period.
In such a situation, changing the protection period in
a market where a company sells very few products
may not improve profit enough to change the firm’s
investment decision, while changes in the protection
period in markets where a company sells a lot of
products may be more pivotal in driving the
decision.3
Following this line of thinking, an element that
should matter in a firm’s R&D decision is the extent
and period of IP protection in the countries where
they sell the majority of their products. It thus
necessarily follows that what might actually
influence strategic decisions on pharmaceutical
companies’ R&D activities is market size and IP
rights in combination.

WEIGHTED EFFECTIVE
PROTECTION PERIOD

To study whether the assertion presented in the
previous section can be found to have empirical
merit, we construct a composite measure for each
country in an attempt to describe the effective
protection period in the other EU countries with
which a given country trades the most.
We do this by weighting the mean effective
protection period in a given year for the other EU
countries with which a given country trades, by the
fraction of total pharmaceutical exports that country
received from the country of interest. We call this the

composite variable.
Illustrative example: This means that if Germany
sold 40% of its pharmaceutical exports to France and
60% to the UK in 2002, and the mean effective
protection period was 14 in France and 16 in the UK,
the weighted effective protection period variable
would be 15.2 for the UK in 2002.4
It should be noted that, as we have data on the mean
effective protection periods only for EU member
states and the US, the trade weights are calculated
based on the exports going to these countries.
The constructed composite measure is meant to
capture changes in the mean effective protection
period in the countries where most of the
pharmaceutical exports from a given country are
flowing.
The discussions in the previous sections would
indicate that if the measure correctly identifies5 and
gives the most weight to the mean effective
protection period in countries with the most
important markets for the domestic pharmaceutical
industry, there should be a positive relationship
between the composite measure and the spending on
pharmaceutical R&D.
However, the variable likewise provides interesting
information on the effect of the changing size of
pharmaceutical exports to the other EU countries
with which a given country trades the most. This
intricacy will be discussed at length in a later section.

1 Prasad, V. and Mailankody, S. (2017), Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After
Approval.
2 Di Masi, J. A., Grabowskib, H. G. and Hansen, R. W. (2016), Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs.
3 Provided that prices do not differ hugely between the two markets.
4 0.4*14+0.6*16
5 See Chapter 2 appendix for further discussion of this.

95

Data for the econometric model (1/2)
INNOVATION

The variable of interest in this section on innovation
is the expenditure on pharmaceutical research and
development in the EU member states. The variable
is collected from the OECD database and reported in
constant 2010 US dollars at Purchasing Power Parity
(PPP).
Using the spending on pharmaceutical R&D as a
measure of the innovation in a given country has its
caveats. An important characteristic is that it is an
input measure; i.e. it describes what is put into the
R&D effort. The amount of money spent on R&D is,
however, not necessarily linearly correlated with the
amount of actual innovation happening in a given
country. Some countries may be better or worse at
utilising the resources spent.

In an attempt to utilise an output measure, previous
studies have used measures such as citationweighted publications and pharmaceutical exports.
These likewise are not perfect measures of
innovation, as a scientific publication and the
citations thereof do not necessarily reveal whether
the innovation is valuable, nor do changes in exports
necessarily convey more than just information about
changes in relative prices.
Finding the right measure of innovation can easily
boil down to a rather philosophical discussion on
what innovation really is. Is it the number of
inventions, for instance, or the value of these
inventions from a private or societal perspective?
We have chosen the input measure of spending on

pharmaceutical R&D as the variable of interest when
studying innovation. The preceding discussion is
meant to highlight the fact that this choice is not
straightforward and may influence the results of the
final model.

COVARIATES

To control for confounding variables, we obtain
information on a wide range of covariates.
Total expenditure on R&D is collected from the
OECD database.1 This covers both public and private
spending. This is important, as in many countries the
public sector is responsible for a large part of the
R&D undertaken, mainly at universities and, in the
case of pharmaceuticals, at hospitals. The variable is
reported in constant 2010 US dollars at PPP. Using
the information on spending on pharmaceutical R&D
and total expenditure on R&D, we can calculate the
amount spent on R&D in all sectors besides
pharmaceuticals. This variable controls for whether
the country is research intensive in general.

Data on pharmaceutical exports is obtained from the
United Nations Commodity Trade Statistics
Database (UN Comtrade). The Comtrade database
contains information on imports and exports as
reported by statistical authorities in close to 200
countries or areas. It is the most comprehensive
trade database available. From Comtrade we obtain
information on the value of trade flows of physical
goods between countries. Our area of interest is the
trade flows of medicinal products; i.e. for each
country we can identify by year which countries the
pharmaceutical exports have gone to and their value.

To work as a proxy for the educational level of the
population, we use tertiary school enrolment as a
percentage of the population, taken from the World
Development Indicators. An educational variable
with a more direct linkage to the pharmaceutical
sector would have been preferred, but sufficient data
coverage was not attainable. Nevertheless, the
percentage of the population enrolled in tertiary
education still provides us with valuable information
as a proxy for the current educational level and not
least for the future expected educational attainment
level of the population.

1 The OECD data on expenditure on R&D is distributed by the International Standard Industrial Classification, Revision 4. The pharmaceutical industry
is classified as D21: Pharmaceuticals, medicinal, chemical and botanical products and includes both public and private spending on any activity
related to R&D within the pharmaceutical sector.

96

Data for the econometric model (2/2)
DATA COVERAGE

The final model, to be utilised later, relies on total
expenditure on pharmaceutical R&D as the
dependent variable and the control variables
described in the previous section.
For the model to be able to make use of an
observation for a country in a given year, data is
needed for all included variables. If a variable has no
value because of a missing observation, that
observation is not used in the model for that
particular country.
The information on pharmaceutical R&D is more
sparse than e.g. information on trade flows. This
puts some restrictions on the quantity of
observations the model can successfully utilise (see
the Chapter 2 appendix).
As for the data on the period of effective protection,
this is available only for EU countries and the US.
This means that other markets which are important
to pharmaceutical firms, such as Japan, are not a
part of the analysis.1
However, even though one country may have a
missing value for a variable in one year, other
countries may not. This means that the time period
we observe differs between countries.
The issue of missing observations restricting the
information in the model makes it more difficult to
identify the effect of the independent variables. For a
further review of the data, see the Chapter 2
appendix.

Purchasing Power Parity (PPP)
Using a variable reported in PPP corrects for the
fact that the costs of goods and services in two
countries are different.
In the hands of consumers, money is not worth
more than what they can buy. Thus, if a
banana cost USD 2 in country X and USD 4 in
country Y, citizens in country Y need to hold
twice the amount of wealth measured in
dollars to be as rich as citizens in country X.2
PPP corrects prices between countries for this
fact by comparing a “basket of goods”.
This effectively makes e.g. GDP comparable
across countries.
Constant prices
The growth rate of a variable measured in its
nominal currency value over time is influenced
by price inflation. In the case of GDP, this would
mean that one would observe an artificially
high growth rate if the series were not
corrected for price inflation.
Using constant prices normalises amounts
reported in nominal currency values in a given
year to the same base year.
This effectively makes e.g. GDP comparable
across time.

1 The data on effective protection periods is calculated from the unique dataset created for the purpose of this study. For more information on the
dataset and its creation, see section 1.4.2 and the appendix for chapter 2.
2 Provided there is no trade.

97

The dynamic panel data model (1/2)
PANEL DATA

A panel data model exploits the fact that the data
present is longitudinal. A longitudinal dataset tracks
the same type of information for subjects over
multiple time periods. In our case, the subjects are
countries and the time period is years. The
information we track is e.g. educational level,
effective protection period and R&D (see previous
data description).
One strength of panel data models using longitudinal
data is that as we follow the same subjects over time,
all so-called unobserved effects which are fixed
across time (do not change over time) can be
controlled for. In the case of countries, this could be
e.g. inherent culture or historical and institutional
factors.

This means that we are able to model individual
dynamics across time. This is a unique capability of
panel data models.
Due to the data restrictions of some of the included
variables, the time period over which we can follow
the countries varies. This means that we have a socalled unbalanced panel. This is important, as unless
we choose a model that can incorporate this, we risk
losing valuable information.
In many cases the current value of a variable
depends on past realisations of that variable. In the
case of a country, if one is e.g. setting up a model to
explain GDP, the current value is of course heavily
dependent on the value of GDP in past years. This
means that in many cases it is pivotal to be able to

include past values of e.g. the dependent variable
among the control variables.

PERSISTENCE OVER TIME

In our case, where we are modelling the spending on
pharmaceutical R&D in a given country based on a
range of covariates, it likewise makes theoretical
sense to include at least one lag of the dependent
variable among the control variables.
When a company decides to undertake R&D in a
country, certain investments must be made. The
R&D must take place in some sort of location, a
building or a lab, and the employees are in need of
certain equipment. In the case of pharmaceutical
R&D, this equipment can be quite specialised and
rather expensive. Furthermore, employees, likewise
often highly skilled in specific areas, must be hired.
These individuals can sometimes be difficult to
recruit and are very valuable once in the company. In
addition, the R&D currently being undertaken is
often the result of many years of previous investment
in R&D. All of these facts taken together make it
rather difficult, impractical and in many cases
economically unsound to make large changes in R&D
investment in the very short run.
As such, the decisions regarding spending on
pharmaceutical R&D may exhibit some persistence
over time, and the inclusion of at least one lag in the
model thus has theoretical merit (see appendix).

DYNAMIC PANEL DATA MODELS

One of the pivotal but very technical requirements
for regular panel data models is that the explanatory

variables included in the model are all uncorrelated
with the error terms across time. This is a rather
technical explanation, but what it means for the
model in practical terms is that it is not possible to
include one or more lags of the dependent variable
among the control variables. Hence, in a regular
panel data model it would not be possible for us to
include the lagged value of spending on
pharmaceutical R&D as a control variable to control
for persistence.
Instead of the regular panel data models, one can use
so-called dynamic panel data models. These models
allow for the inclusion of lags of the dependent
variables.
In our case we utilise an augmented version of the
Arellano-Bond (1991) model1, outlined by Arellano
and Bover (1995)2 and later further developed by
Blundell and Bond (1998)3. This model is also known
as the system generalised method of moments
(GMM) model.
Technique of the SYS GMM model
As a technical note, the model utilises the
lagged first differences as instruments for the
variables in levels included in the regression. In
any given time period the model uses all
available lags of first differences as instruments.
This means that the model uses a different
number of instruments in each time period,
without loss of observation.
As such, this model utilises all available
information in any given period, while
preserving the number of observations utilised.

1 Arellano, M. and Bond, S. (1991), Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.
2 Arellano, M. and Bover, O. (1995), Another Look at the Instrumental Variable Estimation of Error-Components Models
3 Blundell, R. and Bond, S. (1998), Initial Conditions and Moment Restrictions in Dynamic Panel Data Models.

98

The dynamic panel data model (2/2)
SHORT- AND LONG-RUN EFFECTS

When working with dynamic panel data models,
where one or more lags of the dependent variable are
included as explanatory variables, care must be
taken when interpreting the estimated coefficients.
When no lags are included, the estimated coefficient
for a control variable is simply the effect on the
dependent variable of changing the value of the
control variable by one unit.1
However, if the model includes e.g. one lag of the
dependent variable, a change in a control variable
will have both a short-run (immediate) effect and a
long-run effect on the size of the dependent variable.
The easiest way to think about this intuitively is by
way of an example. If one is trying to model GDP,
and in the regression one is controlling for e.g.
education, the value of GDP in the previous period
and a range of other things, there will be both a
short- and a long-run effect from changing the
educational level.
Increasing the value of the variable “education” will
have the immediate effect of changing GDP in the
same time period.2 However, as GDP depends on the
level of GDP in the previous time period, there will
be a feedback mechanism in the next period through
the lagged value of GDP.
This means that one must take the size of the
coefficient of the lagged value of the dependent
variable into account when interpreting the long-run
effect of a change in a control variable.

The long-run multiplier
The long-run multiplier describes how much
larger the cumulative long-run effect is
compared to the short-run effect.
If the model includes one lag of the dependent
variable and the coefficient of this is called ߙ,
the long-run multiplier is given by:
૚
૚െࢻ
This means that the closer the coefficient of the
lagged dependent variable is to 1 (i.e. the
more persistent the variable is), the higher the
long-run multiplier will be.
The long-run effect of a change in a control
variable with an estimated coefficient of ߚ is
thus given by:
ࢼ
૚െࢻ

This is done both to normalise it and to reduce the
issue of outliers.
When the dependent variable is log-transformed, the
interpretation of the coefficients of the control
variables changes. Because of the log transformation
they signify so-called semi-elasticities. This means
that the coefficient of a control variable signifies the
percentage change in the dependent variable from a
one-unit increase in the control variable. This goes
both for the short- and long-run effects.
The long-run effect as semi-elasticity
Using the same notation as before, where ߙ is
the coefficient of the lagged dependent
variable and ߚ is the coefficient of the control
variable, the long-run effect of a one-unit
change in the control variable is calculated as
ࢋ࢞࢖

ࢼ
െ૚
૚െࢻ

and signifies long-run semi-elasticity.

If the change in the control variable is permanent,
the long-run effect can be interpreted as the
expected permanent long-run increase in the
dependent variable from a one-unit increase in the
control variable.

LOG TRANSFORMATION

In the final regression model utilised in the next
section, we have log-transformed the dependent
variable, which is spending on pharmaceutical R&D.

1 There are various subtleties to this statement if either the dependent or the control variable (or both) is given in logs.
2 This is an illustrative example and thus does not necessarily have any empirical merit.

99

The dynamic panel data model provides three main insights
Using the dynamic approach described in the
previous section it is possible to obtain a wellspecified model for the period 1996 to 2014 using
information for 20 EU member states.1

THE DATA

The results reported in the following sections are
subject to the complexities and caveats encountered
when creating the dataset. These primarily occurred
when linking patent data with product data within
the EU.
As described in section 1.4.2 and the appendix for
chapter 2 this was possible through the link between
products and patents which exists in the US.
However, this likewise entails the products for which
it was possible to find a link being only those with
sufficiently similar names in the US and the EU.
Moreover, patents are linked through patent families
shared on US and EU databases. As such, the
accuracy of the calculated effective protection period
reflects the degree to which patent families can be
successfully linked and, similarly, include all relevant
patents.
Only products approved through the centralised
procedure or mutual recognition process could be
included. Hence, the sample used to calculate the
effective protection period across countries does not
contain all medicinal products available in the EU.
The dataset is, however, a unique coupling of
product and patent information and, as far as we are
aware, the first of its kind within the EU.

MAIN RESULTS

The empirical model provides us with three main
insights:

1

Domestic protection

The average domestic effective protection period
cannot be found to have a statistical significant effect
on the level of domestic spending on pharmaceutical
R&D; i.e. the protection period in a given country
does not seem to determine the spending on
pharmaceutical R&D in said country.

2

NUANCES AND ASSUMPTIONS

As is the case with all empirical studies utilising
econometric models, the above-presented
conclusions are based on some central assumptions.
Furthermore, the conclusions are not without
nuances and further analysis undertaken has
expanded the range of implications and insights
derived beyond the main three reported here.
On the following pages, the further nuances,
implications, insights and assumptions will be
discussed in turn and at length.

Trade country protection

The average effective protection period for medicinal
products in the EU countries with which a given
country trades the most seems to have a positive
significant effect on the level of domestic spending on
pharmaceutical R&D; i.e. the protection period
provided in markets where companies sell their
products seems to have a positive impact on
domestic spending on pharmaceutical R&D.

3

Trade country wealth

The wealth of the EU countries with which a given
country trades the most seems to have a positive
impact on domestic spending on pharmaceutical
R&D; i.e. the wealth of the nations in which
companies sell their medicinal products seems to
have a positive impact on domestic spending on
pharmaceutical R&D.

1 The countries included are Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Italy, the
Netherlands, Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain, Sweden and the United Kingdom. The remaining EU member states
have not been included due to data coverage issues. 100

Main regression of the relationship between domestic spending on
pharmaceutical R&D and the mean effective protection period (1/3)
DOMESTIC PROTECTION

That the average domestic effective protection period
cannot be found to have a statistically significant
effect on domestic spending on pharmaceutical R&D
can be seen from the coefficient of the variable
“mean effective protection period” in the table to the
right. The variable is positive but miniscule and does
not have statistical significance.
One possible explanation for this is that the
individual home markets for pharmaceutical
companies constitute a rather small share of their
total sales.
For example, the company Novo Nordisk is based in
Denmark, where it has its headquarters and where
much of its R&D is still undertaken. However,
Denmark constitutes only 0.4% of Novo Nordisk’s
total sales worldwide1. This exemplifies the fact that
pharmaceutical companies are rather globalised and
that home markets in many instances make up only a
small share of total revenue.
As such, changing the protection period in Denmark
and possibly increasing the value of the products
sold there will have only a miniscule effect on the
total revenue of Novo Nordisk. Changing the
effective protection period in the other EU countries
with which the given country trades the will have a
far more pronounced effect.

System-generalised method of moments regression with spending on
pharmaceutical R&D as the dependent variable, 1996-2014
Variable
Pharmaceutical R&D in the previous
period

Coefficient estimate2
0.414***
(0.155)

Education

0.433**
(0.182)

Mean effective protection period

0.00156
(0.0135)

Weighted mean effective protection
period (composite variable)

0.0697**
(0.0278)

Other R&D

0.437***
(0.122)

Constant

-0.870
(0.890)

Observations

187

Number of id

20

Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described in
section 1.4.2. The sample consists of medicinal products which are either centrally approved or approved through the mutual
recognition process. Medicinal products with a negative development time are not included. Standard errors are in parenthesis. The
20 EU countries for which adequate data could be found are included in the regression. The overall conclusions are robust to the
exclusion of all secondary patents.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA
and MRI.

1 Novo Nordisk Annual report 2017.
2 When interpreting the coefficient estimates it is important to note that the immediate numeric value cannot be compared directly across
variables, as this is dependent on the unit in which the variable is recorded. For a further explanation on how to interpret the coefficients, see p. 171. 101

Main regression of the relationship between domestic spending on
pharmaceutical R&D and the mean effective protection period (2/3)
Another possible explanation is that as we are
analysing only European countries, the variation in
the effective protection period may be limited. Many
of the rules governing IP protection of
pharmaceuticals are rather standardised across EU
countries and have become so to a greater degree
over time. As such, the lack of significance may
reflect too little variation between countries to
identify a significant effect. This is further explored
by including the US, which is a very important
market for pharmaceuticals, in the regression in a
later section.
The fact that the home country effective protection
period does not seem to have a significant effect in
explaining the level of spending on pharmaceutical
R&D within that country naturally leaves the
question of what then does have an influence on the
level of R&D spending.
It is outside the scope of the present study to
independently analyse this issue. However, the
regression presented on the previous page, as well as
the results from the literature, can help to shed some
light on it.
In the regression on the previous page, it can be seen
that the education variable has a statistically
significant influence on the amount of
pharmaceutical spending within a country.
The variable “Other R&D” depicts the amount of
spending on R&D in industries other than
pharmaceuticals. This variable can be said to identify
whether the general conditions are conducive to

undertaking R&D in a given country. The better the
general conditions (e.g. taxes, infrastructure, publicprivate partnerships etc.) support the undertaking
and placing of R&D in a given country, the higher the
spending on pharmaceutical R&D is likely to be.
These results are supported by results from the
literature, which e.g. points to factors such as
education, infrastructure, political stability and
taxation as important drivers of the placement of
R&D across industries.2

TRADE COUNTRY PROTECTION

That the average effective protection period for
medicinal products in the other EU countries with
which a given country trades the most seems to have
a positive significant effect on the level of domestic
spending on pharmaceutical R&D can be seen from
the composite variable “Weighted mean effective
protection period”. The sign of the variable is
positive and significant.
This indicates that, when making their R&D
decision, companies are concerned with the amount
of protection their medicinal products can enjoy in
the countries to which they export the largest share
of their products.
This suggests that the current amount of protection
provided in their main markets influences the
companies’ expectations of future protection.
Current R&D decisions made by the firm will not
influence the actual stock of products for another 10
to 15 years.1

Following the example given above of Novo Nordisk,
which had 99.6% of its total sales outside its home
market of Denmark, the assertion that companies
are more concerned with the protection period in the
other EU countries with which a given country trades
more than they are with this period in their home
market has economic theoretical merit.
The numerical value of the composite variable entails
a one-unit increase in the variable giving rise to a 7%
increase in domestic spending on pharmaceutical
R&D in the short run.
Using the calculation method presented in previous
pages, the long-run effect can be calculated to be
12.6%. A one-unit increase in the composite variable
will thus entail a long-run effect on domestic
spending on pharmaceutical R&D of 12.6%.
The above increases of 7% in the short run and 12.6%
in the long run are rather large. However, obtaining
a one-unit increase in the composite measure would
entail the mean effective protection period in all the
other EU countries with which a given country trades
the most increasing by one year.
Conversely, a one-unit increase may happen if there
is a very large composition change in the EU
countries to which a given country exports most of
its medicinal products. If such a change happens
from countries with very low effective protection to
countries with very high protection, it is theoretically
conceivable that such a change could produce a oneunit increase in the composite variable.

1 Depending on the development period.
2 See e.g. Demirbag, M. and Glaister, K. W. (2010) Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of
Developed and Emerging Regions. 102

Main regression of the relationship between domestic spending on
pharmaceutical R&D and the mean effective protection period (3/3)
However, as we are analysing European countries,
the difference between countries in the mean
effective protection period is diminishing over time.1
Hence, for a change in the trade weights to drive a
one-unit increase in the composite variable, the
change would have to be rather drastic. As the
amount of trade between EU countries does not in
general vary immensely from year to year, this may
also be an empirically unrealistic scenario.
The above-reviewed results pertain to EU countries.
However, to the extent that companies outside the
EU are equally globalised in their sales, the identified
relationship will most likely hold for them. This
would mean that a common change in protection
within the EU would have an effect on the amount of
pharmaceutical R&D undertaken within the EU.
However it would equally affect the amount of R&D
undertaken in countries exporting medicinal
products to the EU.
For a change in protection to disproportionately
influence the amount of pharmaceutical R&D
undertaken in Europe as compared to the rest of the
world, the EU countries would have to have a larger
share of exports flowing to other EU countries than
countries outside the EU have. This seems to be
supported in the literature; e.g. in Ludivine (2015),
where it is found that “…the distance between the
EU and importing countries has a negative impact
on the trade in pharmaceuticals”.2
This means that if the effective protection period
were to decrease in the EU, the amount of
pharmaceutical R&D in the world would likely
decrease. However, the reduction in R&D would

disproportionately hit the European countries as an
effect of the trade patterns.

TRADE COUNTRY WEALTH

That the wealth of the other EU countries with which
a given country trades the most seems to matter to
the R&D decision of companies cannot be seen
directly from the regression on the previous page.
The explanation for this assertion will be given on a
following page.

CONTROL VARIABLES

Besides the two variables depicting the relationship
between effective protection period domestically and
abroad and the spending on pharmaceutical R&D,
the regression contains three control variables.

dependent upon decisions made in the past.
The positive significant coefficient of the variable
depicting the spending on pharmaceutical R&D in
the previous period supports the above-given
assertion.
The level of education can be seen as an important
variable for depicting the available stock of possible
employees. To undertake pharmaceutical R&D,
specialised and well-educated individuals are
needed. The higher the stock of such individuals in a
given country, the higher the possible amount of
R&D. This is supported by the positive significant
coefficient of the variable in the regression.

These are: the spending on pharmaceutical R&D in
the previous period, the level of education and the
spending on other R&D.

Finally, the level of spending on R&D in other
industries besides pharmaceuticals has been
included. This has been done as a so-called “proxy
variable” to control for the general framework
conditions for undertaking R&D.

Including the spending on pharmaceutical R&D in
the previous period captures the idea that the
spending is not completely scalable from year to
year; i.e. it is quite unlikely that it would be attractive
for a company to have very high spending on R&D in
one year and spend almost nothing in the next year
in a given country. It is to be expected that the
spending will be somewhat dependent on the
investments made in previous years. This may e.g. be
because of investment in building, machinery etc. It
may likewise be due to the fact that pharmaceutical
R&D is a lengthy process and hence the R&D
projects started today will take 10-15 years before
they reach the market.3 This means that the R&D
pipeline today is greatly

The literature points to a range of factors influencing
the level of R&D undertaken in a given country.4
Instead of including each of these factors as separate
variables and possibly flooding the regression with a
wide range of variables, the level of spending on
R&D in industries besides pharmaceuticals
incorporates the framework in one variable. If the
framework conditions in general are good, spending
in other sectors should be high as well. If framework
conditions generally are less favourable, spending on
R&D in other industries can be expected to be low as
well. Hence, the size of spending on R&D in other
sectors functions as a proxy for general R&D
framework conditions. The positive significant
coefficient of the variable supports this assertion.

1 See appendix.
2 Blanc, Ludivine (2015), The European Pharmaceutical Industry in a Global Economy: What drives EU exports of pharmaceuticals?. Bruges European
Economic Research Papers (BEER) 31/2015 [Policy Paper].
3 See p. 66.
103
4 See e.g. Demirbag and Glaister (2010) Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of Developed and
Emerging Regions.

Including the US in the main regression changes the significance of the
effective protection period in the country itself (1/2)
The table to the right reports the result of running
the main regression reviewed on the previous pages,
but now including the United States. As such, the
table to the right reports the results when both the
countries of the EU and the US are included in the
analysis.

The US makes up almost half1,2 of the total
pharmaceutical sales in the world, which makes the
US market a main driver for profitability in the
sector and hence of interest to include in the
analysis. It can be seen that the coefficient of “Mean
effective protection period” is still positive but now it
is significant. This means that by using this
formulation one obtains the result that the domestic
protection period seems to have a statistically
significant impact on domestic spending on
pharmaceutical R&D.
This could be due to the fact that, as previously
mentioned, the US market constitutes almost half of
the total value of the world market for medicinal
products. At the same time, R&D spending in the US
accounts for 54% of the world’s R&D within
pharmaceuticals.3
This means that for companies in the US, the
domestic market is rather important. At the same
time, most of their R&D is likewise undertaken
domestically. Thus, if the protection period in the US
increases, it is conceivable that the profitability of
these pharmaceutical firms will increase to a large
extent. This would make more R&D projects
profitable and thus increase pharmaceutical R&D. As
the R&D is likewise primarily undertaken in the US,
domestic changes in protection will be found to have
an effect on domestic spending on pharmaceutical
R&D.

System generalised method of moments regression with spending on
pharmaceutical R&D as the dependent variable and including the US,
1996-2014
Variable
Pharmaceutical R&D in the previous
period

Coefficient estimate4

0.513***
(0.144)

Education

0.496**
(0.204)

Mean effective protection period

0.0285**
(0.0127)

Weighted mean effective protection
period (composite variable)

0.0548**
(0.0261)

Other R&D

0.424***
(0.128)

Constant

-2.901**
(1.167)

Observations

204

Number of id

21

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described in
section 1.4.2. The sample consists of medicinal products which are either centrally approved or approved through the mutual
recognition process. Medicinal products with a negative development time are not included. Standard errors in parenthesis. Both the
20 EU countries for which adequate data could be found and the US are included in the regression.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA
and MRI.
1 https://www.statista.com/statistics/272181/world-pharmaceutical-sales-by-region/
2 https://www.efpia.eu/media/25055/the-pharmaceutical-industry-in-figures-june-2016.pdf
3 Own calculations based on OECD (2015), "Research and development in the pharmaceutical sector", in Health at a Glance 2015: OECD
Indicators, OECD Publishing, Paris p. 188. It is reported that world industry spending on pharmaceutical R&D was USD 92bn and that in the US alone
spending on pharmaceutical R&D was close to USD 50bn. 104
4 When interpreting the coefficient estimates it is important to note that the immediate numeric value cannot directly be compared across
variables, as this is dependent on the unit in which the variable is recorded. For a further explanation of how to interpret the coefficients, see p. 171.

Including the US in the main regression changes the significance of the
effective protection period in the country itself (2/2)
This supports the hypothesis that what matters to
pharmaceutical companies is the protection period in
the markets in which they sell most of their products.
In the case of the US, the domestic market is a large
part of the global market.
The change in significance of the domestic protection
variable when including the US can, however, also be
seen as an indication that the estimation of this
variable should be interpreted with caution in both
regressions. As such, on the basis of the existing data
material we are not able to firmly conclude whether
the domestic protection period has an impact on the
level of domestic spending on pharmaceutical R&D.
The coefficient estimate of the composite variable
“Weighted mean effective protection period” is still
significant and has not changed much in numerical
value. This can be interpreted as signifying that the
estimate of this coefficient is fairly robust across
formulations. This is quite interesting, especially in
light of the change of significance of the domestic
protection variable when including the US.

The global pharmaceutical market
The global pharmaceutical market is still
concentrated in the developed countries, which
accounted for approximately 70% of world
pharmaceutical sales in 2015.1 Notably, as can
be seen from the figures below, the US features
prominently in the global pharmaceutical sector,
in terms of both sales and R&D expenditure.
Pharmaceutical R&D by region 2014:

US
39%

Other
43%

EU
18%
Sources: OECD: Health at a Glance 2017 and Evaluate Pharma: World
Preview 2017, Outlook to 2022.

Estimated pharmaceutical sales by region 2014:
Latin
America
7%

Hence, even when including the US, which evidently
makes the domestic market an important driver of
domestic spending on pharmaceutical R&D, foreign
trade markets still seem to be important. This could
point to the assertion that exports to foreign
countries are immensely important to
pharmaceutical companies across countries.

Asia and
Australasia
27%

Transition
economies
4%

North
America
42%

Western
Europe
20%
Source: Deloitte 2015 Global Life Sciences Outlook.

1 International Federation of Pharmaceutical Manufacturers & Associations (2017) The Pharmaceutical Industry and Global Health.
105

Trade country wealth seems to be an important driver of the size of the
individual trade weights (1/2)
IDENTIFICATION

The correct identification of the composite variable,
which depicts the importance of the effective
protection period in the other EU countries with
which a given country trades the most, is important
to the interpretation of the coefficient estimate
reported.
The variable is a weighted average of the effective
protection period in the other EU countries with
which a given country trades the most. The utilised
weights are the fraction of total pharmaceutical
exports (trade weight) shipped from the given
country to the other EU countries with which the
country trades.
As such, the composite variable may vary over time,
either because the trade weight changes or because
the effective protection period in the other EU
countries with which the country trades the most
changes.

ENDOGENEITY

The trade weight can change because e.g. total
exports from a country increase but exports to
another EU country do not. In this case the fraction
of total exports shipped to a given country decreases.
Likewise, it may change if the customs duties of the
EU countries with which a country trades the most
are increased. This will likewise decrease the fraction
of total exports shipped to the given country.
The estimation of the variable is robust with respect
to the above-mentioned changes as long as the
changes are exogenous;1 they do however imply
certain intricacies in the interpretation of the
estimated coefficient of the variable.

However, if the changes in the trade weights are
affected by a variable not included in the regression,
which likewise influences the amount of
pharmaceutical R&D, there may be a so-called
endogeneity problem. This would entail both the
level of domestic R&D and the trade weights being
determined by a third unobserved variable. In this
case the coefficient estimate of the composite
variable may be biased.
One such variable may be the wealth of the other EU
countries with which a given country trades the
most.

WEALTH OF THE OTHER EU
COUNTRIES WITH WHICH A GIVEN
COUNTRY TRADES THE MOST

If a country with which another EU country trades
becomes relatively more affluent than the other EU
countries, the expected profitability of investing in
more pharmaceutical R&D may increase in a given
country. This would increase the incentive for
spending resources on pharmaceutical R&D. As
such, an increase in the wealth of the other EU
countries with which a given country trades the most
may increase the spending on pharmaceutical R&D
in a given country.
At the same time, if another EU country with which a
country trades becomes relatively more affluent than
the other EU countries, it may become more
profitable to ship a larger fraction of total
pharmaceutical exports to said country. If this
happens, it would increase the trade weight on said
country. A likely mechanism ensuring this would be
the demand effect, whereby nations obtaining a
higher amount of wealth in turn demand more
medicinal products. Similarly, they may demand

better and more expensive products, with the
outcome that exports to this country increase.
The two possible chains of effects discussed entail
that the wealth of the other EU countries with which
a given country trades the most may influence both
the amount of pharmaceutical R&D and the trade
weight. To analyse the latter of these assertions, it is
possible to undertake an auxiliary regression.

AUXILIARY REGRESSION

The auxiliary regression tests whether there is a
relationship between the average trade weight of
other countries on their EU export countries and the
level of GDP per capita in said countries. To do this,
the average of the other countries’ trade weights on a
given country for each year is calculated.

An illustrative example where there are only three
countries in the sample: Germany, the UK and
France. If Germany e.g. sells 40% of its
pharmaceutical exports to France and the UK sells
60% of its pharmaceutical exports to France, the
average trade weight for France would be 50%; i.e.
on average, the other countries ship 50% of their
pharmaceutical exports to France.
The relationship between this measure and the GDP
per capita in the receiving country (France in the
example above) is then analysed.
This auxiliary analysis helps in shedding some light
on the issue of whether the wealth of a given country
with which another country trades has an influence
on the trade weight on the former.
The following page presents the results of the
auxiliary regression analysing the issue.

1 The changes are exogenous if they are not influenced by e.g. variables not included in the regression, which likewise has an influence on the level
of spending on pharmaceutical R&D. 106

Trade country wealth seems to be an important driver of the size of the
individual trade weights (2/2)
The result of the auxiliary regression described on
the previous page can be seen in the table to the
right.
From the positive and significant coefficient of the
variable “GDP per capita” it can be seen that the
wealth in the other EU countries with which a given
country trades the most seems to be an important
factor in explaining the fraction of pharmaceutical
exports that these countries receive.

System generalised method of moments regression with average export
trade weight from other countries as the dependent variable, 1996-2014

Variable
GDP per capita

0.734***
(0.0415)

There are two main takeaways from this result.
The first is, as described above, that it seems that the
wealth of an EU country that another country trades
with is an important factor in deciding what fraction
of pharmaceutical exports the former country will
receive. This resonates nicely with economic theory,
implying that more products will be sold in more
affluent markets (likely as an effect of higher
demand). Furthermore, this result is supported by
some of the results shown in the next chapter on
availability. Here, GDP per capita is likewise found to
be a statistically significant driver in determining the
launch strategy.

Coefficient estimate

Constant

-5.951***
(0.142)

Observations

368

Number of id

20

Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

The other key result is that this potentially has
implications for the interpretation of the coefficient
of the composite variable in the main regression.
This is analysed further on the following pages.

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described in
section 1.4.2. The sample consists of medicinal products which are either centrally approved or approved through the mutual
recognition process. Medicinal products with a negative development time are not included. Standard errors in parenthesis. The
dependent variable is the average fraction of other countries’ pharmaceutical exports the given country receives.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA
and MRI.

107

Analysing the trade country weights (1/3)
In the previous section it was shown that the wealth
of the other EU countries with which a given country
trades the most, measured by GDP per capita, is a
significant variable in determining the trade fraction
for said countries.
To analyse this further, and identify whether this has
an implication for the interpretation of the
coefficient of the composite measure in the main
regression, it is possible to run the regression with
fixed trade weights.
Fixing the trade weights removes any time variation.
This is done by calculating the trade weights as an
average across the whole observed time period. Only
countries with observations during the whole period
are included. To maximise the number of countries,
the time period is slightly shortened to 1998-2014.
Keeping the trade weights fixed means that they can
be said to be approximately exogenous. Hence, all
remaining variation in the composite variable will
stem from variation in the effective protection period
in the countries to which medicinal products are
exported.
The following regression thus explores whether the
dynamically changing weights which are influenced
by the wealth of the other EU countries with which a
given country trades the most can be found to bias
the conclusion in the main regression to a degree
that invalidates the results.

108

Analysing the trade country weights (2/3)
The results from running the main regression but
utilising fixed trade weights can be seen in the table
to the right.
The main finding from the results reported is that
the composite variable still has a positive significant
coefficient. Hence, even if there is a possible
endogeneity bias from the dynamically changing
trade weights in the main regression, this does not
seem to influence the overall conclusion. The
weighted effective protection in the other EU
countries with which a given country trades the most
has a significant effect in explaining the amount of
spending on pharmaceutical R&D.
Keeping the trade weights fixed at their average
value during the sample period does not have any
direct empirical meaning. It is merely a theoretical
abstraction, to analyse whether there is an
endogeneity problem. As such, the size of the
coefficient of the composite variable in the table to
the right cannot directly be concluded upon.
However, the sign and significance support the
conclusion drawn from the main regression.

System-generalised method of moments regression with spending on
pharmaceutical R&D as the dependent variable and using trade weights
fixed over time, 1998-2014
Variable
Pharmaceutical R&D in the previous
period

Coefficient estimate

0.454***
(0.163)

Education

0.533**
(0.235)

Mean effective protection period

0.00122
(0.0163)

Weighted mean effective protection
period (composite variable)

0.0944**
(0.0382)

Other R&D

0.395***
(0.126)

Constant

-1.531

(1.120)
Observations

168

Number of id

19

Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described in
section 1.4.2. The sample consists of medicinal products which are either centrally approved or approved through the mutual
recognition process. Medicinal products with a negative development time are not included. Standard errors in parenthesis. The 19
EU countries for which adequate data could be found are included in the regression. The calculation of fixed trade weights puts limits
on the number of countries used and the time period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA
and MRI.

109

Analysing the trade country weights (3/3)
One way of remedying the potential for an
endogeneity bias would be to include the GDP per
capita of the other EU countries with which a given
country trades the most in the main regression.
The reason for not directly including this variable in
the regression is that it would entail having one
variable for each included country. As the system
GMM method utilised in this section employs an
instrumental approach to dynamic panel data
modelling, the inclusion of 20 new country-specific
variables would quickly diminish the degrees of
freedom. This would reduce the explanatory power
of the model and the estimates may become less
reliable.
In order to preserve the ease of interpretation, and
because the potential endogeneity issue cannot be
found to change the conclusions, it is deemed best to
not further complicate the main regression.
However, the main results and conclusions should be
seen in the light of the above caveats and nuances.

110

Considerations as to the effective protection period as well as the colocation of pharmaceutical manufacturing and R&D
THE AVERAGE EFFECTIVE
PROTECTION PERIOD

The above analyses and conclusions are centred
around the measure of the average effective
protection period that medicinal products obtain in a
given country. Hence, the validity of the results is
built upon the assumption that this measure is a
relevant measure for the IP protection of medicinal
products.
It has already been pointed out that there are certain
data challenges and that the results are valid to the
degree that these have successfully been overcome.
However, using the average effective protection
period as the central measure likewise assumes that
this variable is important to the companies when
they are making their R&D decisions.

A risk is that the average effective protection period
is biased across countries as an effect of decisions
made by the pharmaceutical companies.
It may e.g. be that companies launch products with
very short protection periods only in the large
countries, because only here is the patient base large
enough to recoup the investment and earn a return.
This would entail products in the large markets
being biased towards having a shorter protection
period.
It may, however, likewise be the case that companies
tend to seek SPCs and secondary patents most
rigorously in the large countries where keeping
competition at bay as long as possible is most
profitable. This would entail products in the large
markets being biased towards having a longer
protection period.

The key takeaway is that the size of the effective
protection period may be correlated with e.g. the size
of the markets. However, it is difficult to speculate as
to whether the net bias is positive or negative. It is,
however, important to keep in mind when
interpreting the results reported in the previous
sections.

CO-LOCATION OF
PHARMACEUTICAL R&D AND
MANUFACTURING

The present analysis studies the relationship
between the average effective protection period,
trade flows and spending on pharmaceutical R&D.
For this to have empirical merit, it must, at least to a
certain degree, be some form of co-location between
manufacturing and R&D within the pharmaceutical
sector.
When e.g. the relationship between protection in the
other EU countries with which a given country trades
the most and R&D in the given country is analysed,
there must be some level of co-location of
manufacturing and R&D for the analysis to have
empirical merit.
If manufacturing and R&D within the
pharmaceutical sector were completely decoupled,
theoretically there would not be a link between how
much a given country exports to another country, the
protection in the country which receives the export
and the spending on pharmaceutical R&D within the
given country.

holds.
Illustrative example: A country increases its
effective protection. The expected profit from
exporting to this country now becomes higher. This
incentivises companies to invest more in R&D. The
extra investment in R&D is placed in the same
country as the exports come from. If the R&D were
placed in another country, it would not be possible to
see an increase in the spending on R&D when the
effective protection in another EU country with
which a country trades increases.
The fact that there is a significant effect on the
composite measure supports this assumption.
Furthermore, an analysis undertaken to map the
location of 13 of the top 20 largest pharmaceutical
companies’ manufacturing and R&D activities has
revealed that there is a certain degree of co-location.1
The regression describes the historical relationship
between the included variables. To the extent that
e.g. further globalisation of the pharmaceutical
sector dilutes the amount of co-location between
manufacturing and R&D, the results may not hold to
the same degree in the future.

This assertion is best described with an example. The
present analysis assumes that, at least to some
degree, the following example of a chain of events

1 See appendix p. 166. 111

2.2 IMPACT ON
AVAILABILITY

The economics of medicinal product launches (1/3)
THE COST OF MARKET ENTRY

When a company is deciding whether or not to enter
a new market after having developed a new
medicinal product, standard economic theory would
suggest that the preceding expenditure on R&D
should not be factored in – only the future costs of
entering the market should be of importance.

DETERMINANTS OF MARKET
ENTRY

When a company makes the decision to enter a
market with a new medicinal product, the condition
upon which the company bases its decision is that ex
ante profit (i.e. expected profits after entry) needs to
be large enough to justify ex ante costs related to
launch (i.e. expected entry costs).

Once money has been spent on developing a new
innovative medicinal product, the R&D investment is
a so-called sunk cost. This means that the
investment cannot be reversed to have the money
refunded. This is the case for R&D investments, as
the money is spent on obtaining new knowledge and
knowledge in general cannot be returned.1

For market entry to occur and hence for a
medicinal product to become available to
patients, at least one company must
experience the following condition being
fulfilled:

However, before making the R&D decision, the cost
of the ex ante investment compared to the expected
ex post profits needs to be favourable.

Ex ante costs are driven by a range of factors. These
are e.g. costs of authorisation, product registration
and regulatory approval, obtaining import licences,
developing distribution channels, and marketing the
medicinal product as well as educating health-care
providers and possibly patients about the
appropriate use of the medicinal product. Some of
these may entail a large market access cost.

This means that there is a large difference in the
factors influencing the decision whether or not to
undertake R&D and the decision whether or not to
launch a medicinal product in a given country after
development.
In the section on innovation we study the effect of
the IP framework on the expected ex post profits and
hence the R&D decision of the company.
In this section we study the decision on entry and the
timing of entry into a given market once a new
medicinal product has been developed and is ready
for the market.

ࡱ࢞ ࢇ࢔࢚ࢋ ࢖࢘࢕ࢌ࢏࢚ െ ࢋ࢞ ࢇ࢔࢚ࢋ ࢉ࢕࢙࢚࢙ ൐ ૙

When studying the EU, it is important to note that
with the centralised procedure for marketing
authorisation, some of the regulatory costs may only
have to be incurred once, possibly facilitating a lower
cost per country if launching in many countries.
Ex ante profits are driven by market size and price.
Market size and price include e.g. the characteristics
of competition, the regulatory environment in the
country, the size of the population and its

demographics, disease incidence, cultural
characteristics influencing the attitude towards
medicinal products and the economic wealth of the
country.
The characteristics of competition depend to a large
extent on the regulatory environment present in the
country. The regulatory framework encompasses the
IP protection regime in the country, whether there is
price regulation and price referencing and the
structure of the reimbursement system. If the
reimbursement system is public, it is likewise
important whether or not there is a centralised buyer
and whether the pricing agreements are conveyed
through tenders.
The IP protection regime is important to the extent
that it determines whether and when generic
companies can enter the market. This can have an
effect on both the feasible prices and the investment
made into marketing and education.
If no (or weak) IP protection exists, generics can
quickly enter the market. Besides driving prices
down, as they have not incurred the same R&D
investment costs as the originator firm, the generic
companies can benefit from the marketing and
educational efforts of the originator company. Once
patients and doctors learn how to utilise a new
medicinal product and what its effect is, they do not
care whether it comes with a brand name on the
package or from a generic firm.2

1 There is of course the possibility of selling the invention to another company. This would entail a scrap-value of the invention and may only partly
recoup the initial R&D investment. Successfully progressing through the different R&D phases may likewise increase the value of the company and
attract investors and possible buyers. 113
2 Unless, of course, there is a difference in clinical value. This should, however, not be the case within the EU, as generics have to adhere to certain
quality requirements. There is evidence pointing to some consumers caring about this, but in the case of an insurance company or the public sector
reimbursing the costs, often the cheapest alternative is chosen. Furthermore, as we are looking at first launch, there is no alternative.

The economics of medicinal product launches (2/3)
Thus, there is the possibility of free riding at other
companies’ expense. Free riding theoretically leads
to less investment in marketing and educational
effort than is optimal from a societal point of view.
There is evidence that originator firms invest more in
stimulating demand (i.e. reaching more patients)
when they have exclusivity rights.1 This means that
potentially more people will receive and benefit from
the medicine. However, marketing efforts may also
make some patients/doctors choose the expensive
brand version over the generic.

PRICE REFERENCING AND
PARALLEL IMPORT

If price regulation and price referencing successfully
achieve the objective of lowering prices, seen in
isolation they make the market less attractive from a
company’s point of view but more attractive from the
buyer’s point of view. However, for the buyer there
could be the detrimental effect of the launch of
products being delayed or even completely deferred.
From a company’s viewpoint, price referencing
potentially introduces pivotal considerations as to
the launch order of countries. If a high-price country
references the prices of a low-price country, it may
be more profitable for the pharmaceutical company
to delay (or completely abstain from) launch in the
low-price country.
This is easiest to imagine in cases where large highprice countries reference small low-price countries.
In this case, if the company launches in both
countries, it will have to do so at the same price
because of price referencing. It can then either set a

high price in both countries, a low price in both
countries or something in between.
If it sets a high price in both countries, the low-price
country may not be able to afford the product and
sales will be zero in that country. If it sets a price
anywhere below what the high-price country is
willing to pay, the company will lose revenue in the
high-price country. The question then becomes
whether increased sales because of a lower price in
the low-price country can compensate for this.
Depending on the size of the countries and the
differences in wealth, this may not always be the
case. In these cases the most profitable action for the
company may be to enter the high-price country with
a high price and completely abstain from entering
the low-price country.

Further evidence on external price referencing can
be found in a survey carried out for the European
Commission in 2014.2 Here stakeholders were asked
to rank 16 different policy measures by their
effectiveness in achieving seven different policy
objectives.3
Stakeholders were first asked to assign weights to
each policy objective according to their perceived
importance and thereafter rank a range of policy
measures according to how good they were at
achieving the objectives.
Across all stakeholders, who may reasonably be
expected to place different emphases on the various
policy objectives, external reference pricing was seen
as among the least effective policy measures.4

Notably, external reference pricing was given the
lowest rank by both the pharmaceutical industry
(generic and research-based, n=30) and the
authorities and payers (n=27). The only stakeholders
in the survey viewing external reference pricing as
among the most effective policy measures were
doctors. However, only one doctor responded to the
survey, which brings its representativeness into
question.
Naturally, such a survey is limited by the fact that
only a sample of all stakeholders respond.
Nonetheless the study contributes to shedding some
light on the issue.
Considerations about parallel import likewise have
an effect on the launch and price decision. If a
product needs to be marketed and sold at a low price
in one country, while the prices set in other countries
are much higher, the company risks the higher-price
countries starting to parallel import the medicinal
product from the low-price country. As such, this has
much the same effect as a price referencing system.
This means that for the pharmaceutical companies,
considerations as to price referencing and parallel
import are pivotal in the launch decision.
The matters of price referencing and parallel import
imply that the launch sequence and decision in
European countries are far from independent. This
complicates the econometric analysis of availability.

1 See Kyle and Qian (2014), Intellectual Property Rights and Access to Innovation: Evidence from TRIPS.
2 European Commission (2014), Study of the policy mix for the reimbursement of medicinal products.
3 The selected policy objectives were timely access to medicines, equitable access to medicines, reward for innovation, cost-containment/ control
of pharmaceutical expenditure/budget, long-term sustainability (for the health-care system), promotion of more rational use of medicines and 114
increased competition.
4 See European Commission (2014), Study of the policy mix for the reimbursement of medicinal products for further elaboration and nuances
regarding the different stakeholders’ ranking of the policy measures in the survey.

The economics of medicinal product launches (3/3)
SECRET DISCOUNTS

There is likewise the nuance that for some medicinal
products there is a great deal of difference between
the list price and the actual price paid by e.g.
hospitals (and hence in the end the reimbursements
systems, insurance companies or payers). In many
cases secret discounts are given by companies to e.g.
the central buying authorities of countries. The fact
that the discounts are secret makes it impossible to
use the actual price in any price referencing system
and greatly complicates any comparison of medicinal
product prices across countries.
In a price referencing system where all prices are
visible to all parties and where all countries
referenced all other countries, the prices of
medicinal products would converge towards the
prices in the lowest-price country in the long run.
However due to e.g. secret discounts and the delay or
absence of product launch in some countries, this is
currently not the case. In practice, countries often
refer to a limited number of other countries, also
known as a “basket”.

MANY STRATEGIC
CONSIDERATIONS

All of the above implies that there are a multitude of
strategic considerations to be taken into account
when a pharmaceutical company is deciding which
markets to enter and when.
However, it is important to understand that the
launch strategy of a firm is driven to a great extent by
an economic cost-benefit analysis of which markets
can be expected to be most profitable.

In this respect, the expected number of products sold
and the expected obtainable price per product are
two pivotal elements essentially deciding what size of
profit the company can expect to obtain by entering
the country in question.

THE PARAMETER OF INTEREST:
AVAILABILITY
In this section we study the determinants of
availability. Our main interest is how various
characteristics of a given country affect the
availability of new innovative medicine.

of the molecule that confers a given effect and not
the name on the package.
This means that in our model, we look for the first
time a product containing a given molecule is
launched in a given country, whether the molecule is
found in an originator product or a generic product.
For simplicity we shall interchangeably use molecule
and medicinal product in the following text.

Availability is to be understood as whether or not a
product is available on the market, to the patients.
Availability
In this study a product is defined as being
available if it has undergone development,
received marketing authorisation and
subsequently been placed on the market (i.e.
products that have obtained a marketing
authorisation without physically having been
placed on the market are not defined as being
available).

MOLECULE FOCUS

An important distinction here is that we will study
the availability of a given molecule and not the exact
medicinal product. Studying the availability of the
molecule means that we make sure not to distinguish
between whether it is available through a brand
name or a generic manufacturer. From a patient’s
point of view, what should matter is the availability

115

Existing literature (1/2)
IP RIGHTS AND AVAILABILITY OF
MEDICINAL PRODUCTS

The relationship between intellectual property rights
and availability of medicinal products has been
studied extensively in the literature. A popular
approach is using the change in patent laws
following the enactment of TRIPS,1 especially in
developing countries. This makes it possible to study
how a rather drastic change in IP protection affects
the availability of medicinal products. Other
approaches have also been utilised, such as
exploiting cross-country variation in IP protection.
Kyle and Qian (2014) study the effect of changes
in IP rights stemming from the enactment of TRIPS.2
The authors analyse the effect on speed of medicinal
product launch, price and quantity in 60 countries
covering the period from 2000 to 2013. The speed of
medicinal product launch is estimated using a
discrete-time hazard model.
The most interesting result on availability is that
across all the different specifications used, the
authors find that new products are launched faster in
the presence of patents. The income of a country has
a large effect on medicinal product launch and the
study shows that poor countries are more likely to
receive older medicinal products.
In their study the authors use the existence of an
active patent as the measure of patent protection.
Hence, the analysis does not consider the interaction
with other protection schemes, such as market
exclusivity and data protection. Furthermore, using
the existence of an active patent provides

information only on the principled legal right and
not the actual empirical period of patent protection.
Danzon and Epstein (2008) study the effect of
price regulation and competition on medicinal
product launches in 15 countries covering the period
from 1992 to 2003.
Using the prices of established products in the
countries studied, the authors find that launch
timing depends on these. Thus, to the extent that e.g.
price regulation decreases prices in a given country,
the policy will contribute to a longer launch delay for
a new innovative medicine.
What is perhaps even more striking is that the
authors find that the availability of new medicine in
low-price countries is also affected by price
referencing in high-price countries, especially within
the EU. The consequence is that if a high-price
country uses a low-price country for price
referencing, the high-price country imposes a
welfare loss on the low-price country due to the
longer delay time for the new medicine. This finding
is consistent with pharmaceutical companies
delaying launch in low-price countries to avoid
having their prices in high-price markets
undermined by a price referencing policy.
Berndt and Cockburn (2014) examine the
availability of new medicinal products in India
compared to Germany and the United States. The
data used contains 184 new medicinal products
approved by the FDA in the years 2000-2009.

Focusing on India can highlight the importance of
patent protection, as India did not have patents for
medicinal products from 1971 to 2005. Patent
protection is still weak in India today and the generic
sector is substantial. This combination means that
competition is fierce and that innovator companies
cannot be sure of obtaining sufficient IP protection
to obtain a satisfactory profit when entering the
country.
The authors find substantial launch delays in India
as compared to Germany and the United States. In
India it took more than five years before 50% of the
medicinal products became available while in
Germany and the United States this took less than a
year. Furthermore, the distribution of launch delays
in India exhibits a longer right tail, with more
innovations taking a very long time to reach market.
In combination with this, the authors likewise find
that the number of sellers of a given medicinal
product is much larger in India (and takes a very
short time to reach this number) than in Germany
and the United States.
Based on these findings, the authors conclude that
India has succeeded in keeping prices for
pharmaceuticals low and hence ensures the
accessibility of medicinal products for their citizens.
The caveat, however, is that this has come at the
expense of availability. The fierce generic
competition spurred by weak patent protection
causes severe delays in the launch of new innovative
medicines in India compared to Germany and the
United States.

1 The Trade-Related Aspects of Intellectual Property Rights (TRIPS) sets forth a range of minimum requirements for IP protection in countries which are
a member of the World Trade Organisation.
2 See p. 25 for a description of TRIPS. 116

Existing literature (2/2)
As such, this paper highlights the seeming trade-off
between policies enhancing accessibility and the
availability of new innovative pharmaceuticals.
Cockburn et al. (2016) study the timing of the
launch of new innovative medicine using information
on 642 medicinal products in 76 countries for the
period 1983-2002. The launch delays are modelled
using a so-called parametric hazard model.
In the study, medicinal products are understood as
molecules (active moiety) and not directly as a
physical product. This is important, as one molecule
may be available through multiple products; e.g.,
innovator and generic versions. The clinical value of
a molecule does not depend on whether it is available
in a package with a brand name or generic name on
it. What matters clinically is that the molecule which
confers the desired effect is available. Hence this too
is the matter of focus in the study.
In line with other literature, the study shows that
price regulation delays the launch of new medicinal
products.

had taken place within 20 years of the first
international launch. This means that in many
countries, especially poor countries, patients never
have the same options regarding available medicine
as do patients in rich countries. This highlights the
need for insight into this area, as low prices and thus
high accessibility are a main concern insofar as the
medicine is actually available to patients.
The effect on launch delay of the legal patent regime
is quite pronounced. The authors find that moving
from a no patent policy to a regime with a long
patent protection1 period entails a 55% decrease in
launch delay. This effect is robust in respect to the
wealth of countries.
Besides patent protection regimes and price controls,
the authors find that launch delays are highly
dependent on income, as measured by GDP per
capita. On average, it takes nine years for a medicinal
product to be launched in the low-income countries,
while it only takes two years in the high-income
countries.2

Furthermore, the study shows that longer and more
extensive patent rights are associated with the faster
launch of new medicine. A striking result in this
regard is that in many countries some medicinal
products do not become available until more than 10
years have passed since their first international
launch. Moreover, many medicinal products are
never launched in more than a handful of wealthier
countries. In the sample, less than 50 percent of
possible country launches of new medicinal products

1 A long patent protection period is defined as equal to or greater than 18 years. This e.g. includes all countries adhering to the TRIPS agreement in
WHO, as this states that the minimum patent protection period can be no shorter than 20 years.
2 The classification of low-, middle- and high-income countries is based on the income categories of the World Bank. 117

Our approach following the literature study on existing evidence (1/2)
The main finding of the existing literature examined
on the previous pages regarding the subject of
availability is that a longer and more extensive
patent regime decreases launch delay. This means
that the literature suggests that the longer the patent
protection period is in a country, the earlier that new
innovative medicine becomes available in the
country.1
Taking these findings at face value, together with the
fact that legally an SPC increases the IP protection
period for pharmaceuticals, SPCs should have
contributed to decreasing launch lags of new
medicine in Europe.
This assertion, however, does not take into account
the interaction between SPC and other IP protection
schemes which play a role in giving a complete
picture of the effect of the IP regime.
As described at the beginning of section 2.1, the
protection of individual IP rights and incentives
conveyed on paper are one thing, while the empirical
protection period actually enjoyed when the different
schemes work in combination is something else.
For example, the protection period conferred by a
patent is 20 years “on paper” and the protection
period conferred by marketing protection is 10 years.
If a product is authorised 11 years after the priority
date of the patent, nine years of protection are left
before expiry of the patent. However, the market
protection scheme will provide 10 years of
protection. Furthermore, it is possible for the
company to apply for an SPC, which if granted will

last for five years. As such, the protection the
product can enjoy while authorised on the market is
14 years when all the protection periods are taken
into account.2
Hence, as was the case when we studied innovation,
we will utilise the effective protection period as the
measure of patent protection in a given country. This
ensures that we will catch the interaction between
the legal framework, the workings of the authorities
and other factors having an effect on the actual
period of time a medicinal product is protected by IP
rights or incentives.

Launch delay
The launch delay or lag of a medicinal product
in a country is the time elapsed from when the
medicinal product first becomes available
anywhere in the world until it is launched in the
given country.
First international
launch

Launch in
country

Launch delay

LAUNCH DELAY

It is one thing to study whether or not new
innovative medicine becomes available on the
market; the time that elapses before this happens is
another thing. If two countries both experience that
the same new medicinal product becoming available,
but it happens immediately in one country, whereas
the other country has to wait several years before the
medicine becomes available there, then depending
on the price, the country with the earlier launch may
be better off than the other country from a welfare
perspective.
As such, when studying the availability of medicinal
products in countries, launch delay is of at least as
much interest as assessing whether the product
becomes available or not.

NOT ALL ABSENCE OF LAUNCH IS
EQUIVALENT TO WELFARE LOSS

It is important to note that if a certain medicinal
product is not launched in a given country in a given
year, from a theoretical standpoint it does not
necessarily equate to a loss of welfare in this country.
It may be that some medicinal products become
obsolete because of new innovations before they are
launched in all countries, and some medicinal
products may treat diseases mostly prevalent in
certain countries (e.g. malaria or the Zika virus).
Moreover, if a medicinal product is launched at a
very high price, and the clinical effect is relatively
low, reimbursing it may actually entail a welfare loss
from a societal point of view, especially in lowincome countries.

1 See e.g. Kyle and Qian (2014), Berndt and Cockburn (2014) and Cockburn et al. (2016).
2 This is notwithstanding additional patents besides the patent which the SPC is “attached” to. 118

Our approach following the literature study on existing evidence (2/2)
MOLECULE FOCUS

As is the case in previous literature (see e.g.
Cockburn et al. (2016), Berndt and Cockburn (2014)
and Danzon and Epstein (2008)), we are studying
availability at the molecule level and not at the
product level. We do this as, when studying
availability, it is not clinically important whether the
package which the product comes in bears a brand
name or the name of a generic manufacturer. What
matters clinically is whether the molecule which
confers a given effect is available no matter who the
manufacturer is.
This means that in the data we identify the first time
a molecule becomes available anywhere in the world
through any company, and the time at which it
becomes available in the given country through any
company.
Launch delay: molecule focus
First international
launch of product
X containing
molecule Y

Launch in country
of product X

First international
launch of product Z
containing
molecule Y

Launch in
country of
product Z

Launch delay

DURATION MODELS

Following Cockburn et al. (2016), Berndt and
Cockburn (2014) and Kyle and Qian (2014), we use
so-called duration models to study the launch delay
of new medicinal products.

This type of model is often used in epidemiological
studies to analyse e.g. whether a new clinical
medicinal product can extend the life of terminally ill
patients.
In our case we will use the duration model
framework to model the time that elapses from a
new molecule first becomes availably anywhere in
the world until it is launched in a given country. This
time spell is what we call the launch delay.
The duration models estimate the probability of
transitioning from a given state into another state. In
our case this means estimating the probability of a
new molecule transitioning from having been
launched somewhere in the world but not in a given
country to being launched in the country.

The evidence from duration analysis can be
presented in a variety of ways. The two main
categories of results are parametric and nonparametric.
Non-parametric results are basically descriptive
statistics. However, it is possible to present quite
informative evidence, such as the hazard function
and Kaplan-Meier failure function.
The hazard function describes the unconditional
instantaneous probability of leaving the initial state
at any given point in time; i.e. the probability of a
molecule that is internationally available being
launched in the country.

happened at a certain point in time. In our case the
Kaplan-Meier function gives us a non-parametric
function describing how many of the possible
country-molecule combinations have been utilised at
a given point in time after the international
introduction of the molecule; i.e. in how many of the
EU member states has the new molecule been
launched.
The Kaplan-Meier function is quite informative, and
as it can be estimated and compared for categorical
variables, we can easily gauge how separate variables
influence the probability of launch.
Using a parametric estimation technique, we can do
a more thorough investigation of which variables
have an effect on the probability of launch. This is
equivalent to regular econometric model analysis
such as e.g. OLS.2 The difference is that here, the
covariates serve to translate the hazard function and
hence give an estimate of how the probability of
launch is affected by a change in the control
variable.3

COVARIATES

Launch delay may be driven by more than merely the
period of patent protection. To control for this we
include time-varying covariates in the parametric
hazard function. These include
• GDP
• Population size
• Whether the medicinal product is biologic or not
• GDP per capita
• Various interaction terms

The Kaplan-Meier failure function estimates the
probability, in the sample, of the event having

1 For more technical specification of the hazard model, see appendix.
2 Ordinary Least Squares (OLS) is a technique for estimating linear econometric models. See e.g. Verbeek, M. (2012), A Guide to Modern
Econometrics.
3 This is true for the proportional hazard functions, whereas for an accelerated failure time model, the covariates influence the shape of the hazard
function as well. 119

Data for the availability model (1/2)
IMS DATA ON PRODUCTS IN
EUROPEAN COUNTRIES

The point of departure is a dataset from IMS,
provided by the European Commission on a thirdparty basis to Copenhagen Economics.
The data covers all medicinal products in the retail
and hospital sectors in European countries launched
from 1900 to 2016.1 Malta, Cyprus, Denmark, Greece
and Slovenia are not covered in the data. For
Estonia, Latvia and Luxembourg there is only retail
data. The data includes products on the market
during at least one quarter from the last quarter of
2013 and the third quarter of 2016.
In line with Cockburn et al. (2016), we are looking at
a 20-year period. We have much more recent data,
however, so our period of interest is 1996 to 2015.
We have not included 2016 as our control variables
do not cover this year.
The data is included in the dataset on a productcountry basis and contains e.g. information on:
• Date of first launch anywhere in the world
• Date of launch in each EU member state
• Molecule
• Company
• Manufacturer
• Whether the molecule is biologic or not
• Whether the product is generic or not
• Chemical salt
• Physical form
• Package
• Quantity sold
• Sales

The dataset contains information only on products
that have been launched in at least one EU member
state.
What interests us, however, is not the distinct
product and its launch, but rather the molecule in
the product. This is because it is not which company
introduces a given product in a country or what they
call it that interests us but merely that the product,
in any form and by any name, is available to the
patient.
As such, we need to recalibrate our data so that the
molecule is the focal point.
Below we focus on the hospital sector.
The original IMS dataset contains 310,590
observations. This is a fairly large number of
observations due to the fact that each product has
one observation per country it has been introduced
in. Hence, in a molecule sense, many of these
observations are identical where products offered
contain the same molecule. The time period is
similarly rather long, including products introduced
between 1900 and 2016 (uncertainty about data
quality increases the further back in time one goes;
hence we only use data from 1996 onwards).

used as the first international launch date.2
The first international launch date is crucial to our
analysis, as in principle it is from this date that the
molecule is capable of being launched in all
countries; i.e. the molecule cannot be launched
before its international launch date, whereas in each
subsequent year there is a positive probability of the
molecule being launched in each EU member state.
Retaining only unique molecule-country
combinations for molecules with a first international
launch in the period from 1 January 1996 to 31
December 2015 leaves us with 8,102 unique
observations, as the time dimension is not at work
here. These observations cover 907 unique
molecules.

This compares to 17,189 molecule-country
observations in Cockburn et al. (2016),
corresponding to 642 unique molecules for a 20-year
period spanning 1983 to 2002. The big difference is
that the number of countries covered in Cockburn et
al. (2016) ranges from 45 in the beginning of the
period to 76 by the end of their sample period. As
our focus is the EU, our sample contains 18
countries.3 Despite the smaller sample of countries,
our dataset covers more molecules.

We begin by identifying the date when each molecule
was first introduced anywhere in the world. Here we
use the international launch date, but we also check
whether a domestic launch date precedes it. The
earliest date when the molecule is recorded as being
launched, whether internationally or domestically, is

1 The older the data is, the less reliable it is. As such, it is doubtful whether the data actually goes back as far as 1900. However, as we use data from
1996 onwards, we are not impaired by this.
2 Each unique molecule or unique combination of molecules in one product counts as a unique observation. Hence if two molecules are
introduced in a country in two separate products and then are subsequently introduced in a combination, the molecules count by themselves and
in the combination as unique observations. 120
3 Malta, Cyprus, Denmark, Greece and Slovenia are not covered at all by the sample, whereas Estonia, Latvia and Luxembourg only have retail
data included. Norway is included as a member of the EEA. Bulgaria, Croatia and Lithuania are excluded as control variables could not be found for
these countries.

Data for the availability model (2/2)
Our dataset now contains only one observation per
molecule-country combination and only for countries
where the molecule is introduced during our sample
period.
The next step is to expand the dataset to have one
observation for each year for each molecule-country
combination, from international launch until
domestic launch. This allows us to include timevarying covariates in the analysis.
Furthermore, we must include observations for all
molecule-country combinations where the molecule
is not introduced during our sample period. We do
this as the molecule could have been introduced
during the sample period but was not. If we did not
do this, all our results would be conditional on actual
domestic launch. By including these observations, we
ensure that our results are widely applicable.
For certain country-molecule combinations we will
experience so-called right-censoring. This means,
that by the end of the sample period, 31 December
2015, a given molecule will not have been launched
in a given country. However, it may still be launched
after our sample period ends. If we did not include
these, our results would be biased, as these
molecules would then (incorrectly) not be counted as
part of the sample. Our econometric estimation
method corrects for these right-censored
observations.

molecule until domestic launch or the end of the
sample period on 31 December 2015. The final
dataset has 119,176 observations.

ONLY EU DATA AVAILABLE

An important point is that the dataset used for this
analysis contains data only on products and hence
molecules which at some point have been launched
in at least one EU member state. As such, the
analysis does not contain information on new
molecules that are launched outside the EU and do
not reach any EU member state market before the
end of the sample period.

PRICE REFERENCING AND
PARALLEL IMPORT

As we have seen in the literature and also touched
upon in the discussion on the economics of
medicinal product launch, price referencing and
parallel import seem to play a pivotal role in firms’
launch decisions.
As such it would have been optimal to include
measures for this in the model. With the available
data material, however, this was not possible. The
results of the following analysis allow several
interesting points to be made, but they should also
be seen in the light of what was possible given the
available data material.

This leaves us with a final dataset where each
molecule-country combination has a yearly
observation from the first international launch of the

121

Unless right censoring is taken into account, results may be biased
towards overrepresentation of medicinal products introduced in only a
few countries
THE MODEL TAKES RIGHT
CENSORING INTO ACCOUNT

The table to the right describes the number of
countries each medicinal product is launched in
during our sample period. As we do not observe
whether any medicinal products are introduced after
the end of our sample period, the table shows an
overrepresentation of medicinal products launched
in only a few countries. This is the consequence of
right censoring.

Number of countries in which new medicinal products are launched, not
taking account of right censoring

By using non-parametric estimation, in the form of
Kaplan-Meier estimates, and appropriate duration
models we can account for the right censoring in the
following analysis. This means that the model takes
exactly into account the picture we see in the table to
the right, where many molecules appear to be
introduced in only one or a few countries. However,
many of these products are introduced towards the
end of the sample period. As such, at the end of our
sample period they may not yet have had enough
time to disseminate to many countries.
One of the strengths of duration analysis is precisely
that any right censoring is factored into the model
when the coefficients or functions are estimated.
This ensures that we take full account of all available
data and not just the products launched in the
countries within our sample period.

Total

Count

Frequency

Percent

Cumulative
percentage

1

238

28.03

28.03

2

65

7.66

35.69

3

41

4.83

40.52

4

19

2.24

42.76

5

23

2.71

45.47

6

15

1.77

47.23

7

23

2.71

49.94

8

14

1.65

51.59

9

20

2.36

53.95

10

22

2.59

56.54

11

11

1.30

57.83

12

25

2.94

60.78

13

39

4.59

65.37

14

29

3.42

68.79

15

37

4.36

73.14

16

45

5.30

78.45

17

64

7.54

85.98

18

119

14.02

100.00

849

100

Note: Table showing the number of countries each molecule in the sample is introduced in during the years 1995-2015, conditional on
the molecule being launched in at least one EU member state. Not corrected for right censoring.
Source: Copenhagen Economics, based on IMS data.

122

The non-parametric Kaplan-Meier estimation technique allows for right
censoring and incorporates this in the likelihood function to establish
non-biased results
ANALYSING DURATION OF LAUNCH of introduction.
DELAY
HAZARD FUNCTION
Note that as we analyse the so-called duration of
launch delay (how long it takes from international
launch until launch in the EU member states), the
exact distribution of observations across our sample
period is not important.1 What matters is the length
of the launch delay regardless of whether the
medicinal product is introduced in e.g. 2001 or 2010.
What we are modelling is hence the length of launch
delay running from “0” if launched domestically in
the same year as the first international launch to
“20” if launched internationally in 1996 but not
launched domestically by the end of our sample
period in 2015. Thus our sample has launch delays
falling in the interval from 0 to 20.

An observed molecule can have a launch delay equal
to a certain time either because it is introduced
domestically at that time or because our sample
period ends at that time. For example, a medicinal
product introduced internationally in 2002 and
domestically in 2004 will have a launch delay of 2.
Likewise, a medicinal product introduced
internationally in 2014 but not introduced
domestically by the end of the sample period (2015)
will similarly have a launch delay of 2.

The hazard function at a certain point in time
describes the probability that a medicinal product
will be introduced at a given time, conditional upon
not having been introduced before that time.
The estimation method utilised in the following
analysis allows for right censoring by comparing the
number of medicinal products being introduced at
any given time with the number of medicinal
products at risk of being introduced at any given
time.
The number of medicinal products at risk of being
introduced at any given time are those that are
introduced at that time plus all those that are
introduced at future times in the sample, as well as
those medicinal products that are censored in the
interval between that time and the next year and
those censored in any future interval.

However, the estimation techniques used to identify
the hazard function in the following analysis take
this right censoring into account by estimating the
probability of a molecule being introduced at any
given time based on the number of molecules
actually being introduced compared to those at risk

1 Unless fundamental conditions in the market not captured by the model have changed. 123

Over time, the probability of introduction of a given medicinal product
decreases
The hazard function, shown to the right, describes
the probability of a molecule being introduced in a
country at any given time, conditional upon it not
having been introduced up until that time.

Non-parametric estimation of the hazard function for the EU member
states, 1996-2014

Thus, if a medicinal product has not been introduced
in a given country within five years of its first
international launch, there is a 4% chance that it will
be introduced in that given year, as illustrated by the
dotted line in the graph to the right.
The hazard function shown to the right decreases for
the whole time period. This means that the
underlying probability of launch decreases as time
passes.
This can be explained by the fact that the years of IP
protection diminish as time passes and the expected
profit of launching in a given country hence
decreases over time.

PARAMETRIC ESTIMATION

Using the general estimation technique, one cannot
estimate both the baseline hazard function and the
effect of explanatory variables at the same time.
Thus, when making a parametric estimation, a
function form of the baseline hazard must be chosen,
and then a shape parameter is estimated along with
the coefficients of the control variables.
In our case, the non-parametric estimation of the
hazard function bears a resemblance to a Weibull
distribution. This is in line with Cockburn et al.
(2016). We have used this to guide our choice of the
Weibull hazard function as the baseline hazard when
undertaking the parametric estimation.

When carrying out the parametric analysis a
proportional hazard function is used. This means
that the model estimates a common shape of the
hazard function for all observations, and the
explanatory variables serve to “move” this hazard
function up or down.

Notes: Graph showing the probability of launch at any given time since first international launch, conditional upon the medicinal
product not having been introduced before said time.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

124

Even twenty years after their first international launch, new medicinal
products have been introduced in only half of EU member states
By using the same way of accounting for right
censoring, a so-called failure function can be
estimated.

Fraction of EU member states where molecules are launched, 1996-2014

The failure function estimates the number of EU
member states that new molecules are launched in
over time after the first international launch. It thus
describes the probability of a new molecule being
launched before a given time.
Thus, 1.5 years after their first international launch,
new molecules were introduced in 25% of the EU
member states in our sample.

ONLY LAUNCH IN 50% OF MEMBER
STATES
Across the EU, new molecules are launched in only a
little more than 50% of EU member states within 20
years of a new molecule’s first international launch.1

As a launch occurs on a country basis, this means
that, on average, only half of EU countries will have a
new molecule available on the market within 20
years of it being introduced anywhere in the world.
The median medicinal product launch anywhere in
the included European countries is 4.2 years. This
means that half of the molecules in the sample are
launched in at least one of the member states within
4.2 years of international launch. Correspondingly,
half of the molecules are launched later than 4.2
years after first international launch, in at least one
of the member states included in the analysis.
The failure functions for each country are available in
the appendix.

Note: Graph showing the estimated fraction of EU member states where new molecules are launched over time following their first
international launch.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

1 In Creativ-Ceutical for European Commission (2014), External Reference Pricing of Medicinal Products: Simulation-based Considerations for CrossCountry Coordination, the authors find that the application of external price referencing to drive prices down may have the effect that lowerincome (and hence price) countries are de-prioritised when new medicinal product launches are taking place, to minimise the effect on prices in
other more important markets. This may in part help to explain why after 20 years only a little more than 50% of medicinal product launch
opportunities are taken within the EU. 125

Launch delay from first international launch until 25% of molecules have
been launched in member states is relatively low for most countries

8

Variation
0.8 – 6.4 years

6

4

Romania

Hungary

Poland

Slovak Republic

Czech Republic

Portugal

Belgium

Italy

Ireland

Spain

France

Finland

Norway

Austria

0

Average=1.6

Netherlands

2

United Kingdom

For Sweden, Germany and the UK it is less than one
year and the average is just 1.6. However, for
Hungary the launch delay until 25% of
internationally available molecules are launched is
around 3.5 years, while the delay is more than six
years in Romania. This shows that there is much
variation among the European member states.

Number of years until 25% of molecules have been
introduced in the country

Germany

From the graph to the right it can be seen that for
most member states this launch delay period is
relatively low.

Time from first international launch until 25% of molecules in the
sample are launched in the given countries, 1996-2014

Sweden

The statistical tools allow an analysis of the average
time it takes from molecules being launched for the
first time internationally until 25% have been
launched in the European member states present in
the sample.

Note: Graph showing the average time from first international launch of molecules until 25% are available in the given country.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

126

Launch delay from first international launch until 50% of molecules have
been launched in member states differs fundamentally between countries

16
Average=13.6

12
The number of
molecules introduced
does not reach 50%
within the sample
period of 20 years

8

Romania

Netherlands

Ireland

Hungary

Czech Republic

Belgium

Slovak Republic

Poland

Finland

Portugal

Sweden

France

0

Norway

4

Austria

It can thus be seen that the variation in delay times
until 50% of internationally available products are
launched is bigger than for the 25% mark shown on
the previous page.

Variation
2.6 – not within the sample period

Spain

Looking at e.g. the Netherlands, the picture is quite
different. The Netherlands has a launch delay of just
one year until 25% of internationally available
molecules are launched. However, during the sample
period of 20 years, the Netherlands do not reach the
point where 50% of internationally available
molecules are launched.

20

Italy

For Germany and the UK the launch delay until 50%
of internationally available molecules are launched is
less than three years. These two countries also have
very low launch delay periods until 25% of
internationally available molecules are launched.

Number of years until 50% of molecules have been
introduced in the country

United Kingdom

From the graph to the right it can be seen that there
is variation in this delay time among member states.

Time from first international launch until 50% of molecules in the
sample are launched in the given countries, 1996-2014

Germany

The statistical tools allow an analysis of the average
time it takes from molecules being launched
internationally for the first time until 50% have been
launched in the European member states present in
the sample.

Note: Graph showing the average time from first international launch of molecules until 50% are available in a given country.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

127

Higher GDP increases the speed and number of new medicinal product
launches
The variable income is coded as low if GDP per capita
is less than USD 30,000 (constant USD, PPP) and
high otherwise.1

Fraction of EU member states where molecules are launched classified
by GDP per capita, 1996-2014

Thus, after five years, around 30% of medicinal
product launch opportunities are taken in lowincome countries while around 45% are taken in
high-income countries.
The gap between high- and low-income countries is
most pronounced after around 2.5 years, when it is
around 16%. Over time the gap decreases but never
fully ceases to exist. After 20 years the gap decreases
to around 7%.
This result is perhaps not surprising, but from an EU
community perspective it may be concerning
nevertheless. The implication of the result is that
some countries receive new medicinal products
much faster than others, while some medicinal
products never become available outside a range of
more affluent countries.
To fully reveal the ramifications of and reasons for
this result, further research is needed. Apart from
the rather one-sided measure of GDP per capita, it
would be interesting to see whether institutional
factors, the political system, infrastructure etc.
explain some of the difference captured in the graph
to the right.
Note: Graph showing the estimated fraction of EU member states where new molecules are launched over time following the first
international launch. Classified by high and low income. Low income is given as GDP per capita of less than USD 30,000 (in constant
USD, PPP). As GDP per capita changes over time, some countries change from the low category to the high category over time.
However, generally the following countries fall in the low category: Czech Republic, Hungary, Poland, Portugal, Romania, Slovak
Republic. Generally the following countries fall in the high category: Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Netherlands, Norway, Spain, Sweden, United Kingdom.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

1 This threshold is the mean across countries and thus ensures an adequate number of observations both above and below it to allow for the
statistical analysis. 128

No difference in launch based on effective protection period
The variable protection is coded as low if the
effective protection period is less than the mean
effective protection period in the given year and as
high otherwise.

Fraction of EU member states where molecules are launched classified
by patent protection period, with the mean moving over the years, 19962014

The two lines in the graph to the right are depicted
with 95% confidence intervals. The confidence
interval accommodates the fact that these lines are
statistical estimates and hence have inherent
statistical uncertainty. The confidence interval
describes the interval in which the line falls with 95%
certainty. If the two confidence intervals overlap, it
cannot be concluded that statistically the two lines
differ in their estimates.
When looking at the overlapping confidence intervals
there does not seem to be a difference in the
estimated failure functions of the two categories.
The picture is the same if one uses the median
effective protection period as the divider between
low and high protection.

Note: Graph showing the fraction of launch opportunities for molecule-country combinations filed over time from the first
international launch of a given molecule.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

129

Biologic medicinal products are introduced faster and in more countries
than non-biologic medicinal products
Biologic medicinal products are introduced much
faster and to a much higher degree than non-biologic
molecules. This can perhaps be explained by an
economic incentive, as biologic medicinal products
generally have high prices1 and thus there are more
countries where entry is profitable than is the case
for less profitable non-biologic products.

Fraction of EU member states where molecules are launched classified
by biologic or non-biologic medicinal product, 1996-2014

Furthermore, as biologic medicinal products are
more complex than regular small-molecule medicinal
products, biosimilars are in general harder to make
than generics are for chemical products. As such,
competition may be less fierce for biologics, adding
to the attractiveness of more markets.1

Note: Graph showing the fraction of launch opportunities for molecule-country combinations filed over time from the first
international launch of a given molecule. Medicinal products developed using biotechnological processes as described in the Annex
(point 1) of Regulation (EC) No 726/2004 must be authorised through the centralised procedure. In practice this means that most
biologic products in the EU are approved through the centralised procedure. However, many vaccines do not fall within the scope of
the mandatory centralised approval.2
Source: Copenhagen Economics based on IMS data provided by the European Commission.
1 https://www.thebalance.com/top-biologic-drugs-2663233, https://www.forbes.com/2009/12/03/kramer-health-care-intelligent-investingpharmaceuticals.html, http://health.usnews.com/health-news/health-wellness/articles/2015/02/06/why-are-biologic-drugs-so-costly,
http://www.health24.com/Natural/News/why-are-biologics-so-expensive-20170623
2 Wang, W. and Singh, M. (2013), Biologic Drug Products: Development and Strategies. 130

Large difference in launch speed and number of countries for different
ATC codes
Using the present data it is possible to analyse the
speed with which new molecules are launched and
diffused across the EU member states based on
Anatomical Therapeutic Chemical (ATC) codes.

Fraction of EU member states where molecules are launched classified
by ATC-code, 1996-2014

ATC codes are a classification system for classifying
different medicinal products based on the “organ or
system on which they act and their therapeutic,
pharmacological and chemical properties”.1 There
are five different levels of ATC codes.
If a given molecule is authorised for the treatment of
several indications, it may be that it has more than
one ATC code. Using the highest level (ATC1, 1st
level, anatomical main group), which has 14 codes, in
the present sample 59% of the molecules have only
one ATC code.

To ensure the analysis is not confounded by
molecules with several different ATC codes, these are
excluded from the launch analysis to the right. As
such, the graph depicts the estimated percentage of
EU member states in which the 59% of molecules
with only one ATC1 code are launched.2
As such, the graph to the right depicts the estimated
launch speed and launch extent across EU member
states and categorised by ATC code.
The medicinal products with the highest estimated
launch are products belonging to the ATC1 category
of “Antineoplastic and immuno-modulating agents”.
This category contains many cancer medicines.
The medicinal products with the lowest estimated
launch are products belonging to the ATC1 category
of “Dermatologicals”.

Note: Graph showing the estimated fraction of EU member states where new molecules are launched over time after first
international launch. Classified by ATC code at the broadest level.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

1 WHO Collaborating Centre for Drug Statistics Methodology (www.whocc.no).
2 Non-randomly excluding molecules opens up the estimation to possible bias, if the excluded molecules systematically differ from the included
ones. However, assigning only one ATC1 code to a molecule with several ATC1 codes would likewise entail a possible bias depending on the
allocation mechanism used. As such, the exclusion strategy has been deemed the most implementable approach. 131

The econometric modelling of the availability of pharmaceuticals shows
a range of interesting points (1/2)
MARKET SIZE AND WEALTH

The process behind a pharmaceutical firm’s decision
to launch a medicinal product is an intricate
procedure and involves many considerations. Among
these is the attractiveness of the market (and
possibly strategic, political and ethical
considerations; i.e. ensuring that as many patients as
possible have access to a given treatment).
The overall attractiveness of a given market is based
on a combination of a range of elements. These
include e.g. market size (i.e. number of patients),
willingness to pay for pharmaceuticals, pricing
structure, structure of the healthcare system, culture
and more.
Across model formulations it can be seen that an
increase in the size of the population has a negative
effect on the probability of launch. This may partly
be explained by the fact that without an
accompanying increase in the wealth of a country,
population increase makes GDP per capita fall. As
such, this leaves fewer resources to be spent on new
innovative medicine for each individual citizen.
Likewise, it can be seen across formulations that the
wealth of a country as measured by GDP has a
positive effect on the probability of launch. This may
be explained by more wealth enabling people to
spend more money on treating different diseases
through the use of e.g. pharmaceuticals.
This may happen through an increase in both the
scope of diseases treated with pharmaceuticals and
the propensity to spend money on pharmaceuticals.

An increase in the scope of diseases treated could
happen e.g. through people buying medicinal
products to treat a disease instead of waiting for it to
go away or using various household remedies.
An increase in the propensity to spend money on
medicinal products may e.g. manifest itself in people
having enough purchasing power to buy the newest,
most innovative medicine to treat their specific
disease.1

INTERACTION OF MARKET SIZE
AND WEALTH

Expected profit, which is a main driver behind a
pharmaceutical company’s launch decision, is
determined by both the quantity sold and the price
obtained per unit.

In a very simplified way and with certain limitations
and caveats, GDP and population size can be used as
proxies for expected profit.
GDP per capita can be seen as a willingness-to-pay
estimate and can therefore represent the possible
price2 and the population size can stand in for the
number of possible patients.
The caveats are that GDP per capita may not be an
accurate measure for willingness-to-pay for
medicinal products. This also depends on e.g. the
way individuals plan their consumption. One
consumer may be willing to spend a large part of her
income on medicinal products, while another
consumer, perhaps with an even larger income, may
not be willing to spend as much as the individual

with a lower income. As such, personal preferences
matter as well.
Population size may not accurately track the size of
the market as some diseases may be more prevalent
in some countries than in others. This may be due to
e.g. geography (malaria in the tropics) or the
demography of the population (some diseases are
e.g. more prevalent in the elderly part of the
population).
To analyse whether the joint presence of both a large
potential market and a possibly high willingness to
pay for pharmaceuticals has a combined effect on the
probability of launch of pharmaceuticals, an
interaction term between GDP and population can be
included in the model. GDP per capita is also used.

Including an interaction term between these two
variables in model 2 reveals a positive and
statistically significant effect. This signifies that for
countries with a large population, an increase in GDP
has a larger positive effect on the probability of
launch than for countries with a small population.
This seems to suggest that the joint presence of a
large potential market and a potentially high
willingness-to-pay plays at least a part in the launch
decision of new pharmaceuticals. A possible
explanation may be that the higher the willingnessto-pay is in a given country, the higher the price that
companies can charge. Hence, these markets are
more profitable and the launch is undertaken first
here.

1 In countries where the patient does not directly pay for pharmaceuticals themselves, this may manifest itself through an upward pressure on the
government to provide more expensive innovative treatments or on the insurance companies to offer more extensive coverage, including
expensive new medicine.
2 Many other elements play a role here as well. Among these are price control mechanisms and price referencing. Using GDP as a measure for 132
willingness-to-pay is a valid method, regardless of whether the consumer or private or public health insurance pays for the medicinal products, as
GDP measures the wealth of the country as a whole.

The econometric modelling of the availability of pharmaceuticals shows
a range of interesting points (2/2)
NO APPARENT EFFECT OF THE
EFFECTIVE PROTECTION PERIOD

wealth of the countries.

Common to the different formulations of the model
presented here is the finding that by using the
available data material it is not possible to identify a
statistically significant effect of the effective
protection period on the probability of launch.

This assertion can be checked by including an
interaction term between the effective protection
period and population (see model 3) and an
interaction term between the effective protection
period and GDP (see model 4).

It is important to note that this is not necessarily
equivalent to the effective protection period
pharmaceuticals face in a given country not having
an effect on the probability of launch. It could also be
that there is a high degree of correlation between
market attractiveness and the effective protection
period. If this is the case, it may be difficult to
separate the two effects, making it difficult to
statistically identify a significant effect of the
effective protection period.1 This does not necessarily
mean that it is not important; it may be a result of its
being correlated with other similarly pivotal
variables.

However, in neither of the two model formulations is
there a statistically significant effect of the included
interaction term. This does not necessarily mean that
there is no joint effect of the variables; it may rather
come down to a low level of variation in the effective
protection period data.1

As with all statistical methods there are caveats that
one must be aware of. The above-mentioned is one
such point.

EFFECTIVE PROTECTION PERIOD
IN COMBINATION WITH MARKET
SIZE AND WEALTH

Using the same line of thinking as in the previous
section it may be that even though it is not possible
given the data material and econometric models
utilised to identify an isolated effect of the effective
protection period (see model 1), it may play a role in
an interaction with e.g. the population size and the

USING GDP PER CAPITA

serves as an international measure of the wealth of a
country. The higher GDP per capita is, the more
affluent a country is.2
When GDP per capita is included in the model
instead of GDP and population, a statistically
positive effect can be identified. This shows that
regardless of the absolute size of the market, the
probability of launch is larger in rich countries than
in less affluent countries.

THE FOLLOWING SECTION

In the following page a table with output from each
model is presented. The following pages delve
deeper into each model and provide insights beyond
those already provided here.

In models 1 through 4, the absolute values of the
population and GDP are included. This is done
following the assertion that these represent two
important elements when assessing the
attractiveness of a market; i.e. they are proxies for
the absolute size of a market and willingness-to-pay.
However, a large GDP spread among many people
does not necessarily constitute an attractive market,
nor does a low GDP necessarily constitute an
unattractive market if it is spread among only a few
people.

The fact that the interaction between GDP and
population in model 1 is significant suggests that the
interplay between the variables is important.
Another way of gauging this relationship is to include
GDP per capita as a control variable. This variable

1 This point will be elaborated upon with an auxiliary regression on p. 136.
2 The GDP measure used in the regressions is in constant prices and adjusted for purchasing power parity. 133

Five different model formulations are utilised to analyse the elements
affecting the availability of pharmaceuticals
Duration models with Weibull baseline hazard function
On the following pages each model is examined in turn. In addition to the regressions listed here, the last section features a
regression including ATC codes as independent variables.

Model
Variable

1

2

3

4

5

0.9995

1.0005

1.0169

1.0018

0.9949

Population

0.7115***

0.7759***

0.6750**

0.7123***

GDP

1.6193***

2.2719***

1.6239***

1.5654***

Non-biologic molecule

0.4963***

0.4959***

0.4963***

0.4963***

0.4997***

Constant

0.0891***

0.1094***

0.0709***

0.0870***

0.0668***

Effective protection period

GDP * Population interaction
Effective protection period * Population
interaction
Effective protection period * GDP
interaction
GDP per capita

1.1047**
1.0039
1.0026
1.5124***

p

0.6357***

0.6378***

0.6359***

0.6358***

0.6339***

Log pseudo-likelihood

-21,318.38

-21,300.43

-21,318.08

-21,318.27

-21,385.14

Subjects

16,300

16,300

16,300

16,300

16,300

Observations

119,176

119,176

119,176

119,176

119,176

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Coefficient reported in hazard ratios. Population is given in natural log and billion people, GDP is given in natural log and trillion
international 2011 dollars at PPP, GDP per capita is given in natural log and thousand international 2011 dollars at PPP. The variable p is the estimated shape parameter of the Weibull baseline hazard
function. Medicinal products with a negative development time are not included when calculating the effective protection period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA, MRI and IMS.

134

Market size and willingness-to-pay for pharmaceuticals are two important
factors in a firm’s launch decision
In this simple model controlling for population size,
GDP and whether the medicinal product is biologic
or not, the effective protection period cannot be
found to have a statistically significant effect on the
probability of launch.

Duration model with Weibull baseline hazard function of molecule launch
probability, 1996-2015

As previously touched upon, this may however be
due to a correlation between market attractiveness
and the effective protection period (see next page).

Variable

Increasing the size of the population by 1% decreases
the probability of launch at any given time by 0.34%.1
One reason for this may be that increasing
population size without increasing the wealth of the
country decreases the per capita amount available for
spending on pharmaceuticals. Market size does
indeed increase, but as purchasing power does not
follow suit, the coefficient suggests that the overall
effect on the attractiveness of the market is negative.
Increasing the GDP of a country by 1% increases the
probability of launch by 0.48%.2 One explanation for
this may be that when the country’s GDP increases,
the amount available for spending on
pharmaceuticals increases. As such, the positive sign
of the coefficient seems to suggest that this increases
the attractiveness of the market.
The coefficient of “non-biologic molecule” signifies
that the probability of launch for regular small
molecule medicinal products is only half that of
biologic medicinal products.

Effective protection period

Estimated coefficient
0.9996

Population

0.7114***

GDP

1.6193***

Non-biologic molecule

0.4963***

Constant

0.0891***

P

0.6357***

Log pseudo-likelihood

-21,318.38

Subjects

16,300

Observations

119,176

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Coefficient reported in hazard ratios. Population is given in
natural log and billions of people, GDP is given in natural log and trillions of international 2011 dollars at PPP, and GDP per capita is
given in natural log and thousands of international 2011 dollars at PPP. The variable p is the estimated shape parameter of the
Weibull baseline hazard function. Medicinal products with a negative development time are not included when calculating the
effective protection period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

1 ln(0.71167)=0.34
2 ln(1.61931)=0.48 135

The effective protection period is correlated with market attractiveness,
making identification of a separate effect difficult (1/2)
As was shown in chapter 1, there seems to be a
correlation that more SPCs are sought in larger
countries. If this entails the effective protection
period being higher in countries with larger
populations, we may not be able to identify a
separate effect of the effective protection period, as it
is correlated with population size.
To further analyse this, an auxiliary regression can
be utilised. The auxiliary regression can give us an
idea as to whether any correlation exists between
population and effective protection period. However,
as it is auxiliary in nature, no conclusions can be
directly inferred from the size of the coefficients.
By using a panel data model with a fixed effect it is
possible to analyse whether there is a statistically
significant relationship between market
attractiveness and the effective protection period.
From the regression reported to the right it can be
seen that there is indeed a relationship over time
between the effective protection period and
population size and GDP.
A bigger population is correlated with a longer
effective protection period. However, at face value,
the regression suggests that a higher GDP is
correlated with a shorter effective protection period.

Fixed effects estimation using the effective protection period as a
dependent variable, 1996-2015

Variable

Estimated coefficient

Population

13.48***

GDP

-9.950***

Constant

62.16***

Observations

352

Number of countries

18

R-squared

0.319

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Population is given in natural log and billions of people, GDP is
given in natural log and trillions of international 2011 dollars at PPP, and GDP per capita is given in natural log and thousands of
international 2011 dollars at PPP. Medicinal products with a negative development time are not included when calculating the
effective protection period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

136

The effective protection period is correlated with market attractiveness,
making identification of a separate effect difficult (2/2)
The negative relationship between GDP and effective
protection period may be explained to some extent at
least by the launch strategy of firms.
If a medicinal product has taken a very long time to
develop and has only a short protection period left
when it is ready for market, the cost-benefit analysis
may reveal that the only countries where a positive
profit post-launch can be expected are countries with
a high willingness to pay, measured here as GDP.
This is built on the fact that the potential for earning
a profit is higher if launching in a high-income
country than if launching in a low-income country.
As such, by launching in a rich country, it may be
possible to earn a higher revenue in a shorter period
than by launching in a less affluent country.
This may entail more medicinal products with short
protection periods being launched in high GDP
countries than in low GDP countries. This would be
consistent with the results reported on the previous
page.

137

Having both a high willingness-to-pay and a large market increases the
probability of launch even further. This underscores how both parameters
are important for the attractiveness of a market
Including an interaction term between GDP and
population can reveal whether these two variables
have an additional effect when jointly high (or low).
When including an interaction term, the overall
effect of e.g. GDP depends on both the coefficient of
the individual GDP variable, the coefficient of the
interaction term and the size of the population. The
next page presents evidence on the effect of a change
in GDP.
At face value, the coefficient of the interaction term
suggests that in a country with a large population, an
increase in GDP has a more positive effect on the
probability of launch of a new medicinal product
than in a country with a small population. Vice versa,
an increase in population size seems to have a more
positive effect in a country with a high GDP than in a
country with a low GDP. A more precise
interpretation is given on the next page.
The significance of the effective protection period
does not change.

Duration model with Weibull baseline hazard function of molecule launch
probability, 1996-2015

Variable
Effective protection period

Estimated coefficient
1.0005

Population

0.7759***

GDP

2.2719***

Non-biologic molecule

0.4959***

Constant

0.1094***

GDP * Population interaction

1.1047**

P

0.6378***

Log pseudo-likelihood

-21,300.43

Subjects

16,300

Observations

119,176

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Coefficient reported in hazard ratios. Population is given in
natural log and billions of people, GDP is given in natural log and trillions of international 2011 dollars at PPP, and GDP per capita is
given in natural log and thousands of international 2011 dollars at PPP. The variable p is the estimated shape parameter of the
Weibull baseline hazard function. Medicinal products with a negative development time are not included when calculating the
effective protection period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

138

Wealthier countries have more launches and have them earlier
The previous model formulations focused on the
absolute size of the market as represented by total
population and the willingness-to-pay for
pharmaceuticals as represented by GDP. The positive
interaction term between the two suggests that the
joint presence of both a large potential market and a
potentially high willingness-to-pay has a positive
significant effect on the launch decision.

Duration model with Weibull baseline hazard function of molecule launch
probability, 1996-2015

In model 5, GDP per capita is included instead of
population and GDP.

Effective protection period

It can be seen that the variable is statistically
significant and positive. The coefficient signifies that
increasing GDP per capita by 1.000 dollar1 increases
the probability of launch by 51%.
As such, here it is likewise found that greater wealth
increases the probability of launch. This underscores
the previous findings and adds to the robustness of
the results.

Variable

Estimated coefficient
0.9949

Non-biologic molecule

0.4997***

Constant

0.0668***

GDP per capita

1.5124***

P

0.6339***

Log pseudo-likelihood

-21,38.14

Subjects

16,300

Observations

119,176

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Coefficient reported in hazard ratios. Population is given in
natural log and billions of people, GDP is given in natural log and trillions of international 2011 dollars at PPP, and GDP per capita is
given in natural log and thousands of international 2011 dollars at PPP. The variable p is the estimated shape parameter of the
Weibull baseline hazard function. Medicinal products with a negative development time are not included when calculating the
effective protection period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

1 Measured in 2011 international dollars at PPP. 139

The ATC code is a significant determinant of launch speed and diffusion
across EU member states
The table to the right reports the duration model
estimates when the ATC1 codes are included as
explanatory variables.
It is important to remember that this entails
restricting the sample, as some molecules have more
than one ATC1 code. Consequently, the regression to
the right is restricted to the 85% of molecules in the
full sample which have only one ATC1 code.
For the regression method to work, one ATC1 group
has to be left out as a reference. The reference ATC1
code is “Alimentary tract and metabolism”. A
coefficient larger than one for the included ATC1
codes thus means that molecules within this category
have a greater probability of launch than molecules
belonging to the reference group. A coefficient
smaller than one signifies that molecules within this
group are less likely to launch than molecules within
the reference group.
The coefficient estimates mimic to a high degree the
estimated launch speed and diffusion shown
previously in this chapter. “Antineoplastic and
immuno-modulating agents” has a launch
probability more than twice as great as that of the
reference group. At the other end of the spectrum,
the launch probability of “Dermatologicals” is on
average only 30% of that of the reference group.

Duration model with Weibull baseline hazard function of molecule launch
probability, 1996-2015
Variable
Effective protection period

Estimated coefficient
0.9971

ATC1 code
Blood and blood-forming organs

1.9267***

Cardiovascular system

1.3315***

Dermatologicals

0.3032***

Genito-urinary system and sex hormones

1.4960***

Systemic hormonal prep, excluding sex hormones

2.0750***

General anti-infectives for systemic use

1.9900***

Antineoplastic and immuno-modulating agents

2.6780***

Musculo-skeletal system

1.2363***

Nervous system

1.6754***

Antiparasitic products

0.4273***

Respiratory system

1.1096*

Sensory organs

1.0287

Various ATC structures

0.5789***

Population

0.7218***

GDP

2.5481***

GDP * Population interaction

1.1172***

Non-biologic molecule

0.8168***

Constant

0.0452***

This generally means that many of the molecules
used for treating e.g. cancer are launched faster and
to a higher degree across Europe than are molecules
used for treating dermatological conditions.

p

Subjects

13,785

Nearly all of the estimated coefficients for the
different ATC1 codes are significant. As such, the
ATC1 code seems to be a significant predictor of
launch speed and diffusion across EU member
states.

Observations

93,903

Log pseudo-likelihood

0.6709
-17,990.20

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Coefficient reported in hazard ratios. Population is given in
natural log and billions of people, GDP is given in natural log and trillions of international 2011 dollars at PPP, and GDP per capita is
given in natural log and thousands of international 2011 dollars at PPP. The variable p is the estimated shape parameter of the
Weibull baseline hazard function. Medicinal products with a negative development time are not included when calculating the
140
effective protection period. The reference ATC1 code is “Alimentary tract and metabolism”. Molecules with more than one ATC1 code
are excluded. This restricts the sample to 85% of the molecules in the full sample.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

2.3 IMPACT ON
ACCESSIBILITY

Existing literature (1/2)
Berndt and Aitken (2010) use IMS prescription
data to study the US pharma market for prescription
drugs following regulation in 1984 (i.e. the so-called
Hatch-Waxman Act). One important finding from
the paper is that the generic share of retail
prescriptions in the US has grown substantially,
from approx. 19% in 1984 to 75% in 2009.
Furthermore, the authors construct a generic price
index for the top 25 generic molecules launched
between 2005 and 2009. They find that the generic
price index falls from 100 to 68 in the first 12 months
following generic entry, and to 27 after the first 24
months. The corresponding average number of
generic entrants is 12.
The index is comparable to a similar index
constructed in 1996 concerning data from 1994. In
1994, the index fell to 80 in the first 12 months and
to 65 in the first 24 months.
To conclude, the key results in the paper are, firstly,
that the generic share of retail prescriptions has
risen substantially and, secondly, that the effect on
price of generic entry has become more rapid.
Wouters and Kanavos (2017) calculate
commonly used price indices for generics using 2013
IMS Health data. This is done for seven European
countries, and the study encompasses 3,156 generic
medicinal products.
In general, the authors conclude that there are large
differences in generic drug prices across countries.
However, the results are sensitive to the choice of

index, base country, unit of volume, therapeutic
category etc.
On this basis, the authors conclude that although
price indices can be a useful statistical approach to
comparing drug prices across countries, researchers
and policymakers have to be cautious when using
them given their limitations.
Frank and Salkever (1992) investigate the
development of pricing following generic entry. The
authors use a market segmentation model which
delineates a price sensitive market and a price
insensitive market segment. Using this method, the
study finds that generic entry can lead to increased
prices for originator products. Furthermore, it is
found that originator companies respond to generic
entry by decreasing their spending on marketing.
Frank and Salkever (1995) use the theoretical
model developed in Frank and Salkever (1992) as the
point of departure for an empirical analysis.
In the paper, the authors observe a substantial
increase in the share of generic products sold by
prescription in retail pharmacies in the US since the
1980s. This is comparable to the result found in
Berndt and Aitken (2010), although this paper is
naturally concerned with a shorter time period.
The data used in the empirical analysis comes from
IMS America.

price after generic entry, while more competition
among generic producers results in substantial price
reductions for those drugs. The net effect of these
price changes is a reduction in the average price of a
prescription for the off-patent drug.
Pammolli, Magazzinni and Orsenigo (2002)
study the intensity of competition within
pharmaceuticals after a patent expires. The authors
show country-level variation in relationships
between prices, patent expiry and competition. They
differentiate between market-based competition
regimes in the US and price administration systems
in the EU. Quarterly data from the IMS MIDAS
database covering the years 1987-1998 is utilised.
The main findings are that in the US, prices increase
over time, before and after patent expiry, while
European prices decline when patent expiry is
approaching and continue to either decline or
stagnate after expiry.
The authors conduct a multivariate analysis. For the
US, the key results concerning the average price of
the original products are that:
• The average price of the original products
increases over time.
• An indicator-term for patent-expiry is statistically
insignificant.
• However, an interaction term between patent
expiry and time is significantly negative, implying
that patent expiry slows the price increase.
• Generic entry negatively affects prices and over
time slows price increases.

By studying a sample of 32 drugs post-patent expiry,
the authors find that branded products increase in

142

Existing literature (2/2)
In the European countries considered, the average
prices of original products decrease over time, even
before patent expiry. This result is the opposite of
the result for the US, where prices increase over
time.
Germany is the only country considered in the study
where patent expiry itself significantly affects prices
(negatively). Over time, patent expiry significantly
slows the decrease of prices in France and Italy,
meaning that the average price of the original
product decreases more rapidly prior to patent
expiry than afterwards.
Generic entry significantly magnifies price decreases
in France and Italy while slowing the fall of prices in
the UK.

A similar estimation was done for the average prices
of generics. This showed that a more concentrated
market will have higher prices for generics in the US
and France and conversely have lower prices in Italy.
In the UK and Germany, the effect is statistically
insignificant.
Over time, the average price of generic drugs
decreases significantly in all countries except Italy,
where the effect is positive but insignificant.
The results of the paper are consistent with the
observation that prices tend to fall with age in
Europe. Conversely, US original producers seem
firstly to practice penetration pricing to some extent
(setting lower prices initially to win market shares),
and secondly to succeed in segmenting the market

after patent expiry in order to continue charging
premium prices on their branded drugs.
Using the IMS Health database Midas covering the
market for angiotensin-converting enzyme1 (ACE)
inhibitors for a range of European countries in the
period 1991 to 2006, Von der Schulenburg,
Vandoros and Kanavos (2011) study the effect of
drug market regulation on originator pharmaceutical
prices. The authors find that while generic entry does
not have an immediate effect on originator prices,
subsequent changes in generic prices do. It is
likewise found that an increasing number of
competitors leads to decreasing originator prices.
Thus, in the case of ACE inhibitors in Europe,
originator prices are responsive to generic entry and
competition.

Furthermore, the study shows that mandatory
generic substitution and regressive pharmacist
mark-ups have a strong negative effect on originator
prices.
The results are not as pronounced for demand-side
measures. Profit controls and the use of costeffectiveness analysis appear to have a negative
effect on prices, while the results of price referencing
are inconclusive.
In relation to this study, it should be noted that the
data exclusively covers ACE inhibitors (drugs used to
treat hypertension).

1 ACE inhibitors are e.g. used for treating hypertension and congestive heart failure. 143

Declining prices after generic entry (1/2)
RESULTS

Our analysis shows that the price of the original
medicinal product decreases around the time period
when exclusivity is lost. On average, original
medicinal product prices steadily decrease by 40%
during the period six quarters prior to and five
quarters after the loss of exclusivity.1 This is contrary
to some of the results from the literature presented
on the previous page.
Prices for generic medicinal products entering the
market after the original medicinal product loses
exclusivity are on average around 50% of the price of
the original medicinal product over the first five
quarters.
Interestingly, however, there does not seem to be a
sharp drop in originator prices immediately after
generic entry, even though generic prices are 50%
that of the originator price. Furthermore, even five
quarters after generic entry, there still seems to be a
price gap between originator and generic prices. This
is comparable to the findings in the Sector Inquiry.2
The above suggests that e.g. brand value and/or
switching costs may play a role in the pricing
strategy. If there were no brand value/loyalty and
patients could immediately switch to the generic
medicinal product post generic entry, nobody would
buy the originator medicinal product when a
cheaper, identical product is available.
Another potentially important point is that there
may be inertia in the market whereby doctors and
patients only later learn about a new generic. This

may be especially important for medicinal products,
as in many EU countries, the cost is paid by either
the government or private health insurance
companies.3 This means that, in many cases, neither
the person writing the prescription nor the person
using it has the same monetary interest in finding
the cheapest product available as they would have,
had they themselves paid for the treatment.
However, it should be noted that this is not
necessarily the case for all countries and all
medicinal products, and as such, it should not be
seen as a generalised point but rather as a
contributing factor in some instances.
Another potentially important point when it comes
to switching patients from an originator product to a
cheaper alternative is that the propensity to switch
may differ depending on whether the product in
question is a chemical compound or biological. Many
biologics are relatively new and hence the body of
knowledge surrounding this area is limited. Recent
studies point to no difference in outcomes for
patients switching from an originator biologic to the
biosimilar version.4 However, the aforementioned
study still concludes that switching should remain a
“case-by-case” decision.
That the originator medicinal product begins its
price reduction even before entry of the generic
medicinal product suggests that the pricing strategy
of the originator firm is influenced even before
generic entry. This could be e.g. to increase market
share before competition enters.5 If the patient’s
course of treatment is very long (for example, if a
disease is chronic and switching during treatment is

very infrequent), a profit-maximising strategy by the
originator firm may be to decrease price prior to the
entry of generics to increase market share. After the
entry of generics, increasing prices may actually be
the most rational strategy, as this “cash-in” action
makes only a few patients switch. The alternative is
to try to compete with the price of the generic, which
may be an unfeasible strategy for the originator firm.
Another factor in a price decrease prior to generic
entry may be competition from other originator
companies. Unfortunately, we cannot identify this
kind of competition in the data.
The important point here is that insofar as the SPC
delays the time when generics can enter the market,
the time when the fall in prices found in this section
takes place is delayed.

METHOD

This analysis is based on medicinal product-specific
data from the IMS on quarterly revenue and sales
volumes in hospitals in 21 European countries for
the period 2013Q4-2016Q3 (i.e. 12 quarters). Hence,
the dataset is a panel dataset in which we have sales
revenue and volumes of specific medicinal products
(identified by country, manufacturing corporation
and acting molecule) over the period.
We have used this data to analyse what happens to
medicinal product prices when original medicinal
products lose market exclusivity and generic
medicinal products (copies with the same acting
molecule) enter the market. We have done this by
comparing medicinal product prices for the same
molecule in the same country.

1 See graph on p. 146.
2 European Commission (2009), Sector Inquiry – Final Report, p. 83.
3 See the section on pricing drivers for a more thorough review of pharmaceutical firms’ pricing strategies.
4 Moots et al. (2017), Switching between reference biologics and biosimilars for the treatment of rheumatology, gastroenterology and dermatology
inflammatory conditions: considerations for the clinician. 144
5 Market share considerations are relevant, of course, only if the company is not the market’s sole supplier; i.e. if there are other originator
companies offering medicinal products with the same effect.

Declining prices after generic entry (2/2)
To do this, first we have to specify which medicinal
products are original and which are copies. For all
medicinal products the dataset includes information
on the launch date (which may be prior to the first
quarter in the dataset 2013Q4). We therefore label
the medicinal product which was launched first as
the original medicinal product. Medicinal products
introduced later are labelled as copies. This is done
for each molecule and each country.
As we know the launch date of all medicinal
products, we can also extract information about
whether the original medicinal product is the only
one in the market at any given time. Further, we can
specify the time when the first generic medicinal
product enters the market. We therefore create a
time variable for each molecule and country which
specifies the number of quarters before and after the
first generic medicinal product is introduced into the
market. This variable is shown on the horizontal axis
in the figure on the following page.
Medicinal product prices are calculated by dividing
sales revenue by sales volumes. For each molecule in
each country we normalise the prices so that the
price of the original medicinal product in the quarter
before exclusivity is lost is 1. Thereby we can
compare the prices of different medicinal products
with different price levels. Lastly, the normalised
prices are averaged for both original and generic
medicinal products. The result is shown in the figure
on the following page.

RESTRICTION ON DATA

A number of data corrections had to be carried out to
make the prices comparable. The IMS data includes
three different volume measures: units, standard
units and kg. However, volumes in units and kg seem
to be flawed as implausibly large variations can occur
over time for the same product. This analysis was
therefore restricted to the use of standard units.
With the standard unit, it should be possible to
compare products whose package sizes differ.
However, we found that in a large number of cases
this cannot be done. We therefore manually adjusted
the standard units according to the number of
milligrams in each package. The information on
milligrams was available and feasible only for a
subset of the data. We have therefore restricted the
data to only look at capsule products. The IMS
documentation did not contain enough detail to
confirm this method, and this is a potential cause of
error.

on which molecules can be used for which
treatments.
The data present does however include ATC codes.1
Using ATC1 codes would allow the analysis to
determine whether the price difference and change
are different for medicines used in different
therapeutic areas. Unfortunately, the previously
described restrictions put on the sample do not allow
individual analysis of ATC1 codes as there are too few
observations within each category.

The result is a very restricted data sample of the
original dataset. The final dataset used had 3,500
observations representing around 600 different
medicinal products. If more information about the
reasons behind the irregularities in the data can be
obtained, the current analysis can be greatly
expanded.
Note that we compare prices of medicinal products
with the same acting molecule. However, a given
molecule can be used for several
treatments/indications and possibly be priced based
on the intended use. This is not taken into account in
the current analysis as we do not have information

1 ATC codes are a system for classifying different medicinal products based on the “organ or system on which they act and their therapeutic,
pharmacological and chemical properties”. See WHO Collaborating Centre for Drug Statistics Methodology (www.whocc.no). 145

Analysis of the effect of exclusivity on medicinal product prices (1/2)
Average price development of original and generic medicinal products before and after loss of exclusivity of
original medicinal product
Price relative to original medicinal product in quarter just before
loss of exclusivity (i.e. price (t=-1) = 100%)

140%

Loss of exclusivity

120%

100%

80%

60%

40%

20%
Quarters

0%
-6

-5

-4

-3

-2

Quarters before loss of exclusivity
Original medicinal product

-1

0

1

2

3

4

5

Quarters after loss of exclusivity
Generic medicinal product (copy)

Source: Copenhagen Economics analysis based on IMS data provided by the European Commission.

146

Analysis of the effect of exclusivity on medicinal product prices (2/2)
From the graph on the previous page it can be seen
that generic products enter the market at a price
around 40% below that of the originator one quarter
prior to entry. Over the following quarters the price
of generics decreases to around 40-50% of the
originator price prior to generic entry.

Furthermore, the price of the originator product also
falls after generic entry. However, the price decrease
is not immediately observable. By the fifth quarter
after generic entry, the price of the originator
product decreases to around 80% of the price prior
to generic entry.

seems to mimic the graph on the previous page quite
closely. In the graph from the sector inquiry,
originator prices also fall prior to generic entry,
albeit not as much as what can be seen in the graph
on the previous page.
Generics enter at a price level around 25% lower
than the originator price in the graph from the sector
inquiry. After entry, prices fall further but do not
reach 50% before the end of the observed period. As
such, prices for generic products reported on the
previous page seem to be lower than that found in
the sector inquiry.

A reasonable explanation for this may be the limiting
restrictions we are forced to impose on our data
sample. In the graph we present, only products in
tablet form can be used due to problems with the
reported prices for other products. As the sector
inquiry is built on a larger sample dataset, it is not
surprising that there is some difference in the
results.
However, when comparing the two graphs, the
available data material for the present study appears
to give results in line with those of the sector inquiry.

An interesting observation is that the prices of
originator products also fall in the quarters before
the entry of generics. Whether this is due to an
anticipatory effect priming the market before
competition or whether it is due to e.g. competition
from other originators the data unfortunately cannot
show us.
Again it should be mentioned that the sample is
rather restricted due to data availability issues.

SECTOR INQUIRY

In the sector inquiry of 2009 carried out by the
European Commission, a graph similar to the one
reported on the previous page was presented.1 The
graph is reproduced to the right for ease of
comparison.
In the graph from the sector inquiry, the drop in
originator prices is more pronounced at generic
entry. However, the decrease after the initial drop

1 European Commission (2009), Sector Inquiry – Final Report, p. 83. 147

Robustness check: Restricted sample

In our data we often have multiple original products
for a molecule. Such products are often the same
molecule but with a different package. One package
may be of 100 mg capsules, another of 200 mg
capsules. When adjusting prices for the quantity of
mg, different prices (per mg) are sometime
experienced. If these prices are very different, it may
be because these product treat different diseases.
We have therefore conducted a robustness check in
which we have restricted the dataset to include only
competing products for which the different forms of
original medicinal products have roughly the same
price per mg (+/- 5%).
The result is shown in the graph to the right. In this
restricted sample we also see a decreasing trend for
the original medicinal product, and the generic
medicinal products enter the market at almost half
the price of the original medicinal product. We
therefore conclude that the results are fairly robust.

Average price development of original and generic medicinal products
before and after loss of exclusivity of original medicinal product
140%

Price relative to original drug in quarter just before loss of
exclusivity (i.e. price (t=-1) = 100%)

The unit of comparison in each country is the
molecule; i.e. the products competing in this analysis
are identified by the molecule in the product. As
mentioned, a molecule can treat multiple diseases
and thus can have very different prices.

Loss of exclusivity
120%

100%

80%

60%

40%

20%
Quarters

0%
-6

-5

-4

-3

-2

Quarters before loss of exclusivity
Original medicinal product

-1

0

1

2

3

4

5

Quarters after loss of exclusivity
Generic medicinal product (copy)

Source: Copenhagen Economics analysis based on IMS data provided by the European Commission.

148

2.4 PRICING DRIVERS

Introduction to pricing
Gross profit is given by the margin per unit,
multiplied by the number of units sold. According to
economic theory, firms as a rule will always attempt
to set a price which maximises their gross profit.
In this regard, firms generally face a trade-off. They
can either set a high price and make a large margin
on fewer units (because demand is lower in response
to the high price) or set a low price and make a small
margin on more units (because demand is higher in
response to the low price).

market prices is implausible.

decisions of pharmaceutical companies.

•

Competing products are in some cases (small
molecule) exactly homogeneous (apart from e.g.
packaging).

This does not mean that pharmaceutical companies
do not take ethical, political or other concerns into
consideration when making decisions regarding their
pricing.

•

Usually prices are not updated regularly but often
set simultaneously by all firms for a certain period
of time; e.g., a tender period.

•

Market share has persistence due to patient
treatment programmes from which patients
cannot always immediately deviate. Firms may
thus be able to set a high price and profit from
their existing patient base without risking those
customers substituting away.

•

Consumers of medicinal products (patients) are
generally not very price responsive since large
parts of their bill are typically covered by public
institutions or insurance companies. Nor do the
prescribers of the good (doctors) have direct
monetary incentives.

•

Besides IP protection through patents, regulatory
protection schemes exist that protect medicinal
products.

The optimal price will depend on the strength of the
demand response to price changes. This varies
depending on the characteristics of the market in
question.
In our case, we are especially interested in
understanding how pharmaceutical companies
attempt to maximise their gross profit by setting the
price of their medicinal products.
There are a few characteristics which make the
market for medicinal products unusual:
•

•

Marginal costs are often negligible, meaning that
firms will make a positive gross profit at any
positive price1. This is not necessarily
irreconcilable with strategic launch, as this also
depends on e.g. reference pricing and the cost of
marketing in a new market.
Investing in the development of a pharmaceutical
is expensive and time-consuming, which means
that market entry in response to high short-run

However, to distinguish the range of differing
considerations from purely economic incentives, the
next section focuses strictly on the latter.

ECONOMIC THEORY

The following pages are written from a purely
economic viewpoint. This means that there is an
underlying assumption that companies are profitmaximising entities. As such, the following sections
defer any ethical, political or other considerations
which may also have an effect on the strategic

1 This might not necessarily be the case for all pharmaceuticals, e.g. biologics might have another cost-profile. 150

Market structure
RANGE OF MEDICINAL CATEGORY /
NUMBER OF COMPETITORS
The higher the number of competing firms whose
medicines are placed in the same tender or
treatment category by a public institution, the more
intense will be the price competition that arises.
Thus a broader definition of medicinal category
which places more firms within each category will
imply lower prices, as firms must fight to underbid
each other and capture market share.

If there are only a few competing firms, it may be
possible for the firms to engage in tacit collusion
whereby the competing firms implicitly coordinate to
establish a high-price equilibrium that is profitable
to all firms. However, as the number of competing
firms increases, such an equilibrium becomes less
sustainable due to the risk of deviation by a single
firm.

MARKET SHARE AND SWITCHING

A firm’s market share entering the tender period
determines the size of the firm’s existing patient base
on which the firm can profit. This group’s demand is
likely to be relatively unresponsive to price changes
(given that there are some frictions deterring preexisting patients from switching away immediately
or completely).

Firms that have a large stock of current patients will
be incentivised to price high in order to profit from
their existing customer base if competition
intensifies. By setting higher prices, these firms also
place less competitive pressure on their competitors,
as a result of which price competition in the market
may abate.

This means that an uneven distribution of patients
between firms, where at least one firm has a very
high market share, is likely to give higher prices in
general.

SIZE OF CONTESTABLE MARKET
SHARE

In some pharmaceutical markets there may be two or
more comparable medicinal products which can treat
the same illness. However, it will sometimes be the
case that specific medicines are recommended to
certain patient groups, irrespective of price, if those
patients respond most favourably to only that
specific medicine.
Patients that will be prescribed the same medicine
regardless of price are essentially non-contestable
since their demand is ensured to the producer of the
specific medicine.
If the share of non-contestable patients in the
market is high overall, then firms will, ceteris
paribus, set higher prices to profit from those
customers. The market will be characterised by less
competitive pressure, and all firms can thus set
higher prices, even those firms that do not
themselves have a non-contestable base.

LENGTH OF AVERAGE PATIENT
TREATMENT PERIOD

The degree of persistence in market share will
depend partly on the potential degree of switching
behaviour in patients and partly on the length of
treatment periods.

market share persistence may be low and
competition for new patients will be constant. This
incentivises companies to bid low since they cannot
effectively exploit their current market share with a
high price.

LENGTH OF TENDER PERIODS

If the pricing or tender periods are long, then the
cheapest medicine will accumulate all new patients
over a very long period.1 This will incentivise firms to
bid lower initially in order to ensure long-run market
share.

REGULARITY OF TENDERS

The regularity of price updates or tenders can also
impact the pricing decision of pharmaceutical firms,
although the impact of this parameter is not
unambiguous.
On the one hand, competitive iterative pricing
patterns can be sped up such that competing firms
quickly enter a downwards spiral of pricing towards
marginal costs. This is likely if there are many
competitors on the market.
On the other hand, however, regular price-setting
can also allow competing pharmaceutical firms to
exchange more regular signals on pricing strategy.
With few competitors, such signalling could enable
such firms to potentially establish a high-price
bidding pattern that is profitable to all firms.
A combination of the two aforementioned effects
may also arise and can be observed in so-called
Edgeworth pricing cycles.2

If the length of average treatment periods is short,

1 Unless doctors and patients are unresponsive to price competition.
2 “Edgeworth pricing cycles refers to an asymmetric pattern of prices that results from a dynamic pricing equilibrium among competing oligopolists”;
see http://www.noeleconomics.com/research/articles/NOEL_palgrave.pdf. 151

Tender impact and future perspectives
TENDER IMPACT
Structure of competing companies
Regional branches of pharmaceutical firms may not
experience full autonomy when setting their local
medicine prices. Often, an international
headquarters may dictate the pricing strategy for all
of its regional branches by setting general pricing
guidelines, such as price floors, from which
individual countries are not permitted to deviate.1
The head office will thus prompt regional offices to
set higher prices, despite the potential isolated
disadvantages of losing individual tenders.
Such firm constellations are most likely to be
observed when the medicine in question is produced
by large international pharmaceutical companies and
competed for in many countries.
Guidelines
State agencies and/or insurance companies will often
produce medicine guidelines on the basis of
medicine prices. Such guidelines will advise doctors
and patients which medicine to use in which cases.
The nature of such guidelines varies from country to
country and from medicine to medicine. For
example, the guidelines may state that doctors are
obliged to prescribe the cheapest medicine in at least
e.g. 80% of treatment cases. The guidelines may also
be of a more flexible nature whereby the cheaper
medicine is simply recommended.
Many countries employ lowest price reimbursement,
whereby individual patients are compensated by an

amount corresponding to the cheapest available
medicine that treats the given disease.
The nature of the resulting guidelines will impact the
pricing decision of firms. Hard guidelines for a large
proportion of the market will ensure that the
contestable market is as large as possible, which will
incentivise low bids. Soft guidelines, on the other
hand, can allow firms to compete using marketing,
research and other channels, thereby enabling more
differentiation and higher prices.

be likely to persist and firms will care about
maintaining their future market share. This will,
ceteris paribus, incentivise firms to bid lower.
If, on the other hand, the current market is soon to
be disrupted by generic medicinal products or a new
and improved medicine, then it may make more
sense for firms to simply cash in on the existing
customer base by setting a higher price.

Guideline conformity
Doctors and patients may be given some flexibility to
deviate from guidelines in individual cases; e.g., in
relation to specific symptoms. Doctors and patients
may also deviate from the guidelines due to personal
preference or for other reasons.
If guidelines resulting from medicine prices are not
enforced and/or doctors are explicitly afforded
flexibility, then setting the lowest price will not be as
important. In this case, firms are more likely to set a
higher price and then differentiate their product via
research and marketing.

FUTURE PERSPECTIVES
Length of patents and pipeline
Firms will also consider the future perspectives of
the market when setting their price. If all of the
competing medicinal products on the market have
patents which extend far beyond the upcoming
pricing or tender period and no new medicines are in
the pipeline, then the current market structure will

1 OECD (2008), Pharmaceutical Pricing Policies in a Global Market. 152

Switching rates in pharmaceutical markets
MEDICINE PROCUREMENT
Medicine is often paid for by the public sector or
insurance companies, which wish to provide costeffective solutions to their citizens/customers. This
means that in pharmaceutical markets, as in most
other markets, demand will depend somewhat on the
prices of different goods, even though the consumer
is not necessarily the same as the entity paying for a
treatment.
Procurement entities such as the public sector will
often create guidelines that specify their purchasing
policies. For example, if there are several somewhat
comparable medicines that treat the same illness or
disease, they may specify that patients should always
be prescribed the cheapest available option (or they
may specify that they will provide compensation
corresponding only to the cheapest option).1
Thus, the cheapest medicine among several
comparable options is likely to experience the
highest level of demand and may capture a large
market share.
However, a distinction must be made between two
different sources of demand for medicine.
For new patients who are to be prescribed a
treatment for the first time, the choice of several
different medicines may be relatively
inconsequential given that they have not yet
committed to a certain treatment programme. These
patients can potentially be assigned flexibly to the
cheapest available option (depending on their
symptoms etc.).

Existing patients, on the other hand, will have
already commenced a treatment programme with a
specific medicine and may therefore be committed to
continuing to use that specific medicine. It is not
necessarily straightforward to simply shift an
existing patient to a different medicine if another
option becomes cheaper during their treatment
programme.
While procurement guidelines may clearly specify
conditions for the prescription of medicine for new
patients, there may be more variability regarding the
conditions under which existing patients are
switched to cheaper options.
SWITCHING RATE
The switching rate of a pharmaceutical market
describes the degree to which existing patients can or
do switch their treatment programme to a different
medicine, particularly in response to price changes.
The switching rate of a specific pharmaceutical
market will depend on many factors. It will depend
upon the characteristics of the illness and the
treatment process, the similarities between the
different medicines on the market, the regulation
that is imposed on that market and so on.
For example, if there are several comparable
medicines that provide a similar treatment
experience and are somewhat interchangeable, then
the procurement body (e.g., the public sector) may
specify that patients should always switch treatment
to the cheapest current option, as this may not be
detrimental to patients and health outcomes.

1 For example, a policy requiring that the cheapest generic product be prescribed instead of a more expensive originator product. 153

Simulation: The impact of switching on pricing
THE IMPACT OF SWITCHING ON PRICING
The switching rate associated with a pharmaceutical
market will impact the responsiveness of demand to
pricing. This will in turn impact the pricing strategy
of pharmaceutical firms.
In particular, the switching rate impacts whether
firms must continually provide an attractive offer to
their current patients in order to maintain their
business, or whether they can rely on their current
patients continuing to purchase their medicine
regardless of its price.
If the switching rate in a market is low, then
pharmaceutical firms will, in the short term, be
incentivised to set higher prices, since they can earn
higher revenues by charging their current patient
base a higher price. This is because these patients
cannot or do not switch to alternatives in response to
a price increase.
If, on the other hand, the switching rate associated
with a pharmaceutical market is high, then
pharmaceutical firms will instead be incentivised to
set lower prices, as they must constantly set more
aggressive prices in order to maintain the revenue
stream from their current patient base, who can
simply switch to alternatives if faced with higher
prices. A higher switching rate also means that it is
easier to capture patients from competitors, which
again increases the profitability of setting a low price.
PRICING SIMULATION
We have run a simulation of a simple market for
pharmaceuticals in order to illustrate the impact of

switching rates on pricing strategy.
We have simulated a firm that is about to set its price
for a period of a set length; e.g., a year. The firm
considers two illustrative pricing strategies for their
medicine: a low price of EUR 50 per patient-month
or a high price of EUR 150 per patient-month. For
simplification, we have ignored all other pricing
options.
In the simulation, the firm is interested only in
maximising its gross profit; i.e. its revenue per
patient-month multiplied by the number of patientmonths. For this reason, it does not consider, for
example, the consumer backlash it could experience
in response to a tremendous price increase.
In scenario A, the firm acts in a market in which
patients have a relatively low switching rate of 20%.
This means that only 20% of the patients are eligible
to switch or capable of switching to a different
medicine if it becomes cheaper. The remaining 80%
of patients will stick to their current treatment
programme regardless of the prices that are set in
the new period.

scenarios. This allows us to isolate the effect of the
switching rate on optimal pricing strategy and
profitability.
For simplicity, we have assumed that the firm can be
certain of setting the lowest price in the market by
setting the low price of EUR 50. By setting the lowest
price in the market, it is ensured that the firm will
capture 80% of new patient volumes.
READING THE SIMULATION RESULTS
On the following pages we present the results of
several simulation scenarios. The results are
presented as gross profit in Euros. However, as these
are simulations, the exact size of the gross profit
does not bear a meaning in itself. What is interesting
is how the gross profit when using one strategy
compares to the gross profit when using another
strategy. In a given scenario, the strategy with the
highest gross profit will be the strategy that best
optimises the profit of the firm.

In scenario B, the same firm acts in a different
market in which patients have a relatively high
switching rate of 70%. This means that 70% of
patients are eligible to switch or capable of switching
to a different medicine if it becomes cheaper. Only
30% are incapable of switching or unwilling to switch
medicine in response to new prices.
All other parameters are held equal between the two

154

Result: A higher switching rate encourages a lower pricing strategy
In scenario A, in which there is a low switching rate,
the high-price strategy is more profitable than the
low-price strategy. This is because the firm can
accrue high revenues from its current patient base,
losing only 20% of its current customers to
switching. While setting a low price in this scenario
does allow the firm to capture a large majority of new
customers, it is still unable to attract many of the
competitors’ patients – again, due to the low
switching rate. Thus, although the low price attracts
higher volumes, this is insufficient to compensate for
the higher revenues per unit of the high-price
strategy.
In scenario B, in which there is a high switching rate,
the low-price strategy becomes more profitable. This
is because the low-price strategy captures not only a
majority of new patients but also 70% of the patients
of competitors. In comparison, the high-price
strategy is less profitable, since 70% of patients will
switch away from the medicine in response to its
higher price.
It should be noted that this simulation does not
account for the risk associated with setting a low
price, which may still end up being more expensive
than that of the competitor. This would result in the
least profitable strategy overall (low volumes and low
revenues per unit). Thus, it is not necessarily a given
that a firm should set a low price if it is not able to
accurately observe or predict the prices of
competitors. The simulation indicates that, in the
short term, a higher switching rate incentivises firms
to set lower prices.

Scenario A: Low switching (20%)
Strategy

Price

Competition
outcome

Resulting market
share of new
customers (patient
months)

Gross profit

Low price

EUR 50

Lowest price

80%

EUR 2.5 mn

High price

EUR 150

Highest price

20%

EUR 3.75 mn

Conclusion

Optimal
strategy: High
price

Scenario B: High switching (70%)
Strategy

Price

Competition
outcome

Resulting market
share of new
customers (patient
months)

Gross profit

Conclusion

Low price

EUR 50

Lowest price

80%

EUR 3.13 mn

Optimal strategy:
Low price

High price

EUR 150

Highest price

20%

EUR 1.88 mn

Note: The two scenarios are based on identical assumptions, apart from the switching rate, which are:
• The firm has an initial market share of 50% in a market with two firms.
• Prices are set for a certain length of time (e.g., one year).
• Marginal costs are EUR 0.
• The existing patient base will generate 50,000 patient months during the upcoming pricing period.
• All existing patients are currently associated with a specific medicine, although these patients may switch treatment during the
pricing period to the new lowest-priced medicine, to a degree dependent on the switching rate.
• New patients will generate 25,000 patient months during the upcoming pricing period.
• 80% of new patients will become associated with the lowest-priced medicine; the remaining 20% will become associated with
the more expensive medicine regardless (e.g., because of specific symptoms, preferences or similar).
Source: Copenhagen Economics pricing simulation.

155

Result: Low switching rate can still encourage low prices
In the long term, the impact of switching rates on
pricing strategy is less clear cut. This is because low
switching rates also imply the importance of
establishing a long-run market share.
This follows from the fact that, if a pharmaceutical
company first manages to capture a patient (by
setting a low price) in a low switching rate scenario,
then that patient is very likely to remain as a
customer, regardless of future pricing. It thus
becomes very important to capture patients in a lowswitching scenario, and this is only possible by
setting lower prices.1
In practice, the weight which pharmaceutical
companies assign to the two counteracting incentives
will depend on the extent to which they expect the
current market structure to continue; i.e. the
importance of establishing a sizeable existing patient
base.
We have also run a simulation of Scenario A, with the
low switching rate, for two pricing rounds in order to
investigate what happens when firms consider the
longer-term consequences of their pricing strategies.
In the simulation, the price which is set in the first
round impacts the market share entering into the
second round and thus the size of the existing patient
base in the second round.
In this simulation, it becomes most optimal to set a
low price in the first round, even with a low
switching rate, as this gives a larger patient base in
the second round. The firm then sets a high price in
the second round.

Scenario A: Low switching (20%)
Strategy

Price

Competition
outcome

Resulting market
share of new
customers (patient
months)

Gross profit

Low price, low
price

EUR 50, EUR
50

Lowest price,
lowest price

80%, 80%

5.50 mn

High price, high
price

EUR 150, EUR
150

Highest price,
highest price

20%, 20%

6.00 mn

Low price, high
price

EUR 50, EUR
150

Lowest price,
highest price

80%, 20%

7.75 mn

High price, low
price

EUR 150, EUR
50

Highest price,
lowest price

20%, 80%

5.75 mn

Conclusion

Optimal
strategy: Low
price, high price

Note: The two scenarios are based on identical assumptions, apart from the switching rate, which are:
• The firm has an initial market share of 50% in a market with two firms.
• Prices are set for a certain length of time (e.g., one year) in both periods.
• Marginal costs are EUR 0.
• The pre-existing patient base will generate 50,000 patient months during both upcoming pricing periods.
• All existing patients are currently associated with a specific medicine, although these patients may switch treatment during the
pricing period to the new lowest-priced medicine, to a degree dependent on the switching rate.
• New patients will generate 25,000 patient months during both upcoming pricing periods.
• 80% of new patients will become associated with the lowest-priced medicine; the remaining 20% will become associated with
the more expensive medicine regardless (e.g., because of specific symptoms, preferences or similar).
• The market share of a firm which has set a low price will be 75% at the end of the first period. The market share of a firm which
has set a high price will be 25%.
Source: Copenhagen Economics pricing simulation.

1 This conclusion pertains to the given scenario under analysis. 156

Generic policies vary greatly between countries
Policies regarding generic products vary across the
EU Member States.
Some EU Member States have mandatory generic
prescribing. This entails that prescriptions are filled
with an international non-proprietary name instead
of an distinct brand name. This policy gives the
pharmacy the freedom to provide the costumer
holding the prescription with any suitable medicinal
product containing the active ingredient, instead of a
particular brand-named product.
Other EU Member States have mandatory generic
substitution. This entails that no matter what
medicinal name is written on a prescription, the
pharmacy can provide the costumer with the generic
version, containing the same active ingredient, if
available.
Both policies are aimed at making sure that the
cheapest available medicine, containing the
prescribed active ingredient is given to the costumer
whenever possible.

Generic policies for the European Union member states
Country

Generic prescribing

Generic substitution

Austria

Forbidden

Forbidden

Belgium

Voluntary

Forbidden

Bulgaria

Voluntary

Forbidden

Croatia

Voluntary

Voluntary

Cyprus

Mandatory

Mandatory

Czech Republic

Voluntary

Voluntary

Denmark

Voluntary

Mandatory

Estonia

Mandatory

Voluntary

Finland

Voluntary

Mandatory

France

Mandatory

Mandatory

Germany

Voluntary

Mandatory

Greece

Mandatory

Mandatory

Hungary

Voluntary

Voluntary

Ireland

Voluntary

Voluntary

Italy

Mandatory

Mandatory

Latvia

Voluntary

Voluntary

Lithuania

Mandatory

Voluntary

Luxembourg

Voluntary

Forbidden

Netherlands

Mandatory

Mandatory

Poland

Voluntary

Voluntary

Portugal

Mandatory

Mandatory

Romania

Mandatory

Voluntary

Slovakia

Mandatory

Voluntary

Slovenia

Voluntary

Voluntary

Spain

Mandatory

Mandatory

Sweden

Voluntary

Mandatory

United Kingdom

Voluntary

Forbidden

Note: Table showing whether the individual EU member states have mandatory, voluntary or forbidden generic prescribing and
generic substitution for nonhospital pharmacies. Generic prescribing entails prescribing a medicinal products by its international
non-proprietary name. Generic substitution entails that pharmacies substitute a prescribed branded medicinal product for a generic
version of the same active substance. Information regarding Malta is missing.
Source: Wouters et al. (2017), Comparing Generic Drug Markets in Europe and the United States: Prices, Volumes, and Spending, p.
566, Figure 3
157

2.5 EFFECT ON GENERIC
MEDICINES AND FISCAL
SUSTAINABILITY OF HEALTH
SYSTEMS

Many uncertainties exist when analysing the possible saving from
changing the IP protection period (1/2)
ORIGINATOR AND GENERIC
PRODUCTS

Each year patents or other types of protection
schemes expire for a number of medicinal products.
This exposes these products to generic competition.
If the average protection period for medicinal
products were decreased, generic products would
have the opportunity to enter the market earlier than
is the case today. This is, of course, based on the
assumption that there will be generics ready to enter
the market.1
In the market for medicinal products some of the
products used are protected by patents or other
types of protection, while some are not. This entails
total spending on pharmaceuticals being split
between these two product categories.

Generally, generic products cost less than originator
products. This is at least partly due to the fact that
originator companies bear the expense of R&D, while
generic producers replicate originator products when
protection expires.
Currently generic products’ share of total
expenditure on pharmaceuticals is around 24%,
while their share of total volume is around 52% in
Europe.2

CHANGE IN THE SPLIT

If e.g. the protection period for medicinal products
were decreased, originator products would enjoy a
shorter period of protection before generic
companies could enter the market. This would entail
originator products being exposed to generic

competition at an earlier stage of their life cycle.

for some or all of the concerned agents.

If generic companies were to enter the market now,
with protection expiring for originator products at an
earlier stage, it would entail more of the stock of
available originator products being available in a
generic, less expensive version. This means that the
same kind of products would be available, but on
average at a lower price.3

It may e.g. be that originator companies would
change their R&D effort. We showed in Chapter 2
that there is a positive relationship between the
effective protection period and spending on
pharmaceutical R&D within EU countries.

Assuming that the above holds and that there are no
behavioural changes among the concerned parties,
and especially no decrease in innovation, this
hypothetical reduction of protection would entail the
same amount of medicine being sold and bought but
at a total lower cost.
This would in turn cause the split between how much
of total expenditure is spent on originator and
generic products to change. The share spent on
originator products would decrease, while the share
spent on generics would increase.

If the effective protection period in the EU as a whole
were to fall, the results from Chapter 2 would entail
total spending on pharmaceutical R&D decreasing.
Exactly what consequences this would have is
difficult to say. It may be that development times will
increase if fewer resources were put into each
development opportunity. This would entail
products taking a longer time to get to market, which
would delay the time when patients could benefit
from the new innovation. In effect, this would slow
the pace of innovation within the pharmaceutical
industry. It may also be the case that the number of
development projects would decrease. This would
entail fewer products reaching the market, which
again would be to the disadvantage of patients.

As generics generally are priced lower than
originator products, total expenditure on medicinal
products would fall.
It is imperative to underscore that the above-given
hypothetical example is dependent on none of the
agents in the ecosystem changing their current
behaviour.

IMPACT ON INNOVATION

It is, however, quite conceivable that a change in the
protection period would entail behavioural changes

1This depends on the profit generics can expect to earn in the market, compared to the costs of entering the market.
2 OECD (2016), Health at a glance 2016.
3 Assuming that the same amount of products would be developed by the originator companies. This is a major assumption, as this means that 159
taken to the extreme, completely abolishing IP protection and letting generic companies enter the market at once would not change the R&D
effort of originator companies. However, this example is for illustrative purposes.

Many uncertainties exist when analysing the possible saving from
changing the IP protection period (2/2)
A decrease in the originator R&D effort would mean
that fewer generic products would be available over
time. This is the case as a generic version of a
medicinal product can be made only if an originator
has developed it in the first place. As such, if there
are fewer innovative products on the market or the
pace of new innovation is decreased, there will be
fewer products for generic producers to make their
less expensive versions of.
A change in the time when generics can enter the
market may also change the behaviour of buyers of
medicinal products. It may be e.g. that the possible
saving from using more generics would be spent on
buying a larger amount of more expensive originator
products which are currently unavailable due to
budget constraints.

That budget constraints prevent authorities,
insurance companies or individuals from buying or
reimbursing the purchase of certain medicinal
products means that there is limited money within
current budgets to be spent.
It is thus conceivable that if a budget for
pharmaceuticals is fully spent, there may be certain
products which the buyer would like to purchase but
simply cannot. If the price of medicinal products
currently being purchased were to decrease, the
same quantity of products could be purchased but
without spending the whole budget. It is quite
conceivable that the newly recovered saving in the
budget would be spent on purchasing products
which were previously unavailable due to the budget
being fully spent.

The brief discussion in this section is meant to
highlight the fact that a new split between how much
is spent on originator and generic products following
a change in the effective protection period would
depend on a wide range of factors. This would entail
a change in e.g. the IP protection period leading to a
new equilibrium situation for the split between
spending on originator products and generics. An
equilibrium situation is a situation in which the
different factors and variables in a system find their
stable value and do not change unless something
new such as a policy change occurs.
Furthermore, the adjustment to the new equilibrium
situation would be dynamic and hence happen over
time. An effect on the R&D effort of companies, may
not be visible in the market for 10-15 years, which is
when many new products are ready for marketing
based on R&D decisions made now.

uncertainty that would make it impossible to say
anything meaningful about the precise trajectory of
the spending split between originator and generic
products.
As such, building such a model is not deemed to be a
productive endeavour. It is, however, possible to
produce a scenario analysis of a range of possible
outcomes for health care budgets from changing the
effective protection period. A scenario analysis will
enable us to identify types of outcomes and the most
decisive factors governing them.
In order for the scenario analysis to be viable,
behavioural effects are not included. This means that
neither changes in e.g. innovation efforts by
originator companies nor spending patterns by
buyers of medicinal products are included.

All of the arguments given above mean that a
possible model analysing the exact total effect on
health budgets of changing the IP protection period
would need to include a wide range of intricate
possibilities of behavioural changes for a variety of
agents as well as combining these with a very long
time horizon. Taken as a whole, any such model
would inherently be associated with a substantial
amount of uncertainty.
Furthermore, when taking these considerations into
account it is conceivable that any such model would
have to be build on a vast number of assumptions.
This would likely entail any conclusions drawn from
the end result being subject to a degree of

160

Changing 10% of total spending from originator products to buying
corresponding generics would generate a possible saving of USD 12.4bn
Possible saving on pharmaceutical spending depending on the
percentage of spending which can be shifted from originator products to
generic products, in 2010 USD
USD bn
100

In the hypothetical scenario situation presented
here, this change in the competitive situation is
assumed not to change the behaviour of any agents
affected by the change. This means that the
innovation effort of originator companies stays the
same so that the same quantity of new products are
introduced. Furthermore, buyers do not change the
‘basket’1 of medicinal products they buy except to
shift a given percentage of total spending on
originator products to corresponding generic
products, as these are now available at an earlier
stage of originator products’ lifetime.

80

In Chapter 2 we estimated that on average generic
products are available at a price 50% below that of
originator products.2 Applying this to our scenario
analysis means that if it is possible to change 10% of
total spending on medicinal products from originator
products to buying corresponding generic products,
this would entail a saving of 50% of this 10% of total
spending.

20

Total spending on medicinal products in the EU is
USD 247bn.3 Hence a 10% change of total spending
on medicinal products from originator products to
generic products would entail a possible saving of
USD 12.4bn (=247 x 0.5 x 0.1).

Currently 76% of medicinal product
expenditure comes from originator products.
‘Up here’ in the graph, the savings therefore
reflect a scenario where all originator products
are switched to generics

90

70
60
50
40

A 10% change in spending
from originators to
corresponding generics
entails a possible saving of
USD 12.4bn.

30

10

76%

72%

68%

64%

60%

56%

52%

48%

44%

40%

36%

32%

28%

24%

20%

16%

12%

8%

0%

0
4%

In a hypothetical scenario where the effective
protection period is decreased, it would be possible
for generic companies to enter the market at an
earlier stage. This would lead to more generic
competition and the accompanying price saving
being realised at an earlier stage for medicinal
products.

Note: Graph showing the possible saving on pharmaceutical spending in the EU member states, based on changing a percentage of
spending from originator products to corresponding generic medicinal products. Total spending on medicinal products is USD 247bn
as reported by the OECD in the dataset “Health expenditure and financing”. These statistics do not include spending in Bulgaria,
Croatia, Cyprus, Lithuania, Malta or Romania. The spending split between originator and generics is 76%-24% as reported for EU18
in OECD (2016), Health at a Glance 2016. Generics are set to cost 50% of originator prices, as was the case in the analysis in Chapter
2. Behavioural effects are excluded as these can be ambiguous.
Source: Copenhagen Economics, based on numbers from OECD (2016), Health at a Glance: Europe 2016, OECD health expenditure
and financing dataset and econometric analysis on accessibility undertaken in Chapter 2.

1 If buyers purchase only two medicinal products before the change, product X and Y, they likewise purchase these two products in the same amount after
the change. They do, however, shift a given percentage of the total spending from originator product X and Y to generic versions of product X and Y.
2 Our estimates suggest around 50-60% below depending on the period of measurement. In the literature there are many different estimates of the price
difference. Furthermore, this is complicated by the fact that the price difference changes over time. As the current scenario analysis is of a static nature, a
given permanent price difference must be chosen. The choice of 50% is supported by findings in e.g. Frank and Salkever (1995). In the appendix we show the 161
significance of using different levels of price saving for generic products.
3 Reported in the OECD dataset “Health expenditure and financing” and is thus in USD. We have kept this currency to preserve source numbers. These
statistics do not include spending in Bulgaria, Croatia, Cyprus, Lithuania, Malta or Romania

There are many matters to be aware of when interpreting the scenario
analysis
ANALYSIS BASED ON THE
AVERAGE PRODUCT

The scenario analysis presented on the previous page
is an analysis of the average product in the sense that
the price difference between generic and originator
products of 50% comes from an analysis of different
kinds of products.
This is in line with the view of what would happen if
the mean effective protection period for all products
were reduced by a given period.
However, if e.g. there were to be a change in the
protection period of the SPC, this would mostly
affect products eligible for this scheme.1 If there are
certain characteristics for these products, which
separate them from the average medicinal product
(e.g. number of generic producers entering the
market after protection expiry), these specificities
must be taken into account.
At the same time, changing the protection period
provided by the SPC would affect the generic
competitive situation for fewer products than would
changing the mean effective protection period for all
products. This would entail the possible saving from
changing the protection period provided by the SPC
probably being lower than the saving from changing
the mean effective protection period for all products.
Furthermore, as this is an average view, the possible
saving shown in the scenario on the previous page is
seen over the long run. In some years some very
successful blockbuster products will come off patent
and the saving from having generics enter at an
earlier stage may be very high.

MAXIMUM SAVING

The absolute maximum shift depicted in the graph
on the previous page is 76%, as this is currently the
fraction of total pharmaceutical costs spent on
originator products. As such, shifting 76% of total
spending from originator to corresponding generic
products would entail no originator products being
purchased and all medical needs being met by
generic products.
In turn this would entail originator companies
earning no revenue within the EU. There would be
no premium for inventing new pharmaceuticals
within the EU. As such, this is the ultimate free-rider
situation, where the EU would not contribute to new
pharmaceutical R&D by rewarding innovation but
would merely reap the benefits of other countries
paying a premium for originator products in order
for new medicine to be developed.
As the EU is a very large market within the
worldwide pharmaceutical industry, it is
inconceivable that this would not have consequences
for innovation within the field, as well as conceivably
creating an international uproar.
As such, the most extreme situation in which 76% of
total spending shifts from originator products to
corresponding generics is an unrealistic scenario and
has been included merely as a maximum theoretical
upper limit.

TOTAL HEALTH BUDGET

seen completely independently of the total health
care budget.
One crucial consideration is that a possible saving on
spending on medicinal products may have
detrimental effects elsewhere in the health system.

This could be the case if e.g. a decrease in the
effective protection period as depicted in the
scenario on the previous page has an effect on the
R&D effort of pharmaceutical companies. If a
decrease in the effective protection period decreases
the amount or pace of innovation of new and better
pharmaceuticals, this may entail higher costs
elsewhere in the health-care system. It may be e.g.
that more people are sick for a longer time and hence
require more care. Some may be admitted to a
hospital for a longer period than would have been
necessary had the pace of innovation been more
rapid.
As such, a decrease in the effective protection period
may entail a saving on spending on medicinal
products, as depicted on the previous page. This,
however, may come at the expense of an increase in
costs elsewhere in the health-care budget. These two
effects are opposites and whether the net result will
be negative, positive or zero depends on such a broad
range of factors that it is not possible to pinpoint
them. However, this is an important consideration to
take into account when interpreting the scenario
analysis.

Spending on medicinal products is a piece of the
puzzle for treating EU citizens for various conditions.
As such, spending on medicinal products cannot be

1 As will be elaborated upon in later sections, changing the protection regime may have an ex ante effect on more products than just those that ex
post are eligible for the protection or have that protection scheme as the last protection to expire. 162

Changing 10% of total spending from originator products to
corresponding generics would entail a possible saving of 0.7% of
expenditure on health care

30%

20%

10%
5.6%

Spending on pharmaceuticals

76%

72%

68%

64%

60%

56%

52%

48%

44%

40%

36%

32%

28%

24%

20%

16%

0%
0%

In the extreme case, where there is spending only on
generic products and no spending on originator
products, the possible saving on total health-care
spending in the EU would be 5.6%.4 As was
elaborated upon on the previous page, this is
conceivably a theoretical hypothetical situation.

40%

12%

In combination, the numbers above mean that a 10%
change in total spending on pharmaceuticals from
originator to corresponding generic products would
entail a total saving of 0.7% of the total expenditure
on health within the EU.3

Percentage of total spending

8%

Total spending on health care services within the EU
is USD 1,671bn.1 Of this, 14.8% is spent on medicinal
products. Of the 14.8% spent on medicinal products,
76% is spent on originator products.2 We use
previous results to assume that generics on average
are priced at 50% of originator prices.

Possible saving on pharmaceutical and health-care spending depending
on the percentage of spending which can be shifted from originator
products to generic products, in 2010 USD

4%

Spending on medicinal products is part of an effort to
improve the health of EU citizens. As such, spending
on medicinal products should be seen in relation to
total spending on health care within the EU.

Expenditure on health

Note: Graph showing the possible saving on pharmaceutical spending in the EU member states, based on changing a percentage of
spending from originator products to corresponding generic medicinal products. Total spending on medicinal products was USD
247bn in 2015 as reported by the OECD in the dataset “Health expenditure and financing”. These statistics do not include spending in
Bulgaria, Croatia, Cyprus, Lithuania, Malta or Romania. The spending split between originator and generic products is 76%-24% as
reported for the EU18 in OECD (2016), Health at a Glance 2016. Generics are set to cost 50% of originator prices, as was the case in
the analysis in Chapter 2. Total spending on health care in the EU was USD 1,671bn in 2015 as reported by the OECD in the dataset
“Health expenditure and financing”. Behavioural effects are excluded as these can be ambiguous.
Source: Copenhagen Economics, based on numbers from OECD (2016), Health at a Glance: Europe 2016, OECD health expenditure
and financing dataset and econometric analysis on accessibility undertaken in Chapter 2.
1 OECD health expenditure and financing dataset, 2015. Available at http://stats.oecd.org/index.aspx?DataSetCode=SHA
2 OECD (2016), Health at a glance 2016.
3 On p. 161 it is calculated that a 10% shift in total spending on pharmaceuticals from originator to corresponding generic products would entail a 163
saving of USD 12.4bn. Out of the total spending on pharmaceuticals of USD 1,671bn, 12.4bn is equivalent to 0.7%.
4 Out of the total spending of USD 247bn on pharmaceuticals, 76% of the products would be 50% cheaper. This amounts to USD 93.9bn. Out of the
total spending on healthcare in the EU of USD 1,671bn this amounts to 5.6%.

CHAPTER 2 APPENDIX

Caveats with the weighted effective protection period measure
LOCATION OF MANUFACTURING
AND R&D

We are using pharma trade flows from a given
country to other countries as a proxy for the markets
that are important pharma export markets for
companies in the country of interest. Our outcome
variable is likewise pharma R&D spending in the
country of interest. Hence, if a company fractionally
collocates its production and R&D functions, our
model will correctly depict the real world.
Illustrative theoretical example: Imagine that
there is a large export of pharmaceuticals from
Denmark to Sweden. Then Sweden increases its
effective protection period. We would then expect
R&D in Denmark to increase, because Sweden is an
important market for Denmark. However, if the R&D
of all firms producing pharmaceuticals in Denmark is
located in Germany, German pharma R&D would
increase as a result of this instead of Danish.
For R&D to increase when protection in the most
important market increases, each firm needs to
collocate their manufacturing and R&D activities
proportionally. If a company produces/sells 10% of
its global sales in/from Denmark, 10% of its R&D
needs to be located in Denmark as well.
The above is of course an extreme assumption and if
there is a reasonable correlation between
manufacturing and R&D, the model should show an
effect of the effective protection period in relevant
markets on the R&D intensity of the domestic
pharmaceutical sector.

FIRM LEVEL DATA

As we expect responses to market changes to happen
at the firm level, the optimal dataset would be one
with the firm as the subject. This would, however,
entail having sales at the product level,
geographically distributed across the years for all
pharmaceutical firms in the world. We know of no
such dataset in existence and by its sheer size it
seems it would be quite unlikely for it to be possible
to collect.

RESTRICTIVE SAMPLE

The weighted effective protection period can be
calculated only for countries for which we have
information on the mean effective protection period.
This means that the measure is based on information
about the EU member states and the US.

have available at the time it made its R&D decision.
This suggests that including lags of the covariates in
the model could be a fruitful strategy. However, the
next consideration would then pertain to which lags
and how many to include. Which year is the
information the company is basing its R&D decision
on from? It may be that it is an average of several
years. Or it may be the company’s expectations of the
realisation of future values of the variable. These are
complicated questions for which it is difficult to find
a precise answer.
In the interest of not drowning the conclusions in
intricate econometric considerations, we have
chosen a rather parsimonious (simple) model as the
main way of modelling the effect on innovation.

The total pharmaceutical exports on which the
weights are based, e.g. for Germany, are thus the
sum of pharmaceutical exports to the other EU
countries and the US.

TIMING OF THE VARIABLES

It should be noted that the actual value of any of the
included variables in a given year is not observable
until the end of the year at the earliest.
Combined with the fact that most R&D efforts take
quite a long time, the decision on how much to spend
on R&D in any given year is probably not taken in
that given year.
When we use the simultaneous value of a covariate,
we are using information that the company did not

165

Collocation of manufacturing and R&D within the pharmaceutical sector
To analyse the amount of collocation of
manufacturing and R&D within the pharmaceutical
sector, 13 global companies were studied. The
companies are among the top 20 pharmaceutical
companies with the highest sales in 2015.1 The 13
companies constitute the companies in the top 20
where it was possible to find the necessary
information.

The degree of collocation is deemed to be fairly high.
However, it does signify that, in some cases, R&D
centres and production activities are not collocated
in the same markets. This is a factor to be aware of
when interpreting the results of the regression
analysis.

The companies included are Pfizer, Novartis, Roche,
Sanofi, Merck & Co., Johnson & Johnson, AbbVie,
Novo Nordisk, Bayer, Takeda, Bristol-Myers Squibb,
Bohringer Ingelheim and Astellas Pharma. Together
they make up approximately 50% of the total sales of
medicinal products in 2015.2
For each company information was found as to
where they had placed their R&D facilities and
manufacturing activities. It was possible only to find
country locations and not how large the facilities
were. This is a factor to be aware of, as what we
essentially are looking for is the collocation in
spending on R&D and the value of exports of the
manufactured medicinal products. This, however,
requires intimate knowledge of each company, which
in most cases is not publicly available.
The correlation between the share of companies’
R&D centres located in a given country and the share
of the companies’ production plants located in the
same country was found to be 0.66. This means that
66% of the variation in the location of the companies’
R&D centres can be explained by the location of their
manufacturing plants (or vice versa, as correlations
do not say anything about causality).

1 See e.g. https://scrip.pharmaintelligence.informa.com/-/media/marketing/scrip-100/pdf/Scrip100_LeagueTables.pdf?la=en
2 Own calculations based on https://scrip.pharmaintelligence.informa.com/-/media/marketing/scrip-100/pdf/Scrip100_LeagueTables.pdf?la=en 166

Data coverage differing between countries for dependent variable
For some countries, there is no data on the
dependent variable “spending on pharmaceutical
R&D” for all of the years in the sample period. This
means that for the given countries these years cannot
be utilised as observations in the econometric model.

The logarithm of spending on pharmaceutical R&D across countries

The closer the sample is to the present day, the more
thorough the data coverage is. This is quite typical of
empirical data for statistical analysis.
Some of the explanatory variables are also missing
data for some years. Again, this is almost impossible
to avoid when working with a large sample of
countries tracked over many years. The different
authorities may collect data in different ways and the
series may experience breaks or changes in the exact
content recorded in the variable.

The effect is that the study relies on a limited,
unbalanced panel of countries. Having an
unbalanced panel dataset means that the dataset
tracks the same entities over time (in this case
countries), but that the time period for which there
are observations differs between countries. This is
due to data availability.
In the graph to the right, the y-axis depicts the
logarithmic transformation of spending on
pharmaceutical R&D, while the x-axis depicts the
year.
Note: Graph showing the number of years for each country in the sample, where data on spending on pharmaceutical R&D is
available.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA
and MRI.

167

Data for the econometric model (1/2)
DECREASING EFFECTIVE
PROTECTION PERIOD OVER TIME

Mean effective protection period by country over time, 1996-2015

There is a general tendency for the mean effective
protection period to decrease over time for most
countries.
There is likewise a fair amount of variation across
time and between countries.

Furthermore, there seems to be a tendency for most
of the countries to approach a more common level by
the end of the period, than the levels observed at the
beginning of the period. This seems to reflect the
standardisation of the rules within the EU1.
Common for most of the countries in the sample is
that the mean effective protection period is well
below the 20 years of patent protection, which is also
to be expected, as many pharmaceuticals have a
rather long development period2.

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described
above. The sample consists of medicinal products which are either centrally approved or approved through the mutual recognition
process.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, EMA and MRI.

1 See e.g. Regulation (EC) No 726/2004, Article 14(11).
2 See e.g. graphs on p. 66 and 70. 168

Data for the econometric model (2/2)
PROTECTION IN THE OTHER EU
COUNTRIES WITH WHICH A GIVEN
COUNTRY TRADES THE MOST

Effective protection period in other EU countries weighed by
pharmaceutical exports, 1996-2014

As elaborated upon in the theoretical discussion,
most pharmaceutical companies sell their products
in more than just one country.1 As such, what should
matter to profitability is not necessarily the mean
effective protection period in the country where they
locate their R&D but the effective protection period
in the markets where they sell their products as well.
The graph to the right depicts the trade-weighted
average effective protection period across the EU
countries a given country trades with.
Across countries and across years we see a fair
amount of variation in the effective protection of the
other EU countries weighted by the share of
pharmaceutical exports that go to that specific
country.
As was the case with the effective protection period,
the weighted effective protection period exhibits a
downward trend in all countries.

Note: Based on a sample of medicinal products for which patent data could be linked with the marketing authorisation as described
above. The sample consists of medicinal products which are either centrally approved or approved through the mutual recognition
process.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, EMA and MRI.

1 See section 2.1. 169

There is a large difference in the number and speed of new medicinal
product launches across EU member states, with the largest countries
having earlier access to more medicinal products
The graphs to the right shows the failure functions
for each individual country in the sample.

Speed of launch and share of new products launched in each country,
1996-2014

An interesting result of the analysis of launch delay is
that there seems to be quite a large difference
between countries.

As can be seen in the graph from the steep slope of
the estimated line for the United Kingdom, many of
the products launched within the country are
launched in the first five years of a product’s lifetime.
In e.g. Romania the number of products launched
during their lifetime are more evenly distributed over
the sample. Combined with the fact that more than
60% of products are launched in the UK while the
comparable number is only around 40% in Romania,
this means that the availability of medicinal products
in Romania is lower than in the UK and that new
products on average take a longer time to reach
Romania than the UK.1

Note: Graph showing the fraction of launch opportunities taken for molecule-country combinations over time, from first international
launch of the given molecule. Norway is not an EU country but is member of the EEA and as such has been included.
Source: Copenhagen Economics, based on IMS data provided by the European Commission.

1 Whether this entails an actual welfare loss in Romania does however depend on other factors such as e.g. prices.. 170

How to interpret coefficient estimates and the assumptions behind the
regressions
INTERPRETING HAZARD RATIOS

The coefficients in the duration models in section 2.2
are given in so-called hazard ratios. Hazard ratios
signify how the variable influences the probability of
launch, given the baseline hazard. Due to the
multiplicative nature of the chosen parameterisation,
a hazard rate of less than one signifies a negative
effect on launch probability, while a hazard rate of
greater than one signifies a positive effect on the
probability of launch.
The deviation of the coefficients from one is the
percentage influence on launch probability of a oneunit increase in the variable. For a continuous
variable this means that e.g. a coefficient of 0.95
signifies that a one-unit increase in this variable
decreases the probability of launch by 5%.

For a categorical variable the interpretation is that a
coefficient of e.g. 1.05 signifies that products in this
category have a 5% higher probability of launch than
the baseline group.

COEFFICIENT ESTIMATES

Care should be taken when interpreting the size of
the coefficient estimates. As some of the variables
are of a rather large magnitude in their original level
unit, they have been rescaled for tractability.

Some variables are included in the natural
logarithmic transformation rather than their level
value. This has both been done for interpretational
reasons as well as rescaling purposes. Including logs
in the regression gives elasticities, meaning the
coefficient conveys the exponential percentage

change in the probability of launch given a onepercent increase in the independent variable. For
example, a coefficient of a variable, which is included
in a natural logarithmic transformation, of 1.3 is
interpreted as “a one-percent increase in this
variable increases the probability of launch by 0.26
percent” (exp(1.3)=0.26).
GDP, for instance, has been rescaled in trillions and
recalculated in the natural logarithm. This means
that the interpretation of the coefficient of this
variable is the exponential percentage change in the
probability of launch given a one-percent increase in
GDP in trillions.
Likewise, interpreting the size of the coefficients of
the interaction terms requires a great deal of caution.

INTERACTION TERMS

Including interaction terms in an econometric
analysis serves to shed light on what the combined
effect of the two variables is. For example, a positive
coefficient of an interaction term between GDP and
population signifies that for countries with a large
population, an increase in GDP has a larger effect
than for countries with a small population, or vice
versa in that for countries with a high GDP, an
increase in population has a larger effect than for
countries with a low GDP.
When including interaction terms, the variables
concerned are also included by themselves to
separate their independent effects. However, when
concluding what the overall effect is of e.g. GDP or
population, the joint coefficient of the variable itself

combined with the coefficient of the interaction term
must be taken into account. As the interaction term
features two variables, the partial effect of one
variable will then depend on the value of the other
variable. Thus, to conclude what the effect is of GDP,
a value for population must be chosen. Usually mean
values are used for this; however, values such as the
quartiles or the median can be interesting to explore.

DISTRIBUTION

For all estimations, the Weibull distribution is used
for the baseline hazard.1
The Weibull baseline hazard function is one of the
most frequently used in the literature, and Cockburn
et al. (2016) deploy it as well. Furthermore, our nonparametric estimation of the smoothed hazard shows
a clear resemblance to a Weibull hazard function.

Hazard
rate
0,7
0,6
0,5
0,4

0,3
0,2
0,1
1

3

5

7

9 11 13 15 17 19

Time

Note: Illustrative hazard function with p=0.6.
Source: Copenhagen Economics.

1 For the duration model used in section 2.2 to be able to estimate coefficients, an underlying baseline hazard function must be assumed. Different
choices can be made, depending on the variable of interest. In the case of the present study a Weibull distribution is used to model the underlying
hazard function of product launches. For more detail see e.g. Verbeek, M. (2012), A Guide to Modern Econometrics. 171

Having both a large market and a high effective protection period does
not increase the probability of launch further
The interaction between effective protection period
and population is included to unveil whether any
joint effect of these two variables can be found. The
theoretical reasoning would be that for a country
with a large population, having a longer protection
period is more valuable than it is for a country with a
small population, as the higher the population, the
larger the quantity of sales affected by the longer
protection period.
The statistical insignificance suggests that in the
available data material it is not possible to identify a
statistically significant effect of the interaction term.
Again, this is not necessarily tantamount to there
being no joint effect, but it could be an indication
that in the present data material there is not enough
variation to identify a distinct effect.

Duration model with Weibull baseline hazard function of molecule launch
probability, 1996-2015

Model 3
Effective protection period

1.0169

Population

0.6750**

GDP

1.6239***

Non-biologic molecule

0.4963***

Constant

0.0709***

Effective protection period * Population interaction

1.0039

p

0.6359***

Log pseudo-likelihood

-21,318.08

Subjects

16,300

Observations

119,176

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Coefficient reported in hazard ratios. Population is given in
natural log and billions of people, GDP is given in natural log and trillions of international 2011 dollars at PPP, and GDP per capita is
given in natural log and thousands of international 2011 dollars at PPP. The variable p is the estimated shape parameter of the
Weibull baseline hazard function. Medicinal products with a negative development time are not included when calculating the
effective protection period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

172

Having both a high willingness-to-pay and a high effective protection
period does not increase the probability of launch further
The interaction between effective protection period
and GDP is included to unveil whether any joint
effect of these two variables can be found. The
theoretical reasoning would be that for a country
with a large GDP, the willingness-to-pay for
pharmaceuticals may be higher; hence the prices
charged may be higher, and the portfolio of marketed
products may have a higher value than in countries
with a lower GDP. An increase in the effective
protection period could then be more attractive in
countries with a high GDP than in countries with a
low GDP.

Duration model with Weibull baseline hazard function of molecule launch
probability, 1996-2015

The statistical insignificance suggests that in the
available data material it is not possible to identify a
statistically significant effect of the interaction term.
Again, this is not necessarily tantamount to there
being no joint effect, but it could also be an
indication that there is not enough variation in the
present data to identify a distinct effect.

Model 4
Effective protection period

1.0018

Population

0.7123***

GDP

1.5654***

Non-biologic molecule

0.4963***

Constant

0.0870***

Effective protection period * GDP
interaction

1.0026

P

0.6358***

Log pseudo-likelihood

-21,318.27

Subjects

16,300

Observations

119,176

Note: *** significant at 1%, ** significant at 5%, * significant at 10%. Coefficient reported in hazard ratios. Population is given in
natural log and billions of people, GDP is given in natural log and trillions of international 2011 dollars at PPP, and GDP per capita is
given in natural log and thousands of international 2011 dollars at PPP. The variable p is the estimated shape parameter of the
Weibull baseline hazard function. Medicinal products with a negative development time are not included when calculating the
effective protection period.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA,
MRI and IMS.

173

Persistence of pharmaceutical R&D over time
From the graph on the right it can be seen that there
is quite a high level of persistence between spending
on pharmaceutical R&D in one year and the year
before. This endows our utilisation of a dynamic
panel data model with empirical merit.

Correlation of spending on pharmaceutical R&D over time, 1996-2015

Note: Graph showing the correlation between spending on pharmaceutical R&D in one year and in the year before.
Source: Copenhagen Economics, based on a unique dataset created from Drug Patent Watch, PATSTAT, OECD, World Bank, EMA
and MRI.

174

The possible saving in a new scenario with more generic competition and
no change in innovation effort depends on the price difference between
originator and generic products

100
80
60
40
20
76%

72%

68%

64%

60%

56%

52%

48%

44%

40%

36%

32%

28%

24%

20%

0
16%

The situation where there is a price difference of 75%
is equivalent to a situation where there are between 6
and 13 generic producers on the market, as depicted
by an FDA analysis of retail sales data from IMS
Health. This has been chosen so as to show a
situation at the other end of the saving spectrum, as
compared to that of the Sector Inquiry.

120

12%

The situation where there is a price difference of 25%
is equivalent to the price at which generics are found
to enter the market in the Pharmaceutical Sector
Inquiry from 2009.

140

8%

However, here two additional situations are
depicted. In one there is a 75% price difference and
in the other there is a 25% price difference.

160

4%

The background and the assumptions for the
baseline scenario with a 50% price difference are the
same as the those in section 2.5.

Sensitivity analysis of the possible saving on pharmaceutical spending
depending on the percentage of spending which can be shifted from
originator products to generic products, in 2010 USD
USD bn

0%

The graph to the right depicts three different
possible saving scenarios based on the price
difference between generic and originator products.

Shift in spending from originator products to generics

50% price difference

75% price difference

25% price difference

Note: Graph showing the possible saving on pharmaceutical spending in the EU member states on the basis of changing a percentage
of spending from originator products to corresponding generic medicinal products. Total spending on medicinal products is USD
247bn as reported by the OECD in the dataset “Health expenditure and financing”. These statistics do not include spending in
Bulgaria, Croatia, Cyprus, Lithuania, Malta or Romania. The spending split between originator and generic products is 76%-24% as
reported for the EU18 in OECD (2016), Health at a Glance 2016. Generics are set to cost either 75%, 50% or 25% of originator prices.
These numbers come from respectively the Pharmaceutical Sector Inquiry, the econometric results in Chapter 2 and an FDA analysis
of retail sales data from IMS Health on between 6 and 13 generic manufacturers in the market. Behavioural effects are excluded as
these can be ambiguous.
Source: Copenhagen Economics, based on numbers from OECD (2016), Health at a Glance: Europe 2016, OECD health expenditure
and financing dataset and econometric analysis on accessibility undertaken in Chapter 2.

175

CHAPTER
3
Analysis of the SPC framework

Outline of chapter 3

3.1 Objectives of the SPC regulation

3.2 SPC scope
3.3 Term of SPC protection
3.4 Impact of SPC fragmentation
3.5 SPC for plant protection products

177

Chapter 3 – Main conclusions (1/2)
SPC

Undertaking e.g. clinical trials, to ensure existence of
sufficient data to show the efficacy, safety and quality
of new medicinal products takes time. The SPC
regulation1 seeks to compensate pharmaceutical
companies for effective protection time lost due to
regulatory obligations. From 1992 to 2015, the
average length of all granted SPCs has been 3.5
years3.
When analysing the composition of the effective
protection period for pharmaceuticals products we
find that over time, the average extra effective
protection period provided by the SPC has increased.
However, the analysis also shows that the regulatory
instrument of market protection has increased to a
large degree in importance for the size of the average
effective protection period.
The analysis of SPCs across countries reveals that the
system is highly fragmented. The share of rejected
and pending SPC applications differ to a large degree
between countries. Moreover, a given product might
have obtained an SPC in some countries, while
having had the application rejected in other
countries. It is rarely the case that SPCs for a given
product is applied for in all EU countries.

LAST PROTECTION SCHEME TO
EXPIRE

In our dataset 45% of the 558 unique products have
obtained an SPC in at least one country2. The SPC is
the last protection scheme to expire for 10% of all
medicinal products in the sample across countries.
That 10% of products have an SPC as the last
protection to expire, is a combination of the fact that

the products obtaining at least one SPC, not
necessarily have an SPC in all countries where they
are launched, not all products have an SPC and even
when an SPC is present it might not be the last
protection to expire, e.g. because of secondary
patents. For the products, where the SPC is the last
protection scheme to expire, the SPC on average
increases the effective protection period by 2.6 years
in the more recent period 2010 to 20162.

OBJECTIVES OF THE SPC
REGULATION

Overall the objectives of the SPC regulation1 can be
divided into three distinct groups. These groups are
supply-side objectives, demand-side objectives and
market impact objectives. In general, the analysis
studying to which extend the objectives of the SPC
regulation1 have been met paints a mixed picture.
Supply-side objectives
By making R&D investments in the pharmaceutical
industry more attractive in general (inside and
outside of the EU) the SPC has supported the
objectives focusing on attracting and retaining
innovation in the EU and ensuring sufficient
protection to recoup investments. The supported
increase in innovation has stimulated competition
through innovation globally.

We do not find evidence that the SPC has supported
the objective focusing on a fall in prices after the
expiry of the SPC nor the objective focusing on the
encouragement of innovation demanded and needed
by consumers. Furthermore, we do not find
theoretical arguments for why the SPC would
support these objectives.

Demand-side objectives
Through the increased innovation described above,
the SPC has supported the objective of better
availability of generic medicinal products by
stimulating the development of more medicinal
products, many of which will at some point become
available in a generic version, but at the cost of this
availability occurring later, due to the longer
exclusivity. The objective of preventing supply
shortages has been supported by the SPC as these
are less likely to occur during the period without
generic competition, which is prolonged by the SPC.
We do not find evidence that the SPC has supported
the objective of better accessibility and diffusion of
innovative products across the internal market, the
objective of preventing limits to innovative products
amenability through industry pricing strategies or
the objective of preventing missed or deferred
market launches. Furthermore, we do not find
convincing theoretical arguments as to why the SPC
would support these objectives.
Market impact objectives
By making the European pharmaceuticals market
more attractive, the SPC has supported innovation in
all regions, but disproportionally more in the EU as
European pharmaceutical companies have a larger
market share here. In this way the SPC has most
likely supported the objective of closing the gap
between the European pharmaceutical industry and
major competitors in the international market.
However, we do not find clear empirical evidence
that a gap existed before the enactment of the SPC or
that such a gap has been closed.

1 Regulation (EC) No 469/2009.
2 See p. 84.
3 The 3.5 years is the formal length of the SPC. The effective protection period they add is on average 2.6 years. The difference between the two
measures is that the effective protection period takes other forms of protection into account and hence only measure the period of protection the
SPCs add, after expiration of all other protection schemes. 178

Chapter 3 – Main conclusions (2/2)
We do not find evidence that the SPC has supported
the objectives of causing a fall in prices of SPCprotected products relative to products without an
SPC or the objective of giving extended protection
that is justified by revenues and profits.
Furthermore, we do not find theoretical arguments
as to why the SPC would support these objectives.

PLANT PROTECTION PRODUCTS

In addition to medicinal products, SPCs are also
available for plant protection products. However,
data on SPCs within the plant protection sector is
very scarce.
The analysis of this sector reveals that the number of
ingredients introduced or in development has
decreased from 123 in the years 1980-1989 to 73 in
the years 2005-2014. Furthermore, the focus of
these products have changed. In 1980-1989, 33.3%
of active ingredients introduced or in development
focused on Europe. In the period 2005-2014 this had
decreased to only 16.4%.
Contrary to the pharmaceutical sector, there is no
research exemption1 for plant protection products.

1 Also called the Bolar exemption within pharmaceuticals. 179

The economic impact of SPCs is widely unchartered territory
25 YEARS OF SPC REGULATION

The relatively short period of time which has passed
since the introduction of the original regulation
creating supplementary protection certificates in the
EU may account for the apparent scarcity of desk
research and academic literature that investigates
the impact this regulation has had on pharmaceutical
markets.

patent-like protection, firms and other stakeholders
have shown plenty of engagement in challenging the
interpretation of the SPC regulations in both
national and European courts. As a result, the
competent authorities as well as legal researchers
and experts have created a sizable volume of case law
and literature defining, challenging, harmonising
and documenting the prevailing interpretations of
the relevant national and Community law2.

In the European Union, the observed time from
invention to commercialisation of a medicinal
product can at times exceed 12 years (as evidenced
by e.g. Kyle 2017 and the data compiled for analysis
in the scope of this study1). Often, medicinal
products remain relevant on the market for decades
and companies use the plethora of available legal and
registration strategies to maximise the time period in
which commercialised products yield profits. As
such, the 25 years the SPC regulation has existed
remains a relatively short period of time relative to
the lifecycle of the average medicinal product.

These interpretations and readings of the relevant
regulations certainly have a bearing on the economic
application and effect that the adoption of the SPC
regime has had on the European community. For
instance, where they change and clarify the scope of
patent claims and market authorisations that can
give rise to the right to supplementary protection as
in the Medeva and Georgetown decisions of the
European Court of Justice (Joshi, Roy & Janodia
2014).

Given the issues of data availability combined with
the challenge of ensuring compatibility of the data
that is available, the lack of insightful research
within the area is understandable.

CASE LAW AND INTERPRETATIONS

While little is known about the a posteriori impact of
the introduction of supplementary protection
certificates in the EU, a large amount of literature
exists on the specifics of application, grant, validity
and legal impact of an SPC.
Realising the impact of being able to gain additional

SCOPE OF INVESTIGATION

Using the scarce literature available, as well as the
data sourced for the purpose of this study and the
insights from other countries allowing similar patent
term extension provisions (e.g. US), this chapter
aims to investigate the following:
1. Achievement of the objectives of the SPC
regulations.
2. Analysis of potential extensions or reductions in
the scope of SPCs in the EU.
3. Investigation of the terms of protection granted
by SPCs in the EU.
4. Analysis of the impact of SPC fragmentation.
5. Analysis of SPCs for plant protection products.

These and comparable rulings should impact firms’
decisions regarding where and how to apply for
supplementary protection, as well as when and
where to challenge such protection granted to
competitors. In consequence, legal proceedings and
changes to ‘the rules of the game’ could also have a
tangible impact on the economic manifestation of
SPC protection in the EU.
However, as this report analyses the economic effect
of the SPC framework, a legal review of the current
case law is outside the scope of this study, insofar as
it does not have a direct bearing on the economic
impact of the regulation.

1 See p. 66.
2 See e.g. Papadopoulou, F. (2016), Supplementary protection certificates: still a grey area for a recent review of case law within the area. 180

The number of countries having enacted the SPC legislation has
increased over time
Chapter 1 of this report includes a graphical
depiction of the number of supplementary protection
certificates granted between 1992 and 2016. The
number of grants increased slightly over time.
As highlighted in Mejer (2017), the SPC regulation’s
entry into force followed a gradual scheme
throughout the European Economic Area. However,
once the regulation entered into force, all marketing
authorisations obtained in a multi-year time frame
prior to entry into force became eligible for SPC
application. Assuming that the 1992/1993 and 2007
peaks are largely attributable to an eligibility
backlog, the number of SPCs granted can be
interpreted as having risen slightly from an average
of 500 per year between 1994 and 2004, to an
average of 700 per year from 2004 onwards.

A similar picture prevails when looking at SPC
application data. Mejer (2017)1 notes a relatively
stable period of ca. 500 applications per year from
1993 to 2004 followed by a sizeable increase in both
volumes and year-on-year variation from 2004 to
2013. The author names geographical enlargement,
development of more complex medicines and
multiple SPCs per product as potential reasons for
the observed increase.
The latter point is reiterated by Kyle (2017), who
additionally sees an increase in the number of SPC
applications per medicinal product innovation over
time, including multiple SPCs per patent and SPCs
for non-basic patents.

Mejer 2017: SPC regulations in the EEA

Group

EU SPC In
Force

Year of First
Eligible MA

EEA Member States

1

1993

1982

BE, IT

2

1993

1985

FR, UK, IE, LU, NL

3

1993

1988

DE, DK

4

1994

1982

AT

5

1994

1985

SE

6

1994

1988

FI, IS, NO

7

1998

1998

GR, PT, ES

8

2004

1999

CZ

9

2004

2000

HU, SK, PL

10

2004

n/a

CY, EE, LT, LV, MT, SI

11

2007

2000

BG, RO

12

2013

2003

HR

Source: Adapted from Mejer (2017), Table 1, “SPC provisions and transition”.
Note: According to Mejer (2017), group 7 covers countries that did not allow pharmaceutical patents prior to the SPC regime and
therefore entered the scheme 5 years later (1998 instead of 1993).

1 Mejer, M. (2017) “25 Years of SPC Protection for medical products in Europe: Insights and challenges”. 181

Approval times and average length of granted SPCs

3

2

1

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

0
1997

This points to the fact that even though the
regulatory process has shortened, the regulatory
requirements for approval of an application for
marketing authorisation have increased, causing the
development of new medicines to take a longer time.

4

1996

Between 1999 and 2005 the median number of
procedures per clinical trial protocol increased from
96 to 158. Furthermore the length of clinical trials
increased from 460 to 780 days during the same
period2.

Total average across years = 3.5 years

1995

However, even though the regulatory approval
process time has been slightly decreasing, there is
other evidence pointing towards an increase in the
regulatory requirements for applying for marketing
authorisation.

5

1994

At face value, the decrease in approval time should
contribute to increasing the time a medicinal product
is on the market and protected by IP rights.

Length of granted SPCs

1993

From 2004 to 2015 the median approval times for
the European Medicinal Agency, including the time
spent by the European Commission, has been
slightly decreasing. In 2015 the median approval
time for the EMA was 417 days. As a comparison, the
median approval time for the FDA was 351 in the
same year1.

Average length of all granted SPCs across EU, 1992-2015

1992

As can be seen from the graph to the right, the
average length of granted SPCs across the EU
member states has remained fairly consistent over
the years, albeit with some yearly fluctuations.

Note: Graph showing the average length of all SPCs granted in the given year.
Source: Copenhagen Economics based on Alice de Pastors dataset on SPCs.

1 Bujar M, McAuslane N. 2014. R&D Briefing 55: The impact of the changing regulatory environment on the approval of new medicines across six
major authorities 2004-2013. Centre for Innovation in Regulatory Science, Bujar M, McAuslane N, Liberti L. 2016. R&D Briefing 59: The impact of the
evolving regulatory environment on the approval of new medicines across six major authorities 2006-2015. Centre for Innovation in Regulatory
Science.
2 Rollins, T. (2016), “How Europe’s SPC regime works in practice” reports these numbers provided by EFPIA. Getz, K. A., Campo, R. A. and Kaitin, K. I. 182
(2011), Variability in Protocol Design Complexity by Phase and Therapeutic Area likewise reports an increase in procedures per clinical trial from 2000
to 2007.

SPCs increasingly relevant
SPCs IN THE CONTEXT OF IP
PROTECTION SCHEMES

As noted in chapter 1, a supplementary protection
certificate is an IP protection right designed to
restore patent protection lost due to prolonged
development time, where development time can be
understood as the time from invention (first patent)
to commercialisation (first authorisation to market)
in Europe.
Due to the way additional protection granted by an
SPC is calculated, this kind of protection right is
relevant only where development time falls in the
range of 5 to 15 years (abstracting from a case where
an SPC might be relevant beyond 15 years due to its
protection being qualitatively better than an
overlapping market exclusivity but not
quantitatively, i.e. for a longer period of time)1. In
our dataset 45% of the unique products have
obtained an SPC in at least one country2.

CHANGES TO DEVELOPMENT TIME
As found in chapter 1 of this report and as depicted
on the lower right hand side, average development
time for medicinal products has increased over time
for a sample covering medicinal products that
obtained an authorisation to be marketed in the EU
between 1996 and 2016. As noted before, this
development is in line with the findings reported by
Kyle (2017) covering a sample ranging from 1990 to
2015.

THE DISTRIBUTION OF
DEVELOPMENT TIME

As can be seen on the upper right hand side, the
majority of medicinal products that reach the market
in the EU now fall into the SPC-relevant range of
development times of between 5 and 15 years.

Besides a general increase in average development
times, Kyle (2017) also observes a change in the
distribution of development times around this range.
Since 1990, the distribution of medicinal product
development times has increasingly concentrated in
the relevant time frame of 5 to 15 years. The
proportion of development times within the relevant
range has increased from just over 40% in the early
1990s to more than 65% in the 2010s. At the same
time, the proportion of development times both
below and above the relevancy threshold has fallen
over time.

Relevant Development Time 19962016

Note: Development times reported as negative are excluded. 50%
of observations have development time within the interval of five
to fifteen years.
Source: Copenhagen Economics

Avg. Development Time 1996 – 2016

Kyle (2017) further observes an increase in the
proportion of medicinal product innovations that
apply for an SPC at all, as well as the proportion of
SPCs that, being granted for non-first patents,
provide a marginal effective protection gain larger
than the 5-year maximum set by the regulator.

Note: Based on a sample of medicinal products for which patent
data could be linked with the marketing authorisation. The
sample consists of medicinal products which are either centrally
approved or approved through the mutual recognition process.
Medicinal products with negative development times are not
included in the figure.
Source: Copenhagen Economics based on unique dataset created
from Drug Patent Watch, PATSTAT, the EMA and MRI
1 For products with a development time of between 5 and 15 years, a possible SPC would prolong the effective protection period. See e.g. pp. 28-30 and 42.
2 See p. 84.

183

SPCs increase effective protection when they are the last IPR to expire
The graph to the right depicts the effect of SPCs on
the average effective protection period for products
where an SPC is the last IP right to expire1.
The red line depicts the effective protection period if
patent, SPC, data protection and market protection
are taken into account. The green line depicts what
the effective protection period would have been, had
there been no SPC for these products where the SPC
is last to expire. In that sense, the difference between
the two lines can be understood as the average
marginal protection extension conditional on an SPC
being the last protection scheme to expire.

Effective protection period for products where an SPC is the last IP
scheme to expire, 1996-2016

Average difference
2010-2016 = 2.6

In our dataset, 45% of the unique products have
obtained an SPC in at least one country2. From the
table on the following page, it can be seen that, in our
sample, an SPC is the last protection scheme to
expire for 10% of products across countries.
In recent years, the SPC has had the effect of
prolonging the effective protection period by approx.
2.6 years for products were the SPC is the last IP
protection scheme to expire.
Even with the possibility of filing for an SPC, a patent
is still predominantly the last protection scheme to
expire. However, when controlling for whether
medicinal products are actually subject to an SPC
application, the picture is quite different.
When only looking at the medicinal products where
an SPC is filed, the certificate is the last IPR to expire
in more than 61% of cases.

Notes: Graph showing the effective protection period based on which protection instruments are used in the calculation. The graph
only includes medicinal product-country combinations where an SPC is the last IP scheme to expire. As such, the difference between
the lines depicted signifies the average increase in protection for products where SPCs actually extend the protection period. Given
that the observation-level is unique medicinal product-country combinations means that a specific medicinal product is used in the
calculation of the average as many times as it has an SPC in a member state.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

1 See chapter 3 appendix for the same graph, when excluding secondary patents.
2 See p. 84.
3 See pp. 215-216 for a further discussion of this. 184

SPCs across country observations
SPCs ACROSS COUNTRIES

We have previously shown that 251 (45% of 558)
unique products in the dataset have obtained an SPC
in at least one country. However, to analyse the last
protection scheme to expire, we need to utilise the
dataset where each product has an observation in
each country where it is launched, as protection
might differ between countries. When using this
dataset, the 251 unique products with an SPC in at
least one country corresponds to 1,190 observations
with a granted SPC across all countries in the table to
the right1.
Out of these 1,190 observations 720 corresponding to
61%, have their SPC as the last protection scheme to
expire.

EX ANTE BUSINESS CASE

A main effect of SPCs is that they change the ex ante
investment considerations of pharmaceutical
companies. As such, while ex post SPCs are the last
IPR to expire for only 10% of the observations in the
dataset, they may have affected the (predevelopment) valuation process for a larger number
of projects.

Last protection scheme to expire, 1996-2016
Full sample

Last IP scheme to
expire

Observations with granted SPC

N

(%)

N

(%)

3,634

51

263

22

720

10

720

61

Market protection*

2,294

32

188

16

Data protection**

482

7

19

2

7,130

100

1,190

100

Patent

Supplementary
Protection
Certificate

OBSERVED SAMPLE LIMITATIONS

The reported numbers in the table to the right
reflects the information contained in the unique
dataset, constructed for this study. For more
information on the dataset see appendix to chapter 1.

Total

Note: Table showing the last protection scheme to expire for the unique dataset created for the analysis. The cases where data
protection is the last protection scheme to expire are all before enactment of the 8+2(+1) system in 2005, as market protection under
this regime is always longer than data protection.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.
* Market exclusivity for orphan medicinal products are counted in this category. 185
** For certain observations before the 2005 changes to the 8+2+1-scheme, data protection is the last IPR to expire.
1 See chapter 3 appendix for the same graph, when excluding secondary patents.

3.1 OBJECTIVES OF THE SPC
REGULATIONS

SPC and SPC-relevant EU regulation over time

2009 (1)

SPC Regulation 469/2009

1990

Explanatory memorandum on
medicinal products
Com(90) 101 final

1992

Introduction of SPCs for medicinal
products, Regulation 1768/1992

2001 (1)

MA & Bolar exemption medicinal
products for human use
Directive 2001/83

2009 (2)

MA for plant protection products
Regulation 1107/2009

2001 (2)

Veterinary medicinal products
Directive 2001/82

1990

2017
1996

Introduction of SPCs for plant protection
products, Regulation 1610/1996

1995

Establishment of the
European Medicines Agency (EMA)

2006

Paediatric extension for SPCs
Regulation 1901/2006

1994

Explanatory memorandum
plant protection products
Com(94) 579 final

187

The objectives are outlined in the explanatory memoranda accompanying
the relevant regulations
OBJECTIVES OF REGULATIONS
1768/92 AND 1610/96

The SPC regulation for medicinal products was
published in the European Commission’s Official
Journal in July 1992 and the regulation for plant
protection products was published in August 1996.1

Jointly, these regulations form the background of the
regulatory objectives that the Commission aspired to
achieve when designing the regulatory proposal.
While the 1992 and 1996 regulations provide the
technical regulations and the rules by which
stakeholders have to abide, they only refer to the
objectives indirectly.

Medicinal Product
Memorandum

1990, April

Medicinal Products
SPC Regulation

1992, June

COM(90) 101 final – SYN 255

1768/1992

Plant Protection Product
Memorandum

The recitals leading the regulations summarise the
main arguments but in order to understand and
analyse the full scope of objectives underlying the
adopted regulatory proposal creating SPCs, one has
to refer to the respective explanatory memoranda
referenced by the Commission.2
These memoranda, cited by the Commission
proposal referenced in the regulations, introduce the
proposed provisions and further provide an account
of the context and aims that the proposal is designed
to work towards achieving.

COM(94) 579 final

Plant Protection
Products SPC
Regulation

1994, December

1996, July

1610/1996

Medicinal Products
SPC Regulation

2009, May

469/2009

1 See OJ No L 182/1, 02.07.1992 for medicinal products and OJ No L 198/30, 08.08.1996 for plant protection products.
2 See COM(90) 101 final – SYN 255, 11.04.1990, Brussels for medicinal products and COM(94) 579 final, 09.12.1994, Brussels for plant protection products. 188

Achievement of the objectives of Regulations 1768/92 and 1610/96 (1/2)
OBJECTIVES OF SPC
REGULATIONS

The objectives of the supplementary protection
certificate framework were introduced in the
explanatory memoranda Com(90)1011 and
Com(94)5791 that predated the regulation on the
introduction of SPCs for medicinal products and
plant protection products, respectively.
The objectives are included in the recitals of the
relevant regulations 1768/1992 for human and

veterinary medicinal products and 1610/1996 for
plant protection products and agrochemicals.

and accessibility of innovative products to consumers
across the internal market.

In general, three categories of regulatory objectives
can be distinguished: supply-side objectives,
demand-side objectives and market impact
objectives.

In addition, this study will investigate the market
impact of introducing SPCs. On the following pages,
we investigate the economic rationale implied by the
regulator’s formulation of the SPC objectives. We
then analyse the achievability and achievement of
these objectives using the evidence produced in our
own analyses and the insights provided by the
relevant literature.

The supply-side objectives focus on the stimulation
of research and development within the Community,
while demand-side objectives stress the provision

Categories of regulatory objectives included in the SPC framework

1

Supply-side
objectives

2

Demand-side
objectives

Regulatory objectives aimed at the provision of required and demanded
medicinal products, plant protection products and product innovations to
consumers throughout the internal market in due time and at fair prices.

3

Market impact
objectives

Regulatory aspirations of achieving supply and demand-side objectives while
avoiding undesired or excessively adverse market consequences for producers
and consumers. Catching up and closing gaps to other industrialised countries.

Regulatory objectives aimed at the creation of a market environment where
companies within the medicinal products and plant protection products
industries are able to provide the desired product innovation and development.

1 See http://thespcblog.blogspot.dk/2011/12/that-elusive-explanatory-mermorandum.html for links to both memoranda. 189

Achievement of the objectives of Regulations 1768/92 and 1610/96 (2/2)
In the following we analyse each identified objective
in turn. Firstly the basis for the objective is reported,
in the instances where this is directly identified in
published documents. Secondly the economic
rationale is analysed. Thirdly any available empirical
evidence is reviewed.

For each objective we identify how relevant
characteristics and points of the SPC regulation1
works to either support achievement of the objective,
is counterproductive to achieving the objective or
whether there is no clear relationship between
achieving the objective and the SPC regulation1.
A consolidated overview of the effect of the
characteristics of the SPC regulation1 is given in
easily discernible boxes for each objective.

Characteristics that work to support achievement of
the objective are marked with a ‘+’. Characteristics
that are counterproductive to achieving the objective
are marked with a ‘-’. In cases where it is difficult to
see the link between the SPC regulation1 and the
achievement of the objective, the given characteristic
or point is marked with a ‘?’.

1 Regulation (EC) No 469/2009. 190

Supply-side objectives
Producers and innovators of medicinal, veterinary
and plant protection products that want to market
their innovations in the European Community’s
internal market are naturally subject to regulatory
scrutiny and authorisation procedures before being
allowed to do so.

The combination of research, product development,
clinical testing and administrative authorisation
procedures can take several years. A period of time
elapses before products are brought to the market.

At the same time, the economic characteristics of the
required research and development activities and the
crucial role of intellectual property in the affected
industries force actors to apply for patent protection
early on in the product lifecycle. Often, a patent is
obtained years before the patentee is granted the
authorisation to market the protected product.

To compensate patentees for the shortened effective
protection period1, supplementary protection
certificates (SPCs) can be granted as an extension to
a patent right2. SPCs were designed to incentivise
pharmaceutical and agrochemical innovation and to
strengthen the affected industries’ capability to
recover investments.

As a consequence, the effective protection period of
patent protection is shorter than the period a patent
protects the IP.

Supply-side objectives
1 Attraction of pharmaceutical and agrochemical innovation to the EU
COM(90) 101 final Rec. 8
2 Prevention of delocalisation of pharmaceutical and agrochemical innovation and manufacturing
COM(90) 101 final Rec. 7

SPC objectives:
R&D stimulation
and innovation

3 Ensure that research-based industry has market protection of sufficient length to permit
recovery of investments
COM(90) 101 final Rec. 5, Rec. 25
4 Fall in prices of medicines and agrochemicals following SPC expiry, or whether the setting of
those prices have reflected the longer exclusivity period for recuperation of investments provided
for by the rules
COM(90) 101 final Rec. 24
5 Promotion of competition through innovation
COM(90) 101 final Rec. 25
6 Encourage innovation demanded and needed by consumers, patients and stakeholders
COM(90) 101 final Rec. 7

1 See pp. 28-30.
2 See https://ec.europa.eu/growth/industry/intellectual-property/patents/supplementary-protection-certificates_en [last accessed 29/01-2018]. 191

Supply-side objective 1: Attraction of pharmaceutical and agrochemical
innovation to the EU (1/3)
THE OBJECTIVE IN THE
REGULATION
Objective no. 1: Attraction of pharmaceutical
and agrochemical innovation to the EU
“The basic objectives of this proposal for a
Regulation therefore concern the
requirements relating to the proper
functioning of the internal market,
improvement of our competitiveness as
compared with that of our trade partners and
the encouragement of research and
development in the health field.”
- COM(90) 101 final, Recital 8

ECONOMIC RATIONALE

The introduction of a patent term restoration scheme
in the European Union aims at increasing
pharmaceutical companies’ innovation incentives by
prolonging the period of protection granted to the
inventor behind a patented novelty1.
In this context, the objective of attracting innovation
to the European Union can be understood as
creating the proper incentives and market structures
for companies to be willing to carry out their
research and development activities within the
Community2.

As discussed in section 2.1, the main driver
determining firms’ decisions to engage in R&D
activities conducive to pharmaceutical innovation is
the availability to reap the profits of successfully
developing a product. As such, the time period over
which a company is granted exclusive commercial

exploitation of its innovative product, the effective
protection period, is a key factor in driving R&D
spending3.
The effective protection period encompasses the
time from filing of the first to expiry of the last
intellectual property right providing meaningful
protection4, net of the time it takes the innovator to
develop the product up to marketing authorisation.
Supplementary protection certificates are designed
to compensate pharmaceutical companies for lost
effective protection period, i.e. should increase
effective protection time. The presence of an SPC can
thus be compared to the effect of a conditional
increase in effective protection time.

EVIDENCE

During their exclusive commercial exploitation
period, firms can be expected to be able to obtain
higher profits on the respective product market. If
companies’ decisions of whether and where to
engage in R&D activities is mainly driven by
expected profits, the presence of an SPC extending
this exclusivity period could thus provide a positive
incentive.
At the same time, an innovator’s capability to recover
sufficient profits to make up for initial fixed cost
investment depends on the product’s market size
and profitability (i.e. number of patients and price
per treatment).
On the other hand, studies of the placement of R&D
have pointed out that decisive factors are e.g.

education, infrastructure, political stability, taxation
regulation and access to the right talent5.
Furthermore the evidence as to whether domestic
patent protection is important for the placement and
investment in R&D is ambiguous. E.g. Qian (2007)
and Sakakibara and Branstetter (1999) find that no
direct relationship between domestic patent
protection and placement/investment in R&D can be
identified. On the other hand e.g. Pazderka (1999)
does find that there is a connection.
Thus, we are cautious in concluding that domestic
patent protection in itself should attract innovation.
However, as far as the results of the dynamic panel
data estimation methodology described in section 2.1
hold, some interesting conclusions can be drawn
from this.
It can be inferred that e.g. the mean effective
protection period within the EU countries with
which the given country trades the most have a
positive and significant effect on domestic
pharmaceutical R&D spending.
In general, two conclusions can be drawn from this
result:
1. An increase of general effective protection period
within the EU leads to an increase in R&D within
the EU (and outside the Union).
2. As SPCs increase the effective protection
through patent restoration, they lead to
increased innovative activity within the
individual Member States.

1 See Regulation (EC) No 469/2009 (4).
2 See Regulation (EC) No 469/2009 (3).
3 See Regulation (EC) No 469/2009 (9).
4 The ‘quality’ of protection provided by intellectual property rights varies across the type of IPR. The term ‘meaningful protection’ in this context refers to
protection, such as patents and SPCs, that cannot be circumvented without infringing on the original right holder’s right. Data protection, for instance, can
technically be circumvented if a company is willing to compile their own data. 192
5 See e.g. Demirbag, M. and Glaister, K. W. (2010) Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of Developed and
Emerging Regions, Reddy, P. and Sigurdson, J. (1997), Strategic location of R&D and emerging patterns of globalisation: the case of Astra Research Centre India,
Kumar, N. (2001), Determinants of location of overseas R&D activity of multinational enterprises: the case of US and Japanese corporations.

Supply-side objective 1: Attraction of pharmaceutical and agrochemical
innovation to the EU (2/3)
THE OBJECTIVE IN THE
REGULATION
Objective no. 1: Attraction of pharmaceutical
and agrochemical innovation to the EU
“The basic objectives of this proposal for a
Regulation therefore concern the
requirements relating to the proper
functioning of the internal market,
improvement of our competitiveness as
compared with that of our trade partners and
the encouragement of research and
development in the health field.”
- COM(90) 101 final, Recital 8
… continued from previous page
These results are however dependent on the
developed model used in section 2.1 being able to
correctly identify and capture the relationship
between patent protection and investment in R&D.

regulation and access to the right talent1.
As such, if the attraction of innovation to the EU is
the goal, the ease with which these factors can be
enhanced needs to be weighed against their
respective effect as well as the cost and effect of
changing e.g. the protection regime.

The effect of the SPC in increasing the effective
protection period might be dampened if firms apply
for fewer certificates in non-home markets due to
negative impacts of SPC fragmentation.

+
+

Effect of SPCs on effective
protection period
Effect of trade-weighted foreign
effective protection period on
domestic R&D spending

As was previously mentioned, an SPC is the last
protection to expire in 10% of cases in the present
data material. For these 10% of cases, the SPC
extends the effective protection by approx. 2.6 years.
Furthermore, 45% of the unique products in our
sample have obtained an SPC1. As such, this would
point to SPCs having contributed to increased
spending on pharmaceutical R&D within Europe.
However, reviewing the literature, the most
important determinants for the placement of R&D
seems to be the before-mentioned factors such as
education, infrastructure, political stability, taxation
1 See p. 84.
2 See e.g. Demirbag, M. and Glaister, K. W. (2010) Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of
Developed and Emerging Regions, Reddy, P. and Sigurdson, J. (1997), Strategic location of R&D and emerging patterns of globalisation: the case of
Astra Research Centre India, Kumar, N. (2001), Determinants of location of overseas R&D activity of multinational enterprises: the case of US and
Japanese corporations 193

Supply-side objective 1: Attraction of pharmaceutical and agrochemical
innovation to the EU (3/3)
The graph to the right depicts the year-on-year
change in the spending on pharmaceutical R&D in
selected European countries, the United States,
Canada, Japan and China.
The rather exorbitant growth rate for the United
States in 2004 is probably due to a change in the way
the statistics are assessed.
In recent years China has outpaced all other
countries when it comes to spending on
pharmaceutical R&D. This coincides with China
generally exhibiting high rates of growth in GDP as
well1.
As the number of years that data is available across
the countries is variable, the measure of ‘Compound
Annual Growth Rate’ (CAGR) can be used as a
common comparison tool. The CAGR describes the
average annual growth rate.
For each country during the available years, the
CAGR’s have been as follows:

Yearly growth rate

92%

40%
30%
20%
10%
0%
-10%
-20%
-30%

According to EFPIA the CAGR for spending on
pharmaceutical R&D within the EU has been 4.6%
from 2000 to 20152. As such, it can be seen that the
United States, Japan and China outpace the
European countries on average.

United States
France
China

Germany
Canada

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

-40%
1994

7.0%
3.0%
-2.2%
-6.1%
0.6%
6.4%
21.5%

1993

United States
Germany
United Kingdom
France
Canada
Japan
China

Change in spending on pharmaceutical R&D for selected European
countries and the United States, 1993-2015

United Kingdom
Japan

Note: Graph showing the year-on-year change in spending on pharmaceutical R&D in the selected countries. The European countries
have been selected based on data availability and size.
Source: OECD, Business enterprise R&D broken down by industry, ANBERD dataset.

1 World Bank national accounts data and OECD National Accounts data files, GDP growth (annual %)
2 Calculated based on EFPIA (2017), The Pharmaceutical Industry in Figures, p. 3. 194

Supply-side objective 2: Prevention of delocalisation of pharmaceutical
and agrochemical innovation and manufacturing (1/4)
THE OBJECTIVE IN THE
REGULATION
Objective no. 2: Prevention of delocalisation
of pharmaceutical and agrochemical
innovation and manufacturing
“[A] passive attitude (…) will entail two types
of risk (…): on the one hand, a decrease in
research due to insufficient resources and, on
the other hand, the relocation of research
centres away to non-member countries that
offer better protection and an environment
more conductive to innovation.”
- COM(90) 101 final, Recital 7

ECONOMIC RATIONALE

Supply-side objective 2 is, in particular, focused on
avoiding the adverse consequences that the
European Commission believed (at the time) would
impact the market had no measures been taken to
remedy the loss of effective protection terms caused
by a rise in development times.
The presence of innovation activities within the
European Union not only serves to ensure the timely
launch and availability of necessary medicines and
agrochemical products within the community but, as
argued in the European Commission’s
memorandum, can also have considerable
socioeconomic impact.
The invention and development of medicinal
products to the stage where they can be submitted
for regulatory approval involves an integrated value
chain that spans from laboratorial institutions and

clinical testing facilities all the way to product safety
and quality assurance. The economic footprint of
pharmaceutical companies and research centres is
consequentially substantial and includes local
investment, skilled labour demand and sizable
benefits to their respective locations1.

While pharmaceutical innovators incur substantial
up-front investment costs and uncertainty regarding
their R&D initiatives, the manufacturing cost of
producing a medicinal product once it is developed
and approved for marketing can often be rather
negligible2. Low-value-added activities of
pharmaceutical innovators, such as manufacturing,
might be more susceptible to being transferred to a
low-cost location than skill-intensive high-valueadding activities such as research and development.
In addition, innovator companies could decide to
focus on the skilled-labour intensive R&D activities
alone and decide to license the manufacturing or
even the complete commercial exploitation of a
developed and authorised medicinal product to a
third party. If the benefits of domestic intellectual
property protection only apply to the R&D-intense
part of a medicinal product’s product life cycle,
companies might decide to either contract other
players to carry out their less R&D-intense and lowvalue-adding activities or relocate more costsensitive parts of their production value chain in
other ways.
Finally, innovation and product development
activities carried out within a Member State or
within the European Union as a whole could

facilitate the monitoring and assurance of product
safety and efficacy3.

EVIDENCE

A decrease in expected profitability from a local
market would, in particular, incentivise firms to
relocate less skilled-labour-intensive manufacturing
or other low-value-adding activities to low-cost
countries inside and outside the European Union.
At the same time, it is unclear what effect effective
protection period in a country has on the presence of
generic manufacturers. If these, as a counterweight
to originators, flock to countries with lower average
effective protection times, their location of
manufacturing or product development facilities
might outweigh the effect of innovator relocation4.

In general, introducing SPCs in the European market
has worked to increase pharmaceutical R&D
spending as SPCs extend the average effective
protection period. This assertion is built upon the
econometric results in section 2.1, signifying that the
protection period provided in the other EU countries
with which a given country trades the most has a
significant impact on the domestic spending on
pharmaceutical R&D.
Furthermore, the enactment of the Bolar exemption
has allowed generic manufacturers to better
maintain their activities within the European Union
as it has allowed research of generics before expiry of
protection5.

1 WifOR (2015), The Economic Footprint of the Pharmaceutical Industry, Research Report.
2 This might not be the case for all medicinal products and particularly not for biologic products where the manufacturing process can be intricate and
expensive.
3 This might be the case if monitoring of the sites by the authorities is easier when the sites are placed within the EU than when they are not. However, sites seeking
to export pharmaceuticals to the EU must live up to the Good Manufacturing Practice guidelines and as such this might not be a large driver. 195
4 Regarding this issue see e.g. DG GROW public consultation including discussion about manufacturing waiver available at
https://ec.europa.eu/info/consultations/public-consultation-supplementary-protection-certificates-spcs-and-patent-research-exemptions_en
5 Directive 2001/83/EC, Article 10(6)

Supply-side objective 2: Prevention of delocalisation of pharmaceutical
and agrochemical innovation and manufacturing (2/4)
THE OBJECTIVE IN THE
REGULATION
Objective no. 2: Prevention of delocalisation
of pharmaceutical and agrochemical
innovation and manufacturing
“[A] passive attitude (…) will entail two types
of risk (…): on the one hand, a decrease in
research due to insufficient resources and, on
the other hand, the relocation of research
centres away to non-member countries that
offer better protection and an environment
more conductive to innovation.”
- COM(90) 101 final, Recital 7

… continued from previous page.

What is more, as could be seen in section 1.3, the
protection provided in the EU is more generous than
that in many other countries. As such, this works to
dismantle the argument for delocalising
pharmaceutical and agrochemical innovation and
manufacturing.
However, it is likewise pertinent to point out that
several studies from the literature regarding location
of R&D activities identifies a range of important
factors other than patent protection. These are e.g.
education, infrastructure, political stability, taxation
regulation and access to the right talent1.
Furthermore, many of these studies do not identify
domestic protection as a decisive factor for the
placement of R&D.

This is, however, not detrimental to the results of the
econometric model in chapter 2, where we look at
the protection in the other EU countries with which a
given country trades the most.
According to EvaluatePharma, the average annual
growth rate (‘compound annual growth rate’, CAGR)
for spending on pharmaceutical R&D in the world
has been 2.5% between 2008 and 2016. For the years
2016 to 2022, it is projected to be 2.4%2.
At the same time, it was shown under objective no. 1
that the CAGR for spending on pharmaceutical R&D
in China has been 21.5% in the years 2008 to 2015.
In 2012 the spending on pharmaceutical R&D in
China equalled the combined spending in Germany,
UK, France, Italy and Spain. Since then it has grown
much more rapidly than in the aforementioned
European countries3.
Furthermore, a country such as India, which has
previously been known mostly for its generics
industry, has shown an increase in development
within new proprietary compounds in recent years 4.

regarding the number of employees within the
pharmaceutical sector as a whole and the subsector
of pharmaceutical R&D is presented. This evidence
shows that while employment within pharmaceutical
R&D within the European union has increased by
49% between 1990 and 2015, overall employment
within the sector has not increased between 2006
and 2014

+
+
+

-

SPCs increase the effective
protection period in the EU
Regulatory protection schemes in
the EU are more generous than in
many other countries
Bolar exemption, allowing generic
development before protection
expiry
Spending on R&D is growing more
rapidly in countries elsewhere in
the world than in the EU

This could, to some extent, point towards new trends
within the placement of pharmaceutical R&D.
However, spending on R&D within the EU is still
showing an increasing trend and remains high.
According to EFPIA, the CAGR for spending on
pharmaceutical R&D within the EU has been 4.6%
from 2000 to 20155.
On the following two pages, empirical evidence

1 See e.g. Demirbag, M. and Glaister, K. W. (2010) Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of
Developed and Emerging Regions; Reddy, P. and Sigurdson, J. (1997), Strategic location of R&D and emerging patterns of globalisation: the case of
Astra Research Centre India; Kumar, N. (2001), Determinants of location of overseas R&D activity of multinational enterprises: the case of US and
Japanese corporations
2 EvaluatePharma (2017), World Preview 2017, Outlook to 2022, 196
3 OECD, Business enterprise R&D broken down by industry, ANBERD dataset.
4 See figure 2 in Differding, E. (2017), The Drug Discovery and Development Industry in India – Two Decades of Proprietary Small-Molecule R&D.
5 Calculation based on EFPIA (2017), The Pharmaceutical Industry in Figures.

Supply-side objective 2: Prevention of delocalisation of pharmaceutical
and agrochemical innovation and manufacturing (3/4)
The graph to the right depicts the number of people
employed within pharmaceutical R&D in the
European Union, from 1990 to 20151.
Overall there has been an increase in employment
within pharmaceutical R&D in the European Union
of 49% during the period. This does however, cover a
steady increase from 1990 to 2010 followed by a
small decrease in employment from 2010 to 2015.
What would have happened, had the current
regulation governing the SPC2 not been introduced is
unknown.

Employment in Europe within the R&D branch of the pharmaceutical
sector, 1990-2015
Employment

+ 49%

140.000

117.035

120.000
100.726

100.000
80.000

113.713

76.126

82.618

88.397

60.000
40.000
20.000
0
1990

1995

2000

2005

2010

2015

Note: Data includes Greece & Lithuania (since 2013), Bulgaria and Turkey (since 2012), Poland (since 2010), Czech Republic, Estonia
and Hungary (since 2009), Romania (since 2005) and Slovenia (since 2004).
Source: EFPIA based on member associations, available at https://www.efpia.eu/publications/data-center/the-pharma-industry-infigures-employment/employment-in-pharmaceutical-rd/

1 Based on EFPIA numbers from member associations, available at https://www.efpia.eu/publications/data-center/the-pharma-industry-in-figuresemployment/employment-in-pharmaceutical-rd/
2 Regulation (EC) No 469/2009. 197

Supply-side objective 2: Prevention of delocalisation of pharmaceutical
and agrochemical innovation and manufacturing (4/4)
The graph to the right depicts the total employment
in the European Union within the pharmaceutical
industry spanning the years 2006 to 2014.

Total employment in Europe within the pharmaceutical industry, 20062014

During the period, there have been certain
fluctuations in the number of people employed in the
sector. However, when gauging the whole period
there has been no change in employment from 2006
to 2014.

Headcount (in
thousands)
820
800
780
760
740
720

+ 0%

700

680
660
2006

2007

2008

2009

2010

2011

2012

2013

2014

Note: Graph depicting the number of employees in the European Union within the pharmaceutical sector, in thousands.
Source: IFPMA (2017), The pharmaceutical industry and global health, table 10, p. 44.

198

Supply-side objective 3: Ensure that research-based industry has market
protection of sufficient period to permit recovery of investments (1/2)
THE OBJECTIVE IN THE
REGULATION
Objective no. 3: Ensure that research-based
industry has market protection of sufficient
length to permit recovery of investments
“[E]ssential to this innovating sector, in that
investment in research is financed by means
of returns obtained during a period of
exclusive exploitation, thereby making it
possible to ensure that self-funding continues
and to guarantee further research in the
future.”
- COM(90) 101 final, Recital 5
“The aim of this proposal is specifically to
ensure that research based industry has a
market exclusivity of sufficient length to permit
recovery of their investments.”
- COM(90) 101 final, Recital 25

ECONOMIC RATIONALE

From a regulatory perspective, setting the right
incentives and exclusivity periods is a question of
striking a balance.
On the one hand, the development of medicinal
products and the engagement in innovative R&D
processes demand extensive amounts of research,
significant monetary expenditures and often large
up-front investments.1 Moreover, the development
of new medicinal products is a lengthy and timeconsuming endeavour that is often paired with
considerable amounts of uncertainty relating to the

actual success probability of the product being
developed, the risk of being refused regulatory
approval required for an authorisation to
commercialise the invented solution, the risk of
being outraced by a competitor developing a
substitutable or superior treatment that might
capture the targeted market shares, etc.
Innovators will only engage in development projects
that eventually lead to the availability of new
medicines if they perceive their expected profit to be
sufficient compensation for taking on the risks and
investment requirements outlined above.2
On the other hand, the granting of a commercial
exclusivity period to the innovator behind a new
medicinal product is contrary to public interest: once
an invention has been disclosed, public interest
would be to introduce competition as soon as
possible in order to reduce the detrimental effects of
temporary commercial exclusivity on, for instance,
public health budgets and out-of-pocket expenses.
While there is a desire to incentivise firms and to
reward firms for engaging in the development of
innovative products, there is also fundamental public
interest in limiting this remuneration for disclosure
to the absolute minimum necessary to achieve the
innovation required.
This trade-off is particularly crucial if there is
positive correlation between the complexity of
product development and public interest in the
outcome. That is, if the medicinal products that are

most important to society are the medicinal products
that are hardest to invent.

EVIDENCE

The main consideration for a firm when deciding
whether or not to engage in a product development
process ought to be expected profit.
Expected profit is mainly determined by the
following factors:
• Development risk of project failure
• Quantity of products that can be sold (i.e. number
of patients with the relevant therapeutic need)
• Profit margin (i.e. price minus cost) that can be
charged
• Time to (generic) competition from other providers
SPCs provide their rights holder with a prolonged
exclusivity period. As such, this additional protection
increases the time it takes until competitors –
generic or originators circumventing regulatory
exclusivity – can enter the market.
Combined with the results obtained in section 2.3,
namely the fact that prices tend to decrease upon
market entry of generics, this points to that the
presence of an SPC should allow an originator
company to earn higher profit margins over a longer
period of time (i.e. delayed price competition). As
such, the uncertainty-weighted expected profit
should increase when a company is granted an SPC.

1 The literature shows estimated costs of bringing a medicinal product from the lab to the market between USD 648m and USD 2.6bn. See Prasad, V. and Mailankody, S.
(2017), Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After Approval and Di Masi, J. A., Grabowskib, H. G. and Hansen, R.
W. (2016), Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs.
2 A pertinent issue relating to this argument relates to the choice that pharmaceutical innovators might have between development projects. As innovators are
assumed to display profit maximising behaviour, their profitability calculation will likely focus on which quantity they will be able to sell at which prices over the expected
time period between launch and generic entry. As such, they will not necessarily consider the therapeutic value of a treatment in determining which project to pursue 199
and develop. This behaviour might have adverse consequences for public health if pharmaceutical companies choose to develop commercially ‘safer’ products over
projects that might have lower expected profits but higher value for society. A thorough discussion of this choice between project alternatives is however beyond the
scope of this study. However, one way of remedying this is to closer connect the achievable prices with the therapeutic value.

Supply-side objective 3: Ensure that research-based industry has market
protection of sufficient length to permit recovery of investments (2/2)
Contrary to some US studies1, the evidence compiled
in section 2.2 does not show a positive effect of
effective protection periods on EU medicinal product
launches. SPC-related extensions do not seem to be
decisive drivers in the launch strategy of
pharmaceutical companies.

Effective protection period based on different protection schemes, 19962015

From the graph to the right it can be seen that the
average effective protection period for medicinal
products has been decreasing over time. The general
decrease in average effective protection is depicted
by the blue line.
The red line depicts what the average effective
protection period would have been, had market
protection and data protection not existed. The green
line, furthermore, depicts what the average effective
protection period would have been if neither market
protection, nor data protection, nor SPCs had
existed.
As such, the gap between the red and green line
depicts the effect on the average effective protection
period of medicinal products of SPCs. From 2010 to
2016 this average effect is 0.6 years across all
products.
It is evident from the graph that the effect of the SPC
has increased in size in more recent years. As such,
the importance of the SPC for the average effective
protection period for medicinal products has
increased over time.

+
+

SPCs delay time until generic
competition
SPCs have become increasingly
important for the effective
protection period

Notes: Calculation based on unique product-country observations. This means that each product is used in the calculation of the
average effective protection period as many times as the number of countries in which it has marketing authorisation. Prior to 1995,
data is only available for 12 respectively 13 countries. The last year of complete observation is 2016. The above graph depicts the
average effective protection for all observations, irrespective of whether they have been subject to an SPC application or not. For
about ten per cent of the sample, supplementary protection certificates are the last intellectual property right to expire. As such, the
above graph does not depict the marginal effect of SPCs on the effective protection period.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI

1 See e.g. Goldman et al. (2011) where the authors conclude that an increased effective protection period leads to
additional launches. 200

Supply-side objective 4: Fall in prices of medicines and agrochemicals
following SPC expiry, or whether the setting of those prices have
reflected the longer exclusivity period for recuperation of investments
THE OBJECTIVE IN THE
REGULATION
Objective no. 4: Fall in prices of medicines
and agrochemicals following SPC expiry, or
whether the setting of those prices has
reflected the longer exclusivity period for
recuperation of investments provided for by
the rules
“[T]he present proposal, moreover, favours a
possible fall in the prices of medicinal
products covered by this proposal in light of
the extension of the period for recuperation
of investments.”
- COM(90) 101 final, Recital 24

ECONOMIC RATIONALE

The economic rationale behind objective no. 4 can be
argued along different lines. The first part of the
objective formulation points to price dynamics
following SPC expiry, i.e. either loss or weakening of
exclusivity following the lapse of a specific IP right.
In essence, once exclusivity lapses or can be legally
bypassed in other ways, the market should be
accessible for entrants resulting in increased
competition and downward price pressure.
The second part of the objective seems to point
towards the idea of pharmaceutical companies being
focused on recovering and distributing their cost
over the time frame of their exclusivity protection.
Principally, this reasoning seems to fall short in not
accounting for the profit-maximising behaviour of a
private company. While firms consider the impact of

investment cost and resulting present value
considerations in determining whether to engage in a
project, pricing upon completion of R&D activities
should largely be independent of this.
Instead, from a theoretical economic viewpoint firms
would, while protected by IP rights, behave similarly
to monopolists, which includes pricing at marginal
revenues1. Sunk cost would not factor into the price
setting process.
At the same time, pharmaceutical companies do not
always find themselves in the position of a true
monopoly. Rather, competitors can ‘compete
through innovation’ and develop products targeting
the same or closely-related therapeutic indications.
If a competitive product fulfils criteria for a certain
degree of substitutability, firms might deviate from
purely monopolistic pricing. In this context, time to
expiry can play a role if it correlates with the
likelihood of competition arising.
Both prior to and following exclusivity expiry,
customers’ willingness or ability to switch treatment
plays a role in the pricing opportunities available to
companies in the market. Economically, these
customer reactions can be gauged using elasticities,
i.e. the likely demand response in reply to a change
to prices (or similar characteristics).

EVIDENCE

The results obtained in section 2.3 point to
substantial price decreases in medicinal product
prices upon generic entry. Generic entry can occur
once all meaningful protection schemes have
expired. As such, this result also points to a decrease
in price following the expiry of a supplementary
protection certificate.
While a slight anticipatory effect of decreasing prices
can be observed, this should not be interpreted as a
decrease due to prolonged effective protection period
but rather a leading effect of imminent competition
entering the product market or originator
competition.
We are unable to find either economic arguments or
empirical evidence supporting the assertion that
SPCs should help to decrease prices during
protection.

?
?

No direct link between price setting
while under protection and the
length of the protection period
No direct link between protection
period and price fall after expiration
of protection

In the literature, prices have at times been observed
to actually rise following the expiry of exclusivity. For
firms, this can be profitable when a group of patients
for certain reasons is unable to change to a substitute
product (i.e. when demand is inelastic).2

1 While firms in a competitive environment will set prices equal to marginal cost, monopolists will set prices at marginal revenue instead, which will
generally be higher than marginal cost. A monopolist will price at marginal revenue rather than marginal cost due to the fact that reducing price
will reduce the profit made on all other units sold and not just the additional – marginal – unit.
2 See e.g. Frank & Salkever (1992/1997). 201

Supply-side objective 5: Promotion of competition through innovation
(1/2)
THE OBJECTIVE IN THE
REGULATION
Objective no. 5: Promotion of competition
through innovation
“It is true that the longer exclusivity period, the
longer the delay before generics enter the
market. (…) However, this will not mean any
reduction in competition. The well known
effect of the patents system is to promote
competition through innovation. (…) Generic
products exist only if new medicinal products
are developed and disclosed.”
- COM(90) 101 final, Recital 25

ECONOMIC RATIONALE

Patents as IP rights grant an inventor temporary
exclusivity for the exploitation of their invention. In
return, the inventor has to hand a description of the
invention to the competent authorities.
That way, patents provide two types of benefits to an
economy:
• Increased rewards to successful innovation
• Public disclosure of innovations made by private
actors.
On the one hand, the availability of patents
encourages companies to engage in innovative
behaviour. The opportunity to exclusively exploit an
invention sets incentives for firms to pursue
innovative novelty and new solutions over merely
improving and refining existing ways of addressing a
known problem.1
While this excludes others from using the same

invention during the original inventor’s exclusivity
period (usually 20 years), this does not necessarily
mean that there cannot be competition in a product
market. Companies can, conditional on not
infringing the originator’s patented invention,
develop similar, comparable, or different medicines
that target the same therapeutic indication as the
original product. That way, companies can compete
for the same patient group irrespective of patent
protection.

EVIDENCE

Through providing a longer period of exclusive rights
for an invention, the SPC scheme might encourage
more competition through innovation.
Competition through innovation means that both (or
more) companies with originator products on the
market have incurred a development cost for R&D,
including clinical trials. As such, the price pressure
between originator companies might be of a lesser
nature than when generics enter. As the SPC scheme
delays the time at which generics can enter the
market, SPCs make competition by innovation more
profitable than if SPCs had not existed.
However, SPCs could likewise have a negative impact
on innovation activities. This can be the case if
entities are allowed to engage in so called ‘SPC
squatting’. In this practice, a patentee could
potentially obtain an SPC on a product based on a
patent that someone else - a third party - has
developed to marketing authorisation.2
This ‘third-party issue’ could potentially discourage
innovators from developing products, e.g. in
biotechnology where different antibodies could

infringe on broader functional patents. As argued in
Carver (2015), such a situation could leave
pharmaceutical innovators with a range of
unfavourable options.3 In this way, the current SPC
set-up in the EU could reduce innovation incentives
in specific cases.

However, at the same time, by extending the
protection period provided to originator companies,
SPCs increase the expected profit from developing
new innovative products. As such, if two companies
are simultaneously developing two originator
medicinal products for treating the same indication,
the possibility of obtaining an SPC increases the
profit prospect for both companies, despite the
competition they will face. This might bring some
products to be developed that would otherwise not
have been profitable, in the light of facing generic
competition at an earlier stage. Through this
mechanism, SPCs might increase the amount of
competition through innovation.
On the following page empirical evidence regarding
the percentage of first-in-class New Chemical
Entities which are discovered in the EU compared to
other parts of the world is presented. From this, it
can be seen that the EU has maintained its share of
first-in-class NCEs at 44% of all, when comparing
the period 1982-1992 to the period 1993-2003.

+

-

SPCs delay the time at which
generics can enter, making originator
competition more profitable
The possibility of so-called ‘SPC
squatting’ might discourage
originator competition

1 In economic literature, this is often referred to as the difference between static efficiency (cost reduction and product refinement) and dynamic
efficiency (establishing novel practices). See e.g. OECD (2006), ‘Competition, Patents and Innovation’.
2 See e.g. Schovsbo, Klinge & Minssen (2017) for an overview of related issues. 202
3 Carver (2015) ‘Eli Lilly v. Human Genome Sciences: A case of what is implicitly, but necessarily and specifically in point!’, at
https://gowlingwlg.com/en/global/insights-resources/eli-lilly-v-human-genome-sciences-a-case-of-what-is-implicitly-but-necessarily-andspecifically-in [last accessed 2017-09-04]

Supply-side objective 5: Promotion of competition through innovation
(2/2)
In the United States, the U.S. Food & Drug
Administration (FDA) has a ‘first-in-class’
designation. First-in-class medicinal products, for
example “use a new and unique mechanism of
action for treating a medical condition”1.
Using this definition, Grabowski and Wang (2006)2,
have looked at the distribution of New Chemical
Entities (NCEs) designated as first-in-class, across
the United States, the European Union, Japan and
the Rest of World. The results of the analysis is
depicted in the graph to the right.
According to the authors, the first-in-class
designation can be used to identify particularly
novel, and to a certain extent, the most
therapeutically important products2.

Between the period 1982-1992 and 1993-2003, the
share of first-in-class NCEs developed in the United
States and in the European Union have been almost
unchanged, as a share of the total number of first-inclass NCEs in the world.
Using the first-in-class definition from the FDA has a
few shortcomings. First of all, the authors have had
to exclude NCEs not yet launched in the United
States, even if these were launched elsewhere. This is
done, as the first-in-class classification is unavailable
for other parts of the world than the United States.
This could work to understate the number of first-inclass NCEs developed in the European Union, as all
NCEs not launched in the United States are
excluded.

First-in-class New Chemical Entities (NCEs) discovered in the United
States, Europe, Japan and the Rest of World, comparing the time period
1982-1992 to 1993-2003
Percent of
First-in-class
NCEs
+2%60%

points

50%

46%

48%

+0%points

44%

44%

40%
30%

-5%points

20%

10%

10%

5%

0%

0%
19821992

19932003

United States

19821992

19932003

European Union

19821992

19932003

Japan

19821992

3%
19932003

Rest of World

Note: First-in-class NCEs are distributed by headquarter of the company. NCEs not yet launched in the United States are excluded
from the analysis.
Source: Grabowski, H. G. and Wang, Y. R. (2006), The Quantity and Quality of Worldwide New Drug Introduction, 1982-2003,
Exhibit 4, p. 457.

1 See FDA website (FDA.gov).
2 Grabowski, H. G. and Wang, Y. R. (2006), The Quantity and Quality of Worldwide New Drug Introduction 203

Supply-side objective 6: Encourage innovation demanded and needed by
customers, patients and stakeholders (1/2)
THE OBJECTIVE IN THE
REGULATION
Objective no. 6: Encourage innovation
demanded and needed by customers,
patients and stakeholders
“The aim of this proposal (…) is to improve the
protection of innovation in the
pharmaceutical sector (…) to permit the
European pharmaceutical industry (…) to
guarantee therapeutic, scientific, economic
and social progress which is indissolubly linked
with the discovery and use of new medicinal
products.”
- COM(90) 101 final, Recital 1

ECONOMIC RATIONALE

For a new medicinal product to display the ‘progress’
characteristics described above in a given market,
two things generally have to be true:
• The product needs to be invented and developed to
approval.
• Upon approval, the product needs to be launched –
made available to patients – in the given market.
As previously discussed, pharmaceutical companies’
development and launch decisions are mainly driven
by the profits that a company can expect to receive
from engaging in a research project, net of the upfront investments that are necessary to develop the
product up to receiving the authorisation to launch it
on a market.
When looking at a company’s decision whether to

develop a product at all, likely the entirety of all
markets that could qualify for launch will be
considered in gauging the profitability of the
initiative.

develop a product in the first place. That way, SPCs
could have a positive effect on the provision of
innovative products that meet the needs of patients
and stakeholders on the market.

When looking at whether to launch a product in a
specific market, conditional on the product having
been developed prior to that, the most likely
determinant is the expected profitability in that
market alone. However, for certain markets
additional strategic concerns, such as reference price
regimes, can also be of importance when deciding
whether and when to enter the market.

On the other hand, the results obtained in section
2.2 show that there is no measurable effect from an
increased effective protection period on product
launch. As elaborated in section 2.2, this might be
due to the fact that market attractiveness correlates
with effective protection period. Drivers for early
launch are found to be wealth and size of population.
These can be seen as proxies for achievable price and
expected quantity sold. Furthermore, evidence from
the literature points to external reference pricing as
an important driver of launch.

As discussed earlier and abstracting from
development risk, there should be three key drivers
of development and launching decisions:
• The quantity of products that can likely be sold.
• The profit margin (price minus cost) at which the
quantity can be sold.
• The time period where this profit margin can be
expected to be high (effective protection period).

EVIDENCE

An SPC is likely to increase the effective time of
protection provided to a medicinal product. This is
supported by the fact that in the present data
material SPCs are the last protection to expire in 10%
of cases. On average, the SPCs extend the effective
protection by 2.6 years for these 10% of products. As
such, if an SPC has been granted, it should be more
profitable to launch a product in a specific market. In
addition, if SPCs have been granted in numerous
markets or in particularly important markets, this
effect might also increase the overall incentive to

As will be shown in section 3.4, there is considerable
fragmentation in the usage of SPCs across the
European Union. Companies are more likely to apply
for SPC protection in larger markets, which are
however already more attractive per se.
One could argue that an SPC might thus have a
stronger effect on launch probabilities in markets
that are less attractive (e.g. in terms of GDP per
capita). However, given the uncertainty and
heterogeneity of outcomes attributed to a nonunitary SPC title, it appears that companies decide
not to file for the additional protection in some of
these less attractive markets. This in turn could
reduce companies’ incentives to launch a product in
such a market at all as it would imply a reduction in
expected profits.1

1 Please refer to section 3.4 for analysis and discussion of the impact of SPC fragmentation. 204

Supply-side objective 6: Encourage innovation demanded and needed by
customers, patients and stakeholders (2/2)
THE OBJECTIVE IN THE
REGULATION
Objective no. 6: Encourage innovation
demanded and needed by customers,
patients and stakeholders
“The aim of this proposal (…) is to improve the
protection of innovation in the
pharmaceutical sector (…) to permit the
European pharmaceutical industry (…) to
guarantee therapeutic, scientific, economic
and social progress which is indissolubly linked
with the discovery and use of new medicinal
products.”
- COM(90) 101 final, Recital 1

which a given country trades the most had a positive
effect on domestic spending on pharmaceutical R&D.
As likewise previously mentioned, this likely entails
that the enactment of the SPC has contributed to
increasing pharmaceutical spending on R&D within
the EU (and the rest of the world).

Seeing companies as profit maximising entities, as
economic theory suggests, the increase in
pharmaceutical innovation will be directed towards
the areas where the highest expected profit can be
identified.
As SPCs generally increase expected profits across
the board for medicinal products, it is difficult to see
how this regulation could help encourage innovation
in a specific direction.

demanded and non-needed products. This means
that if the products demanded and needed by
customers coincide with the products being eligible
for an SPC, the SPC legislation will have helped
encourage innovation demanded and needed by
customers, patients and stakeholders.

?

+

SPCs are not granted based on
therapeutic value or the fulfilment of
unmet medical needs
SPCs increase profitability of
medicinal products and thus
encourage innovation in general

… continued from previous page.
Regarding the objective of the SPC encouraging
innovation demanded and needed by customers,
patients and stakeholders, this can be difficult to find
a rational argument for.
The SPC extension of protection is dependent upon
the development time spent, not the therapeutic
value derived from the final medicinal product. As
such, the SPC extends protection in general for all
medicinal products with a patent and a development
time longer than 5 years, regardless of whether these
are demanded by customers, patients and
stakeholders.
As was shown in section 2.1, an increase in effective
protection period in the other EU countries with

Expected profits are tied closely to expected prices.
As such, tying reimbursement and pricing more
closely to the demand and need for innovation would
directly encourage more innovation within this area.
There is one condition, however, for which it is
conceivable that the SPC regulation would help to
encourage innovation demanded and needed by
customers, patients and stakeholders, this condition
being that demanded and needed innovation projects
take longer than 5 years to develop more often than
non-demanded and non-needed projects. If this is
truly the case, most of the products eligible for the
SPC extension will be those mentioned in the
objective. As such, the profitability of these products
will increase, encouraging more investment in these
projects as opposed to projects developing non-

205

Demand-side objectives
Shortened effective patent protection reduces
innovation incentives for developers of medicinal,
veterinary and agrochemical products. In particular,
reduced incentives could lead to insufficient
innovation in product categories where requirements
for research and development efforts are particularly
high, diseases are particularly complex, or the
affected stakeholders have limited advocacy.

remedy these market failures. As such, the grant of
an SPC seeks to provide substantial benefits to
consumers by leading product developers to provide
innovative products where they are needed most.
As a consequence, strengthening supply-side
innovation incentives should in the medium- to longterm lead to increased product amenability on the
market.

By granting product developers an extended effective
patent protection term, the regulator aspires to

Demand-side objectives
1 Accessibility and diffusion of innovative products across the internal market

SPC objectives:
Product
amenability

2 Preventing supply shortages and missed or deferred market launches

3 Availability of generic medicinal products

4 Preventing limits to innovative product amenability through industry pricing strategies

206

Demand-side objective 1: Accessibility and diffusion of innovative
products across the internal market
ECONOMIC RATIONALE

In order to produce the largest attainable consumer
and patient benefit, new and innovative medicines
would have to be launched and be available in not
only the most attractive markets within the
European Union but throughout the Community as a
whole.
The European Medicines Agency provides
originators and generic manufacturers the
opportunity to file for a Community-wide
authorisation to market their products. If such an
authorisation is granted, the respective company is
allowed to launch and commercialise its medicinal
product(s) in all concerned markets. As such, this
scheme should considerably reduce obstacles to
entering even smaller or niche markets as long as
they are covered by the centralised authorisation
scheme.
Simultaneously, the availability of such communitywide, or unitary, marketing authorisations highlights
the lack of similar centralised provisions for
important components of companies’ calculations of
expected profits and launch choices. In particular,
patents and patent-extending SPCs are subject to
national application and/or validation proceedings1.
The fragmentation of exclusivity mechanisms
provides companies with two arguments for not
launching their product(s) in the entirety of the
Community: increased cost of filing and maintaining
protection (e.g. through patent and SPC
maintenance fees) as well as increased uncertainty,
mainly through the presence of heterogeneity in

patent or SPC grant decisions for the same patentproduct pair across countries (Mejer 2017).
If, based on this, companies decided not to launch a
product in a certain market, consumers and patients
would be subject to adverse effects ranging from
having to pay higher prices for medicines (if there is
less competition in a market) to losing access to a
certain medicinal product completely if it is not
launched at all.

EVIDENCE

Being granted an SPC for a medicinal product in a
specific pharmaceutical market would increase
effective protection in this market and thus most
likely make it more worthwhile for a company to
launch their product in the respective market.

However, the results obtained so far indicate that
effective protection is particularly high in markets
that are already more attractive for product launch to
begin with. It appears that companies seek to protect
their products especially in those countries where
the products make them the most money.
A particularly important driver in this context seems
to be reference pricing regimes between countries in
which an innovator might be interested in launching
a product. As discussed in section 2.2, the presence
of price regulation and price referencing can have a
considerable impact on both price levels and product
launch sequence.

the launch of medicinal products. Perhaps because
this has already been factored into the launch
decision. What does seem to have a positive
influence on launch, however, is the wealth and
potential patient base of a given country. This means
that small non-wealthy countries will be
detrimentally affected and experience longer launch
lags than large affluent countries.
Given that there is uncertainty and cost associated
with filing for an SPC or patent in a less attractive
market, companies might elect not to do so and then,
facing a shorter period of effective protection, might
decide not to launch a product at all.
In this sense, SPCs most likely do not contribute to
the diffusion and accessibility of medicinal products
across the internal market.
On the other hand, a unitary SPC title could likely
produce such incentives to a higher degree: even if a
company were to file for an SPC only in an otherwise
attractive market, such a title would have validity for
other markets as well. This would in turn increase
effective protection in those markets as well and
might bring the increase in expected profits that
actually makes a company launch its product there –
either earlier or at all.

?

No immediate connection between
effective protection period and
diffusion of new medicinal products

Another important outcome from section 2.2 is that
the effective protection period does not seem to drive

1 Effort is being put into establishing a unitary European patent. However, the process has been halted several times and as of this writing the
implementation date is still unknown. The possibility of a unitary SPC title is not part of the current implementation plans. 207

Demand-side objective 2: Preventing supply shortages and missed or
deferred market launches (1/2)
ECONOMIC RATIONALE FOR THE
PREVENTION OF SUPPLY
SHORTAGES

A supply shortage represents a situation in which the
manufacturer(s) of a medicinal product is (are)
unable to produce an adequate supply of the product
to meet either the current or projected demands of
the buyers, i.e. healthcare systems and patients.1
Supply shortages can occur at local, national or
international levels, and may of course vary both in
terms of severity and duration.
Supply shortages impose costs on both healthcare
systems and the individual patients:2,3,4,5
• Individual patients are harmed since their
treatment may have to be either delayed or
foregone, or substituted for a treatment with less
efficacy or safety.
• Healthcare systems face significant costs from
supply shortages as healthcare professionals have
to spend time managing the supply shortage, e.g.
finding alternative treatments.
These severe human and financial costs of supply
shortages represent the economic rationale of this
objective.
Supply shortages may have a variety of different
immediate causes:
• Supply shocks: the ability of one or more
manufacturers to supply the medicine abruptly
decreases, e.g. because of market exit or a plant
being shut down.
• Demand shocks: e.g. changes in medical
recommendations or the indications for which a
medicinal product is approved.

A prominent explanation of supply shortages in the
academic literature is low profit-margins6. With
regard to biologic products, a possible further
explanation might be that some biologics and
biosimilars are produced on demand and hence are
more sensitive to unforeseen changes in demand.

There are several mechanisms by which low profit
margins may increase the likelihood of a supply
shortage:
• Low profit margins incentivise suppliers to keep
relatively small inventories which reduces costs for
the individual supplier. However, it may also cause
the supplier to be unable to meet demand should
production be ceased or temporarily suspended,
e.g. due to quality or safety concerns. If profit
margins were higher, companies would be willing
to keep a larger inventory because the potential
cost of not being able to supply the market would
be larger, therefore making up for the cost of the
inventory.
• Essentially, the same logic applies to the
maintenance of the production facility. Suppliers
are more likely to accept a risk of production being
suspended if the opportunity cost of this is low.
Because of this, suppliers may choose to postpone
investments in the maintenance of the production
facility, which increases the risk of a suspension of
production, which again may be an immediate
cause of a supply shortage.
In short, low profit margins make markets more
vulnerable to supply shortages because they decrease
the incentive of companies to ensure that demand
can be met.

Empirical evidence for the relationship between low
profit margins and the risk of supply shortages can
be found in Yurukoglu et al. (2016).2 See section 4.3.
for more detail.
Low profit margins may have different causes, either
regulatory in the form of price ceilings or marketbased due to competition. The latter of these is
typically associated with markets for medicinal
products that have experienced generic entry.

EVIDENCE

As described above, generic competition may have
the adverse effect of driving prices down to a point
where low profit margins increase the risk of a
supply shortage.
Given that an SPC will extend the protection period
of the originator product, it ultimately works to delay
generic entry. Because generic entry might be
associated with an increased risk of supply
shortages, SPCs might thus be said to alleviate the
risk of supply shortages to some extent.
However, it is important to keep in mind that SPCs
only delay the problem – they do not cause a
structural change that reduces the risk of supply
shortages. Furthermore, although SPCs have a
beneficial impact on the risk of supply shortages,
they do so at the expense of a longer protection
period, which will likely come at a cost for the buyers
of the medicines.

+

SPCs delay the point in time when
generics can enter

1 http://www.ema.europa.eu/docs/en_GB/document_library/Presentation/2016/01/WC500200301.pdf
2 Yurukoglu et al. (2016), The Role of Government Reimbursement in Drug Shortages.
3 Kim, Sang Hyun and Morton, Fiona Scott (2015), A Model of Generic Drug Shortages: Supply distributions, Demand Substitution and Demand Control.
4 Economist Intelligence Unit (2017), Cancer medicines shortages in Europe: Policy recommendations to prevent and manage shortages.
208
5 http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60667-5/fulltext?rss%3Dyes
6 See e.g. M.E. Markowski (April 2012), "Drug Shortages: The Problem of Inadequate Profits".

Demand-side objective 2: Preventing supply shortages and missed or
deferred market launches (2/2)
ECONOMIC RATIONALE FOR THE
PREVENTION OF MISSED OR
DEFERRED MARKET LAUNCHES

The provision and supply of adequate medicinal
products is a key component of regulators’ interest in
pharmaceutical and agrochemical markets. The main
objective of supplementary protection certificates as
an intellectual property right is to help remedy the
market failures that lead originator companies to
supply too little of the required innovative products
to the customers – or to supply them only with a
considerable lag to the first international launch of
the same product.
Reiterating the earlier argument, increasing the
effective protection period can induce companies to
launch a product, or to launch it earlier, by
increasing the profits to be expected from launch.

EVIDENCE

As documented above, the results obtained in section
2.2 point to no distinguishable effect of effective
protection on product launch. This is likely due to a
correlation with overall market attractiveness – the
most important driver of a company’s decision on
when and where to launch a product.
A further impact factor is the presence of reference
pricing between potential launch countries. As
discussed in section 2.2, launch decision and
sequence cannot be seen as independent in the
presence of price referencing.

decide to launch a product with a delay or not at all
in certain markets to avoid missing out on additional
profits in other markets.
There is considerable heterogeneity in the number
and speed of new medicinal product launches
throughout the internal market, with larger
countries receiving earlier access to new medicines1.
It seems unlikely that the SPC in its current
fragmented form can contribute to increasing the
launch attractiveness of otherwise neglected
markets.
However, it should be noted that a unitary SPC
might be better fit to achieve such an objective.
Under a fragmented system, an SPC has to be
applied for in each country separately, so in some
less attractive markets the effort associated with
obtaining an SPC might not be worthwhile. However,
were the SPC unitary, a company seeking to obtain
an SPC in one country would automatically obtain
one for all countries. This would obviously bring
more homogeneity to the system and might
encourage launch in more markets. At the same
time, it is worth keeping in mind that overall launch
lag periods between international and EU launch
seem to be decreasing over time, as described by
Kyle (2017)2.

?

No immediate connection between
protection period and market launch

As a consequence, pharmaceutical companies might

1 See results in section 2.2. This is likewise supported by findings in Cockburn et al. (2016), where it is found that market attractiveness, in the form of
GDP per capita, is an important driver of new product launch.
2 Kyle, M. (2017), “Economic Analysis of Supplementary Protection Certificates in Europe”. 209

Demand-side objective 3: Availability of generic medicinal products (1/3)
ECONOMIC RATIONALE

Generic medicinal products can enter a market once
the exclusivity for a respective originator product has
lapsed. Generic manufacturers can start to develop
their products earlier and from the expiry of data
exclusivities by cross-referencing the testing and trial
data submitted by the originator to the competent
authorisation authority.
As stated, referring to supply-side objective 5 above,
“Generic products exist only if new medicinal
products are developed and disclosed”.
The initial development of originator medicinal
products is essential for the development of
subsequent generic substitutes. Only when an
originator medicinal product is patented and
disclosed can someone else use the knowledge
protected in the patent filing.
In general therefore, there should be a positive
correlation between the number of originator
medicinal products developed initially and the
number of generics developed subsequently: without
the original product there cannot be a generic.
At the same time, it may be that technological
advancements have made reverse-engineering1
easier. If this is the case, it may be that disclosure of
knowledge is less important today – at least as far as
small molecule medicinal products are concerned.
On the other hand, generic manufacturers are
heavily reliant on the originator’s disclosure of preclinical and clinical testing data to the European
Medicines Agency or other such competent
authority.

EVIDENCE

While data protection might have a more tangible
impact on the generic development process, one
ought to keep in mind that patents are still important
in protecting pharmaceutical innovation. In the
majority of cases in the current data material, a
patent is the last protection scheme to expire. As
such, the patent is still important for the very
existence of a generic – even though its impact on
the availability of a generic conditional on an
originator product being developed is likely
negligible.
Similarly, the effect of SPCs on the availability of
generic products will likely not relate to the speed or
location at which they enter. Instead, if the very
existence of an SPC increases the expected
profitability of a project in such a way that an R&D
initiative is carried out rather than abandoned, the
SPC will contribute to the existence of the generic
product as such. The presence of an SPC will defer
generic entry by the SPC term (i.e. up to five and a
half years if also granted a paediatric extension) but
should not impact the length of the generic launch
lag (or the speed of generic entry) from the point in
time where exclusivity of any form eventually
expires, provided that the SPC is the last exclusivity
scheme to do so.
The impact of an SPC on the timing of generic entry
for a product conditional on this product being
developed with or without the SPC is negative as an
SPC extends the period of meaningful effective
protection. Supplementary protection schemes do
delay generic entry.
The presence of a correlation between SPC filing and
product market attractiveness on the one hand and

generic entry and product market attractiveness on
the other hand could obscure any effect that might be
observed from SPCs on generic entry.
As noted by Kyle (2017), originator firms will seek to
extend the effective protection period of the most
profitable products and file SPCs especially for these.
At the same time, generic manufacturers will also try
to enter these most profitable markets first.
Consequently, observed correlation between SPC
coverage and generic entry could in part be due to
joint sorting on market attractiveness. As such, the
degree to which SPCs should be allowed to postpone
generic entry remains the question of a trade-off
between innovation and product accessibility. On the
one hand, extended effective protection might lead to
more but delayed generics (due to more innovator
medicinal products reaching the market2). On the
other hand, delaying generic entry for too long can
lead to a situation where the generics are so far
outdated that demand has shifted towards new
innovator medicinal products.
The following two pages provide empirical evidence
of the share of total volume on the pharmaceutical
market, which generics make up. In general it can be
seen that share of generics has been increasing over
time, in most countries where data is available.
However, whether this is directly tied to the
enactment of the SPC or other generic policies
cannot be inferred.

+

-

SPCs encourage new innovative
products for which generic versions
can be made
SPCs delay the time at which the
generic products can enter the
market

1 Reverse-engineering is a process by which a company figures out the composition of a product by thoroughly examining the product, instead of relying on a detailed 210
description e.g. in a publicly available patent file.
2 Or, potentially, more innovative but risky product developments being completed instead of less innovative alternatives that firms might choose in case of lower expected
profits that can be earned due to a shorter exclusivity timeframe.

Demand-side objective 3: Availability of generic medicinal products (2/3)

80
70
60
50
40

30
20
10
2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

0
2002

To what degree this is influenced by the SPC
regulation2 is not immediately possible to deduct.
However, the general tendency does seem to suggest
that the SPC regulation, granting a longer protection
period to originator products, has not been
detrimental to having a development where generics
have gotten to make up a larger share of the market
for medicinal products, measured by volume.

Generic
market share
90

2001

Data availability is highly differentiated across
countries. However, from 2000 to 2015 a general
tendency for generics to make up an increasing share
of the total volume on the pharmaceutical market
seems to be discernible.

Generic share of pharmaceutical market by volume, total
pharmaceutical market, 2000-2015

2000

The graph to the right depicts how large a share of
the total volume on the pharmaceutical market, is
made up by generics in the given countries as
recorded in the OECD dataset on the pharmaceutical
market1.

Belgium

Czech Republic

Estonia

Finland

France

Latvia

Portugal

Slovak Republic

Simple average

Note: Comparing directly with the generic market share in 2007 for the different countries, given by figure 11 in the Sector Inquiry,
the numbers reported by the OECD are generally lower. This could e.g. be due to differences in the definition of which products are
generics, as well as whether data is for the whole market, or e.g. only the re-imbursed part.
Source: OECD “Pharmaceutical Market” dataset, available at https://stats.oecd.org/Index.aspx?DataSetCode=HEALTH_PHMC

1 OECD “Pharmaceutical Market” dataset, available at https://stats.oecd.org/Index.aspx?DataSetCode=HEALTH_PHMC
2 Regulation (EC) No 469/2009. 211

Demand-side objective 3: Availability of generic medicinal products (3/3)

70
60
50
40

30
20
10

Austria
Greece
Luxembourg
United Kingdom

Denmark
Ireland
Netherlands
Simple average

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

0
2003

As was the case on the previous page, it is not
directly possible to discern how much the regulation
on SPCs1 have influenced the depicted development.
However, the general increase in generic market
share does seem to suggest that the SPC regulation
has not been detrimental to an increasing use of
generics.

80

2002

Generally the tendency is the same as could be seen
in the graph on the previous page; from 2000 to
2015 generics have increased their market share,
measured by volume.

Generic
market share
90

2001

The graph to the right depicts the generic market
share of volume of pharmaceuticals sold on the reimbursed part of the markets in the given countries.

Generic share of pharmaceutical market by volume, re-imbursed
pharmaceutical market, 2000-2015

2000

For some countries, data for the total pharmaceutical
market is not available in the OECD database. For
some of these countries data on the re-imbursed part
of the pharmaceutical market is available instead.

Germany
Italy
Spain

Note: Comparing directly with the generic market share in 2007 for the different countries, given by figure 11 in the Sector Inquiry,
the numbers reported by the OECD are generally lower. This could e.g. be due to differences in the definition of which products are
generics, as well as whether data is for the whole market, or e.g. only the re-imbursed part.
Source: OECD “Pharmaceutical Market” dataset, available at https://stats.oecd.org/Index.aspx?DataSetCode=HEALTH_PHMC

1 Regulation (EC) No 469/2009. 212

Demand-side objective 4: Preventing limits to innovative product
amenability through industry pricing strategies
ECONOMIC RATIONALE

Section 2.4 of this report identified pricing drivers
within the pharmaceutical company along two
dimensions: market structure, as well as tender
impact and future perspectives.
Said driver dimensions included the following
factors1:
• Number of competitors (or breadth of medicinal
category).
• Market share and switching behaviour.
• Size of the contestable market share.
• The length of the average patient’s treatment
period.
• The length of tender periods.
• The regularity (or frequency) of tendering
procedures.
• The corporate structure of competing companies.
• Tendering guidelines and conformity.
• The length of patent protection and the competing
companies’ pipelines.

EVIDENCE

As discussed earlier, providing companies with a
longer protection period should not have the effect of
lowering prices. Aside from the above factors, firms
will likely only consider a binary judgement on
exclusivity in their pricing considerations: whether
there is competition or whether the firm still
maintains exclusivity.
If the company is not challenged by competitors on
the market, the granting of a longer protection
period ought not to influence its pricing decision.

Economic theory would suggest that the company
will charge the price the competitive situation allows,
so as to maximise profit. A longer protection period
would, as such, allow the company to charge a
premium price for a longer period by delaying
generic entry.

If it is only the existence of exclusivity (as an
indicator of time periods when higher prices can be
charged on the market) that matters for
pharmaceutical companies’ price setting
considerations, the type of intellectual property right
providing said exclusivity should not be of
importance. As such, the presence or absence of an
SPC for a specific medicinal product should not
directly impact price setting, but only indirectly by
virtue of extending the exclusivity time period
(where higher prices can be charged). The way
exclusivity comes about is not decisive for price
setting, the categorical existence or non-existence of
exclusivity in a given time period is.

period in which a company can employ a certain
pricing strategy before generic competition can
enter. Moreover, the protection period might
influence the pricing strategy indirectly by
influencing the competitive situation on the market.
The only scenario where SPCs can surpass limits to
product amenability would likely be when they push
a company’s expected profit calculation across the
launch decision threshold. However, this would be
unrelated to industry pricing strategies.

?

Economic theory would suggest
companies set profit-maximising
prices

Prices for pharmaceuticals decrease substantially
once exclusivity lapses and generic competitors enter
the market even though, at least for the US, in parts
of the market this can even lead to price increases,
see for instance Frank & Salkever (1992/1997). This
has, however, not been observed within the EU and
hence might be due to special constructs of the US
market.
It is not possible to identify an economic theoretical
founded argument as to why the effective protection
period in itself directly should influence the pricing
strategy of the firm. However, SPCs do extend the

1 See section 2.4. 213

Market impact objectives
Extending the effective patent term should increase
innovation incentives for product developers – but at
the same time it also grants additional market power.
Supplementary protection certificates therefore
represent a trade-off to the regulator.
On the one hand, patent term extension ought to
benefit both producers and consumers by leading to
an improved supply of innovative products, by
allowing the European pharmaceutical, animal
health and plant protection industry to catch up to its

international global competitors, and by
strengthening research-based industries.
On the other hand, the regulatory scheme ought not
to grant excessive market power to product
developers and producers. The extended patent
protection ought not to result in excessive pricing or
otherwise excessive profits and revenues in the
affected industries that go beyond the intended
innovation incentives.

Moreover, the implementation of the SPC scheme as
such ought to mitigate potential adverse
consequences such as barriers to the movement of
goods or distortions to competition that might have
arisen in alternative scenarios of national level
regulatory initiatives.

Finally, the SPC scheme ought to leave the regulated
industries with the flexibility to adapt to global
advances and developments in research, trade and
innovation models.

Market impact objectives
1 Fall in prices of SPC-protected products relative to products without SPCs

SPC objectives:
Impact
evaluation

2 Extended protection that is justified by revenues and profits for the different categories of
eligible medicinal and plant protection products

3 Close the gap between the European pharmaceutical industry and major competitors in the
international market (e.g. Japan, USA)
COM(90) 101 final Rec. 6, Rec. 15

214

Market impact objective 1: Fall in prices of SPC-protected products
relative to products without SPCs
ECONOMIC RATIONALE

maximise profits irrespective of the research and
development costs in the product development
process leading up to product launch.

The main mechanism in which the introduction of
supplementary protection certificates aims to
promote and stimulate innovation is by extending
the time period of exclusive commercial exploitation.
That way, a profit-maximising firm can increase its
expected profit for an R&D project. If the
incremental increase in expected profit is sufficient
to turn a net present value calculation from negative
to positive, SPCs might incentivise pharmaceutical
companies to develop medicinal products that would
not otherwise have been brought to the market.

As such, SPCs can incentivise firms to participate in
otherwise insufficiently profitable development
initiatives: SPCs raise the overall attainable profit
which a pharmaceutical company factors into its ex
ante estimation of expected profits. In this context,
expected profits can be understood as the discounted
and risk-weighted forecast of cash flows conditional
on development success.

The reason why a pharmaceutical company might
decide not to engage in a development project
without an SPC (or even with an SPC) is usually
threefold:
• Development risk of complex products.
• Commercialisation risk of products with uncertain
or difficult-to-forecast product markets.
• Substantial up-front investment requirements or
early stage development costs.

We have not identified any economic arguments that
suggest that the SPC should cause a fall in prices of
pharmaceuticals for profit-maximising companies.
This assertion can only be supported by assuming
that pharmaceutical companies seek to earn back a
certain return on each medicinal product developed.
This assumption runs contrary to standard economic
theory and there is no empirical evidence to support
this.

Essentially, all of these factors impact a company’s
expected profit calculation boiling down to the
expected number of units that can be sold in the
product market at the expected profit margin (i.e.
price minus cost). A firm will typically try to
maximise both of these dimensions within the
confines set by regulations, tenders, or governmental
negotiations.

SPCs could, however, influence price setting if the
increased R&D causes the likelihood of a competitor
(“me-too”-product or new product treating the same
indication) entering the market during the
protection period to rise. In this case there would be
two effects working in opposite directions. The
presence of an SPC would increase prices by delaying
the entry of generics, while it would decrease prices
through increased competition through innovation.

EVIDENCE

Within their exclusive commercial exploitation
period, firms have a strong economic incentive to

competition by innovation should generally
dominate the typically larger price increase from
delayed entry of generics.

?

Profit-maximising behaviour, as
economic theory suggests, does not
support a fall in prices related to SPCs

We have not found evidence that suggests that the
typically smaller price decrease from more

215

Market impact objective 2: Extended protection that is justified by
revenues and profits for the different categories of eligible medicinal and
plant protection products
ECONOMIC RATIONALE

Supplementary protection certificates provide
innovation stimulus by influencing firms’ ex ante
perspective on the decision to carry out or cancel
investments in product development.
The patent term restoration effect of an SPC factors
into a company’s estimation of expected profits and
whether these will be of a volume sufficient to
account for potential up-front investments into the
research and development process.
In this sense, the analysis of ex post outcomes can
prove difficult or even misleading. Firms will use the
protection available to them to protect all types of
products, including blockbusters and medicines for
rare diseases.

Looking at ex post profitability in isolation is likely
going to understate the effect of development or
commercialisation risk from the ex ante perspective.
While this risk might not materialise in the end, it
will have factored in the initial calculation of
expected profits carried out at project start.
Thus, when evaluating the justification of the
protection extended to different categories of
medicinal and plant protection products, this should
be done from an ex ante perspective.

EVIDENCE

SPCs are not dependent on the revenue or profit a
pharmaceutical company obtains from a given
product. The SPC extension is exclusively awarded

based on development time.
The SPC extension mitigates some of the inherent
risk when developing medicinal products. By
providing restoration of lost effective patent term,
SPCs increase the expected profit, even for risky
projects. This should hopefully help to bring more
therapeutically valuable products to the market than
would otherwise have been the case. The mechanism
through which this works, is by increasing the
expected profit in the ex ante business case
calculations on the profitability of undertaking a
given pharmaceutical R&D project.
As can be seen from the case studies in section 5.2,
the SPC regularly ensures that these medicinal
products have 15 years of protection. Bearing in
mind that this selection of medicinal products is
non-random, it still indicates the risk mitigating
effect of the regulation.
The discussion of whether the extended protection is
justified by revenues and profits contains a wide
range of competing arguments. The sheer complexity
of the innovation system in the pharmaceutical
sector makes it a multifaceted issue1.

medicinal product. For less profitable products, an
SPC will have correspondingly lower impact on the
total revenue. At the same time, studies point to the
fact that only 1 out of 10 products entering phase 1 of
clinical trials makes it all the way to approval4. This
means that successful products have to bear the cost
of all unsuccessful and failed development attempts
as well.
As such, a thorough review of whether a longer
protection period is justified by revenues and profits
demands intimate access to the financial accounts of
the individual pharmaceutical companies. For the
purpose of this study, no such access is available.

?

+

SPC extension is not based on
revenue or profit, but exclusively on
development time

SPCs increase the overall profitability
of medicinal products

Looking at the ex post revenue earned from certain
medicinal products, these might in some cases seem
to be unfathomable and unjustifiable. One such case
could be e.g. Humira which has been granted an
SPC2. During 2016 alone Humira generated sales of
more than USD 16bn3.
However, this is in the case of a blockbuster

1 The literature shows estimated costs of bringing a medicinal product from the lab to the market being between USD 648m and USD 2.6bn. See
Prasad, V. and Mailankody, S. (2017), Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After Approval
and Di Masi, J. A., Grabowskib, H. G. and Hansen, R. W. (2016), Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs.
2 See chapter 5 for a case study on Humira. 216
3 http://www.genengnews.com/the-lists/the-top-15-best-selling-drugs-of-2016/77900868 (Accessed 07.09.2017)
4 BIO, Biomedtracker and Amplion (2016), Clinical Development Success Rates 2006-2015.

Market im
mpact objective 3: Close the gap between the European
pharmaceutical industry and major competitors in the international
market (i.e. Japan, USA) (1/4)
THE OBJECTIVE IN THE
REGULATION

ECONOMIC RATIONALE

Objective 3: Close the gap between the
European pharmaceutical industry and major
competitors in the international market (e.g.
Japan, USA)
“Over about the last 10 years there has been
a fall in the number of molecules of European
origin that have reached the research and
development stage (40% as against 65% 10
years ago) and a slow erosion of European
market shares as compared with those of the
USA and Japan.
With regard to the latter, it should be noted
that, apart from a general context which is
more favourable than that of the Community,
notably as regards social security systems,
price levels and the relative size of the
national markets, US and Japanese
companies have since 1984 and 1988
respectively, benefitted from patent term
restoration for medicinal products on their
national markets.”
- COM(90) 101 final, Recital 6
“[I]t is to be hoped that the European
pharmaceutical industry will be able to close
some of the gap which has arisen between
itself and its major competitors in the
international market. In the USA, the WaxmanHatch Act entered into force in September
1984. In Japan, the revision of the Patents Law
took effect on 1 January 1988.”
- COM(90) 101 final, Recital 15

The European Commission’s 1990 memorandum
observes a decrease in molecules developed by
European manufacturers, as well as an erosion in
their respective market shares.
These developments are more than likely correlated:
as products mature, their exclusivity protection is
bound to expire at some point. Once generic
competition is possible and occurs, competitors will
enter the market and contest for the market share of
the incumbent.
If incumbents are not able to bring a comparable
number of new products to the market that could
substitute for the effects of competition on products
where exclusivity lapses, companies will probably
not be able to regain all of the market share lost and
thus face the aforementioned decline.
While this development has been observed for
European manufacturers leading up to the SPC
regulation, it is not necessarily intuitive that it would
be related to the landscape of intellectual property
rights in their home market. After all,
pharmaceutical companies nowadays compete on a
global scale. European manufacturers compete in the
same European markets and are subject to the same
European regulations as their counterparts from
Japan and the US. In turn, European manufacturers
have equal opportunities to benefit from the
existence of innovation incentives created under e.g.
the Hatch-Waxman act in the United States1.

EVIDENCE

Through the results in section 2.1 on the relationship
between effective protection period and innovation it
can be seen that protection in the other EU countries
with which a given country trades the most has a
positive effect on pharmaceutical R&D spending.
Moreover, as there is much intra-EU trade, a scheme
like the SPC covering all EU member states should
work to increase spending on pharmaceutical R&D
within Europe.
Furthermore, as can be seen from the table in section
1.3, the regulatory protection schemes of Europe are
generally more favourable than in any of the other
countries surveyed.
As such, these results suggest that the regulation
should help to close the gap between the EU and
other regions.
However, as is also pointed out in section 2.1, the
literature indicates that there are many countryspecific factors which play an important role in
influencing the placement of R&D2. This is likewise
supported by the results in section 2.1. In this regard
it is important to remember that increasing the profit
prospects of medicinal products in Europe favours
both companies with R&D in Europe and those with
R&D outside Europe. The other aspects mentioned
in the literature of e.g. a well-educated workforce
and infrastructure help to incentivise R&D in the
specific countries.

+

SPCs encourage spending on
pharmaceutical R&D

1 The Hatch-Waxman act is the informal name for the Drug Price Competition and Patent Term Restoration Act (Public Law 98-417) in the United
States.
2 See e.g. Demirbag, M. and Glaister, K. W. (2010), Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of
Developed and Emerging Regions. 217

Market im
mpact objective 3: Close the gap between the European
pharmaceutical industry and major competitors in the international
market (i.e. Japan, USA) (2/4)
THE OBJECTIVE IN THE
REGULATION

Objective 3: Close the gap between the
European pharmaceutical industry and major
competitors in the international market (e.g.
Japan, USA)
“Over about the last 10 years there has been
a fall in the number of molecules of European
origin that have reached the research and
development stage (40% as against 65% 10
years ago) and a slow erosion of European
market shares as compared with those of the
USA and Japan.
With regard to the latter, it should be noted
that, apart from a general context which is
more favourable than that of the Community,
notably as regards social security systems,
price levels and the relative size of the
national markets, US and Japanese
companies have since 1984 and 1988
respectively, benefitted from patent term
restoration for medicinal products on their
national markets.”
- COM(90) 101 final, Recital 6
“[I]t is to be hoped that the European
pharmaceutical industry will be able to close
some of the gap which has arisen between
itself and its major competitors in the
international market. In the USA, the WaxmanHatch Act entered into force in September
1984. In Japan, the revision of the Patents Law
took effect on 1 January 1988.”
- COM(90) 101 final, Recital 15

… continued from previous page.
On the following two pages, we provide evidence
regarding the distribution of New Chemical Entities
(NCEs) between the US, EU, Japan and the Rest of
the World. The evidence compares the period 19821992 to the period 1993-2003.
It can be seen that when it comes to the number of
NCEs, the EU is the region with largest share of
world total in both periods. However, the share has
decreased by 6%-points in the EU between the two
periods, while it has increased by 10%-points in the
US. As such, this seems to suggest that the US is
catching up, when looking at the sheer number of
NCEs.
A measure of ‘research productivity’ is likewise
presented on the following pages. As defined in Light
(2009)1 ‘research productivity’ is obtained by
dividing the percentage of New Chemical Entities
each region develops, with the share of
pharmaceutical R&D spending a region constitutes.
Using this measured, it can be seen that the ‘research
productivity’ has increased in the EU while
decreasing in both the US and Japan. At face value,
this seems to suggest that the European
pharmaceutical companies have become more
efficient in the R&D effort over time.

1 Light, D. W. (2009), Global Drug Discovery: Europe is Ahead 218

Market impact objective 3: Close the gap between the European
pharmaceutical industry and major competitors in the international
market (i.e. Japan, USA) (3/4)
A 2006 paper by Grabowski and Wang1 studied the
number of New Chemical Entities (NCEs) developed
in the two periods 1982-1992 and 1993-2003. The
authors assigned a nationality to all NCEs, based on
the headquarter placement of the developing
company. This makes it possible to compare the
number of NCEs in the United States, European
Union, Japan and the Rest of World.
The graph to the right depicts the percentage of total
developed NCEs in each time period, attributable to
the given region2.
Based on this analysis, the share of NCEs developed
in the European Union has fallen 6 percentagepoints from 48% to 42% between the two time
period.

During the same period, the share of NCEs
developed in the Unites States has increased by 10
percentage-points, from 25% to 35% of world total.
As such, more NCEs are discovered in the European
Union than in the Unites States, albeit the US seems
to be catching up between the two time periods
analysed here. It can thus be discussed to what
degree the EU is experiencing a gap to other regions
of the world.
However, the next page reveals an interesting
relationship between the spending on
pharmaceutical R&D and the number of new NCEs in
the United States and the European Union.

New Chemical Entities (NCEs) discovered in the United States, Europe,
Japan and the Rest of World, comparing the time period 1982-1992 to
1993-2003
Percent NCEs
60%

50%

-6%points

+10%points

40%
30%

48%
42%

35%

-6%points

26%

25%

20%

20%

+2%points

10%

1%

3%

0%
19821992

19932003

United States

19821992

19932003

European Union

19821992

19932003

Japan

19821992

19932003

Rest of World

Note: NCEs are distributed by headquarter of the company.
Source: Grabowski, H. G. and Wang, Y. R. (2006), The Quantity and Quality of Worldwide New Drug Introduction, 1982-2003,
Exhibit 4, p. 457.

1 Grabowski, H. G. and Wang, Y. R. (2006), The Quantity and Quality of Worldwide New Drug Introduction.
2 This page examines the United States, Europe, Japan and the Rest of World. As this constitutes both countries and regions, using the wording region
has been chosen for the sake of simplicity. 219

Market impact objective 3: Close the gap between the European
pharmaceutical industry and major competitors in the international
market (i.e. Japan, USA) (4/4)
According to Light (2009)1 a measure of ‘research
productivity’ can be obtained by dividing the
percentage of New Chemical Entities said region
develops, out of the total for the three regions with
the share of pharmaceutical R&D spending a region
constitutes.

E.g., in 1990 spending on pharmaceutical R&D in the
United States was EUR 5.3bn1. Out of the total
spending on pharmaceutical R&D in the United
States, Europe and Japan collectively, this
constitutes 33.3%1.
To obtain a ratio between spending on
pharmaceutical R&D and development of NCEs of 1,
the United States would likewise have to have
developed 33.3% of all NCEs in the three regions in
the period 1982-1992.
However, the United States developed 25.3% of
NCEs in the three regions in said period1. As such,
the ratio of investment in pharmaceutical R&D to
NCEs developed was 0.76 for the United States in the
period 1982-1992.
Between the two periods analysed in the graph to the
right, ‘research productivity’ fell in the Unites States
and Japan, while increasing in Europe.

This measure has several limitations. It is e.g.
comparing spending on pharmaceutical R&D in one
year, with the number of NCEs developed over
several years. Furthermore, as it can be seen from
the previous graph of development times, there is a
considerable lag between spending on R&D and
introduction of a new product. However, the
measure can serve to give some sense of the ‘research
productivity’ across regions.

Ratio of percentage of New Chemical Entities (NCEs) to percentage of
spending on pharmaceutical R&D in United States, Europe and Japan,
comparing the period 1982-1992 to 1993-2003
Ratio of NCEs to
spending on
pharmaceutical R&D

-0.13

1,60

1,36
1,17

1,20

-0.01
0,80

1,49

+0.18

0,99

0,76

0,75

19821992

19932003

0,40

0,00

United States

19821992

19932003

Europe

19821992

19932003

Japan

Note: Graph showing the ratio of the percentage of NCEs to the percentage of spending on pharmaceutical R&D in the United States,
Europe and Japan. A ratio of 1 means that the region constitutes the same percentage of new NCEs across the three regions, as it does
of spending on pharmaceutical R&D across the three regions. NCEs are distributed by headquarter of the company. Numbers for the
Rest of World not available.
Source: Light, D. W. (2009), Global Drug Discovery: Europe is Ahead

1 Light, D. W. (2009), Global Drug Discovery: Europe is Ahead 220

3.2 SPC SCOPE

SPCs try to remedy protection lost due to required regulatory obligations
The fundamental issue that SPCs try to remedy is the
time lag that occurs between invention and
commercialisation in certain industries. This subchapter sets out to identify and analyse additional
industries and sectors that could fall into this scope.

THE ROLE OF SPCs IN
PHARMACEUTICALS

The development of medicinal products is subject to
considerable regulatory monitoring and approval
procedures.
Following the thalidomide-scandal in the late 1950s
and early 1960s, a strict authorisation scheme has to
be followed before a pharmaceutical company is
allowed to place a medicinal product on the market 1.
This was done to ensure that medicinal products
allowed to be marketed were safe and efficacious.
In combination with the general length of
development times for medicinal and agrochemical
products, more than 10 years can pass between
invention and commercialisation2.
The development and approval process has
considerable bearing on the effectiveness of patents
as innovation incentives within the pharmaceutical
industry. As patents are usually filed close to the
time of invention, their effective duration is
shortened significantly by a multi-year development
and approval period.

commercial business case to provide the amount of
innovation demanded by society3.

OTHER INDUSTRIES WITH SIMILAR
SCOPE OF CHALLENGES

The introduction of SPC-like intellectual property
rights, sui generis rights or incentive schemes that
remedy this issue by restoring the effective patent
term (at least to an extent)4 could also be relevant for
other industries.
In particular, these industries should fulfil the
following criteria:
• Patents and/or other intellectual property rights
are of crucial importance in the industry.
• Innovation is a key factor for firms to compete and
knowledge plays a key role in production processes.
• The industry is heavily regulated, products are
subject to regulatory approval before they can be
marketed, and/or there are other factors that
prohibit firms from exploiting inventions
commercially.

Products covered under current regulation
• Medicinal products: for human use, for
animals
• Plant protection products
(agrochemicals): pesticides, insecticides,
herbicides, fungicides, nematicides,
fertilizers, growth agents &
concentrations
Sectors which might face similar challenges
to the pharmaceutical sector and might be
candidates for SPC-type incentive schemes
and areas within SPC-protected sectors that
could need specific attention
• Medicinal devices & diagnostics
• Food sector
• Seeds
• Substances w/o therapeutic effect of
their own (catalysers)
• Personalised medication
• Intelligent pills
• Chemicals
• Biopharmaceuticals
• New uses of patented products

The legislation governing SPCs seeks to balance the
need for data to ensure safe, efficacious medicinal
products of high quality against maintaining the
1 Thalidomide was a medicinal product originally used against morning sickness in pregnant women. After authorisation however, it turned out that the
product caused children to be born without limbs. See e.g. https://www.theguardian.com/society/2012/sep/01/thalidomide-scandal-timeline
2 See e.g. Prasad, V. and Mailankody, S. (2017), who find development times in the range from 5.8-15.2 years, Keyhani, S., Diener-West, M. and Powe, N.
(2006), who find development times in the range 2-17.3 years and graph p. 66.
3 See e.g. Regulation (EC) No 469/2009, (3) and (4). 222
4 Most kinds of inventions will require development and testing before they can be commercialised. The benchmark for patent restoration should not be
to reduce effective development times to zero.

SPC candidate industry: medical devices & diagnostics
The medical devices sector provides
products and solutions relating to
diagnosis as well as the prevention,
monitoring and treatment of diseases.
The sector covers a wide range of
products, from patient products such
as thermometers to hospital
equipment such as X-ray machines.
INDUSTRY SPECIFICS
•
•

95% of firms are SMEs1.
In some regards, the market is less transparent
than in other industries, e.g. the pharmaceutical
industry, as the database for medical devices in
the EU (EUDAMED) is not publicly accessible1.

INNOVATION IN THE SECTOR

New developments in other sectors are an important
source of innovation for the medical device sector.
A study performed by the European Commission
also points out that developing clusters relating to
technology and/or diseases is a way of boosting
innovation in the sector.2

REGULATORY REQUIREMENTS

In April 2017, two new regulations regarding medical
devices were enacted. These were Regulation (EU)
2017/745 and Regulation (EU) 2017/746. Regulation
2017/745 will enter into force in 2020, while
Regulation 2017/746 will enter into force in 2022.
Among other things, the two new regulations

increase the control of high-risk devices and
reinforce the rules on clinical evidence3.

technology accounted for the highest volume of
applications at the European Patent Office.1

Before a device can be marketed in the EU, the
manufacturer needs to receive a Conformity
Certificate for the device. A Certificate of Conformity
ensures that the device meets a minimum set of
regulatory, technical and safety requirements. As
part of this assessment, a clinical evaluation is
required. In order to receive approval to perform the
clinical evaluation, an application needs to be sent to
the Member State where the clinical evaluation is to
take place. In the final stage, a Conformity Certificate
is issued by so-called notified bodies. Member States
are individually responsible for appointing an
authority that approves the notified bodies.4

At the same time, there is evidence that bringing a
medical device to the market is faster6 and
significantly less costly than it is for medicinal
products for instance, and also that the threat of
competition from perfect substitutes is lower.1 This
indicates that the need for SPCs might be of lower
importance in the medical device industry if average
development times do not exceed 5 years.

The new regulation aims to improve the quality,
safety and reliability of medical devices and includes
tighter controls, especially on high-risk devices such
as implants. For these types of products, experts at
the EU level need to be consulted before a product is
placed on the market. The new regulation also
extends the type of products covered by the
regulation and includes stricter controls on clinical
trials and on the notified bodies.5
If regulatory changes coincide with an increase in
development time, this (in isolation) might be an
argument for introducing protection of SPC-type
scope.

RELEVANCE OF PATENTS

Patents within the medical devices sector are
common and in 2015 patents related to medical

The medical devices sector…

FACT
BOX

…covers products used for diagnosis,
prevention, monitoring and treatment of
diseases.
…is effectively regulated at the EU level.
… was the subject of a market study by
the European Commission in 2010.2
…products require a Conformity
Certificate to be placed on the market.

…commonly makes use of patents.
…products are brought to the market
faster and at a lower cost than products
in the pharmaceutical industry.

1 https://ec.europa.eu/growth/sectors/medical-devices_en [last accessed: 2017-09-07]
2 European Commission (2010), Exploratory Process on the Future of the Medical Devices.
3 https://ec.europa.eu/growth/sectors/medical-devices/regulatory-framework_en [last accessed: 2017-12-11]
4 Regulation (EU) 2017/745 of the European Parliament and of the Council of 5 April 2017 on medical devices, amending Directive 2001/83/EC, 223
Regulation (EC) No 178/2002 and Regulation (EC) No 1223/2009 and repealing Council Directives 90/385/EEC and 93/42/EEC ( 1 ).
5 http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=9119&lang=en [last accessed: 2017-09-07]
6 See e.g. Roin, B.N. (2014), The Case for Tailoring Patent Awards Based on Time-to-Market.

SPC candidate industry: food sector
Covers both food and beverages and
is the largest manufacturing sector in
the EU.

INDUSTRY SPECIFICS
•

Highly harmonised industry benefitting
significantly from the single market.

INNOVATION IN THE SECTOR

In order to promote innovation, the European
Commission introduced the policy “Food 2030” 1 in
2016. The policy aims to boost innovation and
investment in the sector, in particular by promoting
nutritious, environmentally sustainable and
resource-efficient food.
According to the European Commission, there are
many opportunities for European companies to
receive funding for food-related research, and
through such EU programmes several projects
relating to food, nutrition and agriculture have been
developed. Furthermore, the European Commission
stresses the importance of cooperation among
various actors in the food sector in order to further
develop innovation in the market.2

REGULATORY REQUIREMENTS

All companies operating in the food-business have a
responsibility to provide only food that can be
considered safe with respect to the food-safety
requirements in the EU.

In brief, this can be said to include products that are
not harmful to human health.3
In addition, many food-related products require a
scientific assessment to evaluate their safety before
risk managers can authorise them for the EU market.
In this case, the company producing/providing the
product is required to provide evidence that these
substances are safe or, in the case of health claims,
that these are backed by sound science.
The products covered by this specific regulation
include additives, enzymes, flavourings, food contact
materials (used for instance for packaging),
pesticides, genetically modified organisms, foodrelated processes and processing aids. Furthermore,
products with nutrition or health claims also require
specific evaluation before they can be placed on the
market. This scientific assessment is conducted by
the European Food Safety Authority (EFSA).4

RELEVANCE OF PATENTS

Based on the European Commission agenda, it
appears that emphasis is placed on establishing
partnerships, networks, and creating availability of
research funds rather than promoting innovation
through intellectual property protection such as
patents.
The exception to this might be the field of genetically
modified organisms where patents frequently occur.5
Another field, partly related, is the seed sector which
is described separately on the next page.

property rights seem to be less optimally fit to the
food sector as much of the innovation in the industry
does not seem to depend on incentives in the form of
intellectual property rights.

The food sector…

FACT
BOX

…covers both food and beverages.
…is regulated at the EU level.
…faces requirements for a scientific
assessment ensuring food-safety for
many of its products.
… is the subject of the European
Commission’s 2016 “Food 2030” policy
aiming to promote innovation in the
sector.

SPCs or similar scope extensions to intellectual

1 https://ec.europa.eu/research/bioeconomy/index.cfm?pg=policy&lib=food2030 [last accessed: 2017-09-07]
2 https://ec.europa.eu/research/bioeconomy/pdf/european_research-innovation_for_food_and_nutrition_security.pdf#view=fit&pagemode=none [last accessed:
2017-09-07]
3 Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, 224
establishing the European Food Safety Authority and laying down procedures in matters of food safety.
4 http://www.efsa.europa.eu/en/applications/regulatedproducts [last accessed: 2017-09-07]
5 Moschini, G. (2010). Competition issues in the seed industry and the role of intellectual property. Choices, 25 (2).

SPC candidate industry: seeds1
The seed sector includes crops such
as corn, cotton and soybeans.

INDUSTRY SPECIFICS
•
•

Dependent on private investments.
Highly affected by biotechnological evolution.

INNOVATION IN THE SECTOR

Innovation is crucial in the seed sector, and at the
same time it is highly dependent on sizeable research
and development investments.
In line with the biotechnology revolution and the
introduction of genetically modified organisms, there
has been an innovation culture in the market.
Annual spending on R&D is approx. 15% of turnover
on average within the sector1.

REGULATORY REQUIREMENTS

The European seed market has a total value of EUR
7bn. There are currently 7,200 companies employing
approx. 52,000 people. Out of these 12,500 people
are employed within R&D1. The European market for
seeds is the largest market worldwide. Furthermore,
Europe is the largest exporter of seeds in the world2.
The regulation in the seed sector is closely linked
with the food industry, and is particularly relevant
for genetically modified seeds.

products which are covered by the regulation that
require scientific assessment in order to evaluate
their safety before they can be authorised to enter
the EU market. Hence, companies which have
genetically modified products need to apply for such
a scientific assessment at the EFSA before their
product can be launched.

RELEVANCE OF PATENTS

There is an increased relevance of patents in
particular for corn and soybeans. These days,
however, patents are also available for many other
varieties of seeds, both for genetically modified
species as well as for germplasms (i.e. the DNA of a
non-genetically modified variety)3.
Considering the need for innovation and the
substantial underlying investments required, the
prevalence of patents seems vital.

The seed sector…

FACT
BOX

…covers both genetically and nongenetically modified crops.
…is regulated at the EU level.
…requires a scientific assessment
ensuring food-safety for genetically
modified seeds that are to be used
within the food-industry.
… is an industry crucially dependent
on innovation.
… often sees that significant
investments are required for
innovation.
… places high importance on patents.

Genetically modified seeds fall under the category of
1 The European Seed Association (2016), Representing the seed industry, available at
https://www.euroseeds.eu/system/files/publications/files/esa_16.0300.2.pdf (last accessed 12/12-2017).
2 The European Seed Association, Breeding and seed production in the 21st century – challenges and expectations of the EU seed industry, available at
https://ec.europa.eu/food/sites/food/files/plant/docs/ppm_legis_review_breeding_and_seed_prod.pdf (last accessed 12/12-2017).
3 G. Moschini (2010), “Competition issues in the seed industry and the role of intellectual property”. 225

It remains debatable whether SPC-like protection should be extended to
other industries
MEDICAL DEVICES FULFIL THE
LAID OUT CRITERIA

The medical devices and diagnostic sector seems to
fulfil the laid out criteria for SPC-type or similarly
scoped protection. However, development times for
many of the products in the sector do not seem to
exceed the threshold of 5 years1. As such, while
companies would benefit from the introduction of
SPCs, the overall economic need to do so seems to be
considerably less pronounced than in the
pharmaceutical or agrochemical sector.

FOOD AND SEEDS PROBABLY DO
NOT MERIT COMPARABLE
PROTECTION

Crucial
importance
of IPRs
(patents)

Key role of
innovation in
the industry

Regulatory
approval
requirements

(that might cause delayed
product launches)

Medical
Devices &
Diagnostics

Both the food and closely-related seed industries
display some of the laid out characteristics. However,
neither seem to fulfil all of the criteria emphasising
the need for SPC protection in other industries.
The food sector is less reliant on intellectual property
rights and patents, rendering extensions to these less
impactful as innovation stimulus.
The seed sector seems to generally fulfil the criteria
laid out, yet strict regulatory control is limited to
genetically modified seeds and does not extend to the
entire industry.

Food

Seeds

1 Roin, B. N. (2014), The Case for Tailoring Patent Awards Based on Time-to-Market, table 1, p. 719. 226

3.3 TERM OF SPC
PROTECTION

Impact of the SPC protection term in the literature
EFFECT OF DECREASING LAUNCH
LAGS

As illustrated in the graph earlier, the development
time for medicinal products seems to have increased
during the last 20 years. Not accounting for potential
alternative explanations, this development should –
ceteris paribus – have a negative impact on the
profitability of pharmaceutical development projects
compared to other projects with shorter
development times, as it reflects a shorter time
period of commercial exclusivity before a medicinal
product is subject to generic competition.
At the same time, however, pharmaceutical
companies seem to benefit from a decrease in EU
launch lags for their products. As noted by Kyle
(2017), the lag between the initial global and the first
European launch of the average observed medicinal
product has decreased since 1990. A decrease in time
to launch, for instance driven by increasingly
efficient administrative proceedings1, is likely to
increase the profitability of pharmaceutical
companies (even though the decrease in launch time
is smaller than the increase in average development
time).

SORTING & GENERIC ENTRY

Sorting poses an inherent obstacle to the
determination of the impact that the introduction of
supplementary protection certificates might have
had on generic entry. Sorting (or selection) occurs
when data is not randomly sampled but rather follow
an observed or unobserved rule. In the case of SPCs,
sorting might be present if there is a correlation
between the profitability and amount of generic
competition and the propensity to seek an SPC. The
sorting effect makes it difficult to get a meaningful
interpretation of observed correlations. What might

look like a proper treatment effect, e.g. of a policy
change, might actually just be the effect of the
sorting rule that determines which observations
respond to the policy change. If this is the case,
general conclusions cannot be drawn from the
observed effect or they would be subject to bias.

While Kyle (2017) finds that SPC-protected
medicinal products usually experience earlier generic
entry than medicinal products that are not protected
by a corresponding certificate, this finding is subject
to substantial caveats. In particular, sorting could
occur along two dimensions:
• Sorting on profitability: Most likely, incumbent or
originator companies will seek SPC (and other)
protection for the medicinal products that are most
profitable to them. At the same time, these are the
very medicinal products that, due to their
flourishing markets, are likely to be most attractive
to the generic manufacturers planning to enter the
market as soon as exclusivity protection lapses.
This issue can, for instance, be illustrated in
pharmaceutical companies’ attempts at ‘stacking
protection’.2
• Sorting on expected competition: There might be
reasons for which certain medicinal products are
easier to reverse-engineer into a generic product
than others or why they might be more attractive
for generic manufacturers to target. If originator
companies are aware of these facts, they could be
more likely to apply for supplementary protection
for those very products where they perceive the
highest threat of expected generic competition.

products experience faster generic entry but where
the observed relationship is likely not causal. The
author notes that expected profit seems to be the
most important driver for generic entry and
protection, concluding that “protection is sought
where it is needed: where additional protection is
not pursued, generic entry is less attractive for
other reasons.”
While the presence of SPCs might be found to
correlate with higher or earlier generic entry, this
might just be an expression of rent seeking by
pharmaceutical companies on already more
profitable products.

FILINGS AND UNCERTAINTY

Over time, medicinal products, development and
respective filing opportunities have become more
and more complex3. As noted by Mejer (2017)4, the
potential uncertainty related to the scope and expiry
of exclusivity protection has increased accordingly.
Exacerbated, among other things, by the possible
existence of multiple SPCs held by multiple
companies on a single medicinal product, the
increasingly opaque exclusivity picture poses
additional challenges especially to generic
manufacturers.5 While originator companies could
potentially stand to benefit from the arising
confusion, generic competitors will likely not. In fact,
it does not appear far fetched to imagine a scenario
where an increased likelihood of ‘accidental’
infringement increases delays to generic entry or at
least raises the cost to generic manufacturers of
investigation into marketing opportunities.

Kyle (2017) observes similar outcomes in a hazard
model specification where SPC-protected medicinal

1This is supported by the fact that on p. 182 we report that approval times have decreased for EMA. This would work to decrease the time it takes to bring a product to the
market. At the same time, we report on p. 182 that the number of procedures per clinical trial have gone up, potentially prolonging the time clinical trials take.
2 See for instance Kyle (2017), where the linear probability of obtaining an SPC for a medicinal product significantly increases the number of patents filed. 228
3 See e.g. p. 66 and p. 182.
4 Mejer, M. (2017) “25 Years of SPC Protection for medical products in Europe: Insights and challenges”.
5 As depicted on the next page, 15% of product-country combinations are connected to multiple SPCs.

15% of product-country combinations have been granted more than one
SPC

Note: Upper pie chart showing share of products that, in the same country, were granted multiple SPCs vs. share of products that, in the same country, were granted exactly one SPC. Lower bar chart
showing the distribution of products that received multiple SPCs in the same country as percentage of the overall population of granted SPCs (N = 13,352).
Source: Alice de Pastors SPC database

229

The compensation of lost effective patent protection time creates
certain incentives regarding launch timing (1/2)
COMPENSATION OF EFFECTIVE
PATENT PROTECTION

The SPC compensates pharmaceutical companies for
effective patent protection time lost, due to
development. If a medicinal product takes more than
5 years to develop, the SPC compensates one-to-one
for each year lost up until 10 years of development
time. Development time is calculated from time of
the first patent protecting the product, until first
marketing authorisation within the EU.
A direct consequence of this is that if a medicinal
product takes anywhere between 5 and 10 years to
develop, the effective patent protection period will be
15 years, if an SPC is applied for and granted1.
In some cases this compensation of development
time might in theory create incentives to delay
launch of new innovative medicinal products. This
will be explored on this and the following page.
Unfortunately the current data material does not
lend itself to an analysis of whether deliberate delay
of launch takes place as an effect of the one-to-one
compensation granted by the SPC. In the following,
we explore economic theoretical considerations and
arguments for and against deliberate delay of launch
of new medicinal products. As such, any moral
and/or ethical considerations are not taken into
account.

REASONS FOR LAUNCHING AS
SOON AS POSSIBLE

If a pharmaceutical company has developed a new
medicinal product and the development time has
been e.g. 5 years, deliberately delaying launch would
not decrease the effective patent protection period,
as an SPC can be applied for.

However, if a company delays launch of a new
medicinal product, they should take the time
discounting of future profit into account. Time
discounting means that a euro today is worth more
than a euro next year and as such it is better to earn a
given amount today than to earn the same amount in
a year2. Consequently, even though delaying launch
would not decrease the effective patent protection
period, it would delay the time at which profit is
earned. This would hence decrease the present value
of said profit stream.
Another factor to take into account when delaying
launch is that another firm might enter the market
with a new and better innovative medicinal product
in the future.

Say that a new competitor will do this exactly 15
years from the date at which a company is deciding
whether or not to delay launch of a product which
had a development time of 5 years. If the company
launches now, they will have effective patent
protection for 15 years and competition by
innovation will not happen until after the effective
protection period has fully elapsed and generics can
enter the market as well.
If the company instead delays launch by a year, they
will still have 15 years of effective patent protection,
but the last year will now be worth much less, as
another company will enter the market with a better
product. This will conceivably decrease profit
significantly. As such, launching as soon as possible
might be the best strategy in this hypothetical case.

potentially happen is, of course, subject to
speculation and hence is probably unknown at the
time of launch decision. However, the company
might have some idea of the probability that this will
happen and hence attribute some level of risk to this
event.

The above theoretical discussion has shown that if a
company decides to delay launch voluntarily, they
face the risk of new innovations outperforming their
product before loss of patent protection.
Furthermore, time discounting means that their
future profit is worth less than present profit and
hence, all other things being equal, would mean that
launch as soon as possible is the best option.
Likewise however, there might be certain reasons for
deliberately delaying launch of a new product,
further described below.

POSSIBLE REASONS FOR WAITING
TO LAUNCH

If a company already has a product on the market to
treat a certain indication and it has developed a new,
possibly better product, there may be an incentive to
delay launch.
If the product the company currently has on the
market is still protected by patent protection so that
no generics yet exist, introducing the new product
would effectively make the company compete against
itself. Of course this is only the case if there are no
other originator products on the market, in which
case, launching the new, possibly better product
might mean that the company could obtain a larger
share of the market.

Whether or not a competitor will enter the market
with a new innovative product and when this could
1 See p. 70 for the distribution of development times.
2 E.g. because a euro today can be invested to earn return or interest. 230

The compensation of lost effective patent protection time creates
certain incentives regarding launch timing (2/2)
If the development time of the new medicinal
product has been e.g. 5 years and there are currently
no competing products on the market, entering the
market to compete with its own product might not be
the most profitable option. If the company delays
launch for up to 5 years, the protection period of the
new product will still be 15 years if it is granted an
SPC. However, this depends on the new product
being protected by a patent other than the old
product for which an SPC can be applied for. As
such, if the two products contain the same molecule
this might not be possible.
Seen in isolation, the best profit-maximising strategy
in the above example might be for the company to
delay launch of the new product to avoid competing
with its own product.

Another reason to delay might be if a company has a
reason to suspect that a new medicinal product
might be used to treat more than one indication.
If the development time for the indication for which
the company originally planned to seek authorisation
took e.g. 5 years, waiting to launch for up to 5 years
would not have an effect on the patent protection
period of the product. It would still be 15 years.
However, if the product is approved for the original
indication at the end of the 5-year development
period and is after e.g. 2 years on the market
approved for a second indication, the effective
protection period left is 13 years. This means that
after 13 years generics can enter the market for the
second indication as well.

However, if the company delays launch of the first
indication for 2 years and obtains simultaneous
approvals for the two indications, the product will
have an effective patent protection period of 15 years.
This means that both markets will be protected
against generic entry for 15 years1.

WHETHER OR NOT TO DELAY
LAUNCH

In the above sections, economic theoretical
considerations and arguments for either delaying
launch or bringing a product to the market as soon
as possible have been explored. It is important to
note that the considerations are merely made from
an economic theoretical point of view. As such,
neither ethical nor moral considerations have been
taken into account.

From an economic theoretical point of view, the
decision of when to launch essentially comes down to
an assessment of an economic business case
encompassing the expected profit if the new product
is launched right away, compared to expected profit
if launch is delayed.
In this business case the previously described
considerations regarding risk of competition by
innovation and time discounting of future profit play
an important role. These considerations have to be
viewed in the light of the amount of compensation
granted for delaying launch. In the case of the SPC
this is one-to-one.
However, it is important to note that all direct
compensation for lost development time might
create the above-mentioned incentives. The degree
of compensation will then serve to determine the
power of the incentive. For example, if compensation
was only six months for every additional year spent
during development, the strength of the abovementioned incentives to delay launch would be
weaker. All other things being equal, this would
decrease the expected profit of the business case of
waiting to launch.

1 There might still be other originator products on the market and generics of these or other medicinal products no longer protected by IP rights. 231

The allocation criteria for the SPC are decoupled from the ability of a
product to earn a return on investment
THE ALLOCATION CRITERIA FOR
SPCs

SPCs are allocated on the basis of development time,
i.e. time from first patent until marketing
authorisation is obtained for the product.
Essentially, the possibility of obtaining an SPC if the
development period extends beyond 5 years
increases the total amount of R&D projects which ex
ante constitute a positive business case.
As the SPC is allocated based on development time,
the value of the SPC varies greatly across products.
The higher volume and/or price the product has on
the market, the higher the value of the SPC. Some
products reach blockbuster status even before expiry
of the patent and commencement of the SPC1.

In the above sections, several objectives of the SPC
regulation were reviewed. Among these were the
following potentially conflicting objectives:
•

•
•

Supply-side objective 3: Ensure that researchbased industry has market protection of sufficient
length to permit recovery of investments.
Demand-side objective 3: Availability of generic
medicinal products.
Market impact objective 2: Extended protection
that is justified by revenues and profits for the
different categories of eligible medicinal and plant
protection products.

On the one hand, the regulation seeks to provide the
pharmaceutical companies with an expected profit
sufficient to undertake R&D of new innovative

medicine. On the other hand, the regulation seeks to
make new medicine accessible to patients through
e.g. generic competition.

PAEDIATRIC EXTENSION OF THE
SPC

When reviewing the incentives for medicinal
products, it is imperative to have in mind how any
possible changes would affect the ex ante business
case of developing new medicinal products.

If a non-orphan medicinal product with an SPC
fulfils the obligations agreed upon in a paediatric
investigation plan (PIP), a six-month extension of
the SPC can be granted. For an orphan medicinal
product a 2-year extension of the market exclusivity
period can be granted instead.

Unconditionally changing the protection period of
the SPC would e.g. have an effect on the ex ante
business case of all products eligible to obtain an
SPC. This might have unintended consequences for
products which are barely profitable and would not
be developed without the current incentives
provided by an SPC.

To obtain a positive compliance check it is not
necessary that the medicinal product is found to
provide any benefit for the paediatric population. As
long as the PIP is fulfilled, the reward can be
awarded. This contributes to making sure that there
are no adverse incentives at play when conducting a
PIP.

If, instead, a provision was made whereby the
maintenance of an SPC was conditional upon some
sort of revenue cap, this would only partly affect the
business case for pharmaceuticals where there is a
remote possibility that they will attain said level of
revenue. This means that it might be possible to
make changes to the existing incentives that would
not have detrimental effects on the ex ante business
case, but which would better adhere to the objectives
of the regulation.

The allocation criteria for the extension based on
paediatric studies means that the main reward, the
extension of the SPC, is usually valuable because it
extends the time before generic companies can enter
the market for the indication in adults as well.

There might, however, be some judicial and practical
problems in implementing such a provision. The
above is not to be seen as a recommendation, but as
an example of how different changes have different
effects on the ex ante business case.

As such, the size of the reward is dependent on the
volume of sales within the adult population. In that
sense there is, so to speak, a decoupling of obligation
and reward. The paediatric reward becomes worth
more to the pharmaceutical companies, the larger
the adult patient group is (and the higher the price
is)1.

1 See e.g. the case study on Humira in section 5.2. 232

Regulatory exclusivity is increasingly important
To manufacture a generic product, generic
pharmaceutical companies use the knowledge
developed and disclosed by originators, namely the
testing and trial data, as well as the composition of
the medicinal product launched by the originator on
the market.

As such, a ‘true’ generic entry is conditional on the
expiry of market and data protection as the potential
competitor would not be able to refer to the
originator data otherwise.
However, firms can enter the market for a specific
medicinal product earlier if they invest in the
creation of their own testing and trial data. That is,
competitors can circumvent the data protection
barriers and create a so called “me-too”-product. In
such a setting, the entrant faces considerably less
market risk than the incumbent:

As such, the market and data protection provisions
can be interpreted as ‘easier to circumvent’ than
exclusivity protection for pharmaceuticals, leading to
earlier possibilities for competition to enter the
market.
The line chart on the following page illustrates this
point and emphasises the increasing relevance of
these considerations. Over time, a larger share of the
average protection period seems to be time where
companies are only protected by regulatory
exclusivities. The gap between average protection
including regulatory exclusivities and average
protection encompassing only patent and SPC
protection is increasing throughout the sample
studied.

• The entrant can profit form the actual invention
behind the project through reverse-engineering,
incurring substantially less R&D cost.
• The entrant can be relatively sure that clinical
trials and authorisation proceedings will be
successful, leading to a reduction in development
risk.

While the average marginal protection effect of
regulatory exclusivities only amounts to a few
months in the beginning of the sample, this
difference extends to a few years in the later parts of
the sample and certainly from 2005 onward. On the
one hand, this illustrates the increasing commercial
relevance of regulatory exclusivities. On the other
hand, this points to an increased opportunity for
“me-too”-product competition that utilises other
actors’ inventions with new clinical data.

While an entrant would still face commercial and
competition risk, the up-front financial hurdles for
entry are significantly reduced, as the first part of an
R&D process has already been undertaken by the
other company. Entry could potentially occur once IP
protection in the form of patents and SPCs has
expired.

The average extension of regulatory exclusivities
beyond the protection provided by patents and SPCs
further highlights an interesting argument: while it
might only be for 10% of observed medicinal
product-country combinations that the SPC actually
extends the period of effective protection, the
certificate also impacts the market when not

extending the exclusivity time frame1. This can
furthermore be seen in the context that 45% of the
unique products in the dataset have obtained an SPC
in at least one country2.
The existence of patent protection or SPC-extended
patent protection grants patentees and SPC holders a
stronger defence against competition than the
regulatory exclusivities. While competition through
innovation is possible when a patent is in place,
competitors cannot circumvent protection by
compiling their own data without infringing the
patented or SPC-protected invention.
In this sense, the introduction of SPCs has probably
had its largest impact in changing the way that
pharmaceutical companies evaluate their research
and development projects ex ante, i.e. before
deciding whether or not to commit to investment.
The prospect of additional protection against
competition is likely to impact such an assessment.
The line chart on the following page further
illustrates the increase in average development
times. While regulatory exclusivities extend from the
grant of marketing authorisation forward, patent
protection expires independently of the timing of a
marketing authorisation. In the graph, this is
evidenced by the steeper decline in the protection
granted by patent and SPC vis-à-vis the change in
protection including regulatory exclusivities.

1 See pp. 215-216 for a further description of this.
2 See p. 84. 233

The average effective protection provided by relevant intellectual
property rights is developing at an uneven pace
From the graph to the right it can be seen that the
average effective protection period for medicinal
products has been decreasing over time1. The general
decrease in average effective protection is depicted
by the blue line.

Effective protection period based on different protection schemes, 19962015

The red line depicts what the average effective
protection period would have been, had market
protection and data protection not existed. The green
line, furthermore, depicts what the average effective
protection period would have been if neither market
protection, nor data protection, nor SPCs had
existed.
It can be seen from the graph that the gap between
what the average effective protection period is when
all protection schemes are taken into account, and
what it would have been if only patent had existed,
has increased over time.
This points to more medicinal products being
dependent on the regulatory protection periods to
provide them with effective on-market protection.
Furthermore, the increasing gap between the green
and red lines suggests that SPCs have likewise
increased in importance for the effective protection
period of medicinal products.

Notes: Calculation based on unique product-country observations. This means that each product is used in the calculation of the
average effective protection period as many times as the number of countries in which it has marketing authorisation. Prior to 1995
data is only available for 12 respectively 13 countries. The last year of complete observation is 2016. The above graph depicts the
average effective protection for all observations, irrespective of whether they have been subject to an SPC application or not. For
about ten percent of the sample, supplementary protection certificates are the last intellectual property right to expire. As such, the
above graph does not depict the marginal effect of SPCs on the effective protection period.
Source: Copenhagen Economics based on unique dataset created from Drug Patent Watch, PATSTAT, the EMA and MRI.

1 This graph has likewise been shown on p. 200, while a related graph is depicted on p. 73. 234

Impact of innovation and changes in marketing authorisation and product
testing methods
Personalised (or stratified) medicine1
“[P]ersonalised medicine refers to a medical
model using characterisation of individuals’
phenotypes and genotypes (e.g. molecular
profiling, medical imaging, lifestyle data) for
tailoring the right therapeutic strategy for the
right person at the right time, and/or to
determine the predisposition to disease
and/or to deliver timely and targeted
prevention. Personalised medicine relates to
the broader concept of patient-centred
care, which takes into account that, in
general, healthcare systems need to better
respond to patient needs.”
- EU Health Ministers Council conclusions on
personalised medicine for patients
(2015/C 421/03)

PERSONALISED MEDICINE: THE
ROLE OF PATENTS IN DATA
AGGREGATION

Personalised, or stratified, medicine focuses on the
development of customised treatments either for
individuals or small groups of individuals1.
Burk (2015) points out that the, generally uncertain,
incentivising effect that patents might have in the
context of pharmaceutical innovation might not
function properly in the context of personalised
medicine. If solutions, diagnostics and treatments
are customised to small groups of individuals, the
resulting market fragments might be too small for

patents to allow innovators to earn profits sufficient
to cover their initial outlays. Burk (2015) warns that
‘single sale pricing’ mechanisms might make
personalised treatment inaccessible to large
consumer groups.
While patents might not promote innovation in
personalised medicine in the way they might in other
sectors of the industry, Burk (2015) uses a recent US
Supreme Court ruling2 to illustrate how patents are
used by firms to gather data critical to further
product development. In the case at hand, the
patentee enforced their IPR while it was valid and
excluded anyone from using their product without
licensing it.
Consequently, the patentee was able to collect an
extensive and, given the exclusive usage of the
product, unique dataset on the treatment and
therapeutic indication it was used for. As described
in Burk (2015), this patent-levered data aggregation
can be said to be “having some good news and
having some bad news”.
On the one hand, the patent and its enforcement
allowed the patentee to aggregate otherwise
unachievable data. The compiled data could be used
to shed light on otherwise difficult-to-observe
diseases or to develop and test better medicines.
On the other hand, the enforced patent put the
patentee in a position where they had exclusive
access to the aggregated dataset and where they
could preclude others from using it or gaining access.
In particular, this becomes an issue if the patentee is

able to use the data as proprietary know-how that
grants them a favourable market position beyond the
expiry of the patent originally used to collect the
information.
Another related issue is how to apply the definitions
of the prevalence criteria for orphan medicinal
products if medicinal products become customised
to a degree where the relevant patient group is
essentially only one individual.
For further discussions on personalised medicine,
please refer to chapter 4 of this report.

PATENTABILITY

In the case in point, the developed treatment was
based on the isolation of DNA sequences. The patent
was invalidated by the court on the grounds that it
covered ineligible subject matter.
As such, patents might not function as a proper
mechanism for fostering innovation if:
• They do not provide the right incentives (e.g.
fragmented markets in personalised medicine).
• The substance of the invention is not patentable to
begin with (DNA, for instance).
• The grant of patent puts the patentee in a strong
market position even beyond expiry (e.g. where
collected and aggregated data is turned into
proprietary knowledge).
Consequently, if patents are not a suitable
innovation incentive, SPCs would not be either.

1 Please refer to https://ec.europa.eu/research/health/index.cfm?pg=policy&policyname=personalised&cookies=disabled and http://eurlex.europa.eu/legal-content/EN/TXT/?uri=OJ%3AC%3A2015%3A421%3AFULL for additional information [last accessed 29/01-2018].
2 Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013). 235

The nature of R&D and innovation models in relevant markets
R&D AND INNOVATION MODELS

Pharmaceutical research is constantly evolving,
lately from small molecule to increasingly biologic
medicinal products. Presently a paradigm shift might
be observed in the innovation system within the
pharmaceutical industry1.

The industry is making increased use of digitalisation
and big data technology, as well as artificial
intelligence. Particularly in the context of biological
data processing, computational power and
algorithms are becoming increasingly important.
While these technologies and developments are
themselves protected by intellectual property rights,
different rights – other than product patents –
become more relevant in providing protection to the
innovations behind them2.

MARKET DEVELOPMENTS IN THE
PHARMACEUTICAL SECTOR

The development and continued involvement of
advanced data methods and digitalisation described
above culminates in different challenges to the
pharmaceutical sector and the respective regulators
in the European Union and its member states, as
summarised by e.g. Minssen & Pierce (2017 –
forthcoming)3 and Minssen (2017)4.
1. Increasing usage of ‘big data’ technology in life
sciences and, as a result, sizable IPR-protected data
collections could pose as barriers to entry that
potential competitors would have to overcome by
exerting considerable effort to provide similar data
accumulation.

2. The development and support of large research
infrastructures. On the one hand, large
infrastructures can help tackle complex research
endeavours. On the other hand, the organisation of
such infrastructures requires a vast degree of coordination and collaboration and might create an
asymmetric distribution of product development
capabilities across market participants.

the nature of when a certain innovation is “obvious”
might be challenged by new technological advances 1.

3. There is continued conflict between public
involvement and interest and the exclusivity granted
to innovators in the form of intellectual property
rights.
4. The role of intellectual property rights in the
context of managing the trade-off between sharing
initiatives and data transparency. As argued in Price
& Minssen (2015), there is a trade-off between cost
and benefit in introducing additional regulatory
disclosure requirements. Data sharing promotes
independent verification, precompetitive
collaboration and potentially the development of
treatments for rare diseases. At the same time, data
sharing reduces patient data privacy and may
increase litigation risk for innovators, lead to data
misuse, or reduce the incentives for developing new
indications for already marketed medicinal products.
5. The role of innovation and R&D incentives in
regulating and incentivising the development of
precision medicine and personalised treatments.
6. The emergence of e.g. artificial intelligence and
machine learning might create challenges for some
of the legal formulations regarding patentability, e.g.

1 Abbott, R. (2017), Everything is Obvious.
2 These could e.g. be regulatory protection schemes.
3 Minssen, T. and Pierce, J (2017), “Big Data & Intellectual Property Rights in the Health and Life Sciences”.
4 Minssen, T. (2017), “Big Data, IPRs & Competition Law in the Pharma & Life Sciences – emerging issues in a rapidly evolving field”. 236

Overall effects of incentives and rewards: what are the implications for
supplementary protection certificates?
THE RESULTS OBTAINED IN
CHAPTER 2 DO NO PAINT A CLEAR
PICTURE

The econometric and quantitative analysis in chapter
2 produced a range of interesting results regarding
the relationship between effective protection,
innovation, availability and accessibility.
Firstly, section 2.1 indicated that an increase in
effective protection among the other EU countries
with which a given country trades the most would
lead to an increase in domestic spending on
pharmaceutical R&D. As SPCs on average increase
effective protection periods, this should in turn lead
to an increase in innovation spend in the countries
that trade with a given country. As the SPC is EUwide and EU countries trade with each other, the
SPC should have led to more pharmaceutical
innovation within the EU.
Secondly, section 2.2 indicated that little evidence
could be found relating effective protection period
and product availability (as measured by
international launch lags). As SPCs mainly work by
extending effective protection, it does not appear
that the presence of supplementary protection would
influence product availability. This might be due to
the fact that the effective protection period has
already been factored into the launch decision.
Thirdly, section 2.3 indicated that accessibility (as
measured by medicinal product prices) is mainly
driven by the timing of exclusivity expiry. Following
the lapse of exclusivity, generic competition is
possible and prices for both originator products and

generic substitutes tend to fall, while price
developments during the period of exclusivity
protection tend to show less clear developments. As
such, it is unlikely that SPCs have an effect on pricing
and pricing developments during the protection
period. SPCs do however postpone the timing of
protection expiry and consequently also postpone
the point in time from which potential price
reductions materialise until protection has lapsed.

GENERAL DEVELOPMENTS IN
EFFECTIVE PROTECTION PERIOD
CAN HAVE VARIOUS REASONS
Effective protection period seems to have been
declining since the introduction of SPCs in the
European Union. While this at first sight might
suggest that SPC-protection is merited and that
there might be a case to even extend it, this
interpretation is likely to be too simple.

THE EFFECT OF SPCs AS AN
INCENTIVE POSES A TRADE-OFF

SPCs lead to delayed generic entry and hence delay
the downward price pressure associated with it. The
usage of SPCs allows pharmaceutical companies to
obtain greater profits.

However, SPCs also seem to increase innovation and
thereby foster the supply of innovative products. It
seems likely that SPCs increase expected profits for
R&D projects in such a way that more projects reach
the development stage. Put plainly, SPCs can be seen
as a trade-off from the regulator's perspective. On
the one hand, as described above, SPCs postpone
generic entry and hence the inherent downward
price pressure. On the other hand, SPCs seem to
increase innovation.

THE QUESTION BEHIND THIS
TRADE-OFF IS OF POLITICAL
The relationship between the need for protection and RATHER THAN ECONOMIC NATURE
increasing development times is probably not easy to
interpret or even meaningful. There are different
reasons for why development time might be
increasing and firms should not necessarily be
compensated for all of these.

The main driver for product launch and development
decisions seems to be the profit that can be expected
from pursuing the respective project. While the time
period of exclusive commercial exploitation (which is
prolonged by an SPC) is important for this
calculation, profits are also impacted by the price of a
product and the number of units sold.

As elaborated upon above, it seems that the SPC
regime poses a regulatory trade-off: the incentive
scheme can increase innovation and the supply of
novel products to the market, but does so at the
expense of later generic entry, higher prices and
increased profits for pharmaceutical companies.

Solving this trade-off will have a substantial
economic impact on the entire market. In the end,
however, the way in which this trade-off is to be
resolved remains a political rather than economic
question.

237

Insights from elsewhere: evidence on US patent restoration
IMPACT OF A PAEDIATRIC
EXTENSION

Regulation (EC) No 1901/2006 (2) states that “Such
[clinical] studies may not have been undertaken for
use in the paediatric population and many of the
medicinal products currently used to treat the
paediatric population have not been studied or
authorised for such use. Market forces alone have
proven insufficient to stimulate adequate research
into and the development and authorisation of,
medicinal products for the paediatric population”.
Consequently, it was found that legal instruments
were needed to encourage clinical trials to be
undertaken within the paediatric population to
ensure more information on the workings of
pharmaceuticals pertaining specifically to children.

Since 2006, an SPC-additional patent extension has
been available for paediatric medicines in Europe. If
an originator company can prove that it has carried
out tests in compliance with a paediatric
investigation plan (PIP), an additional six months of
exclusivity can be granted for the paediatric and
adult population.

originators to develop products for previously illsupplied markets.
At the same time, such additional extension further
increases the time to generic competition.
For a further discussion of the role of the paediatric
extension in Europe, please refer to sections 4.1.3,
4.2 and 4.3 of this report.

increase medicinal product revenues and lead to an
increase in the number of medicinal product
approvals. The authors further note that, while the
projected increase in innovation would generate
welfare gains due to increased life expectancy, it
would also increase per capita spending on
medicines.

IMPACT OF HYPOTHETICAL
EXCLUSIVITY EXTENSIONS

Goldman et al. (2011) estimate the impact of a
hypothetical increase of the data exclusivity period
available to small molecule medicinal products in the
US. At the time of the study, small molecule
medicinal products were, upon successful filing,
granted a data exclusivity period of 5 years,
extendable to 8 years for additional indications
(paediatric extensions of six months were available
as well).

In a study of the effect of a similar legal instrument
in the United States, Baker-Smith et al. (2008) show
that the presence of a dedicated six-month extension
substantially increased the number of products
brought to the market.1

On the contrary, biologic medicinal products in the
US are granted 12 years of data exclusivity, i.e.
regularly 5 to 7 years of additional protection. The
authors devise a dynamic modelling approach
designed to estimate the impact of a hypothetical
harmonisation of exclusivity terms, namely, a
scenario where small molecule medicinal products
receive the same 12-year exclusivity that is granted to
biologics.

The additional revenues realised by innovators of
paediatric medicines proved to exceed the costs of
additional testing, making it profitable for

While their model specifications are subject to
numerous assumptions and simplifications, they find
that an increase in protection period would primarily

1 The authors observe a general increase in ‘labelling changes’ due to compliant paediatric studies from 11 between 1990 and 1997 to more than
130 between 1997 and 2007. Their study on the additional returns to innovators focuses on clinical trial data for nine orally administered
antihypertensive medicinal products that were submitted to the US FDA with a request for paediatric evaluation. 238

3.4 IMPACT OF SPC
FRAGMENTATION

Unitary Patents and Unitary Supplementary Protection Certificates
REQUIREMENTS FOR GRANT OF
AN EXTENSION CERTIFICATE

The legal requirements for obtaining SPCs are
determined by Regulation (EC) No 469/2009 (which
replaced Regulation (EC) No 1768/1992). Article 3 of
the regulation states the following requirements for
grant of an SPC for a medicinal product:
“ …at the date of [the] application:
•
•
•
•

(a) the product is protected by a basic patent in
force;
(b) a valid authorisation to place the product on
the market […] has been granted […];
(c) the product has not already been subject of a
certificate;
(d) the authorisation […] is the first
authorisation to place the product on the market.
“

Currently, the requirements (a) through (d) above
are to be fulfilled in the member state of application,
not throughout the Community as a whole.

THE UNITARY PATENT PACKAGE

The European Union introduced the first
components of its unitary patent package (UPP)
through regulations 1257/2012 and 1260/2012. In
essence, the regulatory package amends European
patents by allowing the patentee to request unitary
effect of patent protection in the participating
member states. The responsibility to grant unitary
patents will reside with the European Patent Office
(EPO). The unitary patent package further includes
a unified patent litigation system centred around a
unified patent court (UPC). The UPC will enter into
force once certain ratification criteria are met by the
participating member states. Following the UPC’s

entry into force, the UPP regulations will become
applicable as well.
However, the process of introducing a unitary patent
has, as of this writing, been halted by court
proceedings in Germany1.

THE EFFECT OF A UNITARY
PATENT ON THE GRANT OF AN SPC
The introduction of the unitary patent intuitively
raises two questions regarding the role of SPC patent
extension certificates:
• Will a unitary patent fulfil the ‘basic patent’
requirements of Article 3 (a), Regulation (EC) No
469/2009?
• Should the introduction of unitary patents lead to
the introduction of unitary SPCs?

To incentivise companies to actually use the new
UPP system, the answer to the first question is likely
to be positive. Answering the second question
requires a more nuanced analysis of the incentives,
costs and benefits of a unitary certificate, including:
• Administrative cost of obtaining a valid market
authorisation (MA) in all member states.
• Cost of delayed or revoked MAs in single states.
• Cost related to fragmented UPP implementation
(Spain and Croatia do – as of now – not
participate).
• Benefits of a harmonised exclusivity landscape.
• Benefits of a centralised patent validation
procedure for holders of medicinal and
agrochemical patents.
• Etc.

Status quo: relevant IPRs
Coverage

Patent

National (NPO)
or subject to
national
validation (EPO)

Application

NPO or EPO

MA

Centralised
National or
(EMA) or through
community-wide mutual
(EEA)
recognition
procedure

SPC

National

NPO

Note: National Patent Office (NPO) and European Patent Office
(EPO)

The road to UPP

2010:
Agreement on enhanced patent
co-operation
2011:
Presentation of proposed regulations
2012:
Regulations approved and signed
2013:
Regulations enter into force
???
UPC enters into force
Regulations become applicable
Source: European Patent Office – Unitary Patent FAQ

1 http://www.theregister.co.uk/2017/08/22/reason_for_europewide_patent_system_freeze [last accessed: 29/01-2018]. However, several countries have not yet 240
ratified the agreement, see http://www.consilium.europa.eu/en/documents-publications/treaties-agreements/agreement/?id=2013001
NPO = National Patent Office, EEA = European Economic Area, IPR = Intellectual Property Right, the EMA = European Medicines Agency.

SPC fragmentation increases uncertainty
Cross-country differences can be observed both for
the number of pending SPC applications (at times
referred to as ‘backlog’) and for the number of
applications either granted or not, as depicted in the
maps to the right.

Share of pending (left-hand side) and rejected (right-hand side) SPC
applications in EEA countries

Mejer (2017)1 finds a slightly higher proportion of
pending applications in countries that joined the
scheme in 2004 or later and substantial variation in
general across all countries, which might be evidence
of “differences across national offices in examiner
capacity, examination proceedings and differences
in the interpretation of substantive patent law by
the national offices”. Looking at grants, the author
concludes that smaller Member States seem to have
a higher proportion of granted applications and that
a higher volume of applications seem to coincide
with a lower grant rate in the respective country.
Additionally, her data seems to suggest that identical
product-patent pairs can frequently expect different
outcomes in different Member States. Taken
together, this picture suggests that the fragmentation
of SPCs most likely increases uncertainty for both
originators trying to protect their products and
potential generic entrants trying to figure out
whether they have freedom to operate.

POTENTIAL FOR A UNITARY SPC

Kyle (2017)2 notes that a unitary SPC would lead to
an increase in the number of SPCs, particularly
where these would not be pursued otherwise, e.g.
due to low expected generic competition. Most
importantly, a unitary SPC might eliminate the
potentially adverse variation identified above and
further increase the returns to successful SPC
invalidation proceedings, incentivising potential
generic entrants to pursue those at a greater rate.

Note: Maps showing the fraction of pending and rejected SPC applications across countries. The map to the left shows the fraction of
pending applications, while the map to the right shows the fraction of rejected applications. The darker the colour, the larger the
proportion of SPC applications pending (left figure) or rejected (right figure).
Source: Alice de Pastors SPC database.

1 Mejer, M. (2017), “25 Years of SPC Protection for medical products in Europe: Insights and challenges”.
2 Kyle, M. (2017), “Economic Analysis of Supplementary Protection Certificates in Europe”. 241

Usage of SPCs increasing over time but lack of a unitary title reduces the
effectiveness of the IPR
INCREASED USAGE OVER TIME

The number of SPC applications has been increasing
over time, when measured by the first year of EU
marketing authorisation. Looking at SPCs by filing
year is likely to overstate the number of applications
made in the early 1990s. This is mainly due to the
fact that several cohorts of medicinal products
became eligible at the same time. As to be expected
and as can be seen from the graph to the right, the
application filing year is slightly lagging the year of
marketing authorisation.

Number of SPC applications over time, 1993-2015

Many applications were received at the initiation of
the SPC scheme but most of these actually referred to
products launched on the market a few years earlier.

NEGATIVE IMPACT OF
FRAGMENTATION

The fragmentation of the SPC scheme creates
considerable uncertainty for and costs to applicants.
On the one hand, firms seem to face heterogeneous
grant outcomes across countries for the same
product-patent pair (Mejer 2017). Potential generic
entrants, on the other hand, have little reliable
information on the full scope of product protection,
and potential invalidation proceedings would have to
be started in every country where an SPC is filed.
Consequently, originators face increased
maintenance fees, generic entrants face increased
research cost, and both most likely face higher legal
costs when it comes to disputes or invalidation
proceedings. Moreover, companies have to respect
an increasing amount of national case law1 when
interpreting the SPC regulations. The combination of
these effects probably reduces innovation-promoting
effects that a properly functioning SPC might have
on the market.

Source: Alice de Pastors SPC database

1 And European Court of Justice case law. 242

SPCs filed by pharmaceutical companies
Million USD

6%

30.000

4%

20.000

2%

10.000

0%

0
Sanofi

40.000

Janssen*

8%

Bayer
Group

50.000

Boehringer
Ingelheim

10%

GSK

As whether or not an SPC can be applied for is
dependent on the development time, the fact that
there is no clear relationship between sales and share
of SPC filings, could suggest that companies have
different development profiles of their
pharmaceutical portfolio. This might stem from
companies concentrating on different therapeutic
areas and that the development time for medicine in
general differ across therapeutic areas.

Percentage

MSD

When comparing how large a percentage of all SPC
filings each company makes up to their 2015 sales,
there seems to be a correlation between the size of
the company, measured by 2015 sales and their
relative share of all SPC filings, when looking at
Novartis, MSD, GSK, Boerhinger Ingelheim and
Bayer Group. However, when likewise looking at
Janssen and Sanofi, this relationship seems to
disappear. As such, it cannot be concluded that there
is a clear relationship between company size and the
share of all SPC filings.

Companies filing the most SPCs between 2006 and 2015 and their 2015
sales

Novartis

From 2006 to 2015, the 7 pharmaceutical companies
depicted in the graph to the right combined filed
29% of all SPC applications within the EU1.

Percentage of SPC filings from 2006 to 2015 (left axis)
2015 sales ($M, right axis)
Note: The left axis depicts how a large a percentage of all SPC filings between 2006 and 2015 the filings for each company constitutes.
The right axis depicts total sales for each firm in 2015 in million USD. * Sales for Janssen is taken from the below source as Johnson &
Johnson, as Janssen is the pharmaceutical part of the company.
Source: Percentage of SPC filings from Alice de Pastors, SPC-news 30 (2016 issue) available from
http://thespcblog.blogspot.dk/2016/11/the-spc-blog-once-again-thanks-alice-de.html and 2015 sales from
https://scrip.pharmaintelligence.informa.com/-/media/marketing/scrip-100/pdf/Scrip100_LeagueTables.pdf?la=en

1 Alice de Pastors SPC-News 30, 2016 issue 243

Fragmentation can distort innovation and incentives (1/3)
ABSENCE OF A UNITARY SPC

SPCs increase the effective protection period for
medicinal products in the markets where an SPC is
granted. As such, SPCs also increase the expected
profits for originator companies – the main driver
behind launch and development decisions.

Filing and applying for an SPC, as well as
maintaining it, is associated with cost and effort for
originators. In addition, the presence of
heterogeneity in the application outcomes for the
same product-patent pair across countries (as
documented in Mejer 2017) creates uncertainty as to
whether an SPC that is filed for will actually be
granted. If this heterogeneity is an expression of
differences in the interpretation of SPC regulations
by different regulators, it might also imply that
originators face variation in invalidation
probabilities.
In the current fragmented SPC set-up therefore,
originators might decide not to file SPC applications
in every country where they would have the
opportunity to do so. In fact, the evidence collected
by Kyle (2017) indicates that firms mainly file in the
markets that per se are more attractive for product
launch.
While a successful filing in any such market would
grant supplementary protection in all participating
countries were a unitary SPC title to exist, this is not
true in the current case of fragmentation throughout
the Community. Instead, a filing company will – in
the extreme case – only be granted supplementary
protection in the market where there would have

been a higher likelihood of product launch even
without presence of an SPC, due to the market being
more attractive.
The above effect can distort innovation if the grant of
an SPC changes the expected profitability of
launching a product in a market to the extent that a
firm changes its decision to do so in the market in
question. If the product launch is expected to be
profitable when an SPC is granted but not otherwise,
the uncertainty introduced by the heterogeneity in
application outcomes could deter a firm from
entering the market (e.g. if the ‘uncertainty discount’
– probability of application refusal due to outcome
heterogeneity – is large enough). Instead, the firm
might decide to enter only those markets where
entry is profitable to begin with.

might pose a different challenge to companies. If an
SPC application is rejected in a single country, the
effect will impact all markets party to the unitary
scheme. In the same way that a unitary SPC might
increase expected profits, it also increases the
expected loss conditional on an application being
rejected.

In this situation, if a company were granted an SPC
in this already profitable market, the effect of the
certificate would be to merely shift additional rents
from other stakeholders to the originator. In cases
where the entry-deterrence effect of application
uncertainty can be observed in numerous markets,
the cumulative effect on expected profits might even
propel firms not to develop a product at all. This
could be true in particular if uncertainty causes firms
to see a sufficient number of markets as non viable
for entry so that the overall expected profit from the
product development falls below the relevant
threshold for ex ante investment decisions.

IF THERE WAS A UNITARY TITLE

While a unitary SPC could potentially remedy some
of this, the one-off nature of granting decisions

244

Fragmentation can distort innovation and incentives (2/3)
The blue line in the graph to the right depicts the
number of countries in which an SPC is applied for in
the year that the first application for an SPC for the
product is handed in.

Number of countries where applications for SPCs are filed and the degree
to which this is done in the same year or subsequently, 1993-2015

The red line depicts the total number of countries in
which an SPC is applied for, in total for each product,
by first year of filing.
As such, the difference between the two lines depicts
the number of SPCs applied for in years subsequent
to the first SPC application being filed. This is
interesting as SPC applications have to be filed
within six months of marketing authorisation being
granted. As such, the difference between the lines
suggests that it is quite common not to apply for an
SPC in all countries at the same time.

Both the red and blue lines can be seen to be
increasing over time, which means that SPCs have
been applied for in more countries in recent years
compared to the beginning of the period. However,
this might be due to the fact that more countries
have enacted the regulation providing SPCs.
There seems to be a convergence of the two lines
taking place towards the end of the period. However,
this could be because we are unable to observe
applications in the future and, as such, the number
depicted by the red line may be revised upward in
the fullness of time.
If SPCs where applied for in all countries at the same
time for all products, the two lines would coincide.
The difference thus depicts that seeking SPCs across
Europe is not done simultaneously.

Note: Graph showing the number of countries SPCs are applied for and to what degree the applications are submitted in the same
year or subsequently.
Source: Alice de Pastors database on SPCs collected from published data from National Patent Offices.

245

Fragmentation can distort innovation and incentives (3/3)
The graph to the right depicts the degree to which
products, for which SPC applications have been filed
in multiple countries, have experienced differences
in the final outcome.

Difference in SPC application outcome across countries, 1992-2015

Consequently, the graph provides information as to
whether a product having obtained an SPC in one
country has had an application for an SPC in another
country rejected.
The x-axis depicts the number of SPC applications
handed in per product. The y-axis depicts the degree
to which outcomes differ across all the applications.
The size of the circles depicts the number of products
for which the number of applications (shown on the
x-axis) have been handed in and the given outcome
variance (shown on the y-axis) has been experienced,
i.e. the larger the circles, the more products with this
combination of applications and outcome variance.
The higher up the y-axis a circle is located, the more
applications for the same product with different
outcomes. From the graph it can be seen that many
products with a differing number of SPC applications
do not experience any variance in application
outcome.
However, there are also quite a large number of
products which experience difference between
outcomes across countries for SPC applications for
the same product, i.e. in some countries an SPC is
granted while in other countries the application is
rejected (for the same product). This shows that the
fragmentation of the SPC system results in
uncertainty for companies as to how many countries
an SPC can be obtained in.

Note: Pending applications excluded, pairs with only one SPC application excluded (81% of distinct pairs), one outlier (37
applications) excluded. Size of circle represents the number of distinct product-patent-pairs at the outcome variance-application
number data point. Outcome variance measures the degree to which a pair has been subject to different outcomes in different
countries for SPC applications relating to the same patent-product combination.
Source: Alice de Pastors SPC database

246

3.5 SPCS FOR PLANT
PROTECTION PRODUCTS

SPCs for plant protection products are often overlooked (1/3)
THE PLANT PROTECTION
REGULATION

agrochemical sector or just the agrochemical sector
in Europe to the agrochemical sector in the US.

The 1996 regulation also introduced supplementary
protection for agrochemical products (Regulation No
1610/96 “concerning the creation of a supplementary
protection certificate for plant protection products”).
The European Commission commonly defines plant
protection products as containing “at least one
active substance and hav[ing] one of the following
functions:
• Protect plants or plant products against
pests/diseases, before or after harvest
• Influence the life processes of plants (such as
substances influencing their growth, excluding
nutrients)
• Preserve plant products
• Destroy or prevent growth of undesired plants or
parts of plants
They may also contain other components including
safeners and synergists”.1
Arunasalam & De Corte (2016)3 provide a legal
perspective on the development of the agrochemical
SPC since its inception in 1996. In particular, they
highlight the differences and commonalities between
the different ‘SPC-sectors’, emphasising the
uniqueness of plant protection products (PPP)
compared to pharmaceuticals and the resulting
regulatory requirements.
As noted by Kyle (2017), there are considerable
differences that need to be taken into account when
comparing the pharmaceutical sector to the

These difficulties are further exacerbated by a lack of
readily available and accessible data, on both a
national and supranational level.

Most court litigation with reference to SPC
regulations refers to medicinal products. The
resulting rulings have little, if any, bearing on the
agrochemical market.

THE PLANT PROTECTION
INDUSTRY

The plant protection industry in general is
substantially different from the pharmaceutical
sector. Most importantly, there is a noticeably higher
degree of company concentration in agrochemicals
and in corresponding patent ownership2, i.e. the
number of players in the industry is low.
Furthermore, the use of combination products in the
PPP sector is more prevalent than for the
pharmaceutical sector3.
Interviews conducted with companies active in the
development of plant protection products point
towards a lower commercial risk rate (or at least a
perceived one) for agrochemical products compared
with pharmaceuticals. However, the interviews also
point towards a risk-portfolio approach to new R&D.
In this sense, the risk-mitigating effect of the SPC
allows the industry to venture into more risky R&D
projects than would otherwise have been the case.

thing as market protection as is the case for
pharmaceuticals. Furthermore, no incentives similar
to e.g. those for orphan medicinal products or
investigations within the paediatric population exist.
Data protection is, however, provided within the
agrochemical sector.

PLACEMENT OF R&D

When it comes to the placement of R&D within the
agrochemical sector there are certain important
factors to be aware of. The research part can be
undertaken in a laboratory setting and can, as such,
be placed anywhere in the world. The decision of
placement will probably be greatly influenced by
some of the same factors influencing the placement
of R&D in general. These include a well-educated
workforce and good infrastructure4.

For the development part, where testing of the
agrochemicals’ effects on real crops is undertaken,
there are certain restrictions on geographical
placement. These restrictions pertain to the
geographical region where crops grow and the
different climate zones. As such, trials for
agrochemicals are restricted to certain geographical
areas of the world, depending on the scope of the
product.
The above division of R&D means that, within the
agrochemical sector, research is probably more
flexible in its geographical placement than
development is.

The regulation for plant protection contains no such

1 See the European Commission’s webpage on pesticides, https://ec.europa.eu/food/plant/pesticides_en [accessed 2017-08-30].
2 Kyle, M. (2017), Economic Analysis of Supplementary Protection Certificates in Europe.
3 Arunasalam, V-C. & de Corte, F. (2016), Supplementary protection certificates for plant protection products: the story of ‘The Ugly Duckling’.
4 See e.g. Demirbag, M. and Glaister, K. W. (2010), Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of
Developed and Emerging Regions. 248

SPCs for plant protection products are often overlooked (2/3)
DECREASE IN INNOVATION

Since the 1980s, the number of active ingredients
introduced into or in development within the
agrochemical sector has decreased by a rather
significant amount.
Furthermore, the percentage of new ingredients
focused on Europe has likewise fallen. As such, the
number of available products for plant protection
within Europe seems to have experienced a
decreasing rate of innovation.

Number of active ingredients introduced or in development and
distribution between Europe and the rest of the world, 1980-2014
Active ingredients introduced or in development
100%

123

128

66,7%

68,7%

73

75%

INCREASE IN R&D COST

The decrease in new innovation could be due in part
to the increasing costs of bringing a new active
ingredient to the market. In 1995 the average cost
was estimated to be USD 152m. In the years 20052008, this estimate had increased to USD 256m1.
The majority of the increase was due to increases in
the cost of development. Development mainly covers
the trials undertaken to obtain registration. From
1995 to 2005, the research cost of bringing a new
active ingredient to the market increased from USD
72m to USD 85m At the same time, development
costs rose from USD 67m to USD 146m per active
ingredient2.

83,6%
50%

25%
33,3%

31,3%

16,4%
0%
1980-1989
Europe

1990-1999

2005-2014

Rest of world

Notes: The number of active ingredients introduced or in development within the agrochemical sector is depicted in the top three
circles. The percentage distribution depicts the share of products which are focused on either the European market or the rest of the
world.
Source: Arunasalam, V-C. & de Corte, F. (2016), Supplementary protection certificates for plant protection products: the story of ‘The
Ugly Duckling’ and McDougall, P. (2013), R&D trends for chemical crop protection products and the position of the European Market.
1 McDougall, P. (2013), R&D trends for chemical crop protection products and the position of the European Market.
2 The reported numbers are taken from a report commissioned by the European Crop Protection association which is an industry organisation
representing the originator industry within agrochemicals. As such, the reader should be aware of the industry affiliation. However, numbers and 249
statistics are hard to come by within the sector and hence all sources must be utilised to obtain a better picture.

SPCs for plant protection products are often overlooked (3/3)
NO BOLAR EXEMPTION

SPC DATA

This is as interesting an issue within the
agrochemical sector as it was in the pharmaceutical
one. If generic companies are unable to undertake
development before the expiry of all relevant
patents, originator products are in effect protected
against generic competition for a longer period than
the relevant patents last.

The information below comes from Arunasalam & de
Corte (2016)1 and mainly illustrates that even 20
years on from the introduction of SPCs for plant
protection products little information is available,
and there seems to be fewer filings generally in the
PPP sector than in the pharmaceutical one.

No direct Bolar exemption (or research exemption)
exists within the agrochemical sector. This means
that it is legally uncertain to what extent generic
companies can undertake R&D on originator
chemicals in order to develop generic versions prior
to patent expiry.

DATA SHARING

The conducted interviews indicated that generic
companies within the agrochemical sector cannot
refer to originator data created during trials to the
same extent as is possible within the pharmaceutical
sector.
This means that generic companies have to run trials
themselves, to a greater extent than is necessary
within the pharmaceutical sector. The direct effect is
that generic companies experience higher costs.
As such, when generic entry takes place in the
agrochemicals market, there is a limit to the amount
of price pressure generic companies can place on
originator products. The higher costs associated with
undertaking trials themselves curb the competitive
pressure they can bring to the market.

Data illustrating the usage and impact of SPCs in the
plant protection industry is hard to come by.
Generally speaking, there is no centralised register
and no database comparable to e.g. the Alice de
Pastors database for SPCs awarded to
pharmaceuticals.

Number of SPC filings within plant protection products for three patent
offices between 1997 and 2015
Number of SPC filings
200
150
100
50
0
GB

DE
Total

NL

GB

DE
Granted

NL

GB

DE

NL

Withdrawn/refused

GB

DE

NL

Pending

Note: Graph showing the number of SPCs granted, withdrawn/refused and pending for plant protection products in the United
Kingdom (GB), Germany (DE) and the Netherlands (NL).
Source: Reproduced from figure 1 in Arunasalam, V-C. & de Corte, F. (2016), Supplementary protection certificates for plant
protection products: the story of ‘The Ugly Duckling’.
1 Given the authors’ industry affiliation, this information is to be evaluated carefully. 250

CHAPTER 3 APPENDIX

Average effective protection period added by the SPC, when it is the last
IPR to expire, excluding secondary patents
The graph to the right depicts the effect of SPCs on
the average effective protection period for products
where an SPC is the last IP right to expire, when
excluding secondary patents.
The red line depicts the effective protection period if
patent, SPC, data protection and market protection
are taken into account. The green line depicts what
the effective protection period would have been, had
there been no SPC for these products where the SPC
is last to expire.

Effective protection period for products where an SPC is the last IP
scheme to expire, without secondary patents, 1996-2016

Average difference
2010-2016 = 2.8

In that sense, the difference between the two lines
can be understood as the average marginal
protection extension conditional on an SPC being the
last protection scheme to expire.
In the period 2010-2016 the SPC added on average
2.8 years of protection, to products where the SPC is
the last protection to expire, when excluding
secondary patents. As seen earlier, this period is 2.6
when secondary patents are included.

Notes: Graph showing the effective protection period based on which protection instruments are used in the calculation. The graph
only includes medicinal product-country combinations where an SPC is the last IP scheme to expire. As such, the difference between
the lines depicted signifies the average increase in protection for products where SPCs actually extend the protection period. Given
that the observation-level is unique medicinal product-country combinations means that a specific medicinal product is used in the
calculation of the average as many times as it has an SPC in a member state. Secondary patents are excluded.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

252

Last protection scheme to expire, when excluding secondary patents
The table to the right reports the last IPR to expire,
when secondary patents are excluded from the
analysis.
When comparing to the table on p. 185, where
secondary patents are included, it is clear that
patents less often are the last IPR to expire, when
secondary patents are excluded. This is as expected.
When excluding secondary patents, the SPC is the
last protection scheme to expire for 78% of the
observations, where an SPC has been granted.
When looking at all observations, this number is
13%. This might seem low, but is likely due to the fact
that a given product does not necessarily have an
SPC in all countries, where it is launched. If e.g. a
product is launched in 20 countries, but only has an
SPC in 5 of these this means that only 25% of the
observations for this product has an SPC. If the SPC
is only the last IPR to expire in 3 of the countries
where it was granted, this would mean that for this
given product, the SPC would be the last IPR to
expire in 15% of the observations.

Last protection scheme to expire, when excluding secondary patents,
1996-2016
Full sample

Last IP scheme
to expire

Observations with granted SPC

N

(%)

N

(%)

2,691

38

0

0

920

13

930

78

Market
protection*

2,875

40

238

20

Data
protection**

644

9

22

2

7,130

100

1,190

100

Patent

Supplementary
Protection
Certificate

Total

Note: Table showing the last protection scheme to expire for the unique dataset created for the analysis, when secondary patents are
excluded from the analysis. The cases where data protection is the last protection scheme to expire are all before enactment of the
8+2(+1) system in 2005, as market protection under this regime is always longer than data protection.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

* Market exclusivity for orphan medicinal products are counted in this category.
** For certain observations before the 2005 changes to the 8+2+1-scheme, data protection is the last IPR to expire. 253

CHAPTER
4
Effective protection period and
individual contributions

Outline of chapter 4

4.1 Impact on effective protection period
4.1.1 Data protection and market protection
4.1.2 Orphan incentives
4.1.3 Paediatric incentives
4.1.4 Summary

4.2 Effect on innovation
4.3 Effect on availability
4.4 Effect on accessibility
4.5 Effect on pricing strategy
4.6 Effect on healthcare budgets

4.7 Proportionality of incentives to goals

255

Chapter 4 – Main conclusions
EFFECT OF REGULATORY
INCENTIVES ON EFFECTIVE
PROTECTION

The effective protection period is calculated as the
time elapsed from the date of marketing
authorisation until the last protection scheme
expires.
ࡱࢌࢌࢋࢉ࢚࢏࢜ࢋ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢖ࢋ࢘࢏࢕ࢊ
ൌ ࢊࢇ࢚ࢋ ࢕ࢌ ࢒ࢇ࢙࢚ ࢖࢘࢕࢚ࢋࢉ࢚࢏࢕࢔ ࢚࢕ ࢋ࢞࢖࢏࢘ࢋ
െ ࢊࢇ࢚ࢋ ࢕ࢌ ࢓ࢇ࢘࢑ࢋ࢚࢏࢔ࢍ ࢇ࢛࢚ࢎ࢕࢘࢏࢙ࢇ࢚࢏࢕࢔
In the period from 2010 to 2016, market protection
prolonged the average effective protection period by
2.4 years1. For products where market protection is
the last protection to expire the average extra period
provided by market protection was 4.8 years in the
period from 2010 to 2016.

For products where market protection is the last
scheme to expire, the one-year extension based on
approval for a second indication provides an average
increase in the effective protection period close to
zero (3.7 days) in the years between 2010 and 2016.
Market exclusivity for orphan medicinal products
has on average provided 1.6 extra years of protection
to the orphan medicinal products where market
exclusivity was the last protection scheme to expire.
The paediatric extension has on average provided
close to zero (2.9 days) extra effective protection.
This small average difference is mainly due to the
fact that only 10% of products have an SPC as the last
protection to expire.

INNOVATION

The number of orphan designations granted has
increased from 14 in 2000 to 209 in 2016. As the
number of orphan medicinal products obtaining
marketing authorisation has also increased, this
suggests that there has been an increase in
innovation within the area.
In the period from 2008 to 2015, 859 paediatric
investigation plans (PIP) have been agreed upon and
99 positive PIP compliance checks have been done.
This entails quite a large increase in the body of
information on medicinal products for paediatric
use.

AVAILABILITY

In section 2.2 we did not identify a statistically
significant effect of the domestic effective protection
period on the probability of product launch. This
likewise pertains to the effect of the regulatory
incentives, as these essentially in the same manner
work to prolong the average effective protection
period for medicinal products.
However, it can be seen from the analysis that
orphan medicinal products are launched earlier and
in more countries than non-orphan medicinal
products. Whether this is due to the orphan
incentives or e.g. the fact that orphan medicinal
products have a smaller patient base and usually
higher price in each individual country cannot be
determined based on the available data.

medicinal products. These decisions are often based
on a Health Technology Assessment (HTA), where
price effectiveness is assessed. As such, there are two
formal barriers to entering the markets for medicinal
products in European countries. One is obtaining
marketing authorisation, e.g. through the centralised
procedure and the other is to obtain a positive
opinion regarding reimbursement from the national
authorities (or insurance agencies).

ACCESSIBILITY

Insofar as the legislative instruments work to
postpone the point in time when generic products
can enter, the ensuing fall in prices is likewise
deferred. As such, at face value the incentives work
to contribute to higher prices for medicinal products.
However, in section 2.1 we found that that there was
a positive relationship between longer effective
protection period in all of the EU and the spending
on pharmaceutical R&D. As such, this encourages
more originator innovation. As there can be no
generics without originator products, in some way
the legislative instruments work to make more
generics accessible in the future. Furthermore, more
innovation increases innovator-on-innovator
competition, which is one of the factors driving down
prices before generic entry.

An important consideration regarding availability is
that in many EU countries central authorities decide
whether or not to reimburse new innovative

1 Calculated as the difference between the average effective protection period with all protection schemes and what the average effective
protection period would have been, had market protection not existed. 256

4.1 IMPACT ON EFFECTIVE
PROTECTION PERIOD

4.1.1 DATA PROTECTION AND
MARKET PROTECTION

Summary of protection from market protection and data protection
INTERPLAY BETWEEN INCENTIVES

Market protection and data protection are regulatory
protection periods, running from the granting of
marketing authorisation1.
Data protection protects the data that a pharmaceutical company has produced in preclinical and
clinical trials from use by other pharmaceutical
companies in submitting an application for marketing authorisation1. Submitting the data to the
authorities is a prerequisite for obtaining marketing
authorisation.
Market protection ensures that during this period a
generic product cannot be placed on the market1.
Data protection runs for 8 years. After this period,
generic companies can submit an application for
marketing authorisation, referring to the data
submitted by the originator company. However,
market protection runs for 10 years, meaning that
the generic medicinal product cannot be placed on
the market for another two years. The gap of two
years from expiry of data protection until expiry of
market protection allows generic companies to
obtain marketing authorisation before market entry
is possible, potentially allowing them to enter the
market from the day market protection expires.
If a new innovative product is approved for a new
indication within the 8 years of data protection, an
additional year of market protection is added to its
total protection. This means that in total a product
can obtain regulatory protection for 8 years of data
protection, two additional years market protection

with the possibility of extending this by another year.
This yields what is often called the 8+2+1 system.
The regulatory protection conveyed by market
protection and data protection is overseen by the
appropriate authorities. In the case of centrally
approved products in the EU, this is the European
Medicines Agency and the European Commission.
Market protection and data protection run in parallel
to any patent and SPC protection. As market
protection and data protection are regulatory
protection periods granted by the authorities, they
cannot, like a patent or an SPC, be invalidated by a
court of law2. However, a court of law may declare
data and/or market protection initially granted to a
medicinal product, as a result of a marketing
authorisation decision, to be inapplicable or
unenforceable depending on the specific
circumstances of the case.

COMPETITION

Should no patent or SPC be protecting the active
ingredient of a product, another company can enter
the market with a product containing the same active
ingredient, even though the product of the first
company enjoys data protection and/or market
protection.

As such, this shows one of the key differences
between IP rights and regulatory protection.

MINIMUM PROTECTION PERIOD

Patents, SPCs, market protection and data protection
have different durations and run from different
points in time. As such, depending on when a
marketing authorisation for a medicinal product is
obtained, any one of these protection schemes might
be the last scheme to expire.
A standard patent is valid for 20 years. An SPC can
extend the protection period by a maximum of five
years. Before 2005, data protection lasted for 6 years
in some EU countries and 10 in others for nationally
authorised products3. After 20 November 2005 the
8+2+1 scheme came into effect4.

Even though patents and SPCs have expired, a new
innovative medicinal product will always enjoy at
least 8 years of data protection followed by two
additional years of market protection, possibly
extended by one year. This means that there is
effectively a ‘floor’ of 10 years of effective protection
period for new innovative pharmaceuticals being
granted market authorisation in the EU.

This can happen if the second company is willing to
undertake their own clinical trials, building their
own proprietary dossier for regulatory approval,
instead of referring to the data produced by the
originator company.

1 Directive 2001/83/EC, Article 10(1).
2 Regulation (EC) No 726/2004.
3 For centrally approved products the protection period was 10 years before 2005 as well.
4 Regulation (EC) No 726/2004, Article 90. 259

Effect of data protection and market protection across all medicinal
products (1/2)
The graph to the right shows the difference between
the effective protection period with and without
market protection and data protection, for all
products in this study1. As such, the graph compares
the current legislative situation with a counterfactual
one, where regulatory market protection and data
protection did not exist2.
In the unique dataset created for this study, a
product is identified based on trade name. Each
product has an observation for each country in which
it has obtained a marketing authorisation. This
means that if a product is centrally approved, it will
have one observation for each EU member state. The
reason for this is that the number of patents and
hence the protection periods granted by these might
differ from one country to the next. Furthermore,
SPCs are also granted at the national level, and as
such the existence of these might differ from country
to country.

Effective protection period with and without market protection and data
protection for all products, 1996-2016

Average difference
2010-2016 = 2.4

Enactment of Regulation (EC)
No 726/2004 governing market
protection and data protection

In recent years, the regulatory market protection and
data protection have added an average of
approximately 2.4 years of effective protection
period to the pharmaceuticals in the sample.
Since 2005, market protection sets a floor of at least
10 years of effective protection period for new
innovative pharmaceuticals in the European member
states, regardless of authorisation procedure3. Before
2005, the minimum protection period of 10 years
was already provided for centrally approved
products4.

Notes: Graph showing the effective protection period based on two scenarios. The graph includes all medicinal products observed in
the sample. The difference between the lines signifies the average effect on the effective protection period for all products as an effect of
market protection and data protection. In the sample, a medicinal product is observed as many times at it has a marketing
authorisation in a member state. Medicinal products with a negative development time are excluded from the graph.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI

1 For an in-depth review of how the unique dataset is constructed, please refer to the appendix for chapter 1.
2 Behavioural changes by the agents as an effect of the change in the counterfactual scenario have not been taken into account.
3 Regulation (EC) 746/2004, Article 14(11).
4 Regulation (EEC) No 2309/1993, Article 13(4). 260

Effect of data protection and market protection across all medicinal
products (2/2)
Comparing the period before 2005 with the period
after, it can be seen from the graph on the previous
page that the extra protection period provided by
data protection and market protection has had an
increasing importance.
From 1996 to 2005, the average extra protection
gained from data protection and market protection
was 1.6 years. This increased to 2.6 years in the
period 2006-2016.
A comparison with the development time graph
depicted in section 1.4.2 shows that the development
time seems to increase from one level before 2005 to
another higher level after 2005.
As such, it seems that the minimum protection
period of 10 years granted by market protection after
2005 has made this type of protection more
important to pharmaceutical companies, since it
ensures a certain level of protection.
Furthermore, the fact that market protection ensures
a certain ‘protection floor’ through a minimum
protection period, means that the regulation
governing this scheme contributes to curtail some of
the uncertainty and risk pharmaceutical companies
face when developing new medicinal products. The
minimum of 10 years of market protection ensures
that no matter how many problems and issues a
company encounters in the R&D process, potentially
delaying market entry, the product can never have
less than 10 years of market protection.

261

Effective protection from data protection and market protection
when one of these is the last protection to expire
While the graph on p. 256 looked at the effect of data
protection and market protection on the effective
protection period for all products, the graph to the
right shows the isolated marginal effect for medicinal
products where data protection or market protection
is the last to expire.

Effective protection period with and without market protection and data
protection for products where market protection or data protection is
the last IP protection to expire, 1996-2016

In recent years, having regulatory market protection
has provided 4.8 years of extra protection for the sub
sample of medicinal products where this scheme is
the last to expire. As such, for these products this
protection incentive increases the effective
protection period substantially.

Average difference
2010-2016 = 4.8

In the graph, the ‘floor’ of minimum 10 years of
effective protection period provided by market
protection after 2005 is readily apparent.

Before 2005, some member states provided 6 years
of data protection, while others provided 10 years.
Data protection is the last protection to expire in 7%
of all cases1, while market protection is the last to
expire in 32% of all cases. This means that in 39% of
all cases in the sample either data protection or
market protection is the last protection to expire.
The fact that data protection and market protection
are the last protection schemes to expire in 39% of all
cases, while extending the effective protection period
by on average 4.8 years for these products, signifies
that these protection schemes are rather important
for pharmaceutical companies2. Furthermore, the
‘floor’ of at least 10 years of protection helps mitigate
some of the ex ante risk regarding the duration of the
protection period pharmaceutical companies face
when making their development decisions.

Enactment of Regulation (EC) No 726/2004
governing market protection and data
protection

Notes: Graph showing the effective protection period based on two scenarios. The graph only includes medicinal products where
market protection or data protection is the last protection scheme to expire. The difference between the lines signifies the average
effect on the effective protection period for products where market protection or data protection is the last to expire. In the sample a
medicinal product is observed as many times at it has a marketing authorisation in a member state. Medicinal products with a
negative development time are excluded from the graph.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

1 Data protection can only be the last protection to expire before Regulation (EC) No 726/2004 was enacted in November of 2005.
2 In the case studies included in chapter 5, SPC or patent is the last form of protection to expire for most products. However, the products included in
the case studies are not randomly chosen, and there might be some selection as to which products have e.g. secondary patents. It is e.g.
conceivable that companies are more willing to spend time and resources applying for secondary patents and SPCs the more profitable a given 262
product is. As chapter 5 contains e.g. blockbusters, this might at least partly explain the fact that all cases have a patent or SPC as the last
protection to expire.

The one-year extension of market protection based on approval for a
second indication only extends the effective protection period for a few
products
If a product which has obtained marketing
authorisation is authorised for a second indication
within the 8-year period of data protection and
provides significant clinical benefit to the patients
suffering from this condition, the parallel 10-year
market protection period can be extended by one
additional year.
The graph to the right shows the effect of the oneyear extension of market protection for products
where market protection is the last protection
scheme to expire.

Average increase in effective protection period through the one-year
extension of market protection for products where market protection is
the last to expire, 1996-2016

Average difference
2010-2016 = 0.01

The one-year extension only extends the effective
protection period in 12% of the instances in which it
is granted. For the remaining 88% of products
having obtained the extension, an SPC or patent
expires at a later point in time. As such, the average
effect of the one-year extension for products where
data protection or market protection is the last to
expire is limited.
The average of 0.01 year by which the incentive
extends the effective protection period for products
where market protection is the last to expire
corresponds to 3.7 days.
Overall, 31 products have obtained the one-year
extension.

Notes: Graph showing the difference in effective protection period with and without the one-year extension of market protection for
all medicinal products where market protection is the last protection scheme to expire. In the sample, a medicinal product is observed
as many times at it has a marketing authorisation in a member state. Medicinal products with a negative development time are
excluded from the graph.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

263

4.1.2 ORPHAN INCENTIVES

Summary of protection and other benefits from the orphan designation
ORPHAN DESIGNATION

At any time during the development process when
pharmaceutical companies believe that a product
under development can be used to treat a rare
disease and they can present enough data to support
this, they can apply for an orphan designation with
the EMA.
If a medicinal product obtains an orphan designation
and retains it through the marketing authorisation
procedure, the product can be placed on the market
as an orphan medicinal product.
Both before and after a marketing authorisation has
been granted, a medicinal product having obtained
an orphan designation enjoys a range of incentives.

ORPHAN INCENTIVES

Before marketing authorisation, a range of incentives
have been put in place to encourage the development
of medicinal products for treating rare diseases.
Obtaining an orphan designation is free of charge.
Furthermore, protocol assistance can be obtained
from the agency during the development process.
Such protocol assistance involves scientific advice on
how to conduct the tests and trials required to
demonstrate quality, safety and efficacy in a
satisfactory way1.
There is a 40% fee reduction on the marketing
authorisation application, and for SMEs it is free of
charge. For paediatric products it is also free2.
For SMEs, there is a 90% fee reduction for post-

authorisation inspections, while pre-authorisation
inspections are free of charge. Annual fees during the
first year after marketing authorisation are also free
for SMEs2.
Besides these incentives, special research grants are
available from the European Commission directly
aimed at orphan medicinal products3. In many
member states, various national incentives are also
present4.
Hence, the orphan regulation contains more
incentives than just the obtained protection period
which also influences the attractiveness of
developing orphan medicinal products.
After marketing authorisation, an orphan medicinal
product enjoys 10 years of market exclusivity, with
the possibility of a 2-year extension of this if a
paediatric investigation plan is completed.

MARKET EXCLUSIVITY

During the period of market exclusivity “…the
Member States shall not, for a period of 10 years,
accept another application for a marketing
authorisation, or grant a marketing authorisation
or accept an application to extend an existing
marketing authorisation, for the same therapeutic
indication, in respect of a similar medicinal
product.”5 This effectively means that during this
period no other similar product can be placed on the
market treating the same indication.
However, the regulation also states that “a
marketing authorisation may be granted for the

same therapeutic indication, to a similar medicinal
product if: (a) the holder of the marketing
authorisation for the original orphan medicinal
product has given his consent to the second
applicant, or (b) the holder of the marketing
authorisation for the original orphan medicinal
product is unable to supply sufficient quantities of
the medicinal product, or (c) the second applicant
can establish in the application that the second
medicinal product, although similar to the orphan
medicinal product already authorised, is safer,
more effective or otherwise clinically superior.”3
This effectively means that if another company can
show that their product for treating the same rare
condition is clinically superior and brings significant
benefit to patients, it can be placed on the market
even during the period of market exclusivity6.

As such, market exclusivity protects against
competition from generic companies and other
originator companies with similar medicinal
products that do not provide additional value to
patients. It does, however, not protect against
competition by innovation.
From an economic viewpoint, the protection granted
by market exclusivity might spur further innovation
as this is effectively the only way to enter the market
during the 10 years where another orphan medicinal
product has market exclusivity. As such, spending
time developing a similar medicinal product will
yield no return, while developing a new and
innovative and better medicine will.

1 European Commission (2015), Inventory of Union and Member State incentives to support research into, and the development and availability of, orphan
medicinal products. For SMEs the protocol assistance is free of charge.
2 See http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/general_content_000059.jsp [last accessed: 30/01-2018]
3 See European Commission website on rare diseases: http://ec.europa.eu/research/health/index.cfm?pg=area&areaname=rare [last accessed 30/01-2018]
4 Giannuzzi, V., Conte, R., Landi, A., Ottomano, S. A., Bonifazi, D., Baiardi, P., Bonifazi, F. and Ceci, A. (2017), Orphan medicinal products in Europe and United 265
States to cover needs of patients with rare diseases: and increased common effort is to be foreseen.
5 Regulation (EC) No 141/2000, Article 8(1)
6 See e.g. the case study on Tobi Podhaler in chapter 5 for examples of this.

The Committee on Orphan Medicinal Products evaluates all applications
for orphan designation in the EU (1/2)
A frequently discussed issue when it comes to
orphan medicinal products is the so-called salamislicing of indications.

HOW SALAMI-SLICING OF
INDICATIONS WORKS

Over time, research into diseases has helped the
medical community to obtain a more thorough
understanding of these. Sometimes research has
revealed that what was commonly understood as one
disease actually consisted of several subgroups at a
more granular level. These subgroups might be very
similar and the differences between them almost
indiscernible. However, the subgroups may also be
very different1.
The issue of salami-slicing of indications arises in
cases where the original disease is a non-orphan
indication. However, when looking at the subgroups,
some (or all) of these would by themselves qualify as
orphan indications through the prevalence criteria. If
it is possible for a company to obtain an orphan
designation based on a new medicinal product being
able to treat one of these subgroups, it can obtain all
the benefits associated with having an orphan
designation. If, at a later point the company seeks
marketing authorisation for the whole indication, it
will have undertaken what is known as salamislicing. The issue is that through slicing the
indication into subgroups, the company could obtain
an orphan designation for a medicinal product which
was actually not an orphan medicinal product.

DESIGNATION IS UNDERTAKEN BY
THE AUTHORITIES

The fact that an orphan medicinal product can be
used to treat several orphan designations is good for
the patients concerned, who may not otherwise have
been able to seek treatment. It also increases the
profitability prospect of the product from the
company’s viewpoint.

Upon having reviewed the application, the COMP
issues an opinion to the European Commission,
which is responsible for granting the orphan
designations.

However, as the R&D processes of medicinal
products are long and risky3, knowing whether a
given medicinal product developed for treating one
disease can also be used to treat other diseases might
not become evident until after the development
phase.

In the EU, all applications for designation as an
orphan medicinal product are submitted to the
Committee for Orphan Medicinal Products (COMP),
which is a part of the European Medicines Agency.

As such, the COMP is responsible for assessing
whether a submitted application for orphan
designation lives up to the criteria set forth by the
orphan regulation2. If an application for an orphan
designation based on a subset of a non-orphan
indication is submitted, the COMP must evaluate
whether the available evidence makes it plausible
that the product can only treat this subset of the
indication and not be used for the overall disease and
whether this enables it to obtain an orphan
designation.
In this sense, the COMP acts as a safeguard against
salami-slicing of indications in the EU.

MITIGATING RISK

Not to be confused with salami-slicing of indications
is the fact that an orphan medicinal product may be
approved for treating several distinct rare diseases.
This can e.g. happen if an orphan medicinal product
was first developed for treating one condition but at
a later time can be shown to be effective in treating
another condition as well.

This means that a company might develop a
medicinal product on the assumption that it can only
be used for treating one orphan indication. This
might mean that without the orphan incentives the
ex ante business case for developing the medicinal
product is negative. However, after having developed
the medicinal product and after discovering that it
can be used for more than one indication, the ex post
business case might be positive, even without the
orphan incentives. The point is that at least in this
theoretical case the company cannot know this until
after development.
As a result, the orphan regulation helps mitigate
some of the risk faced by companies when
developing medicines with the prospect of having a
narrow patient base.

1 https://www.christenseninstitute.org/blog/salami-slicing-precision-medicine-orphan-drug-act/
2 Regulation (EC) No 141/2000.
3 See section 1.4.2. 266

The Committee on Orphan Medicinal Products evaluates all applications
for orphan designation in the EU (2/2)
It might, however, also be the case that the orphan
regulation ‘overcompensates’ the pharmaceutical
companies for developing orphan medicinal
products for more indications after first approval1.
After the first approval, many of the R&D costs have
been defrayed, and hence development for further
indications is likely to be less expensive than for the
first indication.
Further approval will, however, often imply more
clinical trials, which can constitute a large expense.
As such, if the business case for undertaking clinical
trials and documenting the product’s safety and
efficacy in treating another indication constitutes a
positive business case, even without the orphan
incentives, the incentives can be said to
‘overcompensate’ companies.

based on the prevalence criteria, which all orphan
designations currently are, there is no possibility of
initiating a review based on whether the product has
turned out to provide the company with a profit
amounting to evidence of ‘overcompensation’3.
As such, if a product can be used to treat several rare
diseases and hence possibly provide the company
with a return on investment much larger than
expected, this is not taken into consideration if
designations for more orphan indications for said
product are processed by the EMA and these are
based on the prevalence criteria.
However, without further insights into the R&D
costs of the companies, determining whether
‘overcompensation’ takes place in certain cases is
rather difficult.

The orphan regulation includes a provision whereby
the member states can have the EMA initiate a
review into whether an orphan medicinal product
still lives up the requirements on which its status
was granted2.
This means that if the designation was granted based
on the prevalence criteria, changes in the number of
patients affected by the disease might warrant a
review. In cases where the designation is granted on
the criteria of the company not being able to obtain a
sufficient return on investment without designation,
an unforeseen high profit from the product can
warrant a review.
However, in the case where a designation is granted

1 Here, ‘overcompensation’ means that the development of the medicinal product for more indications constitutes a positive business case even
without the orphan incentives.
2 Regulation (EC) No 141/2000, Article 8(2).
3 Input provided by the European Medicines Agency. 267

Market exclusivity increases the average effective protection period for
orphan medicinal products by 1.6 years at the margin
The graph to the right shows the marginal effect of
market exclusivity on the effective protection period
of orphan medicinal products where market
exclusivity is the last protection to expire1.

Effective protection period for orphan medicinal products where market
exclusivity is the last form of protection to expire, 2011-2016

From the graph it can be seen that some of the
products depicted in 2011 have obtained the
paediatric reward of two additional years of market
exclusivity. In the other years none of the products
have obtained the paediatric reward.
As the number of observations is limited, the
fluctuations in the effective protection period are
more pronounced.
Out of all the orphan medicinal product-country
observations present in the sample, 12.9% have
market exclusivity as the last protection period to
expire, i.e. after patent and data protection. As such,
it seems that for orphan medicinal products, patent
and SPC are on average the most important
instruments for granting the effective protection
period they currently have. As can also be seen from
the graph to the right, for orphan medicinal
products, the possibility of having an average
minimum protection period of 10 years means an
average increase in the effective protection period of
1.6 years compared to a situation without market
exclusivity.
For orphan medicinal products it is, however, also
important to remember that the designation and
marketing authorisation bring more benefits than
the effective protection period conveyed by regular
data protection and market protection.

Average difference 2011-2016 = 1.6

Notes: Graph showing the effective protection period based on two scenarios. The graph only includes orphan medicinal products
where market protection or data protection is the last protection scheme to expire. The difference between the lines signifies the
average effect on the effective protection period for orphan medicinal products where market protection or data protection is the last
to expire. In the sample, a medicinal product is observed as many times at it has a marketing authorisation in a member state.
Medicinal products with a negative development time are excluded from the graph.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI

1 As there is a limited number of orphan medicinal products in Europe, an effect of this is that the number of observations on
average is 6 per year, and the graph only includes the years 2011-2016. 268

4.1.3 PAEDIATRIC
INCENTIVES

Summary of paediatric obligations and rewards
PAEDIATRIC REGULATION

a new indication, pharmaceutical form or route of
administration for an already authorised medicine
which is protected by IP rights3. Decisions on PIPs
are made by the EMA.

The regulation “aims to facilitate the development
and accessibility of medicinal products for use in the
paediatric population, to ensure that medicinal
products used to treat the paediatric population are
subject to ethical research of high quality and are
appropriately authorised for use in the paediatric
population, and to improve the information
available on the use of medicinal products in the
various paediatric populations.”2

If a medicinal product has an SPC and compliance
with a PIP is approved, a 6-month extension of the
SPC enters into effect4. Because of this extension,
which can only be obtained if the product has an
SPC, it can make sense for the company to apply for
an SPC even though the formal duration period
calculated is negative.

Besides the two incentives for medicinal products
with an SPC and orphan medicinal products, there is
a third paediatric incentive for developing wellknown substances for the paediatric population. This
is known as the so-called paediatric use marketing
authorisation (PUMA).

In a court ruling, it has been established that the
award of an SPC with a negative duration is
possible5. This will be attractive to companies when a
paediatric extension of the SPC will make the total
SPC period positive. If the calculated duration of an
SPC e.g. is negative by 2 months, but a paediatric
extension is awarded, the total duration of the SPC
will be a positive 4 months.

For a product to fulfil the PUMA requirements, it
must be 1) already authorised, 2) no longer covered
by an SPC or a patent 3) to be developed exclusively
for use in children. As such, this incentive is aimed at
already known treatments which need developing
further for use in children. If a PUMA is granted, the
product enjoys 8 years of data protection and a
parallel period of 10 years of market protection9.

If the product in question is an orphan medicinal
product and it complies with a PIP, a 2-year
extension of market exclusivity is granted, instead of
the 6-month extension of the SPC6. The extension of
market exclusivity is granted even though the
product has an SPC which expires at a later date than
market exclusivity including the extension. In this
case, an extension of the SPC would provide more of
an incentive for the company as this would increase
the effective protection period7. The fact that it is not
possible to choose to extend the SPC rather than the
market exclusivity for a pharmaceutical with an
orphan designation might create an unintended

Besides the above extensions of protection periods,
applicants can request scientific advice from the
EMA on a PIP, which is free of charge for questions
relating to the development of paediatric medicines.

The regulation governing the current obligations and
rewards for medicinal products for paediatric use
was implemented in 20071.

To achieve the above, several so-called rewards for
undertaking paediatric studies exist.

OBLIGATION AND REWARD

The incentives for undertaking paediatric studies are
based on an obligation and a reward for meeting said
obligation. The obligation is to comply with a
paediatric investigation plan (PIP), agreed upon by
the EMA on the basis of the European Medicines
Agency’s Paediatric Committee (PDCO) opinion. The
reward is an extension of a protection scheme, once
the PIP has been completed in compliance with the
latest decision and further requirements are fulfilled
(e.g. results reflected in the Summary of Product
Characteristics (SmPC), product authorised in all
member states). All applications for marketing
authorisation for new medicinal products must
include results from a PIP unless a deferral or waiver
has been granted. The same is true when a holder of
a marketing authorisation wants to apply for adding

motivation for companies to waive their orphan
designation to obtain the extension of the SPC
instead8. It should also be noted that the regulation
is designed in such a way that these two incentives
cannot be cumulated6.

1 Regulation (EC) No 1901/2006 became effective in January 2007.
2 Regulation (EC) No 1901/2006 (4).
3 Regulation 1901/2006, Article 8.
4 Regulation (EC) No 1901/2006, Article 36(1).
5 See e.g. Merck - Case C 125/10.
6 Regulation (EC) No 1901/2006, Article 37. 270
7 Technopolis group, Ecorys and Empirica for DG SANTE (2016), Study on the Economic Impact of the Paediatric Regulation, Including its Rewards and Incentives.
8 See e.g. case studies on Glivec and Tracleer in chapter 5.
9 Regulation 1901/2006, Articles 30, 31 and 38. Only three products have been authorised using this procedure. See e.g. case study on Bucculam in chapter 5.

Marginal effective protection gained from the paediatric reward of
6-month extension of the SPC for products where an SPC is the last form
of protection to expire
The graph to the right depicts the effect of the 6month paediatric extension of the effective
protection period for products where an SPC is the
last protection scheme to expire.
In the graph, the red line depicts the difference in the
average effective protection period for products
where an SPC is the last protection to expire,
between including and excluding the 6-month
paediatric extension.

Effective protection period with and without the 6-month paediatric
extension of the SPC for products where the SPC is the last form of
protection to expire, 1996-2016

Average difference
2010-2016 = 0.008

For some products having obtained the 6-month
extension, another protection scheme expires at a
later point in time. This is the reason for the effect
depicted in the graph being less than half a year.
The paediatric extension of the SPC has a limited
effect on the average effective protection period for
all products where an SPC is the last protection
scheme to expire.
Out of all the products where an SPC is the last
protection to expire, 5.1% have a positive PIP
compliance check. However, in many cases the
positive PIP compliance check fell later than 2 years
before expiry of the SPC. For these products, an
application for a paediatric extension of the SPC is
void1.

The timing issue described above means that out of
all products for which the SPC is the last protection
scheme to expire, only 4.1% have had the possibility
of applying for the paediatric extension2 even though
5.1% have a positive PIP compliance check. As such,
when studying the average effect of the paediatric
extension on all products where an SPC is the last
protection scheme to expire, the difference depicted
in the graph to the right will naturally be small.

Notes: Graph showing the difference in effective protection period based on two scenarios. The graph only includes medicinal
products where the SPC is the last protection to expire , excluding orphan medicinal products as these cannot obtain the 6-month
extension of the SPC. The difference between the lines signifies the average effect of the 6-month extension of the SPC due to paediatric
studies on the effective protection period for products where an SPC is the last protection to expire. In the sample, a medicinal product
is observed as many times at it has a marketing authorisation in a member state. The calculation of the protection period without the
paediatric reward is based on the assumption that all products with an SPC and a positive PIP compliance check dated at least 2
years prior to expiry of the SPC have received the 6-month extension. This is expected to be a good assumption as obtaining the
extension is in the interest of the companies, which only need to file the application in due time. Medicinal products with a negative
development time and orphan medicinal products are excluded from the graph.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

1 Regulation 1901/2006, Article 52 (2) 4. 271
2 This is excluding orphan medicinal products as the paediatric reward for these is a two year extension of the market exclusivity period.

The effective protection period could have been increased for some
products if a positive PIP compliance check had been obtained earlier
Out of all products in the full dataset, 5.5% have a
positive PIP compliance check. This means that for
5.5% of all products, a company has undertaken a
paediatric investigation plan, and compliance with
the plan has been approved by the competent
authorities1. When looking only at products where an
SPC is the last protection to expire, 5.1% of these
have a positive PIP compliance check.
However, for a company to be able to obtain the
reward of a 6-month extension of the SPC as a
reward for undertaking paediatric studies, the
application must be submitted more than two years
prior to the expiry of the SPC. Companies obtaining a
positive PIP compliance check later than two years
before expiry of the SPC cannot apply for an
extension.

For all products where the SPC is the last protection
scheme to expire, 4.1% have a positive PIP
compliance check earlier than two years prior to the
expiry of the SPC2. However, 1% of the products for
which an SPC is the last scheme to expire have
obtained a positive PIP compliance check later than
two years before expiry of the SPC. The effective
protection period for these products would have
been increased by an extension of the SPC. They have
also lived up to their obligation to undertake studies
in the paediatric population. However, the
compliance check of the study was obtained too late
to apply for the reward.
In many cases, PIPs are modified one or more times.
In 43% of all modifications, the agreed timeline is
changed3. Hence it seems that unanticipated delay is
not unusual.
In the dataset it is not possible to identify why a
given PIP compliance check is obtained later than
two years before the expiry of the SPC.

The distribution of positive paediatric investigation plan checks

Full dataset

Products where an
SPC is the last
protection to
expire

Positive PIP
compliance check

5.5%

5.1%

− Positive PIP
compliance check
earlier than two years
before expiry of SPC

n/a

4.1%

− Positive PIP
compliance check
later than two years
before expiry of SPC

n/a

1.0%

Note: Table showing the distribution of positive paediatric investigation plan checks. Figures shown pertain to the full unique dataset
and the sub-sample of products where an SPC is the last protection to expire.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

1 EMA and/or the Paediatric Committee (PDCO) for centrally approved products, otherwise the competent national
authorities.
2 It should be noted that a PDCO compliance check is not sufficient to obtain reward, and the EMA compliance statement
following the completion of the respective procedure is needed to claim the reward. 272
3 Technopolis group, Ecorys and Empirica for DG SANTE (2016), Study on the Economic Impact of the Paediatric Regulation,
Including its Rewards and Incentives.

Marginal effective protection from the paediatric reward of 6-month
extension of the SPC for products with a positive paediatric investigation
plan compliance check
The graph to the right depicts the effect of the 6month paediatric extension on the effective
protection period for products with a positive PIP
compliance check, excluding orphan medicinal
products. The difference compared to the graph on p.
271 is that it depicted the marginal effect for
products where the SPC was the last form of
protection to expire.

Effective protection period with and without the 6-month paediatric
extension of the SPC for products with a positive paediatric
investigation plan compliance check, 1996-2016

The average effect on the effective protection period
of the paediatric reward of extending the SPC by 6
months seems to be modest.
This is driven by the fact that only 8.7% of the
observations with a positive PIP compliance check
have the SPC as the last protection to expire, while
for 87.8% a patent is the last protection to expire.
This is e.g. due to secondary patents.
Out of the 8.7% of the observations with a positive
PIP compliance check where an SPC is the last
protection to expire, 24.2% obtained the positive PIP
compliance check later than two years before the
expiry of the SPC, and hence were unable to apply for
the extension.
For the orphan medicinal products in the current
data material, it was possible to identify two
products with positive PIP compliance checks1. For
one of the products, a patent protects the product for
a longer period of time than market exclusivity
including the 2-year paediatric reward extension. As
such, the effective protection period is not extended
by the paediatric reward. For the other product, an
SPC is the last protection to expire. This means that
for the paediatric reward to extend the effective
protection period for this product, the company
should have been able to choose the 6-month
extension of the SPC rather than the 2-year
extension of the market exclusivity period.

Notes: Graph showing the effective protection period based on the protection instruments used in the calculation. The graph only
includes medicinal product-country combinations with a positive PIP compliance check, excluding orphan medicinal products as these
cannot obtain the 6-month extension of the SPC. As such, the difference between the lines depicted signifies the average increase in
protection for products which have lived up to their obligation of undertaking a PIP. The observation level is unique medicinal
product-country combinations, which means that a specific medicinal product is included in the calculation of the average as many
times as it has a marketing authorisation. The calculation of the protection period without the paediatric reward is based on the
assumption that all products with an SPC and a positive PIP compliance check dated at least 2 years prior to the expiry of the SPC
have received the 6-month extension. This is expected to be a good assumption as obtaining the extension is in the interest of the
companies, which only need to file the application in due time. Medicinal products with a negative development time and orphan
medicinal products are excluded from the graph.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI
273

1 According to data from the EMA 8 orphan medicinal products had completed a PIP by 2016. Five of them obtained the 2-year extension of the
market exclusivity period. The remaining three products no longer have orphan status.

4.1.4 SUMMARY

Different regulatory protection schemes have different effects on the
average and marginal effective protection periods of medicinal products
Looking both at the average (across all products) and
marginal effects (only products where the
investigated protection scheme is the last to expire)
of the various regulatory protection schemes on the
effective protection periods of medicinal products,
data protection and market protection grant the
longest extra protection period. These two protection
schemes are universal for all products (except
orphan medicinal products, which obtain market
exclusivity). Furthermore, they are the last
protection schemes to expire in 39% of cases.
The orphan incentives granting market exclusivity
for 10 years (+2 years for a paediatric extension)
have quite a considerable effect on the margin for
these products.
The fact that the one-year extension of market
protection for approval of a second condition and the
6-month extension of the SPC due to a positive PIP
compliance check do not have substantial marginal
effects1 does not necessarily mean that they are not
important for incentivising pharmaceutical
companies in specific development initiation
decisions.
For the individual medicinal product being granted
one of these extra protection schemes they might
mean the difference between a good and a bad
business case. Furthermore, in the ex ante R&D
decision made by pharmaceutical companies, these
schemes might contribute to decreasing the
uncertainty about future revenue sufficiently to
incentivise the company to undertake the research.

Effects of the various regulatory protection schemes on the effective
protection period of medicinal products, 2010-2016

Protection

Average effect

Marginal effect

Data protection
and market
protection

2.4 years

4.8 years

1-year extension
(as an effect of
approval for
second
indication)

0.01 years
(3.7 days)

Orphan incentives
(market exclusivity)

1.6 years

Paediatric
incentive (6-month
extension of SPC)

0.008 years
(2.9 days)

Note: Table depicting the average and marginal effects of the various regulatory protection schemes. Average and marginal effects
are calculated for the period 2010-2016, except for market exclusivity where data is only available for 2011-2016. Market exclusivity
for orphan medicinal products includes the possible two year extension due to paediatric studies.
Source: Copenhagen Economics based on unique dataset collected from Drug Patent Watch, PATSTAT, the EMA and MRI.

However, it might also be that these incentives are
not currently working in the way intended or to the
degree intended2. A further analysis of why the
marginal effect of these two extensions of the
1 The marginal effects describe the actual extension of the effective protection period provided by the given protection scheme.
protection period is rather small would be
2 See p. 299 for further information on the paediatric regulation and for an overview of other reports studying this. 275
informative.

4.2 EFFECT ON INNOVATION

Data protection and market protection seem to have contributed to
incentivising increased pharmaceutical R&D
RELATIONSHIP BETWEEN
PROTECTION AND R&D

projects have a long time horizon and risk is an
integral part of the business model, having a higher
degree of certainty as to how the framework for
protection will be in the future can prove to be rather
important1.

One key observation is that if e.g. the protection
period for medicinal products increases in the
European Union, this affects all products placed on
the EU market. These products might be researched
and developed within the EU, but the crucial R&D
might as well be placed outside the EU. Enhancing
the protection period in the EU will as such benefit
companies selling their products in the member
states, no matter where their R&D is placed.

Furthermore, a rather simple profitability argument
might likewise explain this finding. If protection is
increased, so might profitability, all else being equal,
as generic competition is delayed. When the
products become more profitable, it makes financial
sense to invest more in the R&D of new products.

Generally speaking, the literature on the relationship
between protection schemes and the amount of R&D
undertaken is ambiguous.

The question then is whether a positive relationship
can be found between the two variables in spite of
this fact.
Based on the econometric results presented in
chapter 2, we find that there is indeed a positive
relationship between the effective protection period
for medicinal products and the amount of R&D
undertaken within the pharmaceutical sector. More
specifically, a positive relationship can be found to
exist between protection in the markets where
medicinal products are sold and the amount of R&D
invested in by companies.
There might be a range of different reasons for this.
During interviews for this study, some interviewees
pointed out e.g. that the protection framework might
signal to companies how “innovation-friendly” a
country or region is. In an industry where R&D

section, it is also quite conceivable that these
schemes have also contributed to increasing
pharmaceutical R&D in other locations around the
world where the companies selling their medicinal
products in the EU carry out their R&D.

PROTECTION SCHEMES AND
INNOVATION

Data protection and market protection could be seen
on the previous pages to extend the average effective
protection periods for all medicinal products by 2.4
years. For the 39% of products where one of these
schemes were the last to expire, the marginal extra
effective protection period gained was 4.8 years.
It could also be seen that the other regulatory
protection schemes have contributed to increasing
the effective protection period for medicinal
products, however, to a lesser degree than data
protection and market protection.
In so far as the regulatory protection schemes have
increased the effective protection time for medicinal
products, it is conceivable that they have increased
the amount of pharmaceutical R&D undertaken in
the EU member states.
As per the argument put forward in the previous

1 Pointed out by several interviewees during structured interviews with key stakeholders. This is not necessarily to do only with the legislative
framework, which is fairly standardised for medicinal products across the EU, but may also have to do with the implementation and the actual
workings of the regulation. E.g. the legislation on SPCs is the same across all EU member states, but there is still a fair amount of variation in the
decisions made in the various member states (see section 3.4). 277

The number of orphan designations has been increasing steadily since
the introduction of incentives through the enactment of the current
regulation on orphan medicinal products

250

200

Enactment of Regulation
(EC) No 141/2000 laying
down current rules for the
incentives for orphan
medicinal products

209

150

100

50

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

14
2003

0

2002

Data on orphan designations does not exist further
back than 2000, when Regulation (EC) No 141/2000
was enacted. As such, there is no “before” measure
with which to compare. However, looking at the
graph to the right there seems to be a clear positive
trend in the form of an increasing number of orphan
designations being granted each year. If the number
of orphan designations can be seen as an expression
of the amount of innovation within the field, it thus
seems like the incentives embedded within the
orphan regulation have helped spur more innovation
within this field2.

Number

2001

The number of marketing authorisations granted per
year also increased from 0 in 2000 to 14 in 2016.
However, a lag of several years is expected from the
designation of an orphan medicinal product until an
application for marketing authorisation can be
submitted and either granted or refused by the
authorities. As such, the increase in the number of
orphan designations granted by the European
Commission might entail a granting of more
marketing authorisations for orphan medicinal
products in the future1.

Number of orphan designations granted by the European Commission,
2000-2016

2000

Since the enactment of the current regulation
governing the incentives for orphan medicinal
products, the number of orphan designations
granted by the Commission per year has increased
almost 15-fold, from 14 in 2000 to 209 in 2016.

Orphan designations granted by the Commission
Note: Graph showing the yearly number of orphan designations granted by the European Commission.
Source: Sante (2015), State of orphan designation.

1 Assuming that the failure rate for orphan medicinal products does not increase in an equivalent manner, offsetting the increase in designations.
2 In ECORYS (2015), “How well does regulation work? The cases of paediatric medicines, orphan medicinal products and advanced therapies”, it is
furthermore concluded that the “…regulations have been successful in addressing diseases with unmet medical needs”. 278

Considerable lag between agreement of paediatric investigation plan and
positive compliance check
The number of paediatric investigation plans
obtaining a positive compliance check has increased
over time1.
From the lower graph to the right, it can be seen that
a total of 859 PIPs were agreed between 2007 and
2015. However, as most PIPs have a duration of 5 to
10 years2, 99 PIPs obtained a positive compliance
check between 2008 and 2015. This suggests a
considerable lag between agreements on PIPs and
positive compliance checks.
This observation explains the rather small number of
products with a positive PIP compliance check,
compared to the number of agreed PIPs.
Furthermore, as most PIPs have a duration of 5 to 10
years, the peak in agreed PIPs in 2010 will probably
not be reflected in the number of positive PIP
compliance checks until the 2015-2020 period. As
such, an increase in the number of positive PIP
compliance checks may be expected in the future.
Whether these will lead to more extensions of SPCs
depends on the ability of companies and authorities
to ensure that the final compliance check is
undertaken more than two years prior to the expiry
of an SPC.
To the extent that more paediatric investigation
plans will bring about more innovation within
medicines for the paediatric population, it seems that
the regulation has helped to increase innovation
within this area.

Number of positive paediatric investigation plan compliance checks,
2008-2015
Number
35
Total
30
25
99
20
15
10
5
0
2008
2009
2010
2011
2012
2013
2014
2015
Source: European Medicines Agency (2016), 10-year report on experience with the paediatric regulation.

Number of agreed paediatric investigation plans, 2008-2015
Number
250

Total
859

200
150
100
50
0
2008

2009

2010

2011

2012

2013

2014

2015

Source: European Medicines Agency (2016), 10-year report on experience with the paediatric regulation.

1 A compliance check is recorded as positive if the PDCO has adopted an opinion on final/full compliance with the agreed PIP.
2 European Medicines Agency (2016), 10-year report on experience with the paediatric regulation. 279

Many new medicines with a paediatric indication and new paediatric
indications have been approved since the implementation of the
paediatric regulation
The graph to the right shows the number of new
medicines with a paediatric indication and the
number of new paediatric indications.
The number of new medicines is the number of new
medicinal products approved for use in the
paediatric population.
The number of new paediatric indications is the
number of already authorised medicinal products
which obtain an approval to treat an indication in the
paediatric population.
As such, both these measures depict increases in the
number of products available for the treatment of
children.
As can be seen from the graph, especially the number
of “New paediatric indications” seems to have
experienced a significant increase over time.

Number of new medicines and new paediatric indications approved per
year, 2008-2015
Number

35
30
25
20
15
10
5
0
2008

2009

2010

2011

2012

2013

2014

2015

New paediatric indications linked to requirements of the paediatric
regulation
New medicines with a paediatric indication, linked to the requirements of
the paediatric regulation
Note: Information unavailable for 2008.
Source: European Medicines Agency (2016), 10-year report on experience with the paediatric regulation.

280

Paediatric investigations have helped increase the information available
regarding the effect of medicinal products in the paediatric population
Part of the objective of the paediatric regulation was
to incentivise pharmaceutical companies to
undertake more studies within the paediatric
population to provide more information as to how
pharmaceuticals work within this part of the
population1.

As such, the volume of new paediatric information
added to the summary of product characteristics
(SmPC) for medicinal products is of great interest.
The graph to the right depicts the number of
additions or changes made to SmPCs concerning
paediatric information.
From 2007, the number of changes or additions
made to SmPCs increased, until peaking in 2013. In
2014 and 2015, there was a slight decrease. However,
this is mainly due to a fall in the number of changes
stemming from “statements on deferral or waiver
included or added to the SmPC”.
In 2007, the total number of changes or additions
made to SmPCs was 40. In 2015, the figure had
increased to 125. This signifies a more than threefold
increase in the volume of information added to
SmPCs regarding the paediatric population.
However, excluding “Statements on deferral or
waiver”, the total increase in information was from
40 in 2007 to 67 in 2015. A “Statement on deferral or
waiver” means that it is included in the SmPC,
whether the company has obtained a waiver not to
conduct paediatric studies or has obtained a deferral,
to do so at a later time. As such, this information is
not directly linked to an increase in paediatric
clinical knowledge.

Changes or additions made to the summary of product characteristics
regarding paediatric information, 2007-2015
Number of changes or
additions to SmPCs

200
180
160
140

125

120
100

80
60
40

67
40

20
0
2007

2008

2009

2010

2011

2012

2013

2014

2015

Statements on deferral or waiver included or added to the SmPC
Other paediatric information added to other sections of the SmPC
Paediatric safety information added to the SmPC
Paediatric study data added to the SmPC
Dosing information for children added to SmPC
Total changes or additions
Total changes, minus deferrals and waivers
Note: SmPC is an abbreviation of summary of product characteristics. Observation for “Paediatric safety information added to the
SmPC” is missing for 2010.
Source: European Medicines Agency (2016), 10-year report on experience with the paediatric regulation.

1 Regulation (EC) No 1901/2006 (4) 281

Trade secrets as an alternative to the patent system (1/2)
TRADE-OFF

information in question.
• It has commercial value because of its secrecy.
• The person in control of the secret has taken
reasonable steps to keep it secret.
As such, trade secrets are an alternative to other
intellectual property protection schemes.

When an invention is disclosed in a patent
application, the technical details become public
knowledge. As such, the invention and its inherent
knowledge are shared with the world and can be
used by all entities in future R&D.

However, there is a key point to note in Article 3(b)
of the same directive, which states that the
acquisition of a trade secret is considered lawful if it
is obtained by observation, study or disassembly of a
product or object that has been made available to the
public or is in the lawful possession of the acquirer of
the information who is free from any legally valid
duty to limit the acquisition of the trade secret.

An important point to consider, when evaluating the
effect on innovation of various legal schemes, is the
full disclosure of inventions when a patent is taken
out versus non-disclosure if the invention is
protected as a trade secret.

In exchange for such disclosure, the holder of the
patent is granted the right to exclude others from
using the knowledge commercially for a certain
period. This period is of a finite nature. For a trade
secret, the period of protection might, in principle,
be indefinite. Hence, trade secrets might be
detrimental to new innovation, whereas patents
disclosing new knowledge might help spur further
R&D.
As such, the more companies use patents instead of
trade secrets to protect their new inventions, the
larger the amount of public knowledge new
innovation can build upon.

LEGAL BASIS

The legal basis for trade secrets in the European
Union is defined in Directive 2016/943*.1
Article 2 of the directive defines trade secrets as
information meeting the following requirements:
• It is a secret in the sense that it is not generally
known or readily accessible to people within the
circles that normally deal with the kind of

This means that reverse-engineering a medicine is a
lawful way for potential competitors to obtain
information of its composition.

TRADE SECRETS IN THE
PHARMACEUTICAL INDUSTRY

Because of the legality of acquiring information
through reverse-engineering, the option of using
trade secrets to protect a product might be of limited
applicability for pharmaceutical companies.1,3,4. Of
course, this relates especially to the final
composition of the medicine when this is easily
reverse-engineered.

So, if the innovation is not in some way embedded in
the final product or detectable from the final
product, trade secrets are an option for
pharmaceutical companies seeking to protect their
market.

COSTS AND BENEFITS FOR THE
COMPANY COMPARED TO PATENTS

The key benefit of trade secrets as opposed to
patents is that they offer potentially indefinite
market protection. If competitors do not discover the
information necessary to manufacture the medicine,
they cannot enter the market.
A perhaps lesser benefit is that some costs related to
the process of patenting the product are avoided.
The main drawback of trade secrets as opposed to
patents is that they do not prevent independent
discovery by other companies. This means that if a
competing company can discover the information
necessary to manufacture the medicine, it can then
proceed to bring it to market.
While a patent only lasts a set number of years, it
ensures that competitors cannot enter the market
with the same product during this period.

However, the process with which a medicinal
product is produced may not be obvious or possible
to reverse-engineer from the final product, and it
might therefore be more likely to be protected as a
trade secret.

1 Full name: DIRECTIVE (EU) 2016/943 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 8 June 2016 on the protection of undisclosed knowhow and business information (trade secrets) against their unlawful acquisition, use and disclosure,
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016L0943&from=EN
2 http://www.pharmaworldmagazine.com/european-policy-trade-secrets-directive/ 282
3 http://www.ipprolifesciences.com/specialistfeatures/specialistfeature.php?specialist_id=12#.WhV7ZVXiaUk
4 https://hbr.org/2013/11/filing-for-a-patent-versus-keeping-your-invention-a-trade-secret
5 http://press.pfizer.com/press-release/pfizer-completes-acquisition-wyeth

Trade secrets as an alternative to the patent system (2/2)
THE CASE OF PREMARIN BY
PFIZER

Premarin, a hormone replacement therapy product
used to treat the negative symptoms of menopause,
was first marketed in 1942 by Wyeth.

With trade secrets, this is not the case. Information
can stay private for an indefinite period, which
potentially hampers the process of innovation in
society.

A series of patents were filed in the years
surrounding the initial marketing of the product.
However, long after the expiry of these patents,
Wyeth (acquired by Pfizer in 20091) continued to be
the only supplier of the medicine.
This was due to the fact that competitors had been
unable to discover the extraction process, which
Wyeth had kept as a trade secret rather than patent
it.2,3
This is one example of how trade secrets can be an
effective alternative to patenting in certain cases,
also in the pharmaceutical sector.

EFFECTS OF TRADE SECRETS ON
SOCIETY

A key feature of the patent system is that other
companies can make use of the information covered
by the patent to produce generic products or to build
new research. As such, while patents may make the
use of certain information strictly exclusive, it does
so for a finite period of time. As the information
becomes public, other agents may build on this
information to create new innovations.
This facilitates a continual accumulation of
knowledge, while ensuring the necessary incentives
for private innovation.

1 http://press.pfizer.com/press-release/pfizer-completes-acquisition-wyeth
2 http://www.ipprolifesciences.com/specialistfeatures/specialistfeature.php?specialist_id=12#.WhV7ZVXiaUk
3 https://hbr.org/2013/11/filing-for-a-patent-versus-keeping-your-invention-a-trade-secret 283

4.3 EFFECT ON
AVAILABILITY

The relationship between IP protection and launch of new medicinal
products is ambiguous
The econometric analysis in chapter 2 did not
identify a statistically significant effect of the
effective protection period within a country on the
probability of launch of new medicinal products.

VARIATION IN IP PROTECTION

However, as we are looking only at products
launched within the EU member states, the lack of
statistical significance might to a large extent be due
to the fact that most European countries have the
same protection schemes for IP in general and
medicinal products specifically.
This is e.g. supported by the findings in Cockburn et
al. (2016), where the authors analyse the effect of
among other things patent regimes across countries
and regions with large variation in IP rights. When
including both countries with no IP protection and
countries with a high level of IP protection, the
authors are able to identify a rather pronounced
effect of the IP regime on the availability of
medicinal products. Changing IP protection in a
country from nothing to more than 18 years of patent
protection entails a decrease in launch delay of 55% 1.
Taken at face value, this effectively means that
looking in isolation at this parameter, enacting 20
years of patent protection for a basic patent as
inherent in e.g. the TRIPS agreement in a country
with no IP protection will lead to medicinal products
being launched about twice as fast after the change
compared to before.

CENTRALISED PROCEDURE

It is possible to obtain a centralised marketing
authorisation within the EU. The centralised

procedure approves a medicinal product in all EU
member states at the same time through a single
application. For some products the centralised
procedure is mandatory2.
From an economic point of view, when a company
has obtained a centralised marketing authorisation,
the barriers to launching a product in more countries
are lower than if an application for authorisation had
to be submitted in each individual country. This
might provide an incentive to launch in more EU
countries than would otherwise have been the case.
As such, having more products centrally approved
might contribute to decreasing the difference
between EU member states regarding launch of new
medicinal products.

PRICE REFERENCING

Another reason for the lack of statistical significance
of the effective protection period on availability in
chapter 2 might be that other mechanisms are
dominant for companies in their launch decisions.
One such mechanism might be the use and extent of
price referencing.

can e.g. be the case if a high-income country
references the prices of a low-income country. In this
case, the pharmaceutical companies will have an
incentive to delay launch in the low-income country
to be able to negotiate a higher price in the highincome country3. As such, the effect of price
referencing might be highly tied to the income of a
country and hence the attractiveness of the market.
Hence, price referencing might have the positive
effect that lower prices can be negotiated in highincome countries, but the negative consequence that
companies delay launch of new products in lowincome countries.
As our econometric models takes account of both
population size and GDP, we are to some extent
implicitly taking account of the use of external price
referencing.

DATA MATERIAL ON ORPHAN
MEDICINAL PRODUCTS

In the available data material, it is possible to
identify orphan medicinal products and their launch
across the EU member states. The following pages
show the results of this analysis.

Price referencing between countries within the EU is
a highly debated issue. Many EU countries use some
form of price referencing, but the calculation
methods employed and the country basket
referenced vary greatly between countries3.
One potential issue concerning price referencing is
that it might help lower prices, but that this might
happen at the expense of availability of medicinal
products, especially in lower-income countries. This

1 More than 18 years of patent protection is categorised in the study as having a “long patent protection”. In the TRIPS agreement,a minimum of 20
years of protection provided by a basic patent is mandatory. All EU member states are members of the WTO and hence must live up to the
provisions of the TRIPS agreement.
2 According to the EMA website on the centralised procedure, “the great majority of new, innovative medicines” are approved through the
centralised procedure. See the EMA website on the centralised procedure for a list of medicines with mandatory centralised procedure. 285
3 Creativ-Ceutical for European Commission (2014), External Reference Pricing of Medicinal Products: Simulation-based Considerations for CrossCountry Coordination.

Orphan molecules are launched faster and in more countries than nonorphan molecules
From the graph to the right it can be seen that
molecules which are present in orphan medicinal
products are launched faster and in more countries
than molecules which are not present in orphan
medicinal products1.

Fraction of EU member states in which orphan and non-orphan
molecules are launched, 1996 and 2015

There can be several reasons for this difference in
launch probability.
All orphan medicinal products have to be centrally
approved by the EMA. When an orphan medicinal
product obtains approval, it is as such always an
approval pertaining to all EU countries. All else
being equal, it is possible that having to obtain
central approval by default for these products makes
launching in more countries more likely for these
products as a group.

For many rare diseases, no treatment is currently
available. This means that there are no competitors
in the market, and hence no need to think about size
of possible market share etc. when launching a
product. This might contribute to faster and more
extensive launches. Furthermore, pressure may be
exerted by patient advocacy groups and the general
public for a given product to be launched in a given
country.
Additionally, orphan medicinal products have a
much smaller patient base than non-orphan
medicinal products2. This might make it more
important to launch in many countries to obtain a
satisfactory return on investment3.

Note: Graph showing the fraction of EU member states in which molecules present in orphan medicinal products are launched, based
on time since first international launch. Separated into orphan and non-orphan molecules. A molecule is identified as being an orphan
molecule if it is used in an orphan medicinal product.
Source: Copenhagen Economics based on IMS data provided by the European Commission and data on orphan medicinal products
from the European Medicines Agency.

1 However, whether the treatment is available to patients also depends on pricing and reimbursement decisions.
2 It is one of the criteria for being granted an orphan designation and maintaining it through the approval process that no more than 5 in 10,000
citizens within the EU is affected.
3 This, of course, depends on the distribution of patients across countries and the prices obtained. 286

Looking at orphan medicinal products instead of molecules still shows
that orphan medicinal products are launched in many countries
The graph to the right analyses the launch of orphan
medicinal products identified via trade names. The
difference compared to the previous page is that the
unit analysed in the current graph is product,
compared to molecule on the previous page.

Fraction of EU member states in which orphan medicinal products are
launched, 1996 to 2015

A given molecule, as identified by name, can be
present in several different products. Some of these
products might be designated as orphan medicinal
products, while some are not. This means that a
molecule can be used in an orphan medicinal product
and a non-orphan medicinal product at the same
time1.
When using molecule as the unit of measurement, it
is irrelevant whether the molecule is launched in a
country in an orphan medicinal product or a nonorphan medicinal product. What matters is that the
molecule is available in the country.
In the graph to the right, it matters whether or not a
given molecule is available in an orphan medicinal
product in a given country. As such, the blue line
depicts only launches of orphan medicinal products
in EU member states.
However, even when changing the unit of
measurement from molecule to product, the
tendency remains the same. Orphan medicinal
products are launched in an estimated 75% of
countries, 20 years after first international launch.
Note: Graph showing the fraction of EU member states in which orphan medicinal products are launched, based on time since first
international launch.
Source: Copenhagen Economics based on IMS data provided by the European Commission and data on orphan medicinal products
from the European Medicines Agency.

1 See e.g. case study on Cometriq and Cabometyx in chapter 5. 287

Certain considerations regarding the paediatric regulation may be
important
ADDRESSING THE NEEDS OF
CHILDREN

In section 4.2, it was shown how the number of
medicines approved for children as well as the
volume of information regarding the paediatric
population contained in the summary of product
characteristics have increased since the enactment of
the paediatric regulation.
However, one thing is the volume of knowledge
within the area, another is whether this meets the
actual needs of children.
It is worth considering whether the new approved
medicines and added information about existing
products actually cover medicines used by children
or perhaps more closely mimic the medicines
important for the adult population.
In the US it has e.g. been shown that the paediatric
incentives have led to many new studies in the
paediatric population. However, the distribution of
new products approved for children did not resemble
the prescription pattern in children. This means that
the new approved products did not seem to fall
within the areas which are most important for the
paediatric population1.

workings of the paediatric regulation in the
European Union2.
A 2017 report from the European Commission
likewise concludes that “Those positive results [more
research and new products] do however not evenly
spread among all therapeutic areas, but
concentrate in some, often linked to research
priorities in adults rather than children“3.
This could seem to suggest that the paediatric
regulation is adding information about the use of
medicine in children. However, not in all cases does
the added information necessarily seem to align to a
high degree with the unmet medical needs of the
paediatric population. Nevertheless, the results
presented in section 4.2 and in recent reports2,3 on
the paediatric area show encouraging positive effects
on the increase in the body of knowledge regarding
the paediatric population, as well as the number of
medicines approved for children.

Furthermore, a majority of the medicinal products
which were granted paediatric exclusivity were rarely
used in children. Correspondingly, medicinal
products often used in children were
underrepresented in the paediatric studies1.
These same points have been made about the

1 Boots et al. (2007), Stimulation programs for pediatric drug research – do children really benefit?
2 Ecorys, Technopolis group and Empirica for the European Commission (2016), Study on the economic impact of the Paediatric Regulation,
including its incentives and rewards.
3 European Commission (2017), State of paediatric medicines in the EU. 288

Low prices might entail low profit margins, which might have the adverse
effect of increasing the risk of supply shortages
A factor which severely influences the availability of
medicinal products is the risk of supply shortages.

SUPPLY SHORTAGES

A supply shortage is a situation where the
manufacturers of a medicinal product are unable to
produce a supply of the medicine that is adequate to
meet either current or projected demand. A supply
shortage may be local, national or international.1

In summary, supply shortages are detrimental to
society in that they:
• Impose significant costs on the health care
systems, specifically time spent managing the
shortages.
• Harm patients who have to either forego or delay
treatment, or be treated with an alternative
medicine that is less effective or less well-tolerated.

LOW PROFITS AS THE ROOT
CAUSE OF SUPPLY SHORTAGES

In the European Union, medicine supply shortages
are generally dealt with at the national level.
However, where a supply shortage affects several
member states or is related to safety concerns, the
European Medicines Agency may be involved.2

In Markowski (2012)7, the author states that the
underlying cause of supply shortages is likely to be
inadequate profits.

CONSEQUENCES OF A SUPPLY
SHORTAGE

A low profit margin may cause manufacturers to
optimise operations by reducing inventories, thereby
avoiding costs associated with stockpiling of
products.

A shortage of supply of a given medicine may cause
doctors and patients to seek out alternative
medication that may not be as effective or welltolerated by the patients.
If such alternative treatment options are unavailable,
doctors and patients are forced to delay or forego
treatment.3 Where these medicines are ‘medically
necessary’, a shortage can cause serious or even lifethreatening situations for patients.4

Furthermore, the management of supply shortages
induces time costs on the health care systems.5 This
is due to the fact that time spent managing a supply
shortage could have been spent treating patients.
Finally, use of alternative medication or dosages
increases the risk of errors or adverse effects.6

By having low inventories, companies run the risk of
not being able to supply the market for a period of
time if something happens to negatively impact
production capacity. From the company’s economic
viewpoint this risk has to be weighed against the cost
of keeping large inventories.
If profit margins are low, the loss associated with not
supplying the market for a period of time is lower,
and thus less likely to incentivise the company to
incur the costs of keeping large inventories.

Examples of such sudden changes include:
• Increases in demand, e.g. following new
recommendations from the authorities.
• Decreases in supply, e.g. as a result of plants being
closed due to quality or safety concerns. Another
cause could be market exit by another
manufacturer, which can dramatically reduce
supply.
Low profit margins may have different causes, either
market-based competition that drives down prices
(such as when an originator drug goes off patent and
generic companies enter),8 or regulation such as
price ceilings or cost floors.

REIMBURSEMENT POLICIES

In a 2016 paper,3 Yurukoglu et al. showed that a
change in the reimbursement policies in the US
affected the frequency of shortages. The authors
provide statistical evidence that the shortages are
linked to the decreases in reimbursement. Naturally,
this result is compatible with the argument
presented in Markowski (2012)7 that inadequate
profits can be a root cause of supply shortages.
Given this relationship between supply shortages
and reimbursements, one straightforward way of
combating supply shortages is to increase
reimbursements. However, this obviously comes at a
cost for the payers. As such, a trade-off exists
between low medicine costs and the risk of supply
shortages.

However, low inventory levels leave the market
vulnerable to supply shortages if market conditions
change suddenly.8

1 http://www.ema.europa.eu/docs/en_GB/document_library/Presentation/2016/01/WC500200301.pdf
2 http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/general_content_000588.jsp&mid=WC0b01ac05807477a5
3 Yurukoglu et al. (2016), The Role of Government Reimbursement in Drug Shortages.
4 Kim, Sang Hyun and Morton, Fiona Scott (2015) A Model of Generic Drug Shortages: Supply distributions, Demand Substitution and Demand Control.
5 Economist Intelligence Unit (2017) Cancer medicines shortages in Europe Policy recommendations to prevent and manage shortages. 289
6 http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60667-5/fulltext?rss%3Dyes
7 M.E. Markowski, "Drug Shortages: The Problem of Inadequate Profits" (April 2012).
8 Ventola (2011), The Drug Shortage Crisis in the United States.

Conditional marketing authorisations and the Health Technology
Assessment (1/2)
Conditional marketing authorisations (CMAs) might
help to make new medicinal products available
earlier than would otherwise have been the case.
However, after having obtained a CMA, in many
countries a new medicinal product has to be
approved for reimbursement. As there is less
empirical evidence of the efficacy of products with a
CMA compared to products with a ‘regular’
marketing authorisation, being approved for
reimbursement can prove challenging. This might
affect the availability of medicinal products with a
CMA.

CONDITIONAL MARKETING
AUTHORISATIONS

Conditional marketing authorisations were
established in 2006 in Commission Regulation No
507/2006.1 It allows for the granting of a marketing
authorisation even in the absence of the
comprehensive evidence that is usually required,
provided that the medicine fulfils certain conditions.
CMAs may be granted to medicines that are either
intended to treat or prevent life-threatening or
seriously debilitating diseases, intended to be used in
an emergency, or designated as orphan medicinal
products (see Article 3 of the aforementioned
regulation).
As laid out in Article 4 of the regulation, a CMA
requires that the following conditions are met:
• The product has a positive risk-benefit balance.
• It is likely that the applicant will be able to provide
the comprehensive clinical data.
• Unmet medical needs will be fulfilled.

• The benefit to public health of the immediate
availability on the market of the medicinal product
concerned outweighs the risk inherent in the fact
that additional data is still required.
Simply put, conditional marketing authorisations
allow medicines to be marketed sooner than would
otherwise be possible if the expected gain from their
use outweighs the risk posed by introducing a
medicine supported by less evidence for its safety
and efficacy than otherwise required.
After having received a conditional marketing
authorisation, the company is obligated to complete
ongoing studies or new studies in order to show that
the benefit-risk balance is indeed positive for the
medicine. After the obligations have been met, the
medicine can be granted a full marketing
authorisation.

KEY FIGURES ON THE USE OF CMA
IN THE EU
In 2017, the European Medicines Agency published a
report detailing the use of conditional marketing
authorisations in the 10 years following their
introduction.2

In total, 30 conditional marketing authorisations
were granted between 2006 and June 2016. Of these,
11 have been converted into full marketing
authorisations, and 2 have been withdrawn for
commercial reasons.2
All of these CMAs were given within four therapeutic
areas (number of CMAs in parenthesis): oncology
(17), infectious diseases (9), neurology (3) and

ophthalmology (1).2
The median time from granting of a CMA to
conversion to a ‘full’ marketing authorisation was
4.21 years.2

FROM MARKETING
AUTHORISATION TO TREATMENT
ACCESS

A centralised marketing authorisation allows the
medicine to be marketed throughout the EU.
However, this does not necessarily mean that the
medicine will be made available for the treatment of
patients in the individual member states. This is due
to the fact that the individual member states have
agencies that conduct Health Technology
Assessments (HTA) before recommending public
funding/reimbursement of a particular medicine.3
These assessments are based on therapeutic benefit,
relative effectiveness, cost-effectiveness and even
budget impact.3
In order to qualify for reimbursement/public
funding in the respective member states, the
medicine has to obtain a positive recommendation
by the relevant HTA agencies. Such
recommendations are, of course, crucial for the
company because of their effect on sales.

Furthermore, since the final reimbursement decision
is country-specific, a medicine may be recommended
for public reimbursement in some countries, but not
in others.
This adds another layer of uncertainty regarding the
profitability of a medicinal product.

1 https://ec.europa.eu/health/sites/health/files/files/eudralex/vol-1/reg_2006_507/reg_2006_507_en.pdf
2 http://www.ema.europa.eu/docs/en_GB/document_library/Report/2017/01/WC500219991.pdf
3 Lipska et al. (2015) Does Conditional Approval for New Oncology Drugs in Europe Lead to Differences in Health Technology Assessment Decisions? 290

Conditional marketing authorisations and the Health Technology
Assessment (2/2)
This is pertinent to the case of conditional marketing
authorisations because some sources indicate that
there seems to be a perception in the industry that a
conditional marketing authorisation translates into a
lower probability of the medicine being
recommended for public funding.1,2

HTA ASSESSMENTS

In Lipska et al. (2015)3, the authors examine HTA
recommendations in 6 different member states for
25 oncology medicinal products that were granted
marketing authorisations between 2007 and 2012.
Of these, 8 were given a CMA, with the remaining 17
given ‘standard’ marketing authorisations.
The main finding of the study is that there were
“little to no differences between recommendations of
HTA bodies by pathway”. This seems to contradict
the perception that having a conditional marketing
authorisation reduces the probability of a
recommendation from the HTA bodies.
The authors also discuss two possible effects of a
CMA on the probability of HTA recommendation.
CMAs are disproportionally often given to medicines
with a high unmet medical need, which would tend
to increase the probability of an HTA
recommendation. However, CMAs are based on less
comprehensive data, and therefore there is less
certainty about the efficacy, which may make payers
reluctant to pay. This would tend to lower the
probability of an HTA recommendation.
However, two caveats are appropriate. Firstly, the
study examines only a subset of the CMAs that

belong to a particular therapeutic area, and whose
marketing authorisations fall within a specific time
period. It is difficult to determine whether the
observed results would hold in a wider setting.
Secondly, companies may internalise the HTA
process into their decision-making. Specifically,
companies who apply for a conditional marketing
authorisation are likely do so based on an
assessment that the HTA bodies will recommend
public reimbursement based on the available
evidence.
If companies thought otherwise, it could make sense
for them to produce the necessary evidence to obtain
a full marketing authorisation if this increased their
chance of gaining HTA recommendations.

This would imply that there might be medicines that
meet the requirements for obtaining a conditional
marketing authorisation, but where the company
behind chooses not to apply for one because it deems
the probability of HTA recommendations to be
greater (by a sufficient amount to justify the
additional costs) if a full marketing authorisation is
obtained.

given a standard marketing authorisation.
The two groups were compared in terms of the
evidence providing the basis for the MA, timelines
from first-in-human testing to marketing
authorisation and finally in terms of procedural
characteristics of the marketing authorisation
process.
Based on this analysis and interviews with
companies and regulators, the authors concluded
that rather than being used as a “‘prospectively
planned pathway” to early access, CMAs are used as
a “rescue option” when a full marketing
authorisation cannot be obtained on the basis of the
submitted data.

THE ECONOMICS OF THE
DECISION TO APPLY FOR CMA

If CMAs reduce the probability of HTA
recommendations compared to MAs all else being
equal, then the decision to go for a CMA has to be
made by weighing the benefits of early access against
the risk of lower sales due to fewer HTA
recommendations.

Whether or not this is the case is very difficult to
observe.

USE OF CONDITIONAL MARKETING
AUTHORISATIONS
In Hoekman et al. (2015), the authors compared
oncology medicines that were given a conditional
marketing authorisation with oncology medicines

1 Hoekman et al. (2015) Use of conditional marketing authorization pathway for oncology medicines in Europe.
2 https://ec.europa.eu/health//sites/health/files/files/committee/stamp/2015-05_stamp2/3a-com.pdf
3 Lipska et al. (2015) Does Conditional Approval for New Oncology Drugs in Europe Lead to Differences in Health Technology Assessment Decisions? 291

4.4 EFFECT ON
ACCESSIBILITY

As generics are priced lower than originator products, delaying their
entrance entails higher spending on medicinal products
LITERATURE ON GENERIC PRICES

In general, it has been shown in the literature that
generics are priced lower than originator products at
entry. However, analyses on the effect on originator
prices have shown ambiguous results1.
Some studies find that after generics enter the
market, originator prices tend to fall. This is the
most intuitive reaction and can be attributed to
competitive pressure from the generics, forcing
originators to decrease prices to maintain a certain
market share.
Furthermore, it has been shown that when more
generics enter the same market, prices tend to fall
even more both for originator and generic products.
However, some studies have likewise found that
some originators increase prices after generic entry.
This finding seems counter-intuitive in light of the
above arguments. However, this behaviour might be
the most economically profitable in some cases.
As shown in section 2.4, depending on e.g. the
propensity of patients to switch to a new cheaper
generic medicine, the most profitable action of an
incumbent originator company might be to increase
prices after generic entry.
However, pricing decisions may also be impacted by
ethical and moral considerations, and the above
observations are merely offering a theoretical
explanation for the empirical findings.

ECONOMETRIC FINDINGS

In line with the literature, our analysis in chapter 2
shows that generics are priced lower than originator
products at entry. Generics enter at a price
approximately 40% lower than the originator price.
In the course of the first five quarters, this price
differential increases to around 50% of the originator
price at entry.
Furthermore, our results show that originator prices
fall after generic entry. During the first 5 quarters,
this price fall is around 20%2.

RELATIONSHIP TO EFFECTIVE
PROTECTION PERIOD

As was shown earlier, the various regulatory
protection schemes have contributed to increasing
the effective protection period for medicinal
products, albeit to differing degrees.
The most pronounced effect was produced by market
protection, which has contributed to increasing the
average protection period for medicinal products by
2.4 years. As such, market protection has delayed the
point at which generic companies could enter the
market by an average of 2.4 years.
Had the various protection schemes not existed, or
had they had a shorter duration, it is conceivable
that generics would be able to enter the market at an
earlier point in time. This could possibly entail a
reduction in pharmaceutical prices at an earlier point
in time than what is happening today.
Not having as extensive protection as today would

conceivably make it possible to shift some of the
spending from originator products to generic
products. This would entail a saving, the size of
which depends on how much of the spending it
would be possible to shift.
However, as new innovative medicinal products are
mainly brought to market by the originator
pharmaceutical companies, a reduced protection
period might hamper the current level of innovation
within pharmaceuticals.
The literature on the relationship between IP
protection and innovation is ambiguous. However,
the results presented in chapter 2 of the present
study suggest that a reduced protection period
within the EU will entail less spending on
pharmaceutical R&D.
If fewer resources are spent on pharmaceutical R&D,
the amount of innovation within the sector will
decrease unless compensatory productivity gains can
be realised. Less innovation would mean fewer
products and/or longer intervals between new
products coming onto the market. As such, this
would be detrimental to patients in need of
treatment.
It is therefore conceivable that a reduction in the
effective protection period in Europe would entail
faster entry of generics and hence lower prices.
However, it is quite likely that this will decrease the
amount of innovation within the pharmaceutical
sector.

1 See literature review in section 2.3.
2 An important caveat is that due to data restrictions the analysis included only medicinal products in tablet form. See section 2.3 for further
elaboration on this. 293

4.5 EFFECT ON PRICING
STRATEGIES

The effect on pricing strategies depends largely on the specific form of
regulatory incentives provided (1/2)
DATA PROTECTION AND MARKET
PROTECTION

Data protection conveys the negative right of
preventing other companies from using the data
produced by the originator in their application for
marketing authorisation. The 2-year period of
market protection after data protection has expired
ensures that even if a generic product obtains a
marketing authorisation, the product cannot be
placed on the market before the end of this period.
Even though a product is protected by data
protection and market protection, there are,
however, still ways for other companies to enter the
market with competing products.
One way is if the molecule concerned is not protected
by any IP protection. In this case, a second company
is free to undertake clinical studies for a product
containing said molecule and to develop their own
dossier with which to file an application for
marketing authorisation.
As described in chapter 1, an example of how this
could happen would be the following. Company A
has placed product M on the market, containing
molecule Z. Molecule Z is not protected by patents or
SPCs. However, product M has data and market
protection. Company B now creates its own product
called N containing molecule Z. Company B
undertakes clinical trials and creates its own
proprietary data on the efficacy and safety of product
N. Company B now applies for marketing
authorisation for product N using its own data
material. Marketing authorisation is granted. Now

there are two products on the market, both
containing molecule Z, even though product M by
company A is covered by data and market protection.
As such, if another company expects the profit from
their potential market share during the 8+2 years of
data protection and market protection to exceed the
costs of creating the data for a full dossier
themselves, there will be a positive business case for
doing so. From an economic, theoretical standpoint
this puts a ceiling on the bargaining power of the
originator company when setting the price; if it sets a
price high enough for entry of other companies to be
profitable, it might face competition.
However, it also puts a lower bound on the price a
company exploiting the above possibility will be able
to charge. As it has to do clinical testing to enter the
market, there will be a need to recoup this cost.
Hence, it will be unprofitable to set the price too low.
This might curb the competitive pressure from a
company using this way of market entry.
As such, the possibility of the situation described
above happening is probably higher, the more
profitable the market is.
Another way competitors may enter the market
during the period of data protection and market
protection is through competition through
innovation. If another company develops a new
molecule for treating the same indication, it is free to
enter the market with its product, even though
another originator company is already in the market,
with its product.

Both these possible ways for competitors to enter the
market during the period of data protection and
market protection mean that these incentives do not
grant unlimited bargaining power to the
pharmaceutical companies.
However, when it comes to generic entry, i.e.
companies not undertaking their own clinical testing
but relying on the data of the originator, they do
grant a certainty that this will not happen before the
end of the 10-year market protection period.

ORPHAN MEDICINAL PRODUCTS

Being granted market exclusivity for bringing a new
innovative orphan medicinal product to the market
prevents similar products with no further benefits
for patients from entering the market for a 10-year
period. This period can be extended to 12 years if the
company complies with the obligations in an agreedupon paediatric investigation plan.
This means that if two companies are simultaneously
developing two similar products for treating the
same rare disease, only the first to obtain a
marketing authorisation may enter the market. The
other will potentially have to wait 12 years before
being able to follow, by which time a new and
improved product might have entered the market,
rendering the old treatments obsolete. In this case,
the market exclusivity incentive effectively produces
a winner-takes-all situation. However, another
product might enter the market in case it is clinically
superior1.

1 Regulation (EC) No 141/2000, Article 8(3, a). 295

The effect on pricing strategies depends largely on the specific form of
regulatory incentives provided (2/2)
From a theoretical point of view, knowing that no
competitors can enter the market with either a
similar product or a direct generic version of a
product puts the company in a more powerful
bargaining situation when negotiating prices with
payers than if the medicinal product had not had an
orphan designation and hence was protected by data
protection and market protection.
In the case of orphan medicinal products, there is no
risk of competitors entering the market with a
similar product if they expect their potential market
share to be above some profitability limit.
Competition can only happen through innovation
which brings improvements to patients.
In cases where a company is the first to bring a
product to the market for treating a given disease,
there is also no pricing of previous medicines to
guide the price setting and provide a frame of
reference.
From the company’s point of view this might lead to
a broader range of prices to choose from, but might
also make price setting more difficult. There is no
signal about what payers have been willing to pay for
medicines of the given kind in the past. Furthermore,
no data exists as to what payers have so far been
willing to pay for improved treatments.
From the payers’ point of view, no reference price
exists from which to draw inference. This may lead to
discussion of what a payer is willing to pay for the
benefits of a given treatment.

In some cases, it might actually provide the payer
with increased bargaining power; when a medicine is
already available on the market and an improvement
comes along, it is difficult to argue for a lower or
unchanged price.
However, it might also put the payer in a worse
bargaining position; if they choose not to buy the
medicine because they find it too expensive, there is
no alternative treatment for the patients for which
the medicine is intended. This might create a severe
pressure from the general public for reimbursement
of the product.

probably confined to a fairly small number of
products.
Furthermore, we have not identified any specific
information as to why the pricing strategy of
companies should change specifically for the
paediatric extension, beyond the obvious fact that it
extends the protection provided by the SPC and
hence extends the period in which the company can
employ the pricing strategy applied during SPC
protection. See section 3.1 for specific information on
the SPC.

PAEDIATRIC EXTENSION

For many new medicinal products obtaining
marketing approval, undertaking investigations of
the effect of the medicine in the paediatric
population is mandatory.
However, obtaining a positive compliance check for a
paediatric investigation plan provides a 6-month
extension of the SPC if the product has one.
As such, the paediatric obligation is rewarded by
extending the protection period.
In a pricing situation, extending the period in which
generics cannot enter will put the company in a
better bargaining position.
However, as shown previously in the chapter, the
paediatric extension does not provide much of an
extension of the effective protection period at the
margin. As such, this increase in bargaining power is

296

4.6 EFFECT ON HEALTHCARE
BUDGETS

The interplay between protection and price negotiations in a country
There are generally two sides to the pricing of
medicinal products and hence to the effect on
healthcare budgets.
One side is governed by the protection schemes
granted to new medicinal products. As has been
shown and discussed at length earlier, the longer the
protection period, the later the time at which generic
companies can enter the market. At face value,
longer protection thus alleviates some of the
competitive pressure on pharmaceutical companies.
However, as also discussed earlier, this does not
necessarily equate to no competition as competition
between originator companies exists as well.
Another element having an effect on the prices
obtained by the pharmaceutical companies is the
reimbursement side.
After products have been granted marketing
approval, in many countries companies must
negotiate a price with a central authority responsible
for the reimbursement of pharmaceutical expenses
in the given country.
The competitive situation in the market is an
important factor in determining the bargaining
power of the companies and the reimbursement
authorities in these price negotiations, and hence
there may be a connection between the protection
schemes and the negotiable prices1.

PROTECTION SCHEMES

As elaborated upon above, one side of the pricing
strategy for medicinal products is made up of the

protection schemes granted to these products. This
includes both the IP protection systems such as
patents and SPCs, and the regulatory protection
schemes such as data protection and market
protection.

As such, the final decision on whether or not to
reimburse a new medicinal product (effectively
deciding whether it should be available in the given
country or not) lies with the reimbursement
authorities in the various Member States.

These protection structures protect originator
medicinal products against competition, albeit in
different ways and to varying degrees. The
competition landscape is one element of chief
importance when setting prices in any industry. As
such, through their effect on the competitive
situation, the protection schemes for medicinal
products influence the pricing possibilities of
pharmaceutical companies.

However, as the protection schemes, possibly
granted at an EU level, influence the competitive
situation surrounding a product, there is an interlink
between the protection schemes and the bargaining
position of the companies and reimbursement
authorities, respectively.

REIMBURSEMENT

In most EU countries, the people receiving treatment
with medicinal products do not directly pay for their
treatment themselves. In most countries, either a
private or a public insurance/reimbursement system
is in place. From an economic point of view, the fact
that the people receiving treatment do not directly
pay for it themselves is a so-called market failure. It
creates an incentive for patients to always demand
the newest medicine, regardless of the price and
perhaps more importantly, regardless of the
relationship between price and clinical benefit,
compared to the second-best medicinal product.

This means that it might be pertinent to see the two
systems as interconnected components rather than
completely independent of each other. However,
there are many other factors determining the
bargaining power of the various players, and the
degree to which the protection period is important
might vary based on the interplay with these other
factors as well.

The reimbursement authorities in the Member
States are responsible for negotiating prices with the
pharmaceutical companies based on an assessment
of clinical value and willingness to pay.

1 There is, of course, a range of other factors which are also very important here. They include e.g. the willingness to pay exhibited in the past and
the available patient base. 298

The cost of the paediatric regulation based on a 2016 study
STUDY ON THE ECONOMIC IMPACT
OF THE PAEDIATRIC REGULATION
In 2016, a study estimating the economic impact of
the Paediatric Regulation was published 1.

The study estimated that between 2008 and 2015 the
total cost to the industry of the obligations inherent
in the Paediatric Regulation was EUR 16.8bn,
corresponding to EUR 2.1bn annually or EUR 18.9m
per PIP.
Using data on eight medicinal products and
extrapolating these findings, the study concludes
that the combined adjusted economic value to the
companies of the eight products studied was EUR
926m.
Appraising the societal value of the regulation is
much more difficult than estimating the associated
cost. Some of the positive effects of an increase in
paediatric studies might be improved quality of life
for children, avoided mortalities, hospitalisation
costs, outpatient costs, time lost by informal carers
and other improvements stemming from better
treatment of children.

It is important to note that these results are
exploratory in nature, as appraising the monetary
value to society is inherently difficult.

that “the Regulation works best in areas where the
needs of adult and paediatric patients overlap”3,
which is based on the observation that paediatric
studies are often linked to therapeutic areas which
are priorities within the adult population.

For two of the eight products, the study finds a
positive benefit-cost ratio. For the other six
products, the ratio is negative. This means that for
two products the value to society outweighed the
extra monopoly rent paid to companies. For the
other six products, society paid more, so to speak,
than the studies were worth.

As such, it seems that the paediatric regulation is
helping to ensure that the development of paediatric
medicinal products has become a more integral part
of pharmaceutical innovation. However, as the
current reward is dependent on sales within the
adult population, most knowledge exists in the fields
most highly prioritised in the adult population.

generic entry and hence competition.

However, when taking into account the fact that the
regulation might entail certain spillover effects from
investments in new R&D, contributing to job
creation and growth, the study finds that the total
societal value outweighs the total extra cost.
As such, for some of the parties involved, the
regulation might entail additional expenditure, but
from a societal perspective in general, the costbenefit ratio is positive.

It is also important to note that some studies show
that medicines are not suited for treating children. In
these cases, the benefit to society is knowledge on
what not to do.

A 2017 report from the European Commission on the
“State of paediatric medicines in the EU” reviews the
effects of the paediatric regulation2. The economic
results reviewed in the report are those of the 2016
study.

The study compares the estimated positive effects on
society from the paediatric studies undertaken to the
extra cost stemming from the fact that the paediatric
reward of extending the SPC for 6 months delays

In general, the report concludes that the paediatric
regulation has led to more research and medicinal
products being approved for children, as also shown
in section 4.2. The report does, however, conclude

1 Ecorys, Technopolis group and Empirica for the European Commission (2016), Study on the economic impact of the Paediatric Regulation,
including its incentives and rewards.
2 European Commission (2017), State of paediatric medicines in the EU.
3 European Commission (2017), State of paediatric medicines in the EU p. 24. 299

The effect on healthcare budgets of changing the protection periods
provided to medicinal products is uncertain
SCENARIO ANALYSIS IN SECTION
2.5

In section 2.5, a scenario analysis of the possible
savings from changing the mean effective protection
period for medicinal products was presented.
The savings from decreasing the protection period
provided for medicinal products were seen to
materialise through lower prices due to competing
generic products being able to enter the market at an
earlier point in time.
The possible savings identified were, however, based
on the assumption that the agents affected by such a
changed effective protection period would not
change their behaviour.
Looking at the literature reviewed in section 2.1 and
the results presented in the same section, it would
seem that a common change in the protection regime
in the whole of the EU would, however, entail
changes in e.g. the spending on pharmaceutical R&D
within the EU.
However, changing any one of the protection
schemes which count towards the total protection
period for medicinal products might entail changes
of varying degrees.
This is so because different protection schemes are
the last to expire for different products. This means
that a different number of products will be affected
by generic competition ex post, depending on which
protection scheme is changed. Furthermore, from an
ex ante point of view there is much uncertainty as to

which products will benefit from which kind of
protection, e.g. whether a product will be able to
obtain an SPC or not. Therefore, the whole
framework regarding protection of medicinal
products plays a role in the ex ante business case
even though only one scheme will be the last to
expire for a given product ex post.
As such, the possible savings from changing the
protection period are associated with ex post
considerations, while the possible behavioural effect
on e.g. pharmaceutical R&D is seen from an ex ante
point of view.

DIFFERENT PROTECTION
SCHEMES

Market protection (and data protection) is the last IP
scheme to expire in 39% of cases in the data material
available for the present study1. At face value, this
means that changing the period of market and data
protection will impact the effective protection period
of 39% of products.
This means that the savings from changing this will
apply for 39% of products, i.e. generic competition
will be able to enter the market earlier for only 39%
of products.
However, this is an ex post consideration. From an
ex ante point of view, the business case for many
more products might be affected.

ensures a certain ‘floor’ of minimum protection. In
an ex ante view, this is valuable as it is then known
with certainty that no matter what happens during
the development process (unless the R&D process is
discontinued), the protection period can never be
less than 8+2 years.

Changing the duration of this protection period will
as such have a bearing on all medicinal products
where the company ex ante attributes a positive
probability that market protection will be the last
protection scheme to expire.
In direct continuation of the above, it can be said
that changing the protection period for either orphan
medicinal products or the paediatric rewards would
only entail possible savings for products where these
schemes are the last to expire.
The important point here is the pivotal difference
between the ex post savings and the ex ante effect on
business cases.
As such, from the scenario analysis in section 2.5 it
could be seen what the possible savings from an
increase in generic competition might be. However,
this has to be counterbalanced with the possible
impact on the ex ante business case calculations of
the pharmaceutical companies.

As previously elaborated upon, the market and data
protection scheme grants a minimum period of
protection for medicinal products of 8+2 years. This

1 See table at the beginning of chapter 3. 300

4.7 PROPORTIONALITY OF
INCENTIVES TO GOALS

Objectives of the regulation (1/3)
ORPHAN REGULATION

The regulation on orphan medicinal products was
introduced due to the low number of patients
suffering from rare diseases, which supposedly led to
the pharmaceutical industry being reluctant to invest
in R&D in this area1. In many cases, it would
conceivably be unprofitable for pharmaceutical
companies to research treatments for such diseases.
However, as is stated in Regulation (EC) No
141/2000 that “patients suffering from rare
conditions should be entitled to the same quality of
treatment as other patients; it is therefore
necessary to stimulate the research, development
and bringing to the market of appropriate
medications by the pharmaceutical industry”.
To remedy the situation and hence incentivise R&D
into orphan medicinal products, Regulation (EC) No
141/2000 governing the incentives provided to
orphan medicinal products was enacted.
Through incentives such as fee reductions and
waivers, scientific assistance, special research grants
and a distinct protection scheme in the form of 10
years of market exclusivity, the regulation has sought
to increase innovation within the treatment of rare
diseases.
However, as the regulation on orphan medicinal
products states that “experience in the United States
of America and Japan shows that the strongest
incentive for the industry to invest in the
development and marketing of orphan medicinal
products is where there is a prospect of obtaining

market exclusivity for a certain number of years
during which part of the investment might be
recovered”, the incentives providing 10 years of
market exclusivity might be said to be of chief
importance.

PAEDIATRIC REGULATION

The regulation governing the obligations and
rewards for medicinal products for paediatric use
was introduced due to the fact that many medicines
used for children were given off-label. Hence, too
little information was generally available on the
workings of various medicinal products worked in
children2. The paediatric regulation realises that
children cannot simply be treated as small adults,
and hence the carrying out of specific studies in the
paediatric population is of paramount importance to
prescribing medicines for paediatric use.
Regulation (EC) No 1901/2006 states that “… many
of the medicinal products currently used to treat the
paediatric population have not been studied or
authorised for such use. Market forces alone have
proven insufficient to stimulate adequate research
into, and the development and authorisation of,
medicinal products for the paediatric population”.
More specifically the objectives of the regulation are
“… to facilitate the development and accessibility of
medicinal products for use in the paediatric
population, to ensure that medicinal products used
to treat the paediatric population are subject to
ethical research of high quality and are
appropriately authorised for use in the paediatric
population, and to improve the information

available on the use of medicinal products in the
various paediatric populations”.
As such, the objectives of the paediatric regulation
are twofold. One aim is to incentivise the
development of medicines for the paediatric
population. The other aim is to ensure information
on the workings of medicines in the paediatric
population.

DATA PROTECTION AND MARKET
PROTECTION

To obtain marketing authorisation for medicinal
products, extensive data has to be collected and
submitted to the authorities. The data is produced
through pre-clinical and clinical testing. In the
approval process, the data is used to prove the
quality, efficacy and safety of medicinal products.
As such, the data includes all relevant knowledge
pertaining to the use of medicinal products in
patients. To the company having created said data, it
is extremely valuable. The data is the proprietary
property of the innovative company.
When data protection expires, generic companies
can cross-reference to the originator company’s data
when submitting a marketing authorisation
application. However, during the additional 2 years
(possibly extended by another year) of market
protection, a generic product cannot be placed on the
market even if it obtains marketing authorisation.

1 https://ec.europa.eu/health/human-use/orphan-medicines_en.
2 EMA (2016), 10-year Report to the European Commission, General report on the experience acquired as a result of the application of the
Paediatric Regulation. 302

Objectives of the regulation (2/3)
The overarching goal of the regulation on data
protection and market protection is thus to provide
originator companies with a minimum period of 10
years during which generic companies cannot enter
the market with a direct copy of their product. This
period should incentivise companies to undertake
pharmaceutical research as they are always
guaranteed a minimum of 10 years to recoup at least
some of their investment.
However, data protection and market protection do
not protect against competition by innovation. This
means that should another company develop a
medicine to treat the same disease, but containing
another molecule, it is free to seek marketing
authorisation for this. Through this provision, data
protection and market protection should as such not
deter new innovation, but might rather encourage it.

THE INCENTIVES

In section 4.1.4 it could be seen that data protection
and market protection are by far the most important
mechanisms for extending the effective protection
period of medicinal products. Both the average and
marginal effects were quite pronounced.
The market exclusivity inherent in the orphan
regulation also had a considerable effect, while both
the paediatric incentive and the one-year extension
of market protection for approval of a new indication
had rather marginal effects.
While for data protection, market protection and the
paediatric incentives, the longer effective protection
period is the most important incentive for
companies, for orphan medicinal products other

incentives are also at play, including e.g. fee
reductions and scientific advice.
However, all the initiatives are intended to create
economic incentives for the companies. The fee
reductions inherent in the orphan regulation directly
affect the cost of bringing an orphan medicinal
product to market. Scientific advice indirectly affects
the cost by focusing the research plans so that they
comply with the regulation. Both these incentives
reduce development costs.
Increasing the effective protection period or
conversely guaranteeing a minimum period of
protection through data protection, market
protection and market exclusivity affects the
likelihood of generating a return on the investment
after development.
To the extent that regulatory protection mechanisms
stave off competition, the initiatives delay the time
when companies are exposed to generic competition
and hence downward price pressures. When
negotiating prices with e.g. reimbursement
authorities, this will put companies in a better
negotiating position than if no or a shorter
protection period existed. As such, this might allow
companies to charge a premium price for a longer
period.
However, even if generic products cannot enter the
market, this does not necessarily mean that there is
no competition in the market. Other originator
companies might launch their own products based
on their proprietary molecules.

In this case, originator companies will face
competition even though their products are
protected by IP rights or regulatory protection
mechanisms.
It should be noted that competition between
different originators having developed their own
products for treating the same indication might be
less fierce than competition from generics. This is
the case if originator companies are concerned with
recouping their initial R&D investment. If all
competing companies have incurred high costs to
bring their individual products to market, they may
be reluctant to engage in fierce price wars. Generic
companies, which often have much lower costs,
might be more willing to “dump” prices to win
market share.

Summing up, the above makes it clear that some
initiatives provide certain cost reductions, while
others provide the prospect of charging a premium
price. This also means that some initiatives impose
certain extra costs on the healthcare budgets of the
European countries, while other initiatives increase
costs, depending on the competitive situation.

PROPORTIONALITY

Whether the incentives are proportionate to the
goals is, in the end, a political assessment. The
previous chapter has sought to illuminate the effect
of the various specific incentives.

303

Objectives of the regulation (3/3)
It has e.g. been shown how the amount of
information and the number of medicinal products
for treating disease in the paediatric population have
increased since the enactment of the paediatric
regulation.
Furthermore, it has been shown that the number of
orphan designations has increased almost 15-fold
since the enactment of the regulation. To the extent
that this increase in the number of designations will
lead to more treatment options for patients suffering
from rare and neglected diseases in the future, this
can be seen as an increase in innovation within the
area and hence contributing to fulfilling the objective
of the regulation.
The main instrument for achieving this has been the
granting of extra regulatory protection for
pharmaceutical companies.
The longer protection period means that the time
when generic companies can enter the market is
delayed. As also shown in chapter 2, generics are
priced lower than originator products. Furthermore,
the price of originator products decreases after
generic entry. This is supported by some findings in
the literature, while others find that originator
products increase in price after generic entry.
However, across the board, it is found that generic
medicinal products are cheaper than originator
products. Delaying the time when generics can enter
will thus result in a higher cost to healthcare
budgets.

regulatory protection periods seems to have
increased innovation within the orphan and
paediatric area.
Furthermore, the econometric results from section
2.1 seem to reveal that there is a positive relationship
between the amount of protection provided in other
EU countries with which a country trades the most
and the domestic spending on pharmaceutical R&D.
As there is a substantial amount of intra-EU trade,
this means that in so far as the results of section 2.1
hold, the overall framework for protection within the
EU impacts the spending on pharmaceutical R&D
within the EU.
Quantifying the value of the extra innovation which
might be due to the incentives described in this
chapter is a daunting task. As the counterfactual
situation is empirically unobservable, any such
calculations would be associated with very
considerable uncertainty. As such, providing any
such calculation is deemed to be fruitless from a
professional theoretical, economic point of view.
In the end, the question of whether the incentives
are proportionate to the goals is a political one. This
chapter and the other chapters in the report have
sought to shed light on the workings of the
incentives of the pharmaceutical regulation and any
possible outcomes of this.

However, as shown in this chapter, the granting of

304

CHAPTER
5
Case studies

Outline of chapter 5

5.1 List of medicines
5.2 Blockbusters
5.3 Orphan medicinal products
5.4 Generics
5.5 Antibiotics

5.6 Vaccines
5.7 Conditional marketing authorisations
5.8 Paediatric-use marketing authorisations
5.9 General considerations

306

Chapter 5 – Main conclusions (1/2)
DEVELOPMENT TIME AND
PROTECTION PERIOD

Most of the case studies analysed in this section
show development times of less than 10 years, but
more than 5 years. We have previously seen how
50% of products in the sample have a development
time of between 5 and 15 years. Most of the cases
studied fall within this interval, albeit with
development times of 10 years or less.
As most products studied in this section have a
development time between 5 and 10 years, they
qualify for an SPC. Most of the products have
obtained this, albeit in a varying number of
countries. That most products have obtained an SPC
entails that the protection period offered by the
combination of first patent and SPC is 15 years in
most cases. However, the fact that SPCs have not
necessarily been obtained in all countries likewise
shows the fragmentation of the SPC system across
member states.
Interestingly, all of the blockbuster products studied
in this section have obtained an SPC. Furthermore,
all except one of the blockbusters have obtained the
6-month paediatric extension of protection (or is
expected to). This seems to underline the fact that
the value of the reward of completing a PIP depends
on the volume and value of sales within the adult
population.

FRAGMENTATION

The tables showing in which countries a given
product has obtained an SPC, provides valuable
insights on the fragmentation of the SPC system.

First of all, it is evident that in most cases SPCs are
only applied for in a selection of countries. It is
likewise evident that for the paediatric extension,
differences exist between countries as well. In some
countries a paediatric extension has been granted,
while in others it is not present for the same product.
Moreover, the tables show that it is not uncommon
for an application for a SPC to be granted in some
countries, while being rejected in others.
When looking across the cases presented in this
chapter, Italy and Portugal stand out as the countries
with most SPC applications, followed by Denmark,
Spain, Greece, Hungary and Luxembourg.

PAEDIATRIC EXTENSION

Regarding orphan medicinal products, an interesting
learning from the case studies concerns the
extension of protection periods as a result of
paediatric studies.
If paediatric studies are completed, an orphan
medicinal product can obtain a 2-year extension of
the market exclusivity period, regardless of whether
it has an SPC or not. A non-orphan medicinal
product with an SPC can obtain a 6-month extension
of the SPC.
The case studies include examples of products which
are withdrawn from the orphan register and
subsequently granted the 6-month extension of the
SPC. Whether the withdrawal from the register is
directly linked to a wish to obtain the extension of
the SPC instead of the extension of market
exclusivity period is unknown. It is, however, an

interesting use of the incentives, which has been
deemed legal by a court of law1. In doing this, the
companies combine the orphan incentives with a
subsequent reward of an extended SPC.

SECONDARY PATENTS

In some of the case studies examined in the previous
section, the total effective protection period, when
counting secondary patents, approaches an average
of 30 years across the EU countries. It seems to be
the case that the products in this section with the
longest total effective protection period are also
among some of the most profitable products.
However, it is also evident that the existence of
secondary patents not necessarily prevents generic
or biosimilar competitors from entering the market.
This happens both through patents being challenged
but also through inventing “around” the patents,
making sure not to infringe any secondary patents
when bringing a similar product to the market. As
such, the effective protection period depicted for the
case studies should not be seen as a period in which
entry of competitors is not possible. However, it is
interesting that some of the most profitable products
seem to have the largest number of secondary
patents. This could seem to suggest that more effort
is being put into the patenting process, the more
profitable the medicinal product is. Whether the
number of secondary patents will lead to more court
cases in the future, as competitors seek to enter the
market, remains to be seen.

1 See Novartis v. Teva described at http://www.limegreenipnews.com/2016/07/italy-teva-vs-novartis-paediatric-extensions-of-spcs-valid-followingremoval-of-orphan-designation/ and https://www.lexology.com/library/detail.aspx?g=c45e5f48-de26-46f6-afc8-8c13c2eabb63 307

Chapter 5 – Main conclusions (2/2)
ORPHAN DESIGNATIONS IN THE
US COMPARED TO THE EU

In several of the presented cases, it is evident that
the given medicinal product has several orphan
designations and perhaps a marketing authorisation
as an orphan medicinal product in the United States,
but fewer such designations or perhaps none in the
European Union. One difference between the US and
the EU is the prevalence criteria. In the EU, no more
than 0.05% of the population must be affected by the
disease for it to be possible for a medicinal product
to obtain orphan designation. In the US, this
threshold is around 0.06%1.
However, this does not necessarily mean that the
product concerned cannot be used to treat the same
diseases in the US and the EU. In many cases, it
merely reflects the difference in allocation of orphan
designations between the US and the EU. From the
sample of non-representative cases in this chapter, it
seems that the rules regarding orphan designation in
the US allow for more indications to be regarded as
rare than is the case in the EU.

market exclusivity does not grant protection against
clinically superior products bringing extra benefit for
patients. This implies that it does not look as if this
part of the orphan incentives is detrimental to new
beneficial innovation.

also called blockbusters2. These include e.g. Humira,
which had revenue of USD 16bn in 2016. At the
lower end of the spectrum there are products such as
Buccolam with a world wide revenue of USD 47m in
2017.

SECTOR CHARACTERISTIC

NON-RANDOM SELECTION

As is also apparent from the cases, acquiring
molecules from other companies is not uncommon
within the pharmaceutical industry. In some cases,
start-up companies have developed a medicinal
product all the way through phase 2 clinical trials
before being acquired by a larger pharmaceutical
company.

It is important to point out that these case studies
have not been randomly chosen from the available
pool of medicinal products. As such, the main points
and key takeaways are not representative for all
medicinal products. Rather they are examined to
highlight certain intricacies in the incentives and
rewards for medicinal products in Europe.

In 12 of the 21 cases presented in the following, the
company currently marketing the product was not
involved in the original discovery of the active
ingredient. In these 12 cases, the company currently
marketing the product has acquired the rights to
marketing the product either through acquisitions or
licensing agreements.
This indicates the existence of a division of labour

MARKET EXCLUSIVITY EXTENDING through the development value chain where startPROTECTION
ups discover and develop innovations, and when
The cases include several examples where the 10year market exclusivity period granted to orphan
medicinal products extends the protection period for
the given product. This might e.g. be because the
orphan disease is not necessarily the first indication
the product is approved for, or it might be in cases
where a product obtains several orphan approvals.
However, it is likewise evident from the cases that

these are to be marketed, the distribution channels
and marketing experience of larger pharmaceutical
companies are needed. However, keep in mind these
are merely case studies; we have not carried out any
analysis looking at the scope of this division of
labour, its change over time nor of implications.
The cases include products across a wide spectrum of
revenues. Several products have a very high revenue,

1 The Orphan Drug Act, available at https://www.ecfr.gov/cgi-bin/textidx?c=ecfr&SID=51cf70689d51f0ea4147c0a8ac649321&rgn=div5&view=text&node=21:5.0.1.1.6&idno=21 defines a threshold pertaining to orphan
medicinal products, such that they cannot affect more than 200,000 people in the US or that there is no reasonable expectation of recovering the
R&D expenses.
2 Revenue higher than USD 1bn per year. 308

The following chapter contains 21 case studies of medicinal products
GENERAL OVERVIEW VERSUS
INDIVIDUAL PRODUCT VIEW

The analyses carried out in the previous chapters
focused on providing a general overview of the
workings of the various incentives and rewards for
medicinal products in Europe. The general approach
allows general conclusions to be drawn and provides
an understanding of the effects of the incentives
across medicinal products.
However, as has also been pointed out in the general
analysis, the lack of an overall effect of an incentive
on the average medicinal product does not
necessarily mean that it is unimportant for
individual products.

structure governing medicinal products – i.e. how do
the various incentives combine during the life-cycle
of a given product and how do companies behave
when choices regarding the various non-cumulative
incentives have to be made.
The case studies are not randomly selected from the
population of available medicinal products. Rather,
the list has been developed in close collaboration
with the European Commission.
As such, the medicinal products included in the
following have been selected so as to describe certain
intricacies, issues, actual uses of incentives and key
insights into the framework conditions.

Additionally, the actual use of the various incentives
and perhaps especially the interaction between the
various incentives in cases from the real market are
of interest.

The selected cases can be categorised under the
following seven headlines:
• Blockbusters
• Orphan medicinal products
• Generics
• Antibiotics
• Vaccines
• Conditional marketing authorisation
• Paediatric-use marketing authorisation

To accommodate these effects and interactions
pertaining to individual products in the study, the
following chapter contains 21 case studies of a
selection of medicinal products.

For the case studies, where possible, we include a
calculation of the effective protection period, carried
out in the same manner as the calculation used in
previous chapters2.

CASE STUDIES

MAIN INSIGHTS

Furthermore, the various obligations and rewards
contained in the regulations on medicinal products
can have different consequences, depending on
events affecting the life-times of products1.

The cases seek to shed light on a range of different
details regarding the workings of both the
intellectual property framework and the regulatory

incentives for medicinal products.
To the extent possible, we describe all these insights
for each separate case. However, in the interest of
providing clarity and ease the reading of the cases,
we conclude each case by stressing one main insight.
This is our attempt to distil each case, which
potentially contains many interesting insights and
intricacies, into one key takeaway. This does not
mean that all other information given and use of
incentives described, besides the one provided in the
main insights section, are irrelevant. It is merely an
attempt to present the reader with one notable main
insight from each case which we find the particular
case to be an illustrative example of.
At the end of the chapter a table containing
information on the status of SPCs and their
applications across countries is presented.

Many cases provide a range of interesting insights,
potentially shedding light on many different aspects
of the framework conditions and the actual use of the

1 By ‘life-time of a product’ is meant the time spanning from discovery until the product is no longer relevant on the market. The regulations referred
to are Regulation (EC) No 726/2004, Regulation (EC) No 469/2009, Regulation (EC) No 141/2000 and Regulation (EC) No 1901/2006.
2 I.e. including all patents, SPCs and regulatory protection periods to determine how long a given product has protection from generic competition. 309

5.1 LIST OF MEDICINES

List of medicinal products for case studies
Date of PIP compliance
check
20/06/2014
01/04/2016
14/10/2016

Name

Company

Group

Date of first patent

Date of MA

Date of SPC expiry

Humira

AbbVie

Blockbuster

01/08/1997

08/09/2003

April 2018

Sovaldi

Gilead Sciences

Blockbuster

26/03/2008

16/01/2014

January 2029

-

Herceptin

Roche

Blockbuster

15/06/1992

28/08/2000

July 2014/2015

-

Enbrel

Pfizer

Blockbuster

10/09/1990

03/02/2000

February 2015

13/12/2011

Xagrid

Shire

Orphan

-

16/11/2004

-

14/02/2014

Revlimid

Celgene Nordic

Orphan

24/07/1997

14/06/2007

June 2022

-

Imbruvica

Janssen-Cilag and AbbVie

Orphan

28/12/2006

21/10/2014

October 2029

-

Viagra

Pfizer

Orphan (non-orphan)

07/06/1991

14/09/1998

June 2013

-

Revatio

Pfizer

Orphan

07/06/1991

28/10/2005

-

-

Cystadrops

Orphan Europe

Orphan

26/01/2007

19/01/2017

-

-

Tobi Podhaler

Novartis

Orphan

08/05/2001

20/07/2011

2026

-

Glivec

Novartis

Orphan

25/03/1993

07/11/2001

June 2016

09/03/2012

Cometriq
Cabometyx

Ipsen

Orphan
Non-orphan

24/09/2004

21/03/2014
09/09/2016

March 2029

Tracleer

Actelion

Orphan

04/06/1992

15/05/2002

February 2017

Losec

AstraZeneca

Generic

03/04/1979

1988

November 2002/2003 -

Tygacil

Pfizer

Antibiotic

21/08/1992

24/04/2006

August 2017

12/12/2014

Dificlir

Astellas Pharma

Antibiotic

15/07/2003

05/12/2011

December 2026

-

Cervarix

GSK Pharma

Vaccine

08/10/1999

20/09/2007

September 2022

-

Infanrix Hexa

GSK Pharma

Vaccine

15/05/1993

23/10/2000

October 2015

-

Sutent

Pfizer

15/02/2001

19/07/2006

July 2021

-

Buccolam

Shire

10/09/1975

05/09/2011

-

06/08/2010

Conditional marketing
authorisation
Paediatric-use marketing
authorisation

21/03/2014

Note: Absence of a date for PIP compliance check can reflect the granting of a waiver or deferral as well as the PIP being ongoing, and therefore
as yet unfinished. The date of SPC expiry are for the countries in which an SPC has been granted.
Sources: European Medicines Agency website and Alice de Pastors database of SPCs provided by the European Commission. 311

5.2 BLOCKBUSTERS

Humira by AbbVie (1/2)
INDICATIONS

Humira is a biological medicinal product that acts on
the immune system. Humira is approved for
treatment of the following indications:
Juvenile idiopathic arthritis, paediatric plaque
psoriasis, paediatric Crohn’s disease, adolescent
hidradenitis suppurativa and Paediatric Uveitis.3
In short, these are diseases that cause red scaly
patches on the skin (psoriasis), inflammation of the
joints (arthritis) or inflammation or ulcers in the gut.

DEVELOPMENT TIME AND
PROTECTION

The active ingredient in Humira is Adalimumab. A
marketing authorisation for Humira in the EU was
granted in September 2003, after the first patent had
been filed in August 199727. This implies a
development time of 6 years. Humira was developed
through a collaboration between the BASF
Bioresearch Center in Massachusetts and the
Cambridge Antibody Technologies in the UK. In
2000 Abbott bought the BASF center for USD
6.9bn29. In 2013 Abbott split into two entities, one
being AbbVie, which retained the rights to Humira29.

TIMELINE

In the countries where an SPC has been granted, it is
due to expire in 2018,1 including a 6-month
paediatric extension. This implies an effective
protection period from the first patent and SPC of 15
years.
According to Abbvie, the composition-of-matter
patent in the European Union is expected to expire
in most countries in October 2018. The equivalent
patent in the US expired in December 2016.2
When all patents and protection schemes are
included, the average effective protection period
across countries in the EU is 28.2 years. This is a
relatively long protection period that falls within the
99th percentile when comparing to the histogram in
section 1.4.2. This is underlined by the fact that
during its lifetime Humira has been protected by
more than 100 patents28.

However, as will be described in more detail
overleaf, marketing authorisations have been
granted for biosimilar products despite the number
of patents. Exactly when the biosimilar products can
enter the market remains to be seen.

PAEDIATRIC USE

The European Medicines Agency agreed on three
paediatric investigation plans for Humira27.
In 2015, the EMA approved an extension to the
indication, to include the treatment of children and
adolescents.6 This implied a 6-month extension to
the SPC protection period.

ORPHAN MEDICINAL PRODUCT

While Humira is not designated as an orphan
medicinal product in the EU9, it is designated for six
orphan uses in the US and has been approved for
four of these. Market exclusivity extends to 2023 for
the latest orphan designation in the US.10
All the designated indications for which AbbVie has
received marketing approval by the FDA are also
present in the full indication in the EU marketing
authorisation for Humira.
The designations as an orphan medicinal product in
the US have been criticised by patient advocacy
groups, which claim that Humira is not a ‘true’
orphan medicinal product as it has later been
approved for several other indications and reached
blockbuster status.11
2015: EMA approves
extension to indication, to
include treatment of children
and adolescents

1997: Patent filed
2003: Marketing
authorisation granted

2018 (October): Expiry of
6-month extension due
to studies undertaken
according to PIP

2017: Biosimilar
MA

2011: Data
protection
expiry

2013: Market
protection
expiry

2017: Patent
expiry

2018 (April):
SPC expiry

313

Humira by AbbVie (2/2)
PRICE CHANGES AND EXPECTED
FUTURE SALES

According to the investor publication Barron’s, the
price of Humira has increased by more than 13% a
year over the past decade, from USD 1,258 to USD
4,441 in the US.4 Combined with the wide range of
indications for which Humira is approved, this has
made it the top-selling medicinal product in many of
the previous years. In 2016 sales topped USD 16bn.20
Following expiry of an SPC in 2018, AbbVie expects
international sales of Humira to decrease by 15% a
year until 2020. 5

BIOSIMILARS

In May 2017, the EMA recommended that the
biosimilar medicinal product Imraldi should be
approved7. Imraldi was granted a marketing
authorisation in August 2017.17 However, Imraldi
cannot be placed on the market until expiry of the
last SPC for Humira in October 201826.
Additionally, Amgen Europe has obtained duplicate
marketing authorisations for the two biosimilars
Solymbic and Amgevita (both in March 2017).15,16,18
In August 2017, the FDA approved the biosimilar
medicinal product Cyltezo, made by Boehringer
Ingelheim8, in the US. In September 2017, CHMP
adopted a positive opinion recommending the
granting of a marketing authorisation to Cyltezo24,
which was then granted in November 2017.25 In the
press release from Boehringer Ingelheim concerning
the marketing authorisation, the company states that
the medicinal product is not commercially available,
and will only be made available in Europe following
the expiry of the SPC for Adalimumab (Humira) in
October 2018.25
With the entrance of biosimilars into the market,

competition can be expected to drive down prices,
which will tend to reduce the profit made by AbbVie,
as can be seen from their expectation that sales of
Humira will decline by 15% a year between 2018 and
2020.5.
The entry of multiple biosimilars, even in the face of
protection from secondary patents, may reflect the
attractiveness of the market. Of course, even if
secondary patents did not extend the effective
protection period, they can still work to broaden
protection, e.g. by protecting the manufacturing
process.
Biosimilar producers have to conduct a number of
studies to demonstrate similarity to the reference
medicinal product21,22, which implies a longer and
more costly development period than what is usually
the case for chemical generics.23 This will tend to
make price discounts smaller in the case of biological
medicinal products than in the case of small
molecule medicinal products.

STRATEGY FOR EXTENDED
PROTECTION

In the EU, competitors have brought patent cases
before UK courts in an attempt to ‘clear the way’ for
biosimilar entry following the expiry of the
composition patent.
In 2016, a UK court invalidated two patents relating
to Humira, after cases had been brought by Samsung
and Fujifilm. Both these companies have announced
that they intend to market biosimilars following the
expiry of the first patent in 2018 (in Europe).12,13
AbbVie has been accused of employing a deliberate
strategy of obstructing market entry by dragging out
proceedings to cause maximum expense and

inconvenience, only to voluntarily offer to invalidate
the patents in question before a verdict.14,15
It has been argued that by doing so AbbVie
effectively increases the barriers to biosimilar entry
that are already relatively high as a result of the
complexity and costliness of developing biosimilars.
In the worst-case scenario, potential competitors
come to expect a prolonged legal conflict in
connection with the entry of biosimilars. The cost of
such conflict could reduce the profitability of
attempting entry in the first place, effectively
deterring would-be competitors from entering the
market.
In the US, AbbVie has protected Humira by a range
of secondary patents,12 covering formulation,
manufacturing process, method of treatment etc.
AbbVie executives have publicly stated their intent to
enforce this patent estate, and their belief that this
will be sufficient in delaying biosimilar entry in the
US until 20222.

MAIN INSIGHT

In the case of Humira, it is striking that one product
can be protected by more than 100 patents.
However, the existence of secondary patents does
not seem to have prevented biosimilar entry
following the expiry of the protection relating to the
SPC. In fact, multiple competitors have obtained
marketing authorisations and are intent on entering
the market as soon as the last SPC expires. This level
of interest could be due to the inherent size and
attractiveness of the market. Even though the
product started out as an orphan medicinal product
in the US, subsequent authorisations have put it into
the blockbuster category.

314

Sovaldi by Gilead Sciences
INDICATIONS

Sovaldi contains the active ingredient Sofosbuvir and
is used to treat hepatitis C.1 Sovaldi is approved in
combination with other medicinal products for the
treatment of chronic hepatitis C (CHC).6 Hepatitis C
is an infection in the liver caused by the Hepatitis C
virus.3 In 2016 global sales of Sovaldi amounted to
USD 4bn13 down from USD 10.3bn14 in 2014, due to
growing competition.

DEVELOPMENT TIME AND
PROTECTION

The first patent was filed in March 2008.2 Sovaldi
was discovered by Pharmasset, which was acquired
by Gilead in 2012 for USD 11bn, after phase 2 trials
had been initiated15. The medicine was granted a
marketing authorisation by the European
Commission in January 2014, 3 reflecting a
development period of 6 years.
An SPC for Sovaldi has been granted in most EU
member states, while applications are still pending in
others. The SPC is due to expire in January 2029,
thus implying an effective protection period from the
first patent and SPC of 15 years.4

Timeline
2008: Patent filed
2014: Marketing
authorisation granted

When all patents and protection schemes are
included, the average effective protection period
across countries in the EU extends to 18.8 years. This
implies an effective protection period that falls in the
fourth quartile, i.e. among the 25% of medicinal
products with the longest protection when
comparing to the histogram in section 1.4.2. This is
due to the fact that Sofusbuvir is protected by 14
different patent families16.

PAEDIATRIC USE

In July 2017, the EMA approved an extension to the
indication for Sovaldi, and the indication now
includes the use of Sovaldi for adults and adolescents
aged 12 to 18 years.7 The EMA has waived the
obligation to conduct studies of children aged 3 years
and younger, and the PIP is due to be completed by
April 2018.12 Completion of the paediatric
investigation plan will imply a 6-month extension of
the SPC.

ORPHAN DESIGNATIONS

While Sovaldi is not designated as an orphan
medicinal product in the EU, the use of Sovaldi in
adolescents was given an orphan designation in the
US in 2016, with a marketing authorisation as an

2017: Patent
challenged by NGOs

2017: Indication
extended to include
use for adolescents

orphan medicinal product being granted in 2017.5

SIMILAR MEDICINAL PRODUCTS
BY GILEAD

Gilead Sciences also markets Epclusa, Vosevi and
Harvoni in the EU. All three medicinal products are
used to treat Hepatitis C and contain Sofosbuvir as
well as other active ingredients.9,10,11

MAIN INSIGHT

The patent for Sovaldi, discovered by Pharmasset
and later bought by Gilead, has been challenged
repeatedly in Europe, e.g. in March 2017 by Doctors
of the World (Médecins du Monde) and Doctors
Without Borders. These organisations argue that the
science behind the medicinal product is not new, and
that the patent is therefore open to challenge.8

Patents can thus be challenged by stakeholders that
are not potential competitors, but rather view
themselves as representing the interests of the
patients. Since no rulings have been made yet in this
particular case, we cannot, at the time of writing,
conclude whether this will impact protection in this
particular case.
2029 (Jul.): Expected
expiry of 6-month
extension, conditional on
compliance with the PIP.

2028: Patent
due to expire

2029 (Jan.): Expiry
of SPC
315

Herceptin by Roche (1/2)
INDICATIONS

development time of 8 years.

Herceptin is a biological medicinal product
containing the active ingredient Trastuzumab.3
Herceptin is the first manufactured Trastuzumab.
Herceptin is approved for the treatment of adult
patients with metastatic or early breast cancer, as
well as the treatment of adult patients suffering from
metastatic gastric cancer.9 Note that Herceptin can
only be used for cancers which have been shown to
‘overexpress’ the protein HER2.3 Patients are thus
grouped according to the specifics of their disease,
and in that sense Herceptin represents a
personalised medicine.12 In 2016, global sales of
Herceptin was USD 6.88bn.14

DEVELOPMENT TIME AND
PROTECTION

Genentech, a member of the Roche Group, filed the
first patent in 1992.2
A marketing authorisation for Herceptin in the EU
was granted in August 2000. 3 This implies a

An SPC expired in most EU countries in 2014, with
expiry in the remainder of the countries in 2015. In
the US, the protection is set to run out in 2019. 4 This
implies an effective protection period in the EU from
the first patent and SPC of around 15 years.
Including all patents and protection schemes, the
average effective protection period across countries
in the EU is 29 years, which places Herceptin among
the medicinal products with the longest effective
protection period, more specifically within the 99th
percentile when comparing to the histogram in
section 1.4.2. This is possible as at least 40 patents
protects Herceptin15.
As will be described thoroughly on the next page,
these secondary patents do however not seem to
ultimately prevent biosimilar entry, which is possible
after a marketing authorisation is granted for e.g.
Ontruzant in late 2017.

Whether the secondary patents are the reason for the
2-year delay from SPC expiry in 2015 to biosimilar
entry in 2017 could not be verified.

PAEDIATRIC USE

In a ‘summary of product characteristics’, the EMA
states that there are no relevant uses of Herceptin in
the paediatric population, and that the EMA has
waived the obligation to conduct studies on
paediatric use.11

ORPHAN DESIGNATIONS

While the medicinal product does not have an
orphan designation in the EU, its indication for
metastatic gastric cancer carried an orphan
designation in the US, designated in 2009.
Marketing approval was granted in 2010, and market
exclusivity ended in October 2017.10 As written
above, Herceptin is also approved for the treatment
of metastatic gastric cancer in the EU.

Timeline
1992: Patent filed
2000: Marketing
authorisation granted

2002: Infringement
case first decided in
favour of
Genentech

2006: Licensing
agreement with
Halozyme

2012: Patent expires

2015: SPC expires in
remaining EU countries

2014: Expiry of SPC in
most EU countries

2017: MA for
Ontruzant

316

Herceptin by Roche (2/2)
PATENT INFRINGEMENT CASE BY
CHIRON

During the first half of the 2000s, Chiron repeatedly
sued Genentech, claiming that Herceptin infringed
patents held by Chiron.
In 2002, a jury ruled against Chiron,5 a ruling later
affirmed by an appeals court in 2004.6 In 2005, the
parties settled remaining patent issues.7

LICENSING AGREEMENT

In 2006, Roche entered into an agreement with
Halozyme, under which a subcutaneous formulation
of Herceptin, Herceptin SC, was developed. This
formulation eventually gained a marketing
authorisation in 2013.8

ENTRY OF BIOSIMILARS

Several companies submitted biosimilar versions of
the medicinal product to the EMA in 2017, including
Amgen, Mylan and Biocon and Samsung Bioepis.
In November 2017, a marketing authorisation was
granted by the European Commission for Ontruzant,
a biosimilar produced by Samsung Bioepsis.
However, at the time of writing, biosimilar entry is
yet to happen1.
Trastuzumab biosimilars are expected to be priced at
80% of the price of the original product.1
Looking at the results from the literature described
in section 2.3, this is a relatively small drop in price
in connection with the entry of competitors. This

may reflect the inherent costliness of developing
biosimilars, e.g. due to the additional studies
required before biosimilars can be marketed, in
comparison to generics.13 It might also reflect the
fact that the process of manufacturing biological
products usually is more resource-intensive than for
chemical compounds, and hence the price decrease
when generics enter a market might be greater than
when biosimilars enter a market.

total effective protection period of 29 years.
However, as a biosimilar was able to enter the
market in late 2017, this did not completely protect
Herceptin from competition, after expiry of the last
SPC, albeit there was a lag before biosimilar entry.

The period of time from expiry of the SPC in 2015
until (expected) biosimilar entry in 2018 is
noteworthy since it represents a period where Roche
is not in competition with biosimilar manufacturers,
even though the protection granted by the first
patent and SPC has expired. Since competition will
tend to drive down prices, the absence of
competition will tend to benefit Roche.
A possible explanation for this is the existence of the
secondary patents described on the previous page.

MAIN INSIGHT

Biosimilars are projected to cause the price of the
medicinal product to decrease by 20%. When there is
a time lag between expiry of the protection related to
the first patent and SPC and biosimilar entry, this
represents a benefit for the company that holds the
patent and markets the medicinal product. This
delay in biosimilar entry, after expiry of all SPCs,
might be due to the protection provided by the
secondary patents.
Another interesting insight is likewise that at least
40 patents protect Herceptin, granting the product a

317

Enbrel by Pfizer (1/2)
INDICATIONS

Enbrel is a biological anti-inflammatory medicine
containing the active ingredient etanercept.1 It is
administered by injection.
Enbrel is approved for the treatment of the following
diseases2:
• Rheumatoid arthritis
• Juvenile idiopathic arthritis
• Psoriatic arthritis
• Axial spondyloarthritis
• Ankylosing spondylitis
• Non-radiographic axial spondyloarthritis
• Plaque psoriasis
• Paediatric plaque psoriasis
In general, these diseases cause inflammation of the
joints (arthritis), the spine (spondylitis), or red, scaly
patches on the skin (psoriasis).1 Notably, Enbrel is
approved for some of the same indications as
another biological medicinal product, Humira3 (see

case study on Humira). In 2016 global sales of
Enbrel was USD 5.72bn.14

DEVELOPMENT TIME AND
PROTECTION

The active ingredient in Enbrel, etanercept was first
developed by Immunex, which filed the first patent
in 1990.4
Immunex was later acquired by Amgen,5 which
entered into an agreement with Pfizer, under which
Pfizer holds the rights to market the medicinal
product in Europe.
A marketing authorisation was granted in the EU in
February 2000,1 reflecting a development time of 10
years.

extension due to paediatric studies conducted as part
of a paediatric investigation plan, completed with a
positive compliance check in 2011.6 This implies a
protection period from the first patent and SPC of
around 15 years.
In 2011 a patent claimed to extend the protection of
Enbrel by 17 years from the date of issuance was
issued15.

PAEDIATRIC USE

A paediatric investigation plan was concluded with a
positive compliance check in 2011.6

ORPHAN

Enbrel was not authorised as an orphan medicine,
nor has it been designated as such for any
indications.

SPCs have been granted in most EU member states4
and expired in August 2015, following a 6-month

TIMELINE
1990: Patent
filed
2000: Marketing
authorisation granted

2010: First
patent expired

2011: Positive
compliance
check of PIP

2016: Biosimilar
entry

2015(aug.):
Paediatric
extension expired

2015(early):
SPC expired

318

Enbrel by Pfizer (2/2)
BIOSIMILAR ENTRY

In January 2016, a marketing authorisation was
granted to Benepali, with Samsung Bioepis (a
collaboration on biosimilars between Samsung and
Biogen) as the marketing authorisation holder.7 This
marked the first biosimilar entry on the market.
Since then, Erelzi by Sandoz has also been
approved8, and Pfizer has obtained approval for the
same medicinal product under the name Lifmior.9
In October 2016, several news sources reported that
Pfizer had cut prices of Enbrel in Ireland by 30%.10,11
This was done in compliance with the Irish
Framework on the supply and pricing of medicine,
which states (section 8.1) that a biological medicinal
product for which the patent has expired, and where
a biosimilar has entered the market, must reduce
prices to 80% of the original ex-factory price (the
price at which it was first approved for
reimbursement by the relevant authority).12
Additional rebates mean that the price cut amounts
to 30%.

Biogen have surpassed expectations, and the
company is quoted as stating that Benepali has been
“gaining share at a rate previously unseen for a
biosimilar anti-TNF”.13

MAIN INSIGHT

From a theoretical perspective, the entrance of
multiple biosimilars will strengthen competition in
the market and contribute to drive down prices.
As such, this is an example of a biological medicinal
product that faced biosimilar competition from
multiple competitors shortly after the expiry of the
protection afforded by the first patent and SPC.
The active ingredient in Enbrel was discovered by
Immunex and later, through acquisition and
licensing agreements, brought to market by Pfizer.

According to the news sources, Biogen had priced
Benepali at a 30% discount to Enbrel, meaning that
after the price cuts by Pfizer, the two medicinal
products are selling at identical prices.10
The Healthcare Enterprise Alliance, which
represents manufacturers of generics and biosimilars
in Ireland, stated that the clause amounted to
“biosimilar blocking”.10
Nonetheless, reports suggest that sales of the
biosimilar Benepali produced and commercialised by

319

5.3 ORPHAN MEDICINAL
PRODUCTS

Xagrid by Shire
INDICATION

Xagrid contains the active substance Anagrelide1.
Shire acquired the worldwide rights to Xagrid (or
Agrylin, which it is called in some countries), from
Bristol-Myers Squibb in 199910.
Xagrid is approved for the reduction of elevated
platelet counts in at-risk essential thrombocythemia
(ET) patients who are intolerant to their current
therapy or whose elevated platelet counts are not
reduced to an acceptable level by their current
therapy2. ET is a rare chronic disease in which too
many blood platelets are produced in the bone
marrow.

PAEDIATRIC USE

A paediatric investigation plan has been completed,
with a positive compliance check. This implies a 2year extension of market exclusivity.

ORPHAN DESIGNATION

Xagrid was designated an orphan medicinal product
in December 20001.

Timeline
2000: Orphan
designation 2004: Marketing
authorisation under
‘exceptional
circumstances’

A patent for the active substance in Xagrid
(Anagrelide) is not present in the Alice de Pastors
database8 that is used throughout this section.
However, from the European Patent Register of the
European Patent Office, it is clear that Shire does
hold a number of patents related to Anagrelide.7
It was granted a marketing authorisation in
November 20041.
The marketing authorisation was granted under
exceptional circumstances, reflecting the fact that
the rarity of the disease meant that it was not
possible to obtain complete information about
Xagrid1.
As a result of the exceptional circumstances
authorisation, Xagrid is subject to annual review,
and the MA holder regularly informs CHMP of all
information published regarding the efficacy of the
medicine1.
Xagrid was withdrawn from the orphan register in
November 2016 as the 12-year exclusivity period
ended1 (10 years of exclusivity, and an additional 2

years due to PIP studies).

GENERIC ENTRY

In December 2017, the Committee for Medicinal
Products for Human Use (CHMP) adopted a positive
opinion recommending granting of a marketing
authorisation for a generic version of Anagrelide9.

MAIN INSIGHT

A marketing authorisation under exceptional
circumstances can be granted if the indications for
which the medicinal product is intended are
encountered so rarely that the applicant cannot
reasonably be expected to provide the
comprehensive data that would normally be
required.5
This framework thus allows for the introduction of
medicinal products that could not be introduced
within the regular framework.
Since no safety issues have caused the authorisation
to be revoked, this has ultimately been to the benefit
of the patients who suffer from the disease.
2016: Withdrawn from
Orphan register following
the end of the 2-year
paediatric extension
2014: End of 10-year
exclusivity period

321

Revlimid by Celgene (1/2)
INDICATIONS

years.

Revlimid is approved for the treatment of multiple
myeloma, myelodysplastic syndromes and mantle
cell lymphoma, subject to certain conditions
regarding the patient’s previous treatment. These
diseases are cancers affecting blood cells and bone
marrow.3 In 2016 global sales of Revlimid amounted
to USD 4.42bn.15

DEVELOPMENT TIME AND
PROTECTION

Revlimid contains the active ingredient
Lenalidomide1 and is developed and marketed by
Celgene. The first patent was filed in July 19972. Due
to the granting of SPCs, the effective protection from
the first patent and SPCs is set to expire in the EU in
June 2022.2
The marketing authorisation for Revlimid was
granted in 20073, implying a development time of 10

When the SPC is included, this further implies that
the first patent and SPC have afforded an effective
protection period of 15 years in the EU.

When all patents and protection schemes are
included, the average effective protection period
across countries in the EU is 17.9 years, which is in
the fourth quartile, i.e. among the 25% of medicinal
products with the longest such protection period
when comparing to the histogram in section 1.4.2.
This is possible, as there are 23 patents protecting
Revlimid16.
A secondary patent was revoked by the European
Patent Office (EPO) in 2015,5 on the grounds that the
polymorph patent in question did not meet the
requirement of representing an inventive step.14
Shortly thereafter, Celgene announced its intention

TIMELINE
1997: Patent
filed

2007:
Marketing
authorisation
granted

2007: MA for orphan
designation for
treatment of multiple
myeloma

2011: PIP waiver
granted by
EMA

to appeal this ruling. The appeal process is expected
to last several years, during which the patent
remains valid and enforceable, according to
Celgene.5

PAEDIATRIC USE

Revlimid was granted a waiver for the paediatric
investigation plan by the EMA, on the grounds that
the product is likely to be ineffective or unsafe in part
or all of the paediatric population.10

ORPHAN DESIGNATIONS AND
AUTHORISATION

Revlimid has been granted a marketing authorisation
and thereby market exclusivity for three orphan
designations in the EU, for treatment of multiple
myeloma, treatment of myelodysplastic syndromes,
and treatment of mantle cell lymphoma.7 These are
diseases that affect the blood cells and bone
marrow.3

2015: EPO 2016: MA for
revokes
orphan
polymorph designation for
patent
treatment of
protecting mantle cell
Revlimid
lymphoma

2015: Settlement
with Natco
2013: MA for orphan
2017: Patent expires
designation for
treatment of
myelodysplastic
syndromes

2026: Last orphan market
exclusivity is due to expire.

2022: Expiry of SPC

322

Revlimid by Celgene (2/2)
The authorisations were granted in 2007, 2013 and
2016, and each offers 10 years of market exclusivity
for that indication. In the US, Celgene has a
marketing authorisation for the same three orphan
indications, and is the sponsor of an additional six
orphan designations for Lenalidomide, however
without marketing approvals.8
In the US, Revlimid is the number three best-selling
orphan medicinal product and is projected to be the
number one orphan medicinal product by 2020.9

THE BUSINESS CASE FOR
DEVELOPMENT

As described on the previous page, Revlimid has
been authorised for the treatment of three different
orphan indications in the EU. The active ingredient
has two additional orphan designations, however
without being authorised for use at the time of
writing.13

separate business case. When making the decision to
aim for an additional orphan indication for the
medicinal product, the company has to weigh the
costs, i.e. of new clinical trials, the regulatory process
etc., against the potential revenue that can be
generated by treating this indication.

Even in the case of a successful medicinal product
such as Revlimid, the orphan incentives can
therefore be crucial to furthering the treatment of
rare diseases. This is the case, in particular, when
orphan incentives mean the difference between a
positive business case and a negative business case.

The market exclusivity period that can be obtained
from the development of an orphan medicinal
product is an important incentive for the company
that develops the medicinal product. This is
particularly pertinent to this case since market
exclusivity for two of the orphan indications will
extend beyond the expiry of the SPC.

However, the orphan incentives may also contribute
to making an already positive business case even
more profitable. In such cases, it should be
considered whether the orphan incentives provide
some sort of ‘overcompensation’. If the business case
is positive without the incentives, according to
economic theory the product should be developed
even without the orphan incentives. However, this
must very much be assessed on a case-by-case basis,
encompassing the cost function of the companies as
well as the probabilities of all the various possible
revenue outcomes. These are difficult to assess for
parties other than the individual pharmaceutical
companies.

It is important to note that from an economic
perspective, each of these indications represent a

Of course, this is based on purely economic
reasoning. Other factors, such as the sense of having

an ethical obligation to patients, may also affect the
decisions made by the company.

MAIN INSIGHT

What is particularly interesting in this case, is that
the fact that the product has obtained several orphan
marketing authorisations which entails that the last
protection for these extend beyond the granted SPC.
As such, this case illustrate how the orphan
framework ensures that companies remain
incentivised to demonstrate the use of the medicinal
product for new indications even as the expiry of the
patent period (and possibly SPC) draws nearer. This
is due to the fact that market exclusivity can extend
beyond the patent protection (including the SPC).

323

Imbruvica by Janssen-Cilag and AbbVie (1/2)
INDICATIONS

Imbruvica is a cancer medicine containing the active
ingredient Ibrutinib.2 Imbruvica is approved for the
treatment of the following types of blood cancer:
mantle cell lymphoma, chronic lymphocytic
leukaemia and Waldenström’s macroglobulinemia,
subject to certain conditions regarding the prior
treatment of the patient.3 In 2016 global sales of
Imbruvica amounted to USD 1.58bn.7

PATENTS AND SPC

The first patent for Imbruvica was filed in December
2006,1 and a first marketing authorisation was
granted in October 2014.2 The active ingredient in
Imbruvica, Ibrutinib was discovered by the biotech
company Pharmacyclics, which was acquired by
AbbVie in 2015 for USD 21bn8. This implies a

TIMELINE
2006: Patent filed

2013: Orphan
designations:
1) Treatment of diffuse
large B-cell
lymphoma
2) Treatment of
follicular lymphoma

2012: Orphan
designation:
chronic lymphocytic
leukaemia

development period of 8 years, which is not unusual,
as can be seen from section 1.4.2.
Where an SPC has been granted, it is set to expire in
October 2029, leading to an effective protection
period from the first patent and SPC of 15 years.1

Including all patents and protection schemes, the
average effective protection period across the EU
member states is 15 years. Thus, at this point,
secondary patents do not seem to exist for
Imbruvica, or if they do, do not prolong the
protection period since they do not extend beyond
the expiry of the SPC, employing the average
protection period view. However, even if these
secondary patents do not extend the protection
period, they might broaden the protection, e.g.

2014: Marketing
authorisation
granted for
mantle cell
lymphoma and
chronic
lymphocytic
leukaemia

2015: Marketing
authorisation
granted for
lymphoplasmacytic
lymphoma

2015: Orphan
designation:
2014: Orphan
1) Treatment of
designation:
marginal
1) Treatment of
zone
lymphoplasmacytic
lymphoma
lymphoma

through protection of the manufacturing process.
There are 24 patents protecting Imbruvica9.

PAEDIATRIC USE

Besides having obtained waivers for particular
paediatric conditions3, a PIP exists for Imbruvica8.

ORPHAN DESIGNATIONS

In the EU, Imbruvica is designated as an orphan
medicine for five indications. Janssen-Cilag has been
given a marketing authorisation for three,2 with the
resulting 10-year market exclusivity. Authorisations
were granted in 2014 and 2015, while designations
are shown in the timeline below.4,5

2026: Patent expires

2029: Expiry of SPC

2016: Orphan
designation:
1) Treatment of
graft-versus-host
disease

324

Imbruvica by Janssen-Cilag and Abbvie (2/2)
MAIN INSIGHT

As described on the previous page, Imbruvica has
been authorised for the treatment of three orphan
indications, and has orphan designation for two
further indications without approval at the time of
writing.
When evaluating the need for orphan incentives, it is
important to keep in mind that from an economic
perspective each of the indications represent a
separate business case.

It should be mentioned that this analysis is based on
an exclusively economic reasoning. Other factors
may influence decisions by companies on whether to
investigate new applications of the medicine or not.
One such factor could be the sense of an ethical
obligation on the part of the company to ensure the
widest possible use of the medicine, ensuring that
the largest possible number of patients benefit.

For each indication, the company has to assess
whether the costs associated with the process
required to eventually gain approval are lower than
the potential rewards of the medicinal product being
approved for treatment of another indication.
Through fee reductions, protocol assistance and the
market exclusivity period, orphan incentives reduce
the costs of this investment and increase the
potential rewards.
This can potentially make the difference between a
negative and a positive business case – thereby
making the introduction of a treatment for a rare
disease a sound investment economically.
However, the possibility, of course, also exists of the
incentives making an already positive business case
even more profitable, implying ‘overcompensating’
incentives.

325

Viagra by Pfizer (1/2)
INDICATION

Viagra contains the active ingredient Sildenafil and is
used to treat adult men with erectile dysfunction1.
The development of Sildenafil was initiated with the
aim of finding a way to treat hypertension. Initial
tests were disappointing, but some patients reported
the unexpected side-effect of penile erections. This
led to the development of Sildenafil as a treatment
for erectile dysfunction.9 As understanding of the
mechanism behind Sildenafil grew, it was postulated
that it could play a role in the treatment of
pulmonary hypertension, eventually leading to the
development and marketing of Revatio9 (see case
study on Revatio pp. 328-329).

DEVELOPMENT TIME AND
PROTECTION

Sildenafil was first patented in 1991,2 and Viagra was
granted a marketing authorisation in the EU in
1998,1 indicating a development period of 7 years.

ORPHAN

SPCs have been granted in various EU member
states, most of which expire in 2013.2

Viagra is not designated as an orphan medicinal
product, however the active ingredient is equivalent
to the active ingredient in Revatio, also marketed by
Pfizer, which was designated and granted a
marketing authorisation as an orphan medicinal
product.

This implies an effective protection period from the
first patent and SPC of 15 years.
Including all patents and protection schemes, the
average effective protection period across the EU
countries is 16.7 years, which is in the fourth
quartile, i.e. among the 25% of medicinal products
with the longest such protection period when
compared to the histogram in section 1.4.2.

PAEDIATRIC USE

OVER-THE-COUNTER APPROVAL

Viagra is not approved for treatment of individuals
below 18 years of age. The European Medicines
Agency has waived the obligation to submit results of
studies with Viagra in all subsets of the paediatric
population for the treatment of erectile dysfunction.4

TIMELINE

Following a review by the Medicines and Healthcare
products Regulatory Agency (MHRA), the UK
government agency responsible for regulating
medicines, the product Viagra Connect has been
approved for sales at pharmacies without a
prescription.11 It was the first Sildenafil version to
obtain this approval.12 The MHRA concluded that the
benefits to patients from pharmacy availability of
Viagra Connect outweighed the risks entailed.

2013: SPC expiry in
most EU member
states
2011: Expiry of
patent

1991: Patent
filed
1998: Marketing
authorisation granted

2002: Marketing
authorisation granted
to Cialis by Eli Lilly

2009: Sildenafil Actavis
granted MA, and
marketed in Bulgaria

2013: Generic
entry by multiple
manufacturers

326

Viagra by Pfizer (2/2)
ORIGINATOR COMPETITION

In 2002, another medicinal product was granted a
marketing authorisation, approved for the treatment
of erectile dysfunction. The marketing authorisation
holder is Eli Lilly, which markets the medicine under
the name Cialis.13

Cialis contains the active ingredient Tadalafil and in
2016 achieved sales of USD 2.47bn.14 In comparison,
Viagra reported sales of USD 1.56bn in 2016.15
However, it should be noted that in 2016 Viagra
faced generic competition in the EU, while Cialis did
not since its SPC is due to expire in 2017.1
Nevertheless, this represents a case in which a
medicinal product has faced competition from
another originator medicinal product. Competition
will tend to drive prices down, lowering the revenue
generated by the companies selling in the market.

GENERIC ENTRY

In 2009, several generics were granted marketing
authorisation; Sildenafil Actavis, Sildenafil
ratiopharm, Sildenafil Teva and Vizarsin10.

EFFECT ON PRICES FROM
GENERIC ENTRY

The swift entry of several generic versions following
the expiry of the protection will tend to reduce prices
and decrease profits for the developing company.
In the UK, prices for medicinal products containing
Sildenafil have decreased from GBP 10 a pill to
around GBP 1 a pill, following generic entry.8

MAIN INSIGHT

The case of Viagra highlights the importance of the
SPC, which in this case extended the protection by 2
years. Following its expiry, generic entry was rapid
and caused prices to fall substantially.
Secondly, the peculiar development story shows the
possibility of a medicinal product being repurposed,
as was the case when Sildenafil – the active
ingredient in Viagra – was found to be effective in
treating pulmonary arterial hypertension and
marketed as Revatio (see separate case study on
Revatio).

In 2013, as the protection period expired in several
key countries in the EU, Teva Pharmaceuticals was
the first to launch a generic version of Viagra in these
markets.7
There are currently four generic versions of Viagra
with marketing authorisations in the EU.10

327

Revatio by Pfizer (1/2)
INDICATIONS

authorisation for Viagra in the EU in 1998.2

Revatio contains the active ingredient Sildenafil and
is approved for the treatment of pulmonary arterial
hypertension (PAH) for adults and children above
the age of 1.4 PAH is abnormally high blood pressure
in the arteries of the lungs.1

Notably, the same active ingredient is found in
Viagra, another medicinal product marketed by
Pfizer.2 In fact, the only differences between Revatio
and Viagra at the time of initial authorisation was the
film-coat and shape of the tablets and the debossing
(markings on the tablet).7
Between 2009 and 2016 the total revenue from
Revatio was USD 3.1bn10.

DEVELOPMENT TIME AND
PROTECTION

The patent for Sildenafil is held by Pfizer and was
first filed in 19913. Pfizer obtained a marketing

This reflects a relatively short development time of 7
years, cf. section 1.4.2.
The patent for Sildenafil was granted an SPC in
various EU member states which expired in 2013.3
The marketing authorisation for Revatio was granted
in 2005.1 This reflects a development time as defined
in this report of 14 years.
However, Revatio is a repurposed medicinal product
in the sense that it represents the use of a known
compound (Sildenafil, active ingredient in Viagra) for
a new indication (PAH). This will tend to increase the
time from patent to marketing authorisation,
however, it may not be an accurate representation of
the time spent in active development of the
medicinal product for the new indication.

PAEDIATRIC USE

A paediatric investigation plan has been initiated and
is due to be completed in 2017.8 This would
ordinarily trigger a 2-year extension of market
exclusivity; however, since market exclusivity
expired in 2015, Pfizer will not be able to benefit
from a paediatric extension.

ORPHAN DESIGNATION

Revatio was designated as an orphan medicine in
2003.1 It was granted a marketing authorisation in
2005 and withdrawn from the orphan register in
2015, following the end of the 10-year exclusivity
period.1
The orphan designation and implied market
exclusivity are particularly important in this case
since the SPC for the active ingredient Sildenafil
expired in 2013. Market exclusivity thus gave Pfizer
another 2 years of protection for Revatio.

TIMELINE
1991: Patent
filed
2003: Orphan
designation

2005: Revatio granted
marketing
authorisation in the EU

2013: Expiry of SPC
(granted on the basis
of Viagra MA)

2011: Expiry of patent

2016: Mylan and
Accord granted
marketing
authorisations for
generic versions

2015: Revatio
withdrawn from
orphan register

328

Revatio by Pfizer (2/2)
GENERIC ENTRY

In 2016, a generic version of Revatio called
Mysildecard was granted a marketing authorisation
in the EU.5 The marketing authorisation holder is
Mylan S.A.S.
Also in 2016, Accord Healthcare was granted a
marketing authorisation for Grandipam, its generic
version of Revatio.6

THE DEVELOPMENT OF REVATIO

Starting from 1986, Sildenafil was originally
developed as a medicinal product to treat
hypertension. In the process, the focus turned to
treatment of angina, which is chest pain related to
coronary heart disease. Trials for the treatment of
angina were disappointing, however male
participants reported penile erections as an
unexpected side effect.
This led to the development of Viagra, targeting
erectile dysfunction9 (See case study on Viagra).
As knowledge of Sildenafil increased, a role in the
treatment of PAH was postulated, leading to
research in this direction, which culminated with the
approval of Revatio.9

MAIN INSIGHT

The story of the development of Revatio is
interesting since it highlights the implication of

market exclusivity. In 2005, as Revatio was granted a
marketing authorisation, the SPC for Sildenafil was
due to expire in 8 years.

the profitability of treating the disease in the
particular case.

This is due to the fact that Revatio represents a
repurposing of an already known molecule. This
should tend to make the R&D costs lower than for a
completely new molecule. However, clinical trials
still have to be undertaken to ensure data proving
safety, efficacy and quality in treating the new
indication. We have not identified data sources that
allow us to quantify the possible differences in costs
between development of an ‘original’ molecule
compared with repurposing of said molecule for a
new use.
Because of orphan market exclusivity, Revatio had 10
years of protection from competition in the
treatment of PAH.
This influences the business case for the
development of Revatio since a longer protection
period will tend to imply a larger reward. In addition,
protocol assistance and fee reductions because of the
orphan designation lowered the costs of introducing
Revatio on the market.
Whether or not these orphan incentives were
decisive in this specific case is, of course, uncertain
as it depends on the specific costs of bringing Revatio
to the market, as well as the expectations regarding

329

Cystadrops by Orphan Europe (Recordati Group) (1/2)
INDICATIONS

Cystadrops is an eye-drop solution containing the
active substance Mercaptamine, also known as
Cysteamine.1
Cystadrops is approved for the treatment of corneal
cystine crystal deposits in adults and children from 2
years of age with cystinosis.6 Cystinosis is an
inherited disease, where cystine builds up in the
body, forming dangerous crystals particularly in the
kidneys and eyes.1 Cystadrops reduces the build-up
of these crystals in the eyes.
Cysteamine was first developed and patented by
researchers at University of California San Diego
(UCSD), who have since licensed out the rights to
develop and market medicinal products based on
this patent to the pharmaceutical company Raptor in
exchange for royalties.2

TIMELINE
2008: Orphan
designation

2017: Marketing
authorisation
granted

PAEDIATRIC USE

Through clinical trials, the safety and efficacy of the
use of Cystadrops in the paediatric population above
the age of 2 have been established.1 Conditional on a
final positive compliance check, the studies
undertaken as part of a paediatric investigation plan
can entitle the medicinal product to a 2-year
extension of orphan market exclusivity.

ORPHAN DESIGNATIONS AND
MARKETING AUTHORISATION

Cystadrops was granted an orphan designation in
2008 for the treatment of corneal cystiniosis.5
Nine years later, in 2017, the medicinal product was
given a marketing authorisation in the EU.1
Because of the MA as an orphan medicinal product,
Orphan Europe has market exclusivity for 10 years
following the marketing authorisation.

OTHER MEDICINAL PRODUCTS
TREATING CYSTINOSIS

Cysteamine is the active ingredient in a number of
medicinal products, including Cystagon, which was
granted a marketing authorisation in 1997, for which
Orphan Europe is also the marketing authorisation
holder.4
In 2013, a marketing authorisation was granted to
Procysbi3, which was deemed an improvement over
Cystagon since patients only had to take it every 12
hours, compared to every 6 hours with Cystagon,
which improves compliance with the treatment as
well as the quality of life of patients.
Procysbi is marketed in Europe by Chiesi, which
bought the right to market the medicinal product in
Europe from Horizon Pharma in 2017 for an upfront
payment of USD 72.2m, with potential additional
payments based on sales.10
2029: Expiry of 2-year extension
due to paediatric investigation
plan conditional on a positive
compliance check

2027: Expiry of 10-year
market exclusivity

330

Cystadrops by Orphan Europe (Recordati Group) (2/2)
REJECTION OF MARKETING
APPLICATION

Notably, an orphan designation for a medicinal
product with the same indication was also granted to
Lucane Pharma in 2014.5 Lucane Pharma applied for
a marketing authorisation in 2015, which was
rejected by the CHMP.7
The grounds for refusal were a lack of data on
efficacy of the concentration of mercaptamine in the
Dropcys solution as well as concerns about other
ingredients in the medicine.7

MAIN INSIGHT

As part of the assessment of Cystadrops, the CHMP
found that Cystadrops represented a significant
benefit to patients, and that it was not similar to
Procysbi in the sense of Article 3(3, b) of Regulation
(EC) No 847/200.8,9 Concerning the similarity of the
medicinal products, the article reads as follows:
‘similar medicinal product’ means a medicinal
product containing a similar active substance of
substances as contained in a currently authorised
orphan medicinal product, and which is intended
for the same therapeutic indication;

cystine crystal deposits.8
Hence, although both medicines are used for the
treatment of the same disease (cystinosis), each
medicine targets different parts of the body which
are affected by the disease.

This meant that Cystadrops was able to obtain an
orphan designation and a marketing authorisation,
and benefit from the orphan incentives, including 10year market exclusivity.
At a glance, this might seem surprising, given that
prior medicinal products also treated cystinosis, but
since they treated markedly different symptoms, the
introduction of Cystadrops was deemed to constitute
a significant benefit to patients. As such, this shows
how competition within the area of orphan medicinal
products is possible, even within the 10-year period
of market exclusivity.

Procysbi is administered orally and reduces
intracellular cystine accumulation in non-corneal
tissues. Procysbi does not reach the cornea and has
no effect there.8 Cystadrops, on the other hand, is
specifically approved for the treatment of corneal

331

Tobi Podhaler by Novartis (1/2)
INDICATIONS

Tobi Podhaler contains the active ingredient
tobramycin.1 The medicinal product is approved for
the suppressive therapy of chronic pulmonary
infection due to pseudomonas aeruginosa in adults
and children aged 6 years and older with cystic
fibrosis.2 The disease is an infection of the lungs,
caused by the bacteria P. aeruginosa.

DEVELOPMENT TIME AND
PROTECTION

The first patent for tobramycin was filed in 2001 by
Chiron Corporation3. Novartis bought Chiron
Corporation for USD 5.4bn in 20068.
Novartis was granted a marketing authorisation for
Tobi Podhaler in 2011,1 implying a development
period of 10 years. This is a relatively common

development time, as can be seen by referring to
section 1.4.2
An SPC has been granted in some member states,
with applications pending in others. They are due to
expire in 2026, which means that the effective
protection period from the first patent and SPC will
be 15 years.3
Including all patents and protection schemes, the
average effective protection period across countries
is 14.2 years. It is initially surprising that protection
from secondary patents do not extend beyond the
expiry of the SPC in countries where it has been
granted. However, here it is important to keep in
mind that the calculation of the effective protection
period from secondary patents is done as an average

TIMELINE
2006: Sponsorship of
orphan designation
transferred to Novartis

2001: Patent
filed

2003: Orphan
designation

2011: Marketing
authorisation
granted

2015: Marketing
authorisation granted for
Vantobra

across countries. If secondary patents are not filed in
some countries, and an SPC has not been given in
certain countries, this lowers the average. There are
7 patents protecting Tobi Podhaler9.

ORPHAN DESIGNATION

In 2003, an orphan designation was granted for
tobramycin for the treatment of pseudomonas
aeruginosa, due to the rarity of the disease. Initially,
it was granted to Chiron Corporation, but
sponsorship was transferred to Novartis in 2006.4

PAEDIATRIC USE

A PIP has been completed, and as a result a 2-year
extension of market exclusivity has been granted6.

2021: Patent expires

2026: Expiry of SPC

2023: Market exclusivity
due to paediatric extension
expires

† The authorisation of a hybrid medicine depends partly on results of tests on the reference medicine (here Tobi), and partly on new data from

clinical trials.
* The nebuliser changes liquid medicine into a mist that is then inhaled by the patient. 332

Tobi Podhaler by Novartis (2/2)
HYBRID MEDICINE ENTRY

In 2015, German-based pharmaceutical company
Pari received a marketing authorisation for
Vantobra. Vantobra is a hybrid medicine†, containing
the same active ingredient as Tobi Podhaler.
However, Vantobra contains a higher concentration
of the active ingredient and is inhaled using a
different kind of nebuliser.5
According to the EMA, Vantobra was approved
because the CHMP concluded that Vantobra was
clinically superior to Tobi Podhaler, due to greater
safety in a substantial part of the population7.
Additionally, Vantobra is useful as an alternative to
patients who cannot tolerate the dry powder form of
tobramycin (i.e. Tobi Podhaler). Finally, the time it
takes to inhale Vantobra is shorter than for other
tobramycin nebulisers, which increases the
likelihood that patients keep to their treatment.5

MAIN INSIGHT

demonstrating to the CHMP that Vantobra was
clinically superior to the existing medicine, i.e. Tobi
Podhaler by Novartis.
This highlights the notions that when deciding
whether or not to begin development of a potential
orphan medicinal product, companies must take into
account the possibility that another company will
introduce a superior medicinal product, thus gaining
access to the market before the expiry of the market
exclusivity period.
This creates uncertainty about the revenue that a
company can expect from its investment, even if the
investment is initially successful in the sense that the
medicine obtains a marketing authorisation.
However, it is obviously for the benefit of patients
that they always have access to the best possible
treatment.

For a competitor to enter the market for the
treatment of an orphan indication for which an
approved medicinal product already exists, the
competitor needs to meet higher requirements than
the original developer as it can only obtain a
marketing authorisation if “…the second applicant
can establish in the application that the second
medicinal product, although similar to the orphan
medicinal product already authorised, is safer,
more effective or otherwise clinically superior”*.
In the case of tobramycin for the treatment of
Pseudomonas aeruginos, Pari succeeded in
obtaining a marketing authorisation by

* Regulation (EC) No 141/2000, Article 8(3c). The second applicant can likewise obtain a marketing authorisation if the current marketing holder
gives consent or if the current marketing authorisation holder is unable to supply sufficient quantities of the medicinal product. 333

Glivec by Novartis (1/2)
INDICATION

Glivec is an anti-cancer medicine, containing the
active ingredient imatinib.1 Glivec has been
authorised for a range of indications. Specifically,
Glivec treats various types of blood cancer and
cancers affecting the stomach and bowels. The
specific indications for which Glivec has been
approved can be seen under orphan designations.
From 2001 to 2017 total revenue for Glivec
amounted to USD 50.42bn.12

DEVELOPMENT TIME AND
EFFECTIVE PROTECTION PERIOD

Imatinib was first patented by Novartis in 19932.A
marketing authorisation for Glivec was granted in
20013, indicating a development time of 8 years.
The first patent is set to expire in 2013, however

SPCs have been granted in several Member States,
extending the protection until 2016.2

PAEDIATRIC USE

A PIP has been conducted, leading to a 6-month
extension, such that the effective protection period
from the first patent and SPC is 15 years. 2,4

ORPHAN DESIGNATIONS

Glivec is no longer an orphan medicine, however, it
has previously been designated and granted a
marketing authorisation as an orphan medicine for
five different indications (year of authorisation in
brackets):
• Treatment of chronic myeloid leukaemia (2001)
• Treatment of malignant gastrointestinal stromal
tumours (2002)

• Treatment of dermatofibrosarcoma protuberans
(2006)
• Treatment of acute lymphoblastic leukaemia
(2006)
• Treatment of chronic eosinophilic leukaemia and
hypereosinophilic syndrome (2006)
• Treatment of myelodysplastic/myeloproliferative
diseases (2006).
Glivec for the first indication above was removed
from the orphan register in 2011, at the end of the
10-year exclusivity period. Glivec for all other
indications was removed from the orphan register in
2012 at the request of Novartis.1

TIMELINE

1993: Patent filed

2002: Marketing
authorisation as orphan
medicine:
Treatment of malignant
gastrointestinal stromal
tumours

2001: Marketing
authorisation granted in
the EU for the indication:
Chronic myeloid
leukaemia

2006: Marketing authorisation as an orphan medicine for the
following indications:
1. Dermatofibrosarcoma protuberans
2. Acute lymphoblastic leukaemia
3. Chronic eosinophilic leukaemia and hypereosinophilic
syndrome
4. Myelodysplastic/myeloproliferative diseases
2012: Glivec withdrawn
from orphan register

2016: Expiry of 6-month
extension due to paediatric
research

2011: Market exclusivity
expires for chronic
2013: Patent expiry
myeloid leukaemia
indication

2016: SPC expiry

334

Glivec by Novartis (2/2)
WITHDRAWAL FROM ORPHAN
REGISTER AND APPLICATION FOR
6-MONTH EXTENSION

In 2013, Novartis applied for a 6-month extension of
its SPC, which was eventually granted in several
member states.2 This application was possible
because Glivec had already been removed from the
orphan register. The withdrawal of the medicinal
product from the orphan register made it possible
for Novartis to apply for the 6-month extension for
all indications. However, it also meant that it
forfeited the possibility of a 2-year extension of
market exclusivity. In the end, Glivec, for the
treatment of all indications for which it had been
approved, enjoyed protection for another 6 months,
but the indications for which Glivec received
marketing authorisation in 2006 did not obtain the
2-year extension that would have potentially
extended market exclusivity until 2018.

NOVARTIS VS TEVA

At the beginning of 2016, as the expiry of the SPCs
drew close, Teva challenged the validity of the 6month extension from the PIP, arguing that this
extension was invalid because Glivec had previously
been an orphan medicinal product.
However, courts in both the Netherlands and Italy
ruled in favour of Novartis, noting that firstly
Novartis had not already benefitted from the 2-year
extension available to orphan medicines, and that
secondly the paediatric extension was granted after
Glivec had been withdrawn from the orphan register
5,6.

This creates judicial precedence for the practice of
withdrawing pharmaceuticals from the orphan
register and later obtaining the 6-month extension of
the SPC as a reward for undertaking paediatric
studies.

GENERIC ENTRY

There are currently four generic versions of Glivec,
all of them granted marketing authorisations in
2013. These are Imatinib Teva, Imatinib Accord,
Imatinib Actavis and Imatinib Medac.7

TASIGNA

In 2006, Novartis received an orphan designation for
Nilotinib for the treatment of chronic myeloid
leukaemia (CML),8 an indication for which Novartis
had held marketing authorisation for imatinib since
2001.
In 2007, Novartis then gained authorisation for
Nilotinib, with the brand name Tasigna.8
Tasigna is approved for the treatment of adult
patients with newly diagnosed CML in the chronic
phase as well as chronic or accelerated-phase CML
with resistance or intolerance to prior therapy,
including imatinib9 (which is the active ingredient in
Glivec and its generic versions).
When the marketing authorisation was
recommended by the CHMP, it noted that the
medicinal product was considered similar to Glivec,
but that the holder of the marketing authorisation
for Glivec (Novartis) had given consent to the

applicant (also Novartis).
Note that the CHMP has adopted a positive opinion
regarding an extension of the indication to include
paediatric use in both indications described above.
This follows a paediatric investigation plan that was
concluded with a positive compliance check.10

MAIN INSIGHTS

The circumstances surrounding Glivec are important
as this is the first case involving the withdrawal of a
medicinal product from the orphan register in order
to apply for the paediatric 6-month extension to the
SPC.
The ruling that this is allowed creates judicial
precedence for the practice, which has been seen in
other cases as well (see case study on Tracleer on pp.
338-339).
This naturally leads to the question of whether or not
this access for companies to choose between
incentives was, in fact, in line with the intentions
behind the legislative framework. This case might be
an example of a situation where companies
responded to legislation in an unintended way, i.e.
withdrawing from the orphan register to obtain an
SPC extension. In the case of Glivec, both orphan
incentives, SPC and the paediatric extension of the
latter, were combined during the life-cycle of the
product. In total from 2001 to 2017, total revenue for
Glivec amounted to more than USD 50bn.12

335

Cometriq/Cabometyx by Ipsen (1/2)
INDICATIONS

Cometriq and Cabometyx are both cancer medicines
containing the active ingredient cabozantinib.1,2 In
Europe, both medicinal products are marketed by
Ipsen, under a licensing agreement with Exelixis.4
Ipsen paid USD 200m upfront, for the rights to
cabozantinib outside the US, Canada and Japan, with
the possibility of further milestone payments9. In
2015-2017 total revenue for cabozantinib was USD
518.6m10. What sets these medicinal products apart
is the fact that although both medicines contain the
same active ingredient and have the same marketing
authorisation holder, Cometriq is an orphan
medicinal product, while Cabometyx is not.
Cometriq is used to treat adults with medullary
thyroid cancer. Specifically, Cometriq is used in cases
where the cancer cannot be removed by surgery and
has progressed or spread to other parts of the body.1
Cabometyx is used to treat adult patients with
advanced renal cell carcinoma (cancer of the
kidney).2

DEVELOPMENT TIME AND
PROTECTION

The first patent was filed in September 2004.3 Where
an SPC has been granted, it is due to expire in March
2029.
A (conditional) marketing authorisation for Cometriq
was granted in the EU in March 2014,1 implying a
development time of almost 10 years, and an
effective protection period from the first patent and
SPC of 15 years.
The marketing authorisation was conditional, which
means that there is more evidence to come
concerning the medicine, which the company is
required to provide.
A marketing authorisation for Cabometyx was
granted in September 2016,2 which implies a
development period of 12 years, and an effective
protection period from the first patent and SPC of 13
years.

As an MA for a second indication bringing significant
clinical benefit was obtained within the first 8 years,
an additional year of protection is granted to
Cabometyx.
In summary, Ipsen was first granted a marketing
authorisation for the use of this medicinal product as
an orphan. Then, 2 years later, an additional
marketing authorisation was granted for Cabometyx.

PAEDIATRIC USE

A paediatric investigation plan for Cometriq is due to
be completed in 2023, after having been granted a
deferral by the EMA.7
For Cabometyx, the EMA has waived the obligation
to submit results of studies with Cabometyx in the
paediatric population.8

TIMELINE
2004: First patent
filed

2009: Cometriq
designated orphan
medicine

2014: Marketing
authorisation granted
for Cometriq

2016: Marketing
authorisation granted
for Cabometyx

2024: 10-year market
exclusivity for Cometriq
due to expire

2029: SPC due to
expire

2024: First patent due
to expire

336

Cometriq/Cabometyx by Ipsen (2/2)
COMETRIQ: ORPHAN MEDICINAL
PRODUCT
In 2009, Cometriq was designated as an orphan
medicine due to the rarity of the disease.1
This designation means that the company has
benefitted from incentives relating to orphan
medicinal products, such as fee reductions and
scientific advice (protocol assistance).
It is an important point that even though Cometriq
and Cabometyx contain the same active ingredient,
the benefits described above are specific to Cometriq
in the sense that they do not apply to the
development of Cabometyx, nor do they directly
affect the costs associated with the development of
Cabometyx.

The marketing authorisation for Cabometyx does not
change the effective protection period from the first
patent for Cometriq, as the new medicinal product is
covered by the same patent, and the SPC relates to
the active ingredient.
Note that according to Article 3(c) of the SPC
regulation, it is a condition for the granting of an SPC
that the product has not already been granted a
certificate.6 In Article 1(b) of the same regulation, the
product is defined as the active ingredient or
combination thereof in the medicinal product.
Since the two medicines in this case contain the same

active ingredient, the second medicinal product does
not appear to be able to obtain an SPC.5 In this
particular case, the timing of the authorisations
further implies that even if an SPC could have been
granted for the second medicinal product, it would
not have extended beyond the first SPC since the first
SPC already had the maximum possible extension of
5 years.
In conclusion, the authorisation of Cabometyx
expanded the breadth of the market in the sense that
more indications could be treated, but did not extend
the effective protection period.
A new indication implies another opportunity to
generate revenue for the marketing authorisation
holder. It also implies that more patients can be
treated using the same medicine.

the first medicinal product. However, new clinical
trials will, of course, have to be undertaken, and
these account for a large share of the total costs
related to bringing a new medicinal product onto the
market.
Furthermore, the ex ante evaluation of the
investment changes if the MAH has information
indicating that the medicinal product is likely to be
effective in treating the second indication. This can
be the case, for instance if there is information on
effective off-label use. This leads to an increase in the
probability that the investment will be successful in
the sense that it will lead to a marketing
authorisation and therefore additional revenue for
the company.

MAIN INSIGHT

It is worth briefly examining the decision made by
the marketing authorisation holder to go for a second
indication. On the one hand, since the second
medicinal product is covered by the same patent as
the first medicinal product and does not seem to be
able to obtain a separate SPC, the effective protection
period will be shorter by the interval between the
marketing authorisations.

On the other hand, some of the costs usually
associated with developing a medicinal product have
already been incurred in the process of developing

337

Tracleer by Actelion (1/2)
INDICATIONS

Tracleer contains the active ingredient bosentan and
is used to treat patients with pulmonary arterial
hypertension (high blood pressure in the arteries of
the lungs) as well as the autoimmune disorder
systemic sclerosis.1 In 2016, global sales of Tracleer
amounted to USD 1.03bn.8

DEVELOPMENT TIME AND
PROTECTION

The patent for bosentan was filed in June 1992 by
Roche, which is still the owner of the patent.2
In 1997, during a restructuring of the cardiovascular
therapy area, Roche decided to terminate further
development of some compounds. This included
bosentan, whose indication was deemed too small for
Roche’s portfolio strategy.3

A number of Roche employees were given
permission to spin off the research programme into a
separate company that became Actelion.
Roche retained intellectual property rights and outlicensed bosentan to Actelion.3 Under the terms of
the agreement, Roche receives a cut of sales of
almost 10%.4
The licensing agreement benefitted both parties to
the deal. Roche profited from a compound that
would have otherwise not been developed, without
incurring the usual risk.
Tracleer was granted the first marketing
authorisation in May 2002, which implies a
development time of almost 10 years.1

The first patent is set to expire in 2012, however,
SPCs have been granted in many Member States. The
majority of these expired in February 2017, with the
remainder expiring in May or June the same year.2
Additionally, Tracleer received 6-month extensions
in several Member States due to studies undertaken
as part of a paediatric investigation plan. In most
Member States, this extension expired in August
2017.2 This implies a protection period from patent
and SPC of around 15 years.

PAEDIATRIC USE

In March 2014, a positive compliance check was
adopted by the PDCO. In November, the EMA issued
the compliance statement.7

TIMELINE
1992: First patent
filed by Roche

2002: Marketing authorisation
for the treatment of PAH and
chronic thromboembolic
pulmonary hypertension

2001: Orphan designation
for treatment of PAH and
2003: Orphan
chronic thromboembolic
pulmonary hypertension designation
for systemic
sclerosis

2007: Marketing
authorisation for the
treatment of systemic
sclerosis

2012: Expiry of first
2014 (mar.):
patent as well as
market exclusivity for Positive
compliance
first orphan
check of PIP
designations

2017 (aug): Expiry of 6month extension to
SPC due to paediatric
studies

2017: Expiry of SPC
2014 (apr.): Withdrawal
from orphan register

338

Tracleer by Actelion (2/2)
ORPHAN MEDICINAL PRODUCT

In 2001, orphan designation was granted to Actelion
for bosentan for the treatment of pulmonary arterial
hypertension (PAH) and chronic thromboembolic
pulmonary hypertension.5 A marketing authorisation
came the following year.

In 2003, orphan designation was granted to
bosentan for the treatment of systemic sclerosis.6 A
marketing authorisation for this indication was
granted in 2007.
In 2012, at the end of the 10-year market exclusivity
period, Tracleer for the first indication was
withdrawn from the orphan register.1 Tracleer for the
second indication was withdrawn from the register in
2014, at the request of the marketing authorisation
holder (Actelion).1

MAIN INSIGHT

By withdrawing from the register, Actelion was able
to benefit from the paediatric extension to the SPC,
as per the ruling in the Novartis vs Teva case
described in the case study on Glivec. Notably
however, the withdrawal from the orphan register
happened prior to the conclusion of that case (in
2016).

Actelion thus lost the opportunity to obtain the
paediatric 2-year extension to the market exclusivity
period afforded by the orphan status. Had they not
withdrawn from the orphan register and been
granted the 2-year extension, market exclusivity for
systemic sclerosis would have extended to 2019,
whereas the extension of the SPC expires in 2017.
This might indicate an assessment by the company
that the ‘wider’ protection granted by the SPC (more
indications are covered) was more valuable than the
‘longer’ protection granted by the extension of the
market exclusivity period (only treatment of systemic
sclerosis covered).
Again, this leads to the question of whether or not
this practice of choosing between incentives is in line
with the intentions behind the legislative framework.
However, the product has been approved for use in
the paediatric population, and as such it seems that
the incentive for completing a PIP has worked in this
case.

The reason for the withdrawal before obtaining an
extension of the SPC is that the 6-month paediatric
extension to the SPC and the 2-year paediatric
extension to the market exclusivity period for orphan
medicinal products are mutually exclusive.
By withdrawing from the orphan register, and
applying for a 6-month extension to the SPC,

339

5.4 GENERICS

Losec by AstraZeneca (1/2)
Losec is a proton pump inhibitor (PPI) medicine
marketed by AstraZeneca. Losec contains the active
ingredient omeprazole.1 In the US, Losec is marketed
as Prilosec.7

INDICATIONS

Losec is approved for the treatment of a wide range
of indications:1
• Duodenal ulcers, including prevention of relapse.
• Gastric ulcers, including prevention of relapse.
• H. pylori eradication in peptic ulcers (in
combination with appropriate antibiotics).
• NSAID-associated gastric and duodenal ulcers,
including prevention in at-risk patients.
• Reflux esophagitis, including the long-term
management of patients with healed reflux
esophagitis.
• Symptomatic gastro-esophageal reflux disease.
• Zollinger-Ellison syndrome.
In general, Losec and other PPIs slow or prevent the

production of acid in the stomach.2

DEVELOPMENT TIME AND
PROTECTION

Losec (omeprazole) was originally developed by
Swedish pharmaceutical company Astra AB,3 which
merged with UK-based Zeneca in 1999 to form
AstraZeneca.4
The first patent for omeprazole was filed in April
1979.5 SPCs were granted and expired in late 2002.5

provision in Council Regulation (EEC) No 1768/92,
article 19*.
By 1996 the medicinal product had become the
world’s best-selling medicinal product, with an
estimated 200 million prescriptions and revenue of
USD 3.5bn.3

PAEDIATRIC USE

The medicinal product was launched in 1988,6 which
indicates a development period of 9 years, which is
within the ordinary range, as can be seen by referring
to section 1.4.2.

Losec is approved for the treatment of children with
the following indications:
• Reflux esophagitis.
• Symptomatic treatment of heartburn and acid
regurgitation in gastro-esophageal reflux disease.
• Duodenal ulcers caused by H. pylori (in
combination with appropriate antibiotics).

Even though the product was launched before the
SPC regulation entered into force in 1993 obtaining
an SPC was possible, due to the transitional

For the two first indications, it is approved for
children above the age of 1 weighing more than 10
kg, for the latter for children above the age of 4.

TIMELINE
1979: First patent
filed by Astra

1988: Launch of
the medicinal
product

2000: Launch of
Nexium

2002/2003: SPC
expired

1999: First patent
expired

* See also table on p. 181. 341

Losec by AstraZeneca (2/2)
NEXIUM

In 2000, AstraZeneca launched the PPI Nexium,
containing the active ingredient esomeprazole.13
Nexium represented an improvement over Losec,
and the market protection extended beyond the
protection for Losec (omeprazole).5

COURT CASE

SPCs beyond what was provided in the legislation.8
The European Court of Justice later ruled that the
withdrawal of the authorisation for the reference
product did not affect the validity of a marketing
authorisation applied for while the marketing
authorisation was still in force.14

In June 2005, the European Commission adopted a
decision fining AstraZeneca EUR 60m due to
infringements of Article 82 of the EC treaty and
Article 54 of the EFA agreement. 8 Both these articles
prohibit the abuse of a dominant market position.

In 2010, the fine was reduced to EUR 52.5m,
because “the Commission failed to prove that the
deregistration of the marketing authorisations in
certain member states was capable of having an
impact on parallel imports”.15

AstraZeneca was found to infringe these articles in
two ways.

In 2012, the Court of Justice of the European Union
upheld the decision made by the European
Commission.9

The first infringement related to the SPC system. By
making misleading representations to the national
patent offices, specifically related to the timing of the
marketing authorisation that forms the basis for the
term of the SPCs granted, AstraZeneca sought to
extend the protection from the SPCs beyond what it
was entitled to, thereby keeping generic versions out
of the market for longer, to the detriment of both
buyers and competitors. 8
The second infringement consisted of the
deregistration of marketing authorisations in select
countries at the request of AstraZeneca. By doing so,
it removed the reference marketing authorisation on
which generic firms needed to rely to enter the
market. The European Commission found in its
decision that by doing so AstraZeneca sought to
extend the protection afforded by the patents and

MAIN INSIGHT

By inventing and marketing a new improved version
of an older product, AstraZeneca can hope to obtain
a large share of the market. On the other hand, a new
improved version of the medicinal product is also
positive news for patients.
The patent protection for Nexium, which was an
improvement over Losec, expired in 2014, 35 years
after the original patent for Losec was taken out.

342

5.5 ANTIBIOTICS

Tygacil by Pfizer (1/2)
INDICATIONS

Tygacil is an intravenously administered antibiotic
containing the active ingredient Tigecycline.1
Tygacil is approved for the treatment of adults and
children above the age of 8, for the following
infections:3
• Complicated skin and soft tissue infections,
excluding diabetic foot infections.
• Complicated intra-abdominal infections.
In 2017 world wide sales of Tygacil amounted to USD
260m.8

DEVELOPMENT TIME AND
PROTECTION

The first patent for Tigecycline was filed in 1992 and
is held by Wyeth Holdings, a subsidiary of Pfizer.2
Tygacil was granted a marketing authorisation in the
European Union in April 2006,1 which indicates a
development period of 14 years.

The SPC covering Tigecycline expires in late 2017,2
however studies undertaken according to a
paediatric investigation plan imply a 6-month
extension,2 causing the protection period to end in
2018.
This implies an effective protection period from the
first patent and SPC of just under 12 years.
The relatively long development period thus means
that the company has a shorter time-span than many
of the other medicinal products studied in this
chapter in which to recoup its R&D investments and
make a profit.
Profits are only partly determined by the protection
period as prices play an important role as well.

TIMELINE

1992: Patent filed.

2007: Application to
extend indication to
cover communityacquired pneumonia

2006: Marketing
authorisation
granted

2008: Withdrawal of
application to extend
indication

2012: Expiry of patent

ORPHAN DESIGNATIONS

Tygacil is not designated as an orphan medicinal
product.5

PAEDIATRIC USE

Studies of Tygacil were undertaken according to a
paediatric investigation plan. As a result, Tygacil is
approved for use in children above the age of 8.3
However, clinical experience is limited, and use in
children is therefore limited to situations where no
alternative antibacterial therapy is available.3

GENERIC ENTRY (US)

In December 2016, the pharmaceutical company
Fresenius Kabi announced the launch of Tigecycline
for Injection in the US.6 This is a generic version of
Tygacil. No generic versions have obtained a
marketing authorisation yet in the EU.

2018: Expiry of 6-month
extension due to
studies undertaken
according to a
paediatric
investigation plan

2017: Expiry of SPC

344

Tygacil by Pfizer (2/2)
MAIN INSIGHT

In 2007, a year after the MA was granted, Wyeth
Holdings submitted an application to extend the
indication of Tygacil to include treatment of
community-acquired pneumonia.4

During the years 2014, 2015 and 2016 global revenue
for Tygacil have been USD 323m, USD 304m and
USD 274m respectively10.

However, in 2008 Wyeth Holdings withdrew this
application, stating that the withdrawal was based on
the CHMP’s opinion that the data provided did not
allow the committee to conclude a positive benefitrisk balance.4
In the US, the FDA approved the product for the new
indication, based on the results of clinical trials7,
however with severe warnings regarding mortality
risk9.
The clinical trials consisted of two randomized
double-blind studies including 859 patients in 28
countries.7
Naturally, the carrying out of such clinical trials
requires an investment on behalf of the company. In
this case, the investment did not lead to an extension
of the indication in the EU.
This illustrates the inherent uncertainty regarding
spending on R&D within the pharmaceutical sector.
In many cases, whether the given product will have a
positive benefit-risk balance for a new indication, is
naturally unknown before studies are undertaken. In
this case, the investment in clinical trials resulted in
an approval in the US, which yields a return. In the
EU there was no extension of the indication and
hence, no return on the investment.

345

Dificlir by Astellas Pharma
INDICATION

Dificlir contains the active ingredient fidaxomicin, an
antibiotic used to treat adults with certain infections
of the gut.1 Dificlir is marketed in the US as Dificid10.
Dificlir was discovered by Optimer Pharmaceuticals,
which entered into a collaboration and license
agreement regarding sale of Dificlir in Europe, the
Middle East and Africa, with Astellas Pharma in
201114. The agreement included a USD 68m payment
from Astellas to Optimer Pharmaceuticals, with
options for additional payments of up to USD 156m,
depending on achievement of agreed regulatory
milestones14.
Dificlir is approved for the treatment of adult
patients with Clostridium difficile infections, also
known as C. difficile-associated diarrhoea.7
Clostridium difficile is a bacterium that causes severe
diarrhoea and is resistant to most antibiotics. The
infection often arises subsequent to antibiotic
treatment for another infection.10
A major challenge when treating the infection is the
risk of recurrence, a risk which clinical studies

indicate Dificlir reduces, compared to the alternative
treatment Vancomycin. 10,11 This is a crucial fact as
Vancomycin is no longer patent-protected.
Total revenue for Dificlir in Europe, the Middle East
and Africa was € 14m and € 20m in 2014 and 2015
respectively13.

DEVELOPMENT TIME AND
EFFECTIVE PROTECTION PERIOD

Originally developed by Optimer Pharmaceuticals,
fidaxocimin was first patented in 2003.2 In 2011,
Optimer entered into a partnership with Astellas
Pharma to develop and market fidaxocimin in
Europe.3 A marketing authorisation was granted in
the EU the same year,4 implying a development time
of 8 years.

Optimer was acquired by Cubist in 2013, which was
again acquired by Merck the following year.5
SPCs have been granted in most member states, and
are due to expire in 2026.2 This will imply an
effective protection period from the first patent and

SPC of 15 years.

PAEDIATRIC USE

The safety and efficacy of Dificlir in the paediatric
population has not yet been established, and a
deferral has been granted.6,7

ORPHAN DESIGNATION

Dificlir has not been designated as an orphan
medicine in the EU8, however paediatric use was
orphan-designated in the US in 2010, but Cubist as
the sponsor of the designation has not yet been given
a marketing approval.9

MAIN INSIGHT

In a sense, Dificlir is approved for the treatment of a
disease for which a treatment already exists, namely
Vancomycin, which is, in fact, no longer patented.
However, it is important to keep in mind that by
performing better in terms of the risk of recurrence,
it is possible that Dificlir might be cost-effective even
if the price is higher than for the alternative.

TIMELINE
2003: Patent filed

2023: Patent due
to expire

2026: SPC due to
expire

2011: Marketing authorisation
granted in the EU

346

5.6 VACCINES

Cervarix by GSK Pharma (1/2)
INDICATIONS

Cervarix is a vaccine, containing human
papillomavirus (HPV) type-16 and type-18 L1
proteins.1 Cervarix is approved from the age of 9
years for the prevention of premalignant ano-genital
lesions and cervical and anal cancers causally related
to certain oncogenic HPV types.1

DEVELOPMENT TIME AND
PROTECTION

The patent behind Cervarix was filed in October
1999.2 Cervarix was granted a marketing
authorisation in the EU in September 2007,3
implying a development time of almost 8 years.
The SPC for Cervarix is due to expire in September

2022,2 leading to an effective protection period from
the first patent and SPC of 15 years.
Vaccines represent a case where multiple SPCs have
been applied for, relating to the same vaccine. For
Cervarix, a total of 162 SPC applications have been
filed, relating to 5 distinct products, and 7 distinct
basic (European) patents.9

ORPHAN DESIGNATIONS

Cervarix does not carry an orphan designation.

PAEDIATRIC USE

Cervarix is not recommended for use in children
below the age of 9.1

MULTIPLICITY OF SPCS

There are seven distinct basic European patents
related to Cervarix, and a total of 162 SPCs have been
applied for in 18 countries.9 This highlights how
vaccines seem to be distinct from other medicinal
products, where usually it is only possible to obtain
one SPC per country.
In many cases, vaccines are combinations of active
ingredients while likewise including adjuvants to
enhance the effect. This has presented challenges for
the IP-system regarding the granting of SPCs. The
issue has been debated extensively in the literature12.
The combination of more active ingredients as well
as adjuvants in the same vaccine is the reason for the
multiplicity of SPCs.

TIMELINE

1999: Patent filed

2007: Marketing
authorisation
granted

2019: Patent due to
expire

2022: SPC due to
expire

2016: CHMP adopts a positive opinion
recommending an extension to the existing
indication to include anal lesions and cancers
causally related to HPV

348

Cervarix by GSK Pharma (2/2)
COMPETITION WITH GARDASIL

In the market for vaccines for type-16 and type-18
HPV, Cervarix is in competition with Gardasil
produced by Merck.4

By 2005, Merck and GSK entered into a crosslicensing agreement, which gave both parties the
right to the patent rights related to HPV held by the
other. 10

Gardasil was given a marketing authorisation in the
EU in September 2006, a year prior to Cervarix.5
In addition to type-16 and type-18 HPV, Gardasil is
used for the prevention of type-6 and type-11 HPV.5

Under this agreement, GSK received an upfront
payment as well as royalties from Merck based upon
sales of the vaccine. Details of this financial
arrangement are not public.10

While global sales of Cervarix were EUR 90m in 2016
and EUR 98m in 2015,6 sales of Gardasil were
approx. EUR 1.8bn and EUR 1.3bn in the two years
respectively.7

This shows how licensing agreements are used in the
pharmaceutical sector to bring products from initial
discovery to the commercial market.

As of 2016, GSK no longer markets Cervarix in the
US.8 Gardasil was patented in 2000,2 with the SPC
due to expire in 2021.2

MAIN INSIGHT

The research underlying the vaccines Cervarix by
GSK Pharma and Gardasil by Merck was initially
developed by four different institutions; three
universities located in Australia and the US, and the
National Cancer Institute (NCI) in the US.11

Furthermore, it is interesting that 162 SPC
applications relating to Cervarix has been filed. This
is due to the fact that vaccines often are
combinations of active ingredients as well as
adjuvants. This has presented certain challenges for
the IP-system regarding the granting of SPC and is
the reason for the multiplicity of SPCs for vaccines 12.

Each institution filed patent applications in their
respective countries, and the IP rights were initially
licensed to Merck and MedImmune, while GSK later
acquired the IP rights related to HPV vaccines from
the latter. 11

349

Infanrix Hexa by GSK Pharma
INDICATIONS

Infanrix Hexa is a vaccine containing the following
active substances:1
• Toxoids from diphtheria and tetanus
• Parts of Bordetella pertussis
• Parts of hepatitis B virus
• Inactivated polioviruses
• Polysaccharides from the bacterium Haemophilus
influenzae type B.
The vaccine is used to protect infants under 3 years
of age from diphtheria, tetanus, pertussis, hepatitis
B, poliomyelitis (polio) and diseases caused by Hib
(e.g. bacterial meningitis)1.
Infanrix Hexa is a combination of vaccines
previously available in the EU.

DEVELOPMENT TIME AND
EFFECTIVE PROTECTION PERIOD

The vaccine was first patented in 1993.2 In 2000, a
marketing authorisation was granted to GSK.1 This
implies a development time of 7 years.
The SPCs granted expired in 2015,2 leading to an
effective protection period from the first patent and
SPC of 15 years.

one SPC per country.
As described on pp. 348-349, vaccines are often
combinations of active ingredients as well as
adjuvants, to enhance the effect. This has presented
challenges for the IP-system regarding granting of
SPCs and is the reason for the multiplicity of SPCs 4.

MAIN INSIGHT

There are three distinct basic European patents
related to Infanrix Hexa, SPCs have been filed in 14
different Member States, and a total of 36 related
SPCs have been applied for.3 This highlights how
vaccines seem to be distinct from other medicinal
products where it is usually only possible to obtain

TIMELINE

1993: Patent filed

2013: Patent expiry

2015: SPC expiry

2000: Marketing
authorisation in the EU

350

5.7 CONDITIONAL
MARKETING
AUTHORISATIONS

Sutent by Pfizer (1/2)
INDICATIONS

section 1.4.2.

Sutent is a medicinal product containing the active
ingredient Sunitinib.1 Sutent is approved for the
treatment of gastrointestinal stromal tumour (GIST),
metastatic renal cell carcinoma (MRCC) and
Pancreatic neuroendocrine tumours (pNET), as
described in the ‘summary of product characteristics’
by the EMA.3 Sutent was discovered by Sugen, which
was bought by Pharmacia in 1999 for USD 650m6. In
2003 Pfizer bought Pharmacia for USD 60bn7. In
2016 total revenue from Sutent amounted to USD
1.10bn.5

DEVELOPMENT TIME AND
PROTECTION

The first patent was granted in the EU in February
2001.2 In July 2006, Sutent was granted a
conditional marketing authorisation in the EU,
which was switched to a full marketing authorisation
in January the following year.1 This implies a
development time of 5 years (albeit until a
conditional MA). This is a relatively short
development time, as can be seen by comparing to

TIMELINE
2001: Patent filed

2007: Switch to full
marketing
authorisation

2006: Conditional 2008:
Marketing
Withdrawal from
authorisation
orphan register
granted by EC

The granted SPC is due to expire in 2021, implying
an effective protection period from the first patent
and SPC of 15 years. Note that since the development
period is only slightly longer than 5 years, the SPC is
relatively short. This in turn means that in this case
the SPC expires in the same year as the patent.
Including all patents and protection schemes, the
average effective protection period for Sutent is 16
years, which is not out of the ordinary, when
comparing to the histogram in section 1.4.2.
According to the EMA, Sutent was initially given a
conditional marketing authorisation “because there
was more evidence to come about the medicine, in
particular in the treatment of renal cell
carcinoma.”1
Conditional marketing authorisations are used for
medicinal products where the benefits of immediate
availability outweighs the risk of less comprehensive

data than usually required.3

PAEDIATRIC USE

Only limited data regarding the use in children has
been produced, implying that the safety and efficacy
of the medicinal product in the paediatric population
have not yet been established.4 However, a paediatric
investigation plan has been initiated. This may
explain the motivation behind the withdrawal of
Sutent from the orphan register since the 6-month
extension of the SPC cannot be applied for in the
case of orphan medicines, where a 2-year extension
of the market exclusivity can be obtained instead.

ORPHAN DESIGNATIONS AND
AUTHORISATIONS

Sutent was originally an orphan medicine approved
for the following indications: Treatment of renal cell
carcinoma and treatment of malignant
gastrointestinal stromal tumours. However, Sutent
was withdrawn from the register of orphan medicinal
products in July 2008, at the request of the
marketing authorisation holder.1

2021: Expiry of patent

2021: Expiry of SPC

352

Sutent by Pfizer (2/2)
The 2-year market exclusivity paediatric extension
and the 6-month paediatric extension of the SPC are
mutually exclusive. Because of the chronology of this
particular case, the 2-year market exclusivity
paediatric extension would not have caused the
effective protection period to be longer since it runs
from the expiry of the basic 10-year orphan market
exclusivity period.
An extension to the SPC on the other hand does
imply an extension of the effective protection period.

MAIN INSIGHT

heavy time discounting, the conditional MA can
therefore represent a significant benefit to the
company.
A conditional marketing authorisation implies earlier
market access without affecting the effective
protection period as long as the development time is
between 5 and 10 years, and this highlights an
important feature of the way the term of the SPC is
calculated, namely that the SPC compensates one-toone for the development time spent between the fifth
and the tenth year of development.

It is important to realise that the initial approval of a
conditional marketing authorisation does not extend
the effective protection period for products with a
development time of 5 to 10 years, since the SPC
compensates fully in this period. Rather, it allows the
company to market and generate revenue from the
medicinal product earlier than it would otherwise
have been able to. Correspondingly, patients benefit
by having access to treatment sooner.
In exchange for the earlier market access, the
company forfeits protection for an equivalent period
in the final stage of the protection period.
Since future profits are typically discounted to some
extent (i.e. EUR 1 today is worth more than EUR 1 in
a year’s time), this is for the benefit of the company.
As a 15-year time period would typically lead to

353

5.8 PAEDIATRIC-USE
MARKETING
AUTHORISATIONS

Buccolam by Shire (1/2)
INDICATIONS

Buccolam is approved for the treatment of
prolonged, acute, convulsive seizures in patients
between 3 months and 18 years of age, and is
exclusively to be used by patients diagnosed with
epilepsy.8 There are four age-specific products with
the same solution, but varying in terms of the
amount contained in the syringes. In 2017 world
wide sales of Buccolam was USD 47m.12

In 2013, ViroPharma was then acquired by Shire.7

PATENTS AND MARKETING
AUTHORISATION

Buccolam contains the active ingredient Midazolam.4
Midazolam was originally patented by Roche and
marketed as Hypnovel.5,6 The final protection for
Midazolam in the EU expired in 2005.5

Buccolam was the first paediatric-use marketing
authorisation (PUMA) to be approved in the EU.1
The PUMA was introduced by the Paediatric
Regulation entering into force in 2007.2 As of 2017,
only three paediatric-use marketing authorisations
have been granted.2

Buccolam was developed in a collaboration between
the two pharmaceutical companies Auralis and
Therakind. Auralis was acquired by ViroPharma in
2010 prior to the submission of the PUMA
application in August 2010.1

The stated goal of the PUMA concept is to incentivise
research into existing compounds that are off-patent
and/or to help transform off-label use into
authorised use that is safer and better-framed
through the marketing authorisation.2

The PUMA for Buccolam was approved in September
2011,1,4 4 years after the regulation allowing for a
PUMA was introduced into the regulatory
framework.

PAEDIATRIC-USE MARKETING
AUTHORISATION

A PUMA approval requires the following three
criteria be met:3
• The medicine is already authorised
• The medicine is no longer covered by a patent or an
SPC
• The medicine is exclusively developed for use in
children.
As described in section 1.1, a PUMA approval confers
an 8-year period of data protection, and a parallel 10year period of market protection.

PROCEDURE OF APPROVAL

The application was submitted in August 2010. The
centralised procedure began in September the same
year. The CHMP adopted a positive opinion in June
2011, and the PUMA was issued in September 2011.
This means that the centralised procedure took
approximately 12 months from application to
approval.

Timeline
2007: PUMA
introduced

2010: Submission of
application for
PUMA

2019: Data
protection due to
expire

2021: Market
protection due to
expire

2011: PUMA for
Buccolam
approved

355

Buccolam by Shire (2/2)
MAIN INSIGHT

In October 2017, the European Commission
published a 10-year report on the implementation of
the Paediatric Regulation.9 In this report, it is
described how the number of PUMA approvals (3) is
below expected levels. Furthermore, the report
outlines certain issues related to encouraging
companies to invest in additional research in known
compounds. The first of these is the worry that a
PUMA might not prevent physicians from
prescribing off-label competitor products with the
same active ingredient, but authorised for other
indications. Secondly, national healthcare payers are
seen to be hesitant in paying a premium price for
products authorised under the regulation regarding
PUMA products.2
As an example of this, in 2013 a medicines
management team within the National Health
Service (UK) recommended that practitioners
continued to prescribe the unlicensed medicinal
product Epistatus, which is similar to Buccolam.10
This recommendation may have partly reflected the
fact that the British National Institute for Health and
Clinical Excellence (NICE) estimated that the price
of one administration of Epistatus was 84% of the
equivalent price for Buccolam.11

356

5.9 SPCs across countries

SPCs across countries
On the following two pages we present tables with
information regarding SPCs across countries.
The tables present information on the expiration
date of SPCs in the individual countries, if an SPC
has been granted. If a granted SPC has a paediatric
extension, the expiration date of the extension is
presented. If an SPC has been applied for, but not yet
granted, this information is given in the table, along
with information stating whether an SPC application
has been rejected.
The data is extracted from the Alice de Pastors
dataset on SPCs based on the trade name of the
product.

ALICE DE PASTORS DATA

The information presented on the two following
pages is extracted from the Alice de Pastors database
on SPCs, which spans the period 1991 to April 2016.
The Alice de Pastors dataset contains data on SPCs,
published or made available to the public, by the
National Patent Offices in Patent Registers. The
database combines information from a range of
sources, such as patent journals, bulletins and
registers publicly available, in the individual
countries, to produce a coherent database,
containing information on SPCs.
The variables included in the database are e.g. the
name of the product, the given country, patent
number, date of patent commencement, SPC
number, SPC expiration date, whether the SPC has a
paediatric extension and if so, when it expires.

CAVEATS

Only countries where SPCs have been granted or
applied for, for at least one of the products in the
case studies have been included in the tables.
In some instances, more than one SPC in a given
country were recorded in the dataset. In these cases
only the SPC with the latest expiration date has been
included.
Only SPCs that were marked as “Granted”, “Applied”
or “Rejected” have been included1. Paediatric
extensions that where applied for, but not yet
granted, have not been included. In these instances,
the expiration date of the SPC is presented.
In some cases the SPCs have a different ‘titular’
across countries. A titular is the ‘owner name
published in the SPC’2. However, as some products
e.g. might have been developed in collaboration
between several entities, might have changed owner
several times during their lifetime or be part of a
licensing agreement, we have not used the ‘titular’ as
a selection variable. As such, there is a risk that some
included SPCs are not necessarily the ones held by
the company given in the case study as the company
marketing the medicinal product.

Furthermore, some entries in the database have the
tradename missing. This is a challenge, as it is not
possible to infer from other variables which product
the information pertains to. E.g. both Humira and
Trudexa have the international non-proprietary
name Adalimumab. As such, if the tradename is
missing, we do not know whether an observation
with Adalimumab as the international nonproprietary name in the dataset covers Humira or
Trudexa. Observations with missing tradenames
have hence not been included in the following tables.
As such, there is a risk that some SPCs are not
included in the table, because of missing information
regarding the tradename. Especially for the vaccines
Cervarix and Infanrix Hexa where other studies have
shown a rather large number of SPCs3 it is obvious
that not all SPCs are identified using the Alice de
Pastors dataset.

We have included all entries in the dataset which had
the exact given tradename of the product. E.g. the
product Infanrix has several entries with suffixes
such as ‘Hep’, ‘Penta’, ‘Tet’ and ‘Hex’. However, we
have only included entries where the recorded name
exactly matched ‘Infanrix Hexa’.

1 Some were marked with a “W”, which had no explanation in the documentation accompanying the dataset.
2 Documentation for the Alice de Pastors database.
3 See the individual case studies for a review of this. 358

Humira

Sovaldi

Austria

17/01/2029

Belgium

Applied for SPC

Herceptin

Enbrel

Revlimid

Imbruvica

Viagra

Tobi Podhaler

Glivec

01/08/2015*

Switzerland
Cyprus

28/08/2015

Czech Republic

Applied for SPC

Applied for SPC

Germany

SPC
application
rejected

Applied for SPC

Denmark

Applied for
SPC

Applied for SPC

Spain

16/04/2018

14/06/2022

Applied for SPC

01/08/2015*

21/06/2016
23/10/2029

29/07/2014

03/08/2015*

14/06/2022

31/07/2015*

17/06/2022

02/08/2015*

15/06/2022

22/06/2013

Applied for SPC

14/09/2013

07/05/2017*

23/06/2013

22/06/2016

Finland
France

17/01/2029

United Kingdom

SPC
application
rejected

Applied for SPC

Greece

09/09/2018

17/01/2029

Croatia

Applied for SPC

Hungary

Applied for SPC

Ireland

16/01/2029

Iceland

16/01/2029

Italy

15/04/2018

16/01/2029

Luxembourg

16/04/2018

17/01/2029

Latvia

Applied for SPC

Malta

17/01/2029

Netherlands

16/01/2029

Norway

16/04/2018

Poland
Portugal

08/09/2018

30/08/2015

Applied for SPC
31/07/2015*

28/08/2015

Applied for SPC

13/06/2022

01/08/2015*

13/06/2022

01/08/2015*

14/06/2022

23/10/2029

14/09/2013

08/05/2026

21/12/2016*

19/01/2014

Applied for SPC

21/12/2016*

23/10/2029

Applied for SPC

14/06/2022

Applied for SPC

14/06/2022

Applied for SPC

14/06/2022

Applied for SPC

Applied for SPC

21/12/2016*

29/07/2014

01/08/2015

Romania
Sweden
Slovenia

17/01/2029

Slovakia
* Paediatric extension 359

Cometriq

Tracleer

Losec

Tygacil

Dificlir

Cervarix

Infanrix Hexa

Sutent

Austria
Belgium
Switzerland
Cyprus
Czech Republic

14/05/2017

20/09/2022

26/03/2029

30/09/2017

Applied for SPC

Applied for SPC
SPC application
rejected

Germany
Denmark

SPC application
rejected

Applied for SPC

Spain

Applied for SPC

15/11/2017*

21/02/2018*

20/09/2022

SPC application
rejected

01/03/2017

22/08/2017

Applied for SPC

04/10/2015

19/07/2021

Finland

France
United Kingdom
Greece
Croatia
Hungary

Applied for SPC

02/04/2018*

Applied for SPC

Ireland

Applied for SPC

19/07/2021

07/03/2019

Iceland
Italy

22/03/2029

Luxembourg
Latvia

15/11/2017*
28/02/2017

21/02/2018*
16/11/2002

21/08/2017

07/12/2026

19/09/2022

02/10/2015

18/07/2021

20/09/2022

02/10/2015

19/07/2021

26/03/2029

24/07/2021

Malta
Netherlands
Norway

02/10/2017

Applied for SPC

19/07/2021

Poland

02/10/2017

SPC application
rejected

19/07/2021

21/02/2018*

20/09/2022

Portugal

Applied for SPC

28/08/2017*

02/10/2015

SPC application
rejected

Romania
Sweden

24/07/2021

27/08/2017*

SPC application
rejected

Slovenia
Slovakia

28/08/2017*
* Paediatric extension 360

CHAPTER 5 APPENDIX

References for Humira by AbbVie
1 https://www.Ipo.Gov.Uk/p-find-spc/p-find-spc-bypatent-results.Htm?Number=ep0929578&submit=go+%bb (Accessed 07.09.2017)
2 AbbVie (2016) annual report
3: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000481/WC500050870.pdf (Accessed 07.09.2017)
4: https://www.Gurufocus.Com/news/474854/abbvie-increases-price-of-humira (Accessed 07.09.2017)
5: http://www.Fiercepharma.Com/pharma/abbvie-s-ex-u-s-humira-sales-are-nearing-their-decline-but-there-s-no-need-to-panic-one (Accessed 07.09.2017)
6: http://www.Ema.Europa.Eu/docs/en_gb/document_library/epar_-_assessment_report_-_variation/human/000481/WC500186769.Pdf (Accessed
07.09.2017)
7: http://www.Fiercepharma.Com/legal/key-humira-patent-gets-struck-down-for-second-time-as-many-months (Accessed 07.09.2017)
8: https://www.Boehringer-ingelheim.Com/press-release/adalimumab-biosimilar-cyltezo-receives-fda-approva (Accessed 07.09.2017)
9: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/landing/orphan_search.jsp (Accessed 07.09.2017)
10: https://www.accessdata.fda.gov/scripts/opdlisting/oopd/listResult.cfm (Accessed 07.09.2017)

11: http://www.Biopharma-reporter.Com/markets-regulations/abbvie-humira-s-patent-maze-to-keep-us-biosimilars-at-bay-until-2022l (Accessed 07.09.2017)
12: http://www.Bigmoleculewatch.Com/2017/03/08/uk-court-invalidates-abbvie-humira-patents/ (Accessed 07.09.2017)
13: http://www.Biopharma-reporter.Com/markets-regulations/abbvie-s-humira-ip-having-chilling-effect-on-competition-uk-judge (Accessed 07.09.2017)
14: http://www.Biopharma-reporter.Com/markets-regulations/uk-high-court-rules-against-abbvie-in-humira-indication-patent-battle (Accessed 07.09.2017)
15: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004212/human_med_002081.jsp&mid=WC0b01ac058001d124
(Accessed 07.09.2017)
16: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004373/human_med_002076.jsp&mid=WC0b01ac058001d124
(Accessed 07.09.2017)
17: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004279/human_med_002147.jsp&mid=WC0b01ac058001d124
(Accessed 24.10.2017)
18: https://www.amgen.com/media/news-releases/2017/03/european-commission-approves-amgevita-biosimilar-adalimumab-for-the-treatment-of-certaininflammatory-diseases/ (accessed 24.10.2017)
19: https://www.accessdata.fda.gov/scripts/opdlisting/oopd/detailedIndex.cfm?cfgridkey=200905 (accessed 24.10.2017)
20: http://www.genengnews.com/the-lists/the-top-15-best-selling-drugs-of-2016/77900868 (Accessed 07.09.2017)
21: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/general/general_content_001832.jsp (accessed 06.11.2017)
22: Simoens, Stevens (2011) Biosimilar medicines and cost-effectiveness. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3169973/
23: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-lshc-biosimilars-whitepaper-final.pdf (accessed 06.11.2017)
24:http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004319/smops/Positive/human_smop_001192.jsp&mid=WC0b01ac0
58001d127 (accessed 17.11.2017)
25: https://www.boehringer-ingelheim.com/Marketing-Authorisation-granted-for-Cyltezo (accessed 17.11.2017)
26: http://www.pmlive.com/pharma_news/new_eu_and_us_approvals_for_humira_biosimilars_1203495 (accessed 30.01.2018)
27: EMA database on paediatric investigation plans
28: https://www.bloomberg.com/news/articles/2017-09-07/this-shield-of-patents-protects-the-world-s-best-selling-drug (accessed 30.01.2018)
29: https://www.forbes.com/sites/johnlamattina/2012/05/08/humira-could-have-been-a-pfizer-drug/#22d57e135f4f and
https://blog.bioindustry.org/2015/08/05/humira-the-worlds-top-selling-medicine-and-its-uk-heritage/ (accessed 10.05.2018)
362

References for Sovaldi by Gilead Sciences
1: http://www.who.int/phi/implementation/ip_trade/sofosbuvir_report_updated.pdf
(Accessed 18.10.2017)
2: https://register.epo.org/application?number=EP08732818&tab=main (Accessed 18.10.2017) and Alice de Pastors database of SPCs provided by the European
Commission
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002798/human_med_001723.jsp&mid=WC0b01ac058001d124
(Accessed 18.10.2017)
4: Alice de Pastors database of SPCs provided by the European Commission.
5: https://www.accessdata.fda.gov/scripts/opdlisting/oopd/detailedIndex.cfm?cfgridkey=541716
(Accessed 18.10.2017)
6: http://ec.europa.eu/health/documents/community-register/html/h894.htm
(Accessed 18.10.2017)
7:http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002798/smops/Positive/human_smop_001174.jsp&mid=WC0b01ac05800
1d127
(Accessed 18.10.2017)
8: http://www.reuters.com/article/us-gilead-europe-patent/gilead-hepatitis-c-drug-patent-faces-european-challenge-idUSKBN16Y1T4
(Accessed 18.10.2017)
9: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004210/human_med_001997.jsp&mid=WC0b01ac058001d124 (accessed
23.10.2017)
10: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/003850/human_med_001813.jsp&mid=WC0b01ac058001d124
(accessed 23.10.2017)
11: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004350/human_med_002153.jsp&mid=WC0b01ac058001d124
(accessed 23.10.2017)
12: http://www.ema.europa.eu/docs/en_GB/document_library/PIP_decision/WC500170798.pdf
(accessed 24.10.2017)
13: http://www.gilead.com/news/press-releases/2017/2/gilead-sciences-announces-fourth-quarter-and-full-year-2016-financial-results
(accessed 08.02.2018)
14: http://www.gilead.com/news/press-releases/2015/2/gilead-sciences-announces-fourth-quarter-and-full-year-2014-financial-results
(accessed 08.02.2018)
15: https://www.reuters.com/article/us-gilead-pharmasset/gilead-bets-11-billion-on-hepatitis-in-pharmasset-deal-idUSTRE7AK0XU20111121,
https://www.huffingtonpost.com/jeffrey-sachs/the-drug-that-is-bankrupt_b_6692340.html and http://investors.gilead.com/phoenix.zhtml?c=69964&p=irolSECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTk1Nzg0NzMmRFNFUT0xJlNFUT0zNSZTUURFU0M9U0VDVElPTl
9QQUdFJmV4cD0mc3Vic2lkPTU3
(accessed 26.04.2018)
16: http://www.who.int/phi/implementation/ip_trade/sofosbuvir_report.pdf (accessed 10.05.2018)

363

References for Herceptin
1: Choi, Yunseon (2017) ‘Trastuzumab Biosimilar is Coming’ Journal of Tumor Medicine and Prevention (JTMP)
2: Alice de Pastors database of SPC’s provided by the European Commission.
3:http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000278/human_med_000818.jsp&mid=WC0b01ac058001d124 (accessed
18.10.2017)

4: http://www.fiercepharma.com/special-report/herceptin-1 ; https://www.medscape.com/viewarticle/817812 (accessed 18.10.2017)
5: http://www.nytimes.com/2002/09/07/business/chiron-loses-patent-lawsuit-against-genentech-cancer-drug.html (accessed 18.10.2017)
6: https://www.law360.com/articles/1251/federal-circuit-upholds-genentech-victory-vs-chiron (accessed 18.10.2017)
7: https://www.law360.com/articles/3799/genentech-chiron-settle-herceptin-patent-dispute (accessed 18.10.2017)
8: http://www.halozyme.com/investors/news-releases/news-release-details/2013/Commercial-Launch-of-Herceptin-SC-in-EU-Triggers-Milestone-Payment-toHalozyme-from-Roche/default.aspx (accessed 18.10.2017)

9: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000278/WC500074922.pdf(accessed 18.10.2017)
10: https://www.accessdata.fda.gov/scripts/opdlisting/oopd/detailedIndex.cfm?cfgridkey=292409 (accessed 18.10.2017)
11: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000278/WC500074922.pdf (accessed 18.10.2017)
12: https://acmedsci.ac.uk/download?f=file&i=32644 (accessed 06.11.2017)
13: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3169973/ (accessed 06.11.2017)
14: EvaluatePharma (2017), World Preview 2017, Outlook to 2022, 10th edition – June 2017
15: https://www.fiercepharma.com/legal/2-5b-herceptin-sales-line-roche-sues-pfizer-for-biosim-patent-infringement (accessed 10.05.2018)

364

References for Enbrel
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000262/human_med_000764.jsp&mid=WC0b01ac058001d124 (accessed
07.11.2017)
2: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000262/WC500027361.pdf (accessed 07.11.2017)
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004373/human_med_002076.jsp&mid=WC0b01ac058001d124 (accessed
07.11.2017)
4: Alice de Pastors database of SPCs provided by the European Commission
5: http://investors.amgen.com/phoenix.zhtml?c=61656&p=irol-newsArticle&ID=515163 (accessed 07.11.2017)
6: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/pips/EMEA-000299-PIP01-08-M03/pip_000198.jsp&mid=WC0b01ac058001d129 (accessed
07.11.2017)
7: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004007/human_med_001944.jsp&mid=WC0b01ac058001d124 (accessed
07.11.2017)

8: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004192/human_med_002112.jsp&mid=WC0b01ac058001d124 (accessed
07.11.2017)
9: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004167/human_med_002080.jsp&mid=WC0b01ac058001d124 (accessed
07.11.2017)
10: https://www.irishtimes.com/business/health-pharma/pfizer-cuts-price-of-enbrel-to-match-rival-biosimilar-drug-1.2841789 (accessed 07.11.2017)
11: https://www.bigmoleculewatch.com/2016/10/31/enbrel-ireland-price-cut/ (accessed 07.11.2017)
12: Framework agreement on the supply and pricing of medicines (2016), available at: http://www.ipha.ie/alist/ipha-hse-agreement.aspx (accessed 07.11.2017)
13: http://www.fiercepharma.com/pharma-asia/samsung-says-enbrel-biosim-doing-well-europe-but-could-production-capacity-limit-growth (accessed 07.11.2017)
14: EvaluatePharma (2017), World Preview 2017, Outlook to 2022, 10th edition – June 2017
15: http://investors.amgen.com/phoenix.zhtml?c=61656&p=irol-newsArticle&ID=1633115 (accessed 10.05.2018)

365

References for Xagrid
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000480/human_med_001153.jsp&mid=WC0b01ac058001d124
(accessed 17.10.2017)
2: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000480/WC500056557.pdf
(accessed 17.10.2017)
3: http://www.ema.europa.eu/docs/en_GB/document_library/Report/2017/04/WC500225535.pdf
(accessed 17.10.2017)
4: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/pips/EMEA-000720-PIP01-09-M02/pip_000411.jsp&mid=WC0b01ac058001d129 (accessed
06.11.2017)
5: http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/q_and_a/q_and_a_detail_000167.jsp&mid=WC0b01ac0580b18196 (accessed 06.11.2017)
6: http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/general_content_000925.jsp (accessed 06.11.2017)
7: https://register.epo.org/smartSearch?searchMode=smart&query=anagrelide (accessed 09.11.2017)

8: The Alice de Pastors database contains information regarding products, SPCs and patents across all EU-countries. The data is collected via publications from the
national patent offices of the member states.
9:
http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004585/smops/Positive/human_smop_001240.jsp&mid=WC0b01ac058001
d127 (accessed 30.01.2018)
10: http://www.evaluategroup.com/Universal/View.aspx?type=Story&id=41947 (accessed 10.05.2018)

366

References for Revlimid
1: http://www.celgene.com/research-development/clinical-trials/clinical-trials-data-sharing/clinical-study-report-csr-synopses/lenalidomiderevlimid/ (accessed
23.10.2017)
2: Alice de Pastors database of SPCs provided by the European Commission
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000717/human_med_001034.jsp&mid=WC0b01ac058001d124 (accessed
17.10.2017)
4: https://www.drugpatentwatch.com/p/tradename/REVLIMID (accessed 17.10.2017)
5: https://www.reuters.com/article/us-celgene-patent/eu-patent-office-revokes-celgene-revlimid-patent-appeal-planned-idUSKBN0NS1WB20150507 (accessed
17.10.2017)
6: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000717/WC500056018.pdf (accessed 17.10.2017)
7: http://ec.europa.eu/health/documents/community-register/html/h391.htm
8: https://www.accessdata.fda.gov/scripts/opdlisting/oopd/listResult.cfm (accessed 24.10.2017)
9: http://info.evaluategroup.com/rs/607-YGS-364/images/EPOD15.pdf (accessed 17.10.2017)
10: http://www.ema.europa.eu/docs/en_GB/document_library/PIP_decision/WC500105073.pdf (accessed 17.10.2017)
11: https://www.reuters.com/article/celgene-revlimid/celgene-to-allow-sale-of-generic-revlimid-before-patent-expiry-idUSL3N14B4QL20151222 (accessed
17.10.2017)
12: https://www.bloomberg.com/gadfly/articles/2015-12-23/celgene-patent-settlement-is-winning-strategy (accessed 17.10.2017)
13: http://ec.europa.eu/health/documents/community-register/html/h391.htm (accessed 06.11.2017)
14: https://www.epo.org/law-practice/case-law-appeals/recent/t111651eu1.html (accessed 06.11.2017)
15: EvaluatePharma (2017), World Preview 2017, Outlook to 2022, 10th edition – June 2017
16: https://www.drugpatentwatch.com/p/tradename/Revlimid (accessed 10.05.2018)

367

References for Imbruvica
1: Alice de Pastors database of SPCs, provided by the European Commission
2: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/003791/human_med_001801.jsp&mid=WC0b01ac058001d124
(accessed 18.10.2017)
3: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/003791/WC500177775.pdf
(accessed 18.10.2017)
4: http://ec.europa.eu/health/documents/community-register/html/alforphreg.htm
(accessed 18.10.2017)
5: http://ec.europa.eu/health/documents/community-register/html/h945.htm
(accessed 24.10.2017)
6: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/pips/EMEA-001397-PIP03-14-M01/pip_001378.jsp&mid=WC0b01ac058001d129 (accessed
30.01.2018)
7: EvaluatePharma (2017), World Preview 2017, Outlook to 2022, 10th edition – June 2017
8: https://www.reuters.com/article/us-pharmacyclics-m-a-abbvie/abbvie-boosts-cancer-drug-pipeline-with-21-billion-pharmacyclics-dealidUSKBN0M109920150305
(accessed 26.04.2018)
9: https://www.drugpatentwatch.com/p/tradename/IMBRUVICA (accessed 10.05.2018)

368

References for Viagra
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000202/human_med_001136.jsp&mid=WC0b01ac058001d124 (accessed
23.10.2017)
2: Alice de Pastors database of SPCs, provided by the European Commission
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000638/human_med_001033.jsp (accessed 23.10.2017)

4: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000202/WC500049830.pdf (accessed 23.10.2017)
8: https://www.accessrx.com/blog/erectile-dysfunction/viagra/generic-viagra-launches-in-europe-how-is-it-holding-up-m0703/ (accessed 23.10.2017)
9: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1994020/ (accessed 24.10.2017)
10:
http://www.ema.europa.eu/ema/index.jsp?curl=pages%2Fmedicines%2Flanding%2Fepar_search.jsp&mid=WC0b01ac058001d124&searchTab=searchByKey&alre
adyLoaded=true&isNewQuery=true&status=Authorised&keyword=Sildenafil&keywordSearch=Submit&searchType=inn&taxonomyPath=&treeNumber=&searchGe
nericType=biosimilars (accessed 24.10.2017)

11: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/662968/Viagra_Connect_POM_to_P_PAR_FINAL.pdf (accessed 29.11.2017)
12: https://www.reuters.com/article/us-pfizer-britain-viagra/uk-gives-pfizer-worlds-first-over-the-counter-viagra-approvalidUSKBN1DS1Z1?feedType=RSS&feedName=healthNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FhealthNews+%28
Reuters+Health+News%29 (accessed 29.11.2017)
13: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000436/human_med_000699.jsp&mid=WC0b01ac058001d124
(accessed 29.11.2017)
14: https://investor.lilly.com/releasedetail.cfm?ReleaseID=1009682 (accessed 29.11.2017)
15: https://www.statista.com/statistics/264827/pfizers-worldwide-viagra-revenue-since-2003/ (accessed 29.11.2017)

369

References for Revatio
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000638/human_med_001033.jsp (accessed 23.10.2017)
2: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000202/human_med_001136.jsp&mid=WC0b01ac058001d124 (accessed
23.10.2017)
3: Alice de Pastors database of SPCs, provided by the European Commission

4: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000638/WC500055840.pdf (accessed 23.10.2017)
5: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004186/human_med_002027.jsp&mid=WC0b01ac058001d124 (accessed
23.10.2017)
6: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004289/human_med_002033.jsp&mid=WC0b01ac058001d124 (accessed
23.10.2017)
7: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Scientific_Discussion/human/000638/WC500055837.pdf
(accessed 24.10.2017)

8: http://www.ema.europa.eu/docs/en_GB/document_library/PIP_decision/WC500188189.pdf
9: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1994020/ (accessed 24.10.2017)
10: Appendix A to the financial reports. See e.g. http://www.annualreports.com/HostedData/AnnualReportArchive/p/NYSE_PFE_2015.pdf (accessed 10.05.2018)

370

References for Cystadrops
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/003769/human_med_002042.jsp&mid=WC0b01ac058001d124 (accessed
18.10.2017)
2: http://www.nytimes.com/2013/05/01/business/fda-approves-raptor-drug-for-form-of-cystinosis.html
(accessed 18.10.2017)
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002465/human_med_001681.jsp&mid=WC0b01ac058001d124
(accessed 18.10.2017)
4: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000125/human_med_000734.jsp&mid=WC0b01ac058001d124
(accessed 18.10.2017)
5: http://ec.europa.eu/health/documents/community-register/html/alforphreg.htm
(accessed 18.10.2017)
6: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/003769/WC500221981.pdf
(accessed 18.10.2017)

7: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004038/human_med_001964.jsp&mid=WC0b01ac058001d124
(accessed 24.10.2017)
8: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Public_assessment_report/human/003769/WC500222115.pdf (accessed 08.11.2017)
9: http://www.ema.europa.eu/docs/en_GB/document_library/Orphan_review/2017/02/WC500222054.pdf (accessed 08.11.2017)
10: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Summary_for_the_public/human/002465/WC500151312.pdf (accessed 09.11.2017)
11: http://ec.europa.eu/health/documents/community-register/html/orphreg.htm
http://www.orphan-europe.com/orphan-europe-news-and-event/recordati-announces-marketing-approval-cystadrops%C2%AE
Early access (prior to MA)?

371

References for Tobi Podhaler
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002155/human_med_001401.jsp&mid=WC0b01ac058001d124 (accessed
23.10.2017)
2: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/002155/WC500110921.pdf (accessed 23.10.2017)
3: Alice de Pastors database of SPCs, provided by the European Commission

4: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/orphans/2009/11/human_orphan_000380.jsp&mid=WC0b01ac058001d12b
(accessed 23.10.2017)
5: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002633/human_med_001773.jsp&mid=WC0b01ac058001d124
(accessed 23.10.2017)
6: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/pips/EMEA-000184-PIP01-08-M02/pip_000088.jsp&mid=WC0b01ac058001d129
(accessed 30.01.2018)
7:http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002633/smops/Positive/human_smop_000685.jsp&mid=WC0b01ac0580
01d127 (accessed 24.10.2017)
8: http://www.evaluategroup.com/Universal/View.aspx?type=Story&id=82320
(accessed 08.05.2018)
9: https://www.drugpatentwatch.com/p/tradename/TOBI+PODHALER (accessed 10.05.2018)

372

References for Glivec
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000406/human_med_000808.jsp&mid=WC0b01ac058001d124
(accessed: 23.10.2017)
2: Alice de Pastors, database of SPCs provided by the European Commission.
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000406/human_med_000808.jsp&mid=WC0b01ac058001d124
(accessed: 23.10.2017)
4: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/pips/EMEA-000463-PIP01-08-M03/pip_000340.jsp&mid=WC0b01ac058001d129
(accessed: 23.10.2017)
5: http://www.limegreenipnews.com/2016/07/italy-teva-vs-novartis-paediatric-extensions-of-spcs-valid-following-removal-of-orphan-designation/
(accessed: 23.10.2017)
6: https://www.lexology.com/library/detail.aspx?g=c45e5f48-de26-46f6-afc8-8c13c2eabb63
(accessed: 23.10.2017)

7:
http://www.ema.europa.eu/ema/index.jsp?curl=pages%2Fmedicines%2Flanding%2Fepar_search.jsp&mid=WC0b01ac058001d124&searchTab=searchByKey&alre
adyLoaded=true&isNewQuery=true&status=Authorised&keyword=Imatinib&keywordSearch=Submit&searchType=inn&taxonomyPath=&treeNumber=&searchGe
nericType=biosimilars
(accessed: 23.10.2017)
8: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/orphans/2009/11/human_orphan_000628.jsp&mid=WC0b01ac058001d12b
(accessed 07.11.2017)
9: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000798/WC500034394.pdf (accessed 07.11.2017)
10: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/pips/EMEA-000290-PIP01-08-M04/pip_000052.jsp&mid=WC0b01ac058001d129
(accessed 07.11.2017)
11: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Scientific_Discussion/human/000798/WC500034398.pdf (accessed 07.11.2017)
12: Politico, Special report, October 5, 2017, p. 19 “Patents”

373

References for Cometriq/Cabometyx
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002640/human_med_001726.jsp&mid=WC0b01ac058001d124 (accessed
30.10.2017)
2: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/004163/human_med_002018.jsp&mid=WC0b01ac058001d124 (accessed
30.10.2017)
3: Alice de Pastors database of SPCs provided by the European Commission.
4: http://www.businesswire.com/news/home/20160229006848/en/Exelixis-Ipsen-Enter-Exclusive-Licensing-Agreement-Commercialize (accessed 30.10.2017)
5: Mejer, Malwina (2017) 25 years of SPC protection for medicinal products in Europe: Insights and challenges
6: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A31992R1768 (accessed 03.11.2017)
7: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/002640/WC500163703.pdf (accessed 03.11.2017)
8: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/004163/WC500214071.pdf (accessed 03.11.2017)

9: https://www.fiercebiotech.com/partnering/ipsen-bets-up-to-855m-on-exelixis-once-failed-cancer-drug (accessed 10.05.2018)
10: https://www.exelixis.com/wp-content/uploads/2018/04/2017-Exelixis-Annual-Report.pdf (accessed 10.05.2018)

374

References for Tracleer
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000401/human_med_001100.jsp (accessed 03.11.2017)
2: Alice de Pastors database of SPCs provided by the European Commission
3: Gerrit Reepmeyer (2006) Risk-sharing in the Pharmaceutical Industry, The Case of Out-licensing (pp. 114-115)
4: Gerrit Reepmeyer (2006) Risk-sharing in the Pharmaceutical Industry, The Case of Out-licensing (p. 123)
5: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/orphans/2009/11/human_orphan_000068.jsp&mid=WC0b01ac058001d12b
(accessed 03.11.2017)
6: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/orphans/2009/11/human_orphan_000384.jsp&mid=WC0b01ac058001d12b
(accessed 03.11.2017)
7: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/pips/EMEA-000425-PIP02-10-M04/pip_000453.jsp&mid=WC0b01ac058001d129 (accessed
03.11.2017)
8: https://www1.actelion.com/en-rebranded/investors/news-archive.page?newsId=2078244 (accessed 08.02.2018), reported as 1,020 CHF. Using the exchange
rate as of 01/06-2016 this amounts to USD 1,031.

375

References for Losec by AstraZeneca
1: http://www.ema.europa.eu/docs/en_GB/document_library/Referrals_document/Losec_30/WC500070014.pdf (accessed 08.11.2017)
2: http://www.medbroadcast.com/drug/getdrug/losec (accessed 08.11.2017)
3: http://www.referenceforbusiness.com/history2/76/Astra-AB.html (accessed 08.11.2017)

4: http://www.bbc.com/news/business-27391124 (accessed 08.11.2017)
5: Alice de Pastors database of SPCs. That SPCs based on a patent from 1979 are recorded to expire in 2002 seems odd, as this entails a protection period of far more
than the maximum of 15 years stipulated in Regulation (EC) No 469/2009. However, the Alice de Pastors database does not contain any information as to why this is
the case.
6: Rang, Hill (2013) Drug Discovery and Development (2nd edition), chapter 4: The drug discovery process: General principles and some case histories
7: http://www.pharmacytimes.com/news/5-notable-drug-name-changes (accessed 08.11.2017)
8: http://ec.europa.eu/competition/sectors/pharmaceuticals/cpn2005_3_54.pdf (accessed 08.11.2017)
9: https://www.lexology.com/library/detail.aspx?g=4707a6b5-abdf-446f-8750-612a9d3a96b6 (accessed 08.11.2017)
10: EEA agreement: http://www.efta.int/media/documents/legal-texts/eea/the-eea-agreement/Main%20Text%20of%20the%20Agreement/EEAagreement.pdf
(accessed 08.11.2017)
11: EC treaty: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A12002E%2FTXT (accessed 08.11.2017)
12: https://www.thepharmaletter.com/article/astrazeneca-reveals-new-nexium-vs-losec-data-in-bid-to-show-superiority (accessed 08.11.2017)
13: https://www.uni-frankfurt.de/60870656/GdP-omeprazol_discovery.pdf
14: Sally Shorthose (2011) Guide to EU Pharmaceutical Regulatory Law 2nd edition
15: General Court of the European Union, Press Release No 67/10, Judgment in Case T-321/05

376

References for Tygacil
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000644/human_med_001118.jsp&mid=WC0b01ac058001d124
(accessed 23.10.2017)
2: Alice de Pastors database of SPCs, provided by the European Commission
3: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000644/WC500044508.pdf (accessed 23.10.2017)

4: http://www.ema.europa.eu/docs/en_GB/document_library/Press_release/2009/11/WC500015214.pdf (accessed 23.10.2017)
5: http://ec.europa.eu/health/documents/community-register/html/alforphreg.htm (accessed 23.10.2017)
6: https://www.fresenius-kabi.com/us/news/fresenius-kabi-introduces-tigecycline-for-injection-usp (accessed 23.10.2017)
7: https://www.fiercebiotech.com/biotech/fda-approves-new-indication-for-wyeth-s-tygacil-tigecycline-for-treatment-of-adult-patients (accessed 09.11.2017)
8: http://www.evaluategroup.com/View/18821--1002-modData/product/tygacil (accessed 08.02.2018)
9: https://www.fda.gov/Drugs/DrugSafety/ucm224370.htm and https://www.nbcnews.com/healthmain/citing-death-risk-fda-adds-most-severe-warning-pfizerstygacil-8C11281667
(accessed 08.05.2018)
10: http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_PFE_2016.pdf
(accessed 08.05.2018)

377

References for Dificlir
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002087/human_med_001511.jsp&mid=WC0b01ac058001d124
(Accessed 23.10.2017)
2: Alice de Pastors database of SPCs, provided by the European Commission.
3: https://www.astellas.com/en/corporate/news/detail/optimer-pharmaceuticals-inc-an.html
(Accessed 23.10.2017)
4: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002087/human_med_001511.jsp&mid=WC0b01ac058001d124
(Accessed 23.10.2017)
5: https://dealbook.nytimes.com/2014/12/08/merck-agrees-to-acquire-drug-maker-cubist-for-9-5-billion/
(Accessed 23.10.2017)
6: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Public_assessment_report/human/002087/WC500119707.pdf
(Accessed 23.10.2017)
7: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/002087/WC500119705.pdf
(Accessed 23.10.2017)
8: http://ec.europa.eu/health/documents/community-register/html/alforphreg.htm
(Accessed 23.10.2017)
9: https://www.accessdata.fda.gov/scripts/opdlisting/oopd/listResult.cfm
(Accessed 23.10.2017)
10: http://www.nytimes.com/2011/05/28/health/28drug.html (accessed 09.11.2017)
11: http://www.pharmatimes.com/news/astellas_dificlir_could_save_nhs_thousands_of_pounds_1001933 (accessed 09.11.2017)
12: http://www.pharmatimes.com/news/first_new_c._difficile_drug_in_50_years_hits_uk_shores_977109 (accessed 09.11.2017)
13: https://www.astellas.com/jp/system/files/2017-12/2016AR_en.pdf (accessed 08.05.2018)
14: https://www.prnewswire.com/news-releases/optimer-pharmaceuticals-and-astellas-announce-collaboration-to-commercialize-fidaxomicin-for-clostridiumdifficile-infection-cdi-in-europe-and-certain-other-countries-in-middle-east-africa-and-cis-115474094.html
(accessed 08.05.2018)

378

References for Cervarix
1: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000721/WC500024632.pdf (accessed 18.10.2017)
2: Alice de Pastors database of SPCs, provided by the European Commission
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000721/human_med_000694.jsp&mid=WC0b01ac058001d124 (accessed
18.10.2017)

4: https://www.reuters.com/article/glaxo-cervarix/glaxo-vs-merck-as-cervarix-goes-on-sale-in-europe-idUSL2855492320070928 (accessed 18.10.2017)
5: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000703/human_med_000805.jsp (accessed 18.10.2017)
6: https://www.gsk.com/media/3609/annual-report-2016.pdf (p. 62) (accessed 18.10.2017)
7: http://investors.merck.com/news/press-release-details/2017/Merck-Announces-Fourth-Quarter-and-Full-Year-2016-Financial-Results/default.aspx (accessed
18.10.2017)
8: https://www.medscape.com/viewarticle/870853 (accessed 18.10.2017)

9: Mejer, M. (2017), 25 years of protection for medicinal products in Europe: Insights and challenges
10: http://www.businesswire.com/news/home/20050202005911/en/GlaxoSmithKline-Merck-Enter-Cross-License-Settlement-Agreement-HPV (accessed
07.11.2017)
11: https://www.nature.com/nbt/journal/v28/n7/fig_tab/nbt0710-671_T1.html (accessed 07.11.2017)
12: See e.g. Durell, K. (2016), Vaccines and IP Rights: A Multifaceted Relationship, Cho HJ, Oh YK, Kim YB. Advances in human papilloma virus vaccines: a patent
review, Kim, Kwang Sung et al. (2014), Current Status of Human Papillomavirus Vaccines, https://unitedkingdom.taylorwessing.com/synapse/ip_spccombinations.html, http://www.appleyardlees.com/european-court-rules-on-supplementary-protection-certificatesfor-multivalent-vaccines/, http://thespcblog.blogspot.dk/2013/08/vaccines-and-spcs-fork-in-road.html

379

References for Infanrix Hexa
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000296/human_med_000833.jsp&mid=WC0b01ac058001d124
(Accessed: 23.10.2017)
2: Alice de Pastors database of SPCs, provided by the European Commission.
3: Mejer, Malwina (2017) 25 years of protection for medicinal products in Europe: Insights and challenges (accessed 07.11.2017)

4: See e.g. Durell, K. (2016), Vaccines and IP Rights: A Multifaceted Relationship, Cho HJ, Oh YK, Kim YB. Advances in human papilloma virus vaccines: a patent
review, Kim, Kwang Sung et al. (2014), Current Status of Human Papillomavirus Vaccines, https://unitedkingdom.taylorwessing.com/synapse/ip_spccombinations.html, http://www.appleyardlees.com/european-court-rules-on-supplementary-protection-certificatesfor-multivalent-vaccines/, http://thespcblog.blogspot.dk/2013/08/vaccines-and-spcs-fork-in-road.html

380

References for Sutent by Pfizer
1: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/000687/human_med_001069.jsp&mid=WC0b01ac058001d124 (accessed
23.10.2017)
2: Alice de Pastors database of SPCs, provided by the European Commission
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/general_content_000925.jsp (accessed 23.10.2017)

4: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/000687/WC500057737.pdf (accessed 23.10.2017)
5: Pfizer annual review 2016 available at https://www.pfizer.com/files/investors/financial_reports/annual_reports/2016/assets/pdfs/pfi2016ar-full-report.pdf
(accessed 08.02.2018)
6: https://www.sfgate.com/business/article/Pharmacia-Will-Buy-Sugen-for-650-Million-2923140.php (accessed 10.05.2018)
7: https://www.wsj.com/articles/SB1026684057282753560 and http://money.cnn.com/2002/07/15/news/deals/pfizer/index.htm (accessed 10.05.2018)

381

References for Buccolam
1: Watson, John and Novacki, Kulminder (2014) The First Paediatric Use Marketing Authorisation: A case study
2: https://ec.europa.eu/health/sites/health/files/files/paediatrics/docs/2017_childrensmedicines_report_en.pdf (accessed 30.10.2017)
3: http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/general_content_000413.jsp (accessed 30.10.2017)
4: http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002267/human_med_001479.jsp&mid=WC0b01ac058001d124 (accessed
30.10.2017)
5: Alice de Pastors database of SPCs provided by the European Commission
6: https://www.twobirds.com/en/news/articles/2013/ema-puma-0711 (accessed 30.10.2017)
7: http://investors.shire.com/news-and-events/news-releases/yr-2013/11-11-2013a.aspx (accessed 30.10.2017)
8: http://www.ema.europa.eu/docs/en_GB/document_library/EPAR_-_Product_Information/human/002267/WC500112310.pdf (accessed 30.10.2017)
9: http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/document_listing/document_listing_000068.jsp&mid=WC0b01ac0580925c45 (accessed
30.10.2017)
10: http://www.ljf.scot.nhs.uk/News/2013/Documents/midazolam%20MEMO%20Feb%202013.pdf (accessed 30.10.2017)
11: https://www.nice.org.uk/guidance/cg137/resources/costing-statement-pdf-438388813 (accessed 07.11.2017)
12: https://www.evaluategroup.com/View/50554--1002-modData/product/buccolam (accessed 08.02.2018)

382

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doi: 10.2873/886648