On behalf of its members the PMA records its appreciation for the opportunity to comment on the proposed legislation set out in the above Notice. The PMA only received actual notice of the draft on 23 September 2002, and was accordingly not able to consult with its membership, and their principals abroad, to the extent it would have preferred to do on an issue as important to them as the present. The views expressed herein are nevertheless based on sufficient consultation to be put forward as representative of the views of the PMA as a whole and we request it be read as such. The principles enunciated also reflect the general views of international industry on "Bolar type provisions".

Our members recognise the right of the public at large, and manufacturers in particular, to make use of a previously patented invention as from the date of expiry of a patent that covers the invention, whatever the field and nature of the invention may be, and to do so by manufacturing and marketing the previously patented product without accounting to the patentee.

3. Our members are also familiar with the need to register a pharmaceutical product in terms of the Medicines and Related Substances Control Act No 101 of 1965 before one is able to market that product in South Africa. They are aware that this requirement of our law causes delays in a manufacturer’s ability to place its product on the market. Such delays are experienced by both the generic manufacturer after patent expiry and the innovator who first markets the product.

4 It is accepted that the generic pharmaceutical manufacturer needs to obtain a registration that requires it to submit to the Medicines Control Council certain information relating to the product. We accept also that the development of such information requires the performance of activities that would constitute infringement of the patent if performed during the term of the patent. These activities, as the law presently stands, thus need to be postponed until after the patent in issue has expired.

Our members are also aware of the fact that the consequential "delay" between the date of expiry of the patent and the generic manufacturer’s procurement of a registration from the MCC enabling it to launch its own product onto the market, is often incorrectly perceived as "artificially extending the term of the patent". The reality is that in carrying out the activities necessary to develop the information required to obtain MCC approval the generic manufacturer is in fact already using the invention. While such use of the formerly patented invention does not generate income for the generic company, its use does yield benefits in other forms, and in particular the data on the basis of which a valuable registration is obtainable.

5 The introduction of section 45A by the amendment proposed by article 8 of the draft Amendment Bill seeks to accelerate the generic manufacturer’s entry into the market after the expiry of a patent. It achieves that objective by curtailing the patentee’s rights under the patent. It provides that it shall not be an infringement of a patent to utilise the patented invention covered thereby solely for purposes of obtaining, development and submission of information required under any law of South Africa that regulates the manufacture, production, distribution, use and sale of the type of product in issue.

The proposed section 45A covers all types of products, not just pharmaceuticals. It will, however, effectively address the regulatory delay problem that the generic manufacturers experience and allow generic products to be on the market with a generic product immediately after the expiry of the patent covering a particular innovator pharmaceutical product.

The general nature of the provision is not unfamiliar to our members. In fact even the text of the proposed provision of section 45A is to a very large extent based on § 271(e)(1) of US Code title 35 – Patents. Our members will be able to accept this provision under certain circumstances, although they would have preferred to see the integrity of the patent system maintained and not eroded by exceptions of the same general effect as have now become part of the laws in several jurisdictions.

The main factor preventing PMA from expressing support for the provision as proposed is that it addresses only the problem that generic manufacturers have with the patent/regulatory system tension. It does nothing for the very same problems that originators of products have in connection with the same patent/regulatory system tension. This, with respect, is regarded as fundamentally unjust.

The Honourable Minister is accordingly respectfully urged to reconsider the effects of the proposed measure. It is suggested that should Government wish to proceed with the introduction of section 45A, then it should simultaneously also follow the lead of several other jurisdictions in which similar exclusions have been introduced.

We are referring to those instances where legislation to allow early working for the sake of overcoming the regulatory delay of access to generic products, was coupled to measures which served also to address the delays in the marketing of innovator products. We refer to the United States of America as an example of a country where simultaneous introduction of so-called early working enabling provisions for the benefit of generic manufacturers and patent erosion countermeasures for the benefit of patentees were effected in a single piece of legislation. The full title of the US legislation is The Drug Price Competition and Patent Term Restoration Act of 1984 (also known as the "Hatch-Waxman Act" after its sponsors.) It is important to note that in the US this "combination-legislation" boosted generic usage from 20% in 1984 to 47% today while safeguarding effective patent terms.

It cannot be stressed enough that innovators often see year after year of their limited patent terms being eroded away, first by the performance of various activities to develop and obtain information required to be submitted to regulatory authorities like the MCC, and then in waiting for such authorities to consider and rule on the submitted data.

10 Addressing the innovators’ problem should be done on considerations of fairness and even-handedness by introducing provisions for patent term restoration into our law alongside the proposed section 45A. Such patent term restoration, it is respectfully suggested, should be effected at the end of the patent term and should be of an extent effectively to serve as a replacement of that part of the patent term which was sterile and during which the patentee was unable to commercialise its invention due to the need to obtain regulatory approval. Such approval is not obtained because the patentee wanted to have it, but because the public interests of safety, efficacy and quality of products requires that it be obtained, even though it comes with extensive erosion of the patent term.

11 If it is the Government’s view that the regulatory procedures as administered by the MCC should not operate to the detriment of the generic manufacturers by effectively extending patent terms then, in fairness and by the same thought process, Government should likewise be of the view that the regulatory process should not operate to curtail the patent terms of innovators.

12 A second consideration presently preventing support for the proposed provision 45A, as it stands, is that it is presently in wording that is unlimited as to the time at which the generic competitor will be able to use the patented invention with impunity under the exclusion which the provision affords. The purpose of the provision is, as in other countries clearly to avoid delays in commercial availability of generic products post expiry of the patent. As it stands the provision may be used to develop data and obtain registration at any time during the currency of the patent in issue. The danger is that it may then be abused by the registrant marketing product in terms of the manufacturing approval obtained albeit in flagrant infringement of the patent in issue. Government, it is respectfully suggested, should not facilitate, or even enable, such potential for infringement by leaving the provision as open-ended as it presently stands. The exclusion contained in section 45A should operate only during a limited period immediately before the end of the patent term, and not during the entire term of the patent. It is suggested that a one-year period should be adequate.

PMA is willing to co-operate with DTI to draft appropriate wording to create the procedures and substantive provisions to give effect to these proposals should they find acceptance in principle with Government.

In this memorandum we have limited our comments to issues that may appropriately be addressed in the Patents Act. There are however some other issues which need to be addressed in relation to related subject matter and in particular the issue of data exclusivity which needs to be addressed in terms of Article 39.3 of the TRIPS agreement. It is our intention to seek an opportunity to discuss these issues with the Honourable Minister of Trade and Industry, and also the Ministers of Health and of Agriculture as it impacts also on their portfolios, in the near future.

We further take this opportunity to present herewith some additional background information which we urge the Minister and his advisors on the proposed legislation to consider very carefully along with the comments above. See Annexure 1 hereto.

This memorandum will be distributed to the PMA membership and you may accordingly expect to receive supplementing, qualifying or emphasising comments from some of our members in this matter.

Hatch-Waxman: Overview

The Drug Price Competition and Patent Term Restoration Act of 1984, also called the Hatch-Waxman Act ("Hatch-Waxman"), fundamentally redrew the map of the pharmaceutical industry in the United States. Hatch-Waxman created the generic industry, as we know it, creating a market for generic copies of older innovative products that now approaches half of the total pharmaceutical market. At the same time, the legislation created new incentives to ensure continuing new therapies and cures for Americans. In fact, the U.S. pharmaceutical industry has now become the medicine chest to the world, creating more new products than any other country, and attracting European, Japanese and Indian companies to conduct their research and development (R&D) in the United States and to launch products here first.

Given the importance of Hatch-Waxman, it is understandable that U.S. trade partners have sought to emulate it, but they have rarely succeeded in gaining its full benefits. A true Hatch-Waxman system has three components, which work together to bring generic pharmaceuticals to market quickly, all the while encouraging innovation: 

The first component lightens the burden of regulatory review for generic products, by creating an Abbreviated New Drug Application (ANDA) for generic producers to file with the U.S. Food and Drug Administration (FDA). It allows generic firms to begin testing, but not to undertake commercial activities, before the expiration of the innovator's patent.

The second component, patent term restoration (PTR), mitigates the negative impact of the increasingly complex clinical trial and FDA review process for innovative pharmaceutical products. PTR creates the possibility of patent term extensions to compensate innovators for a portion of their market exclusivity term that is lost due to lengthy FDA regulatory review periods prior to approval of new medicines, and should provide a minimum effective patent period of 14 years.

The third component was the creation of finite periods of protection for commercially valuable and confidential data in the clinical dossier, known as data exclusivity. Prior to Hatch-Waxman, the clinical dossier for an innovative product was treated as permanently proprietary information. Data Exclusivity represents a benefit provided to the generic industry, which is now allowed to rely on the results of the clinical data after the expiration of a period that should be no less than five years.

Hatch-Waxman sought to "balance the benefits of greater competition from generic drugs with the benefits of having sufficient intellectual property protection to preserve the incentives to make the large, up-front, and risky expenditures necessary to develop new drugs successfully." These three components are essential elements of the so-called Bolar system. Many countries have sought to emulate the American Bolar system in their national legislation but have failed to incorporate all three elements, which provide a critical balance.

Hatch-Waxman: Early Working

Hatch-Waxman provides for early entry of generic products of older innovative medicines by creating an Abbreviated New Drug Application (ANDA) for generic drug manufacturers to file with the U.S. Food and Drug Administration (FDA). It allows generic firms to begin testing, but not commercial activities, before the expiration of the innovator's patent.  This component of Hatch-Waxman, gives American generic manufacturers a tremendous advantage over the status quo ante as well as over local manufacturers in nations lacking early working. Since 1984, many U.S. trade partners have passed legislation allowing for early entry of generic manufacturers, but generally have not included effective data exclusivity or full patent term restoration, both of which are essential elements of the delicate balance contained in Hatch-Waxman.

As a result of Hatch-Waxman, generic manufacturers have gained many advantages and market opportunities, from the creation of the ANDA to the ability to reference formerly exclusive proprietary data created by the innovator. These new benefits have enabled generic producers to increase their share of the pharmaceutical market from less than 20% before Hatch-Waxman was enacted in 1984 to the growing 47% of the total market that the generics held in 2000. In addition, generic producers are now able to target top-selling innovative drugs. As a result, nearly all of the top-selling innovative drugs face generic competition when their patents expire. Foreign generic manufacturers, regardless of their base country, benefit enormously from ANDAs and are able to reference innovator clinical data and to seek FDA regulatory approval during the period the innovator’s products remain under patent.

As a result of these significant advantages provided under Hatch-Waxman, foreign generic manufacturers have opened U.S. based subsidiaries. Ranbaxy, India’s leading pharmaceutical manufacturer, opened an American subsidiary after entering the American generic market in 1997. Since 1997, its American generic production has experienced growth two fold. Another leading Indian company, Dr. Reddy’s Labs, also expanded into the U.S. market as a result of Hatch-Waxman-related benefits, and has received 12 ANDA approvals and 2 tentative ANDA approvals from the FDA. The U.S. market is the focus of Dr. Reddy’s generic business and the company plans to target more than 60% of the drugs coming off patent in America between 2002 and 2008.

Many foreign trade partners have either implemented, or are contemplating passage of, amendments to their patent laws to allow for early working. Canada’s Bolar-style provision went beyond early working for regulatory purposes, and was challenged by the European Union in the WTO.. The WTO panel, while upholding the validity of early working for the limited purpose of gaining regulatory approval, held in favor of the EU on the point that manufacturing, stockpiling, and any other commercial activities are not permissible during the period of patent protection.

In summary, early working has provided substantial benefits to the generic industry, but has also increased the need for continued innovation. In this light, it is critical, that any amendments to patent laws to provide for early working of patented products for limited regulatory purposes also include effective patent term restoration and data exclusivity to strike the necessary balance between early entry for generic products and continued innovation of new therapies and cures.

Hatch-Waxman: Patent Term Restoration (PTR)

Patent Term Restoration (PTR) restores some of the effective patent life that is lost in the increasingly complex clinical trial and FDA review process for innovative pharmaceutical products. Pharmaceutical inventions receive the same standard term of 20 years from the date that the patent application is filed, as do all other patented products, but, after completion of clinical research and regulatory approval, the effective patent life for a new pharmaceutical product is approximately 11 years. PTR creates the possibility of patent term extensions to compensate innovators for a portion of the patent exclusivity period that is lost due to lengthy FDA regulatory review periods. 

The patent term restoration component is one of the three elements of Hatch-Waxman and has made its way, in slightly modified form, into the laws of several nations.

In some countries, PTR was introduced as a result of U.S. bilateral trade agreements, as in the 2000 Free Trade Agreement between the United States of America and Jordan.  This Agreement, which was designed to open trade between the United States and Jordan and encourage Jordanian economic reform, provides that "Each Party shall make available an extension of the patent term to compensate the patent owner for unreasonable curtailment of the patent term as a result of the marketing approval process."

In contrast, patent term restoration was introduced in Israel in 1998 as part of the legislation allowing for early working of patented products for the purpose of gaining regulatory approval in Israel, the U.S. and Europe.
The extension is limited to 14 years from the first marketing approval in any country belonging to the Paris Convention, and, as a result, an effective patent term of 14 years is generally not ensured in Israel

While the Law in Australia is modeled on the Hatch-Waxman Act, it provides less patent term restoration than do the Israeli Bolar-style amendments. The Australian Patent Act of 1990 provides for patent term extensions only if the regulatory process lasted more than 5 years and caps the extension at five years. In addition, the law facilitates generic access by permitting otherwise infringing activities during the period of patent term extension. That is, the extended term does not carry with it the same bundle of patent rights against infringement, as does the original patent term.

The EU provides patent term restoration, through the use of Supplementary Protection Certificates (SPCs), as a stand-alone measure. SPCs provide an effective patent term of 15 years from the date of first marketing approval.  The extension covers only the pharmaceutical product that was the subject of the regulatory process, not the entire scope of the original patent.

All of the different forms of PTR cited above strive to encourage innovation, but their efficacy in doing so is dependent on whether they provide a reasonable effective patent term. Any patent term restoration component of Bolar legislation that is modeled on the US statute should establish a minimum patent term of no less than 14 years, as set or exceeded in American, European, and Jordanian law.

Hatch-Waxman: Data Exclusivity

Hatch-Waxman created a new intellectual property right, with its own term of protection, known as data exclusivity. Data Exclusivity protects commercially valuable and confidential data in the clinical dossier submitted by innovative firms to the U.S. Food and Drug Agency (FDA).  Prior to Hatch-Waxman, the clinical dossier for an innovative product remained permanently proprietary, which the FDA would never disclose or use to evaluate generic products; no third party could ever access or cite the innovator’s data. The largest beneficiary of the finite period of data exclusivity that was included in Hatch-Waxman is the generic industry, which since 1984 has been able to rely on the results of the clinical data after the expiration of the period of data exclusivity.

Hatch-Waxman defined the period of confidentiality or protection from use or reliance as 5 years for new chemical entities and 3 years for novel applications of old chemical entities.  By not even permitting the submission of an ANDA during the first five years after the originator’s drug received marketing approval, regardless of the patent status of the originator’s drug, the American data exclusivity term restricts the actions of regulatory bodies involved in the approval of pharmaceutical products. In order for data exclusivity to be effective as a component of a Bolar system, it must include protection for all clinical and preclinical data including dosing, drug interactions, and drug efficacy.  It must also not be linked in any way to the existence of a patent.

The World Trade Organization (WTO) Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) requires its Member countries to provide data exclusivity. TRIPS Article 39.3 requires WTO members to provide a period of data exclusivity during which all proprietary information submitted to a regulatory body is to be protected from unfair commercial use. Other WTO members have adopted a variety of conforming data exclusivity provisions.

European Union members have two options for terms of data exclusivity. The minimum set by Article 10 of Directive 2001/83 is six years, with ten years assigned to "high technology" products. Countries also have the option of granting ten years of exclusivity for all products; about half of the EU countries have done this. The EU is in the process of convergence for a standard ten-year period of data exclusivity. As additional EU-aspirants complete accession, they will come under the same directive and will enact data exclusivity legislation or extend the term of their current legislation. In September 2001, Poland, for example, enacted legislation ensuring the combination six and ten year exclusivity terms, effective on accession to the EU.

China, as part of its obligations undertaken in association with its recent accession to the WTO, agreed to implement data exclusivity with a term of protection of six years. The language of the Report of the WTO Working Party on the Accession of China, in which China committed itself to provide TRIPS-compliant data protection, is indicative of the protection envisaged by the negotiators of TRIPS Article 39.3. In the report, the representative of China confirmed that China would introduce and enact laws and regulations "to make sure no person, other than the person who submitted such data, could, without the permission of the person who submitted the data, rely on such data in support of an application for product approval for a period of at least six years from the date on which China granted marketing approval to the person submitting the data. During this period, any second applicant for market authorization would only be granted market authorization if he submits his own data. This protection of data would be available to all pharmaceutical and agricultural products which utilize new chemical entities, irrespective of whether they were patent-protected or not."

Because Hatch-Waxman ended the prior practice of treating the innovator’s clinical dossier as permanently proprietary information, the creation of a fixed period of protection through the mechanism of data exclusivity is an integral element of Hatch-Waxman. Data Exclusivity actually represents a benefit provided to the generic industry, which is now allowed to rely on the results of the clinical data after the expiration of a period of Data Exclusivity. Any Bolar-style system that omits data exclusivity, or fails to provide a minimum period of protection of at least five years or more, fails to strike the necessary balance and unduly favors generic manufacturers at the expense of innovation.