In September 2012, talks on the free trade agreement between Canada and EU drew near a conclusion. It has been reported that during the final negotiations the issue of drug related IP became the focal point. The key issue was whether or not Canada would agree to abide by the EU standards and extend the term of data exclusivity from eight years to ten years. Some Canadian organizations worried that conceding the additional two years would increase costs of both drug manufacturers and patients.

The Council of Canadians, an organization which contested the Canada-US free trade agreement, contended that although 81% Canadian citizens stood by the free trade deal, 69% clearly stated that if the deal raised drug price, they would withdraw their support. Canada’s Research-based Pharmaceutical Companies, a group which would profit from the extended exclusivity protection, indicated that over three quarters Canadians supported the deal, hoping the nation’s regulations on drug patent protection could meet the standards of its major trade partners with the protection term extended to 10 years. They also expressed their willingness to invest more capital in drug developing and create jobs from added profits.

The EU free trade dealThe EU Free Trade Deal refers to bilateral agreements between the EU and other countries. As a result of negotiations, the contents of the final agreements differ with each country. Since the deal only restrains the contracting parties, other countries will not be directly affected, explained by attorney Luo Yan of Covington & Burling LLP.

According to the EU official definition: “data exclusivity” refers to the period during which the data of the original marketing authorization holder relating to (pre-)clinical testing is protected. Accordingly, in relation to marketing authorization applications submitted after 30th October 2005 for the applications filed in the framework of national procedures or 20th November 2005 for applications filed in the framework of the centralized procedure, “data exclusivity” refers to the eight-year protection period during which generic applicant may not refer to the information of the original marketing authorization holder and “marketing exclusivity” refers to the ten-year period after which generic products can be placed on the market. However, in relation to marketing authorization applications submitted before the above mentioned dates, the wording “data exclusivity” refers to the six or ten-year protection period granted to the original marketing authorization holder before generic applicants can file their applications for marketing authorization.

Data exclusivity for drugsData exclusivity refers to the exclusive right to clinical test data gained by pharmaceutical companies during drug development. Other companies must wait until the right expired to deliver generic drugs based on the test data of the original manufacturer.

Clinical test data come from various phases of the drug R&D process, and can be applied to assess the safety, efficacy and quality controllability of a new drug. Therefore, they are used by medical and health departments of countries around the world to analyze and evaluate whether the marketing authorization application should be granted, i.e. whether or not a certain drug should be allowed to enter the market to serve as a cure to certain diseases. In addition to test data, components of the drug, its functions as well as its producing methods should also be submitted to administrative departments before marketing authorization applications are granted. If the composition of the drug is changed, if the drug is combined with other drugs, or used to treat diseases or conditions beyond those which it was originally approved for, it must be retested and reauthorized by the regulatory health institutes.

Liu Yunxia, Partner of JT&T law firm, told China IP , “From the perspective of safeguarding public interests, in order to protect human health and environment, clinical test data often form the main basis on which national health departments and consumers measure the efficacy and risks of the new drug. Meanwhile, that data are treated as a precondition for marketing authorization demonstrate their commercial importance. Generally speaking, developing a new drug and getting it into the market requires extensive chemical, pharmaceutical, toxicity and clinical research and tests. This process takes 10-15 years on average and costs a large sum of money. However, since test data come from standardized scientific research procedures, they fail to satisfy the three elements of patentability, therefore cannot be subjected to patent protection. Thus, finding ways to protect data exclusivity has become the focus of concern of pharmaceutical companies and governments.

Article 39.3 of TRIPs states: “Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.”

Each and every new drug must go through complicated and lengthy screening, testing and R&D processes to ensure its safety and efficacy during treatment. A drug under development must be constantly tested and examined to maximize its curative effects and minimize side effects. After pre-clinical tests (which means experiments with computers and test tubes, as well as molecular experiments conducted on animals), promising compounds will be used on more and more patients in three phases as clinical tests. The efficacy of the drug, along with its absorption, distribution, metabolism and excretion data, will be analyzed. The pre-clinical tests of new compounds are completed using various technological means inside the lab. Promising compounds will then be tested on animals to further observe and examine its efficacy. This is the reason why data exclusivity is so important.

Regulations of EUDirective 2004/27/EC of EU provides that the protection of data exclusivity should adopt the “8+2+1” mode. According to this mode, new drugs are granted of 8 years of data exclusivity and 2 years of market exclusivity. Generic pharmaceutical companies are allowed to view the results of pre-clinical tests and of clinical trials if they can demonstrate that the medicinal product is a generic of a reference medicinal product which is or has been authorized for eight years or more. However, a generic medicinal product authorized pursuant to this provision shall not be placed on the market until ten years have elapsed from the initial authorizations of the reference product. The ten-year period referred to above shall be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. The EU’s protection to data exclusivity is the strictest globally. In the US, the maximum protection term is seven and a half years of while Canada provides for eight years protection. If a country seeks to enter into free trade deal with EU, then it must abide by the EU standards.

Although TRIPs protect drug test data as “undisclosed information,” in strict terms, this data is different from trade secrets. Trade secrets are protected under civil laws. Once the public has access to the information legally, they are entitled to use and exploit it with no further restrictions. However, text data are protected through administrative regulations. The US, EU, China and other countries protect drug test data through pharmaceutical administrative regulations. When the eight years data exclusivity expires, the initial marketing authorization holder still enjoys two years of administrative exclusivity, which prevents generic pharmaceutical companies from entering the market even if they have had the test data and carried on with equivalency tests.

Regulations of ChinaChina promised to protect data exclusivity since it entered into WTO negotiations. The Regulations for the Implementation of the Pharmaceutical Administration Law of the People’s Republic of China (2002) and the Provisions for Drug Registration (2002 edition and 2007 edition) endow right holders with six years of data of exclusivity. Article 20 of the Provisions for Drug Registration (2007) provides: “In accordance with the provisions in Article 35 of the Regulations for Implementation of the Pharmaceutical Administration Law of the People’s Republic of China, where a manufacturer or distributor submits undisclosed drug experimental and other data which are independently acquired in order to obtain approval for production or marketing of the drug in question which contains any new chemical entity, the State Food and Drug Administration shall, within six years from the approval date of the drug, reject any application made by any other applicants by using undisclosed data of the drug in question without permission of the original applicant who has obtained the drug approval, unless the data submitted are independently acquired by the applicants other than the original one.”

Data exclusivity entitles its R&D enterprise exclusive right of use and market monopoly. Within the protection period, other pharmaceutical companies cannot apply the protected data to bioequivalence experiments (to be prepared to produce generic drugs) or apply for manufacturing of generic drugs. It can be said that data exclusivity is an exclusive right which resembles patent right. Like patent rights, on one hand, it can boost innovation, while on the other hand, it may increase consumers’ expenses. For right holders, the longer the protection term is, the bigger the profit will be. However, for the public, the longer it takes for the generic drugs to enter the market, the more they will pay.

To date there has been no statistics showing how data exclusivity influences the developments of pharmaceutical companies. However, there are articles which point out that delaying generic drug from entering into market enhances the competitiveness of both Chinese generic pharmaceutical companies and foreign patent drugs manufacturing companies.

(Translated by Monica Zhang)