The European Commission’s Proposal for the Reform of the European Pharma Legislation: An Attempt to Solve One Problem Creates an Even Bigger Problem | Denmark

In April 2023, the EC unveiled its long-awaited proposal for the reform of European pharma legislation. According to the Commission, the goals of the reform include ensuring timely and equal access to medicinal products for all patients in the EU and maintaining an attractive, innovative and competitive environment for research, development and production of medicinal products in the EU. While few would argue against such objectives being relevant and necessary, the question is whether the Commission’s proposal is counterproductive, as further explained in this article.

Part of the Commission’s proposal involves reducing the general regulatory data protection period safeguarding innovative medicinal products from eight to six years. The Commission justifies this reduction by introducing a “balanced incentive system” that allows for certain extensions of the regulatory data protection period under specific conditions, aiming to promote innovation.

Thus, to “compensate” for reducing the data protection period in general, the Commission proposes that the regulatory data protection period may be extended, provided certain conditions are met. The maximum period may potentially exceed the current regulatory data protection period. One of the conditions is that marketing authorisation holders must, within two years (three years for small and medium-sized enterprises and non-profit organisations) of receiving marketing authorisation, demonstrate that the medicinal product is “released and continuously supplied … in a sufficient quantity” in all 27 member states.

In addition to the EU-wide launch, the Commission proposes three other options for extending the regulatory data protection period, providing extensions of one year or six months, depending on conditions such as marketing authorisation applications for medicinal products addressing (i) unmet medical needs, or (ii) a new active substance documented through relevant comparative studies, to be conducted after scientific advice from the EMA. Apart from these conditions being unclear and quite challenging to fulfil, one may question whether the limited regulatory data protection period that marketing authorisation holders can achieve will incentivise the development of new medicinal products.

Despite the good intentions, a reduction of the general regulatory data protection period to six years will prompt generic competition. Companies and external investors would therefore have to base their financial calculations on the shorter period when determining whether it will make sense to invest in developing new medicinal products. As a result, obtaining external capital funding will generally become more expensive as investors’ business potential diminishes. This is particularly unfortunate given that the biotech and pharmaceutical sectors in the EU invest the highest percentage of their revenue in research and development compared to other research-based sectors.

The so-called “incentive” of added regulatory and data protection if a company launches in all 27 member states seems to express the Commission’s desire to counter the uneven supply of medicinal products among member states. However, it seems nearly impossible for companies to meet this launch condition, especially considering that national market access depends on individual member states’ health systems and application processes for pricing and subsidies. The condition-based incentive is thus founded upon requirements that the companies cannot fulfil on their own, but rather on others’ goodwill, time, and priorities. It is a structural and systemic problem inherent in the fractioned EU health system rather than one which can be addressed with one adjustment of the exclusivity periods granted for new medicines.

When drafting the proposal, it seems the Commission did not consider whether it would be financially viable for pharmaceutical companies to invest in establishing sales and distribution channels in all member states. This could pose a challenge for even the largest pharmaceutical companies, and even if they could justify such investment in an EU-wide launch, the increased costs would inevitably lead to higher prices on medicinal products. The prospects for small and medium-sized enterprises are even more uncertain, as it is unlikely that smaller biotech and pharmaceutical companies would have the resources, both financially and practically, to launch in all member states within the specified period.

If there is less incentive to invest in the EU biotech and pharmaceutical industries, the natural consequence is a lower supply of new innovative medicinal products, potentially leading to higher prices for healthcare systems and patients. It is noteworthy that the Commission has not provided any evidence or data to support the proposed reduction.

The overall goals pursued by the Commission are indeed worthy of recognition. It is essential that all patients in the EU have the widest possible access to medicinal products, and it is problematic if 90% of medicinal products are located in the western and larger member states, with only 10% in the eastern and smaller member states, as stated by Stella Kyriakides in her keynote speech at the Medicines for Europe Annual Conference.

The Commission’s desire to ensure the supply of medicinal products in all member states in the future is indeed understandable. However, it is a fundamental problem that the solutions appear ill-conceived and unclear and that the proposed solution may, all things considered, come at the expense of innovation, EU competitiveness and, ironically, national healthcare systems and patients.

It thus rings hollow when the Commission, in its proportionality assessment, highlights that it remains a central element in creating incentives for innovation. These incentives should be tailored to encourage and reward biotech and pharmaceutical companies for developing medicinal products to treat rare diseases. However, it is doubtful that the Commission has succeeded in fulfilling this central element in its proposal and not instead simply made more pharmaceutical companies opt for other regions around the world.