In brief
Patentees may face heightened risks when changes to the Pharmaceutical Benefits Scheme (PBS) take effect later this year. Special Counsel Ric Morgan and Associate Claire Gregg explain.
PBS changes
The National Health Amendment (Pharmaceutical Benefits – Budget and Other Measures) Bill 2017, which passed through both Houses of Parliament on 13 February 2018, aims to reduce the cost of providing reliable and affordable access to medicines through the PBS. There are new and changed price cuts for originators depending on the length of time a product has been listed. There are also other changes that provide benefits to originators, including discretionary exemptions from some price cuts.
A key change that will have a detrimental impact on originators is an increase in the price cut that occurs on the entry of the first generic competitor. From 1 October 2018 until 30 June 2022, this will trigger a 25 per cent price cut instead of the current 16 per cent price cut. The 25 per cent price cut will also significantly influence the way patent litigation is likely to proceed.
No (injunctive) relief for patentees
Because of the increased price reductions on generic entry, the PBS reforms will recalibrate the risk benefit analysis undertaken by originators seeking to restrain competitors from entering the market before patent expiry.
The 'usual undertaking as to damages' given by patentees in return for an immediate injunction allows any party affected by the injunction to claim damages if the patentee's case ultimately fails. One such party is the Commonwealth, because it is denied the savings it would have otherwise received flowing primarily from the price cuts on generic entry.
The Commonwealth is currently pursuing some of these claims and the most recent indication as to the size of these claims is the news report that BMS has provisions of about $450 million in relation to the Commonwealth's damages claim for losses arising from subsidising Plavix® at a higher price on the PBS while injunctions were in force. The increase in price reductions will increase the potential exposure to the Commonwealth by more than 50 per cent.
In addition, originators are exposed to damages claims from the generics that have been prevented from entering the market by the injunctions, although the size of these claims will presumably be reduced because of the lower prices forced by the mandatory price reductions.
The news isn't all bad
There is some good news for patentees in the amended legislative scheme, which will enable new presentations of a drug to be listed on the PBS without triggering the statutory price reduction that ordinarily occurs when a first additional new brand is listed.
Further, the new increases in PBS price reductions stem from a five-year Strategic Agreement between the Government and Medicines Australia, which expires on 30 June 2022, after which it is intended that the statutory price reductions will revert to 16 per cent.