Israel: Ha’aretz: The Health Ministry Is Violating The Priority Rights Of Pharmaceutical Companies

The generic drug industry has already spawned some of the most successful companies in Israel's business arena. Teva, whose market cap is $16 billion and is a leader of the global generic industry, is without doubt the most prominent example, but it is not the only one. Taro and Agis are growing, profitable companies that are considered leaders in their specific fields.

A generic drug is similar, although not necessarily identical, to the original drug, but produces the same biological effect as the original – at a much cheaper price. In a country where health costs continually rise and where the state's contribution constantly declines, the idea that a company should be allowed to produce generic drugs makes perfect sense. It is therefore hardly surprising that the concept of generic drugs is embraced by the public and by policymakers in Israel, and that no one questions this principle. Ostensibly, it is in everyone's best interest. Well, almost everybody's.

David Gilat, an attorney and patent attorney, disagrees. Gilat is a partner in Gilat, Bareket & Co., a law firm that specializes in intellectual property and represents proprietary drug manufacturers. In this field, their firm works hand in hand with Reinhold Cohn & Partners, one of the leading firms in Israel in the field of intellectual property.

Gilat thinks that the state has gone too far in its eagerness to promote the marketing of generic drugs, and even argues that the Ministry of Health is guilty of violating the proprietary rights of companies that produce brand-name drugs.

The cost of developing a new drug, Gilat explains, has grown dramatically over the last few years, and nowadays reaches several hundreds of millions of dollars and even a billion dollars per drug. One of the reasons for that are technological improvements, which make it possible to reach a higher level of accuracy in toxicity and purity measurements, and concurrently led the Food and Drug Administration (FDA) to introduce more rigorous demands for drug approval.

The Ministry of Health in Israel, like the FDA in the USA, is charged with safeguarding public health. Therefore, any company that develops a new drug must, before it is allowed to market the drug, submit the entire drug file to this agency, including all the data compiled in the clinical trials (trials in humans) and pre-clinical studies (laboratory tests and animal trials).

"The product file is the output of the development process," Gilat explains. "Hundreds of millions of dollars were invested in order to obtain the information in this file, since most of the cost is in clinical trials. This is confidential information, and the incredible investment that was required in order to generate it turns it into a trade secret. The Pharmacists' Ordinance gives the health authorities access to these files, but for one purpose only: to guarantee public health. The Ordinance does not explicitly authorize the government to use the product files for any other purpose."

"Since the file to which the health authorities gain access is a trade secret of the pharmaceutical companies, these companies also have proprietary rights to this file. Their interest in this asset is protected under Basic Law: Human Dignity and Liberty, which stipulates that the authorities may not violate proprietary rights except as provided by explicit legislation, and even then the injury must be proportional."

"At the same time, when a company that produces a generic drug applies for registration of this drug", Gilat says, "this company is not required to perform clinical trials. It is only required to submit a limited set of data that would prove bioequivalence, namely, that the effect produced by the generic product is the same as that produced by the branded original".

The Health Ministry checks whether bioequivalence really exists by comparing the abbreviated file submitted by the generic company to the file of the branded drug. This means that the Health Ministry is using the property of the pharmaceutical company that developed the original drug, in order to approve a generic drug – a purpose that is not permitted by the Ordinance, which only allows the Ministry to use the file in order to guarantee public health.

"The Health Ministry," Gilat says, "is in fact taking private property and using it without permission and against the owners' will, although the property was disclosed to the Ministry as part of a fiduciary relationship and – most importantly – without any explicit law allowing the Ministry to do so."

Advocate Eran Bareket, an expert in intellectual property law and Gilat's partner, says that by using the drug companies' trade secrets, the Ministry of Health is violating not only the Basic Law and the Pharmacists' Ordinance, but also an explicit undertaking not to divulge or make unfair use of any trade secrets that were disclosed to it in order to gain marketing permits. The State of Israel accepted this undertaking when it joined the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) in 1994.

Article 39 of the Agreement provides that whenever the authorities in a member state require, as a condition of approving the marketing of pharmaceutical or agricultural chemical products (such as new herbicides), that a company submit confidential data whose origination involved a considerable effort, the authorities in this member state are to protect such data against unfair commercial use. In addition, they are to protect this data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data is protected against unfair commercial use.

"Israel signed TRIPS without any reservations," Bareket says. "But international treaties that Israel ratifies do not automatically become part of the binding law here; a law needs to be passed by the Knesset in order to make article 39 of the TRIPS agreement part of the Israeli code; a similar process took place with the Amendment to the Intellectual Property Law (Adaptation to TRIPS)." The Office of the United States Trade Representative (USTR) has repeatedly reprimanded Israel for failing to pass such a law, Bareket adds. According to USTR, this is one of the ways in which TRIPS is violated by Israel.

The western countries, including the U.S. and the members of the European Community, have passed laws designed to give companies that develop drugs or agro-chemical products protection for a limited period, during which no other company can market that product, Bareket notes. For this purpose, they enacted laws protecting information, which apply regardless of whether a drug is patented.

One of the most poignant examples of the need to protect a developer against losing its investment is that of Bristol-Myers Squibb, which developed the ovarian and breast cancer drug, Taxol.

Bristol-Myers Squibb lost its patent protection after generic pharmaceuticals had successfully attacked its patent. They argued that Bristol did not in fact develop the product, since the anti-carcinogenic effect of paclitaxel, the active ingredient in Taxol, was already known. The generic companies based their argument on a provision in Patent Law, according to which medical treatment of humans cannot be protected by patent.

Bristol-Myers Squibb asserted that it had invested US$1 billion in development and clinical trials in order to establish the dosage and treatment schedule, and its investment therefore merits protection. However, this argument was rejected and the patent invalidated.

The Data Protection Law normally affords a company that develops a drug or agro-chemical product five years of protection after FDA marketing approval. This protection is designed to save companies that do not get patent protection or that get it at a later time, from incurring giant losses after applying for FDA approval. For example, if a company obtains FDA approval 20 years less one day after applying for a patent, it will have five years of exclusive distribution rights for that drug, even though the patent expires the next day.

The State of Israel, Bareket concludes, already acknowledged the importance of data protection when it passed the Plant Protection Law. Regulation 19 enacted under this law stipulates that for the first five years after an agro-chemical product is registered, the authorities are not to use the information disclosed to them by the registered owner of the original product in order to issue permits for parallel imports.

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