U.S. Losing $100 million per year to Israeli Drug Counterfeiting

2003 PhRMA Special 301 Submission: Israel
Israel

As noted previously, Israel’s intellectual property protection for pharmaceutical products has deteriorated substantially over the past decade. The situation now contrasts sharply with that of industries relying primarily on copyright and trademark protection, where Israel offers a fairly strong legislative regime and reportedly has improved its enforcement record. With respect to the pharmaceutical sector which is highly dependent on protection of patents, and undisclosed information (data exclusivity) the Government of Israel actively undertakes policies that erode intellectual property protection, which include curtailing the effective patent term, limiting exclusive rights for patent holders, and denying data exclusivity as required under the World Trade Organization (WTO) Agreement on Trade Related Intellectual Property (TRIPS). PhRMA urges that Israel remain on the 2003 “Special 301” Priority Watch List.

Intellectual Property Protection

Data Exclusivity

Israel has failed to date to adopt protection for confidential data as required by the WTO TRIPS Article 39.3. Despite assurances to the contrary, the Government of Israel’s Health Ministry does not protect the confidentiality of commercially valuable test data. In this area, Israel falls into the category of a country that provides no legislative or regulatory protection for undisclosed information submitted to the Ministry of Health. The cost of generating this information is estimated at $802 million. The absence of data exclusivity in Israel allows manufacturers other than the right holder (i.e. the Israeli generic companies) to rely on test data from drug marketing applications by innovator firms from the date that the innovators receive their marketing approval.

Not only is this legal posture a growing anomaly among leading U.S. trade partners, it exposes Israel to a potential WTO TRIPS dispute. PhRMA requests that the Government of Israel provide for an exclusivity period similar to the protection granted in OECD countries.

Patent Registration Delay

A patent is thoroughly examined by the patent examiners in the Patent Office who are experienced in the relevant art. After examination and acceptance of the application, it is published for possible oppositions in the Patent Gazette. If the application is opposed, the opposition proceedings may take years (3-5 years is a realistic and somewhat optimistic timetable) until there is a decision in the opposition proceedings. During the opposition proceedings the patent is not registered and not yet valid. Thus, and although the Patent Office thoroughly examined the application and approved it, a local generic manufacturer may block the registration of the patent for many years. It is worth emphasizing that the damages which may be incurred by the patentee during this period of the opposition proceedings are enormous. Indeed, in most (if not all) OECD countries the opposition proceedings are conducted post registration (e.g. in the EPO) and it is not possible to block the registration of the patent (this is also the case in the U.S.).

Parallel Importation

In early 1999, the Government of Israel (GOI) passed into law amendments to the Pharmacists’ Ordinance that would allow importation by non-right holders of patented pharmaceutical products registered in Israel. In early 2001, the Ministry of Health provided licenses to sick funds and other entities to import products currently under patent in Israel. To date, 22 parallel import licenses have been granted by the Ministry of Health, causing damage to American research based pharmaceutical companies.

Counterfeiting

PhRMA members also remain concerned by the failure of the GOI to provide adequate provisional and border measures required by TRIPS Articles 50 - 60 in order to deter infringement and counterfeiting activities related specifically to pharmaceutical products. The Israeli Customs authorities and Ministry of Justice officials need to aggressively investigate and prosecute the smugglers of counterfeit products. In one particular case, Israeli customs seized counterfeit Viagra over six times in the last 8 months alone, but smugglers have never been apprehended, arrested, or prosecuted. In addition, the authorities have not given Pfizer, the company producing the patented and trademarked product, any information about the couriers. The Israeli Minister of Health and the police also need to suspend the business of illegal medical operations that distribute counterfeit or unapproved diverted products.

Market Access Barriers

The Israeli Knesset has recently passed an amendment to the Pharmacists Ordinance that allows for fast-track registration of generic products based on FDA or European Medicine Evaluation Agency (EMEA) approval. Generic products approved by these authorities would be granted an automatic marketing authorization unless the Ministry of Health objects within 70 days. This amendment primarily benefits local generic producers thus violating GATT 1994 Article III National Treatment requirements.

Damage Estimate

Adoption by Israel of some of the patent-weakening measures currently being discussed in other countries and in the TRIPS Council would damage PhRMA members. Israel has a strong generic pharmaceutical industry that would benefit commercially, at the expense of PhRMA members, from a change in law to allow unauthorized production for export of patented products. If this were to come to pass, damages to PhRMA members could easily exceed $100 million dollars from this alone, but the damage would be felt in other markets. Should the Government of Israel adopt a policy of compulsory licensing for export, other OECD countries would be able to parallel import from LDC’s which imported generic versions of patented products from Israel, far exceeding the damages incurred in Israel alone). In addition, damage to the industry from lack of protection for confidential data, given that the threat of parallel importation on patented pharmaceutical products is not in place, is difficult to estimate. However, based on experiences in other markets, parallel importation could yet have a domino effect on the whole market and would not be limited to a specific product. Parallel importation could seriously damage the Israeli healthcare system, and the Israeli pharmaceutical and related sectors.

The Israeli pharmaceutical market totals some $690 million (1998). Sales of patented imported products were approximately $450 million (most sales are by the multinational pharmaceutical companies). Sick funds represent 90% of the market, i.e., $400 million in patented imported products.

Continued deterioration of the intellectual property environment in Israel will have an adverse impact on employment and investment at a time that the Israeli economy can ill afford it. Members of the research-based pharmaceutical industry in Israel currently employ 1000 people; many may lose their jobs. (Bristol Meyers Squibb has already pulled most of its activities out of Israel, reducing its staff from 80 to 20). Furthermore, international research-based firms invest $1000 million per annum in clinical trials conducted by Israeli medical institutions and physicians.