Glossary

Definitions explained in context

The health care market, and in particular the pharmaceutical market, is characterized by numerous substructures as well as regulatory conditions, which exercise a strong influence on the behavior of these markets. Fundamental concepts and relevant technical terms are explained below in context.

The pharmaceutical market can be broken down according to various criteria. The criteria are not always uniform and the various markets cannot be clearly delineated from each other. Obvious criteria for differentiation are the indications for which the particular drugs are used, as well as the country in which they are sold and the respective national drug legislation regarding approvals and sales.

Another frequently used criterion for differentiation is the prescription requirement, i.e. the statutory requirement, that depending on their risk potential, drugs frequently may only be dispensed to patients based on a doctor’s prescription. A distinction is made between the prescription market, the so-called Rx market, and the market for non-prescription drugs, the so-called market of over-the-counter products or the OTC market. Generally the prescription market is the clearly larger market segment; one reason for this is that new active ingredients are generally subject to an automatic prescription requirement for several years until their risk potential can be adequately assessed. The OTC market can be further subdivided according to whether the drugs must be sold in pharmacies (pharmarcy-only drugs) or whether they may also be sold outside of pharmacies (freely available drugs). In some instances, the OTC market also includes products that are not drugs, e.g. medical and health care products. Designation of individual active ingredients to the various segments is a result of national legislation and may differ from one country to the next.

Another criterion for differentiation in the pharmaceutical market relates to the way costs are borne.

A distinction is made between drugs for which the cost is assumed by the respective national social insurance system (in Germany the “GKV” or Gesetzliche Krankenversicherung, statutory medical insurer) and drugs – based on a doctor’s private prescription – paid by the patients themselves or by a private medical insurance carrier; and drugs which the patient selects and pays for himself (the self-medication market). Combining the prescription / non-prescription and cost bearer criteria gives rise to additional criteria such as drugs that do not require a prescription but in the framework of the statutory medical insurance system can be prescribed and reimbursed on a discretionary basis.

Furthermore, the pharmaceutical market can be differentiated according to whether the active ingredient of a drug is subject to industrial property rights protection. Patents, supplementary protection certificates (“SPC”) and the market exclusivity associated therewith are granted to initial suppliers of active pharmaceutical ingredients for several years, the number of which varies from country to country. Generally, such initial supplier products are marketed as branded products, i.e. under a specific trademark. Separate from this are multisource products, i.e. products in the health care market, generally drugs, for which the industrial property rights for the active pharmaceutical ingredients have expired. Cost and risk intensive active ingredient research and own active ingredient production are not required for the development and sales of a multisource product. The offpatent active ingredient can generally be obtained on the global market from several raw material suppliers.

Multisource products can be further differentiated. If the price does not play a key role in the marketing of a product and one’s own trademark is used, a multisource product – like initial supplier products – belongs to the Branded Products segment. If a multisource product is offered based on a clear price advantage in comparison with products established in the market, they belong to the generics segment.

Generics thus are drugs which have the same active ingredient as an initial supplier product and have the same therapeutic effect, but are offered after expiration of the patent or other relevant industrial property rights at significantly lower prices than the corresponding drugs of initial suppliers.

In most cases, generics are marketed under the name of the international non-proprietary nomenclature, or INN, often with a company-specific suffix. In Europe, these so-called INN generics are the most common form of marketing generics. If generics are marketed under independent trademarks, they are referred to as branded generics which are closely related to branded products and generally differ from the latter solely as a result of active featuring of a lower price in comparison with the initial supplier.

In almost all countries in the world, packaged drugs may only be marketed with a prior product-specific national approval.

In this regard it is generally necessary to prove to the respective national regulatory authority the efficacy, safety and quality of a drug with extensive preparatory work and extensive documentation, also called dossiers.

The legal requirements with respect to content and structure of an approval dossier differ from country to country. These regulations have however been harmonized as far as possible within the EU and also within the scope of the ICH process (International Conference of Harmonisation) which applies to the approval dossiers that must be submitted in the USA and Japan. In the framework of the approval process, however, extensive dossiers must always be submitted, in particular the results and evaluations of analytic, pharmacological-toxicological, and clinical tests. The necessary tests for preparation of the approval dossier require specific know-how, considerable investments, and a time commitment of several years. The regulatory authority then decides on the approval on the basis of these filings. Whether a drug can be approved only turns out at a late phase of this process at times.

In the EU, drug approval and manufacture is comprehensively regulated both through national and European regulations. The authority responsible on the European level is the EMEA; in Germany it is the BfArM. The legal framework was further developed and modified in recent decades through numerous amendments, with the trend in Europe to increasingly shift the decisions and processes to European bodies. With the increasing Europeanization of drug laws, the so-called decentralized approval procedure for drug approvals in more than one EU member state was created, which is based on the principle of the Mutual Recognition Process (“MR process”) and the centralized approval process particularly for new kinds of drugs as well as for biotechnology pharmaceuticals (innovative and generic).

The European pharmaceutical laws provide for a modified process for drug approvals corresponding to an already approved drug with respect to their active ingredient and their therapeutic effectiveness, e.g. generics.

Documentation is required as to the bio-equivalence, with the pre-approved drug containing the same active ingredient and same quantity in a comparable dosage form, instead of the pharmacological-toxicological and clinical tests otherwise required. The approval authority refers to the existing dossiers submitted by the initial supplier with respect to efficacy and safety, while all aspects of the manufacture and pharmaceutical quality, e.g. shelf life, must be fully documented in each case in the dossier. Implicitly, therefore, extensive specialist knowledge is also required for the approval of generics.

In order to protect the efforts and investment of the initial supplier, reference to such documentation is possible in individual EU countries only after expiration of a data exclusivity period. During this period a second supplier in the approval process may not use documentation submitted by the initial supplier on the effectiveness and safety of an active ingredient (“Bezugnahmesperre”). This data exclusivity period for all initial supplier products with an approval application submitted prior to October 30, 2005, is ten years (for Germany, the United Kingdom and France as well as for drugs centrally approved in the EU). For a few other European countries (e.g. Austria, Ireland, Spain), it is six years. For all initial supplier products with an approval application submitted after October 30, 2005, the data exclusivity period is 8 years throughout the EU, whereby the relevant generics can only be put on the market in the EU 10 years after an approval for the initial supplier product is first issued. This timeframe can eventually be extended by one year in the case of a new indication. Due to statutory data exclusivity periods it may happen that, despite expiration of the active ingredient patent or supplementary protection certificate, approval cannot be sought under the modified process and the data exclusivity results in a de facto extension of the initial supplier’s market exclusivity position.

The U.S. procedure for drug approvals is significantly different from the European procedure. Under the New Drug Application process (“NDA approval”) in the U.S., drugs with new active ingredients, as well as new combinations, indications and drug administration methods of already approved active ingredients or drugs are reviewed and approved. If the product is a new chemical active ingredient, the authority responsible, the FDA (Food and Drug Administration), can decline approval applications for generics – regardless of patent protection – up to five years after granting approval for the initial supplier product. An exclusivity period of three years applies in the case of approval of a known active ingredient for a new indication. Additional specific protection periods may pertain to generic equivalents if, for example, approved products are used in pediatric studies.

The FDA has provided the so-called ANDA process (Abbreviated New Drug Application) for use in approvals of generic drugs. This procedure calls for studies confirming bio-equivalence of the generic product to the drug already approved rather than pre-clinical and clinical safety and efficacy studies. If the ANDA process is initiated with the FDA in order to bring a product to market prior to expiration of the initial supplier’s patent, the applicant is required to prove that the existing patent will not be infringed or that it is invalid or unenforceable, also known as paragraph IV certification. The first supplier of generics to submit such confirmation then obtains, as a rule, exclusive marketing rights for the new generic drug for 180 days in the U.S. During this period, the FDA will not grant approval for other generics with the same active ingredient as that in the ANDA process. If, however, the holder of the NDA approval sues for infringement of commercial property rights, the decision on the ANDA application is halted by the FDA.

Europe and other countries do not have exclusivity regulations for generics similar to the U.S. regulations; neither market exclusivity in the case of generics, nor an automatic extension of patent protections in the case of disputed patents, is common outside the U.S.

Due to a change in legal requirements which has been in effect since September 2005, generic drug manufacturers are now permitted to conduct the requisite bio-equivalence studies prior to expiration of the initial supplier’s patent (“working under patent”).

Once approval of a particular drug has been granted, it may, under relevant national legislation, at any time be restricted, declared dormant or revoked, in the event that new scientific knowledge concerning the drug’s efficacy, safety or quality arises during the marketing phase.

Drug manufacture, too, is strictly regulated by national regulations throughout the world. In almost all countries drug-manufacturing companies require a manufacturing permit from the appropriate national supervisory authority under national law. In Germany it is for example the Pharmaceutical Act (“Arzneimittelgesetz”) and the Pharmaceutical Operation Ordinance (“Pharmabetriebsverordnung”) that set not only detailed requirements regarding both facilities and personnel involved in manufacturing operations, but also the process sequences to be adhered to. Subcontracting of drug manufacturing is permitted only on the basis of a written agreement delineating pharmaceutical responsibilities. The supervisory authority responsible undertakes regular plant inspections (audits) and tests of drug samples and can take appropriate measures if any deficiencies are determined.

Marketing and sales of drugs, medical products and in part other health products and cosmetics, and commercial business involving drugs, in particular wholesale and mail order business as well as import and export of drugs, are subject to national laws that often vary considerably from one country to another.

While, for example, the mail order business is only allowed in Germany under specific conditions, in some countries it is forbidden and in still others completely liberalized. Non-pharmacist ownership and multiple ownership of pharmacies is also regulated differently depending on the country. While in the U.S. and some EU countries, non-pharmacist and multiple ownership and, therefore, pharmacy chains are allowed, in Germany non-pharmacist ownership is prohibited and multiple ownership limited to a maximum of four pharmacies under certain conditions.

In addition to the customary rules on competition, the advertising of drugs, medical products and at times even cosmetics is circumscribed by national law and accordingly regulations, e.g. in Germany, among other things, by the Therapeutics Advertising Act (“Heilmittelwerbegesetz”). Advertising measures for prescription drugs as well as drugs for certain indications are, for example, completely banned in Germany other than in professional circles, while they are permitted to a degree in the U.S. Product-specific regulations may also apply in part to advertising outside of professional circles.