The Beginning of a New Era in the Pharmaceutical Industry?

At the end of this month the United States is due to announce its ranking of various countries, including Israel, based on the prevalence of copyright infringement in each country. As April 30 approaches, government officials are rethinking the Drug Act, the focus of a dispute between Israel and the U.S. and European Union.

Israel is preparing to join the Organization of Economic Cooperation and Development, whose founders include the EU and the United States.

Although Israel's acceptance to the OECD is not expected to happen immediately, OECD membership is one of the government's main economic goals, and it is expected to happen in a few months to a year, assuming there is no backtracking in Israel's economic policy.

The OECD demands that member countries meet its principles, which are not always the same as international laws and principles. Intellectual property is an example of this: The Israeli Drug Act largely meets the standards set by the World Trade Organization, but is not in line with EU and American legislation.

About two years ago the Israeli Drug Act was passed in an attempt to create a balance between the interests of companies that develop generic drugs, such as Teva Pharmaceutical Industries, and the interests of international companies that develop new "ethical" drugs; those for which prescriptions are needed.

The act is also meant to address the Israeli interest in supporting the local drug industry, the existence of cheap, generic drugs, and the immediate entry of new drugs to the local market. The law also does not overlook the obligation to protect intellectual property.

Israel defends the act, claiming it is in line with international law. This argument protects Israel from the threat of American trade sanctions, which will be the fate of the other countries appearing in the U.S. Department of Commerce's list.

But Israel will have to submit to the OECD's regulations, and sources close to the Knesset say Israel's laws will be altered to meet the demands of the EU and the U.S. - demands that Israel has stubbornly rejected until now. Even so, the government will probably wait until the last minute.

TheMarker has learned that international ethical drug companies have sent the U.S. Department of Commerce a document claiming that Israeli legislation caused them damages amounting to $46.2 million in 2006 due to insufficient patent protection and the protection of medical information that reaches the Health Ministry.

Israeli sales of drugs manufactured by these companies totaled $356.2 million last year, so the damages were 13 percent of sales.

The companies also claim losses of $350 million due to the retroactive application of Israeli law.

Ethical companies invest hundreds of millions of dollars, sometimes even $1 billion in developing each new drug, in a process that may take up to 10 years. Most of the expenses are incurred in human clinical trials.

The companies therefore want to retain their exclusivity in the market for as long as possible to recoup their R&D costs and turn a profit.

Companies thus have 20 years of patent protection from the date a patent is approved.

It often takes years until a drug is developed and ready to market, leaving firms only a few years of patent protection, so the patent extension was instituted.

Generic companies, on the other hand, develop drugs that mimic the effects of the ethical drugs by using information gleaned from the drug registration files. They develop drugs in just a few years at a fraction of the original cost to the ethical companies.

One of the main bones of contention between Israel and the EU and U.S. is the length of time during which the drug registration files will remain sealed. Israeli law dictates a period of five years from the date an ethical drug is registered abroad, or five and a half years from its registration in Israel.

The problem is that it takes up to two years from the registration of a drug to the granting of marketing approval. The ethical companies want their exclusivity extended to five years from the granting of marketing approval.

Another disputed issue concerns the Health Ministry's release of medical data for use in the production of generic drugs for export during the period when an ethical drug's exclusivity is still protected in Israel. The U.S. objects to this, even though Israel claims that the U.S. follows a similar practice.