EU Pharma Review: Trilogue negotiations under the shadow of U.S. MFN pricing

The coming months will be crucial for the so-called “Pharma Package”, the largest revision of EU pharmaceutical law since 1965. So-called “trilogue” negotiations are being held between the European Commission (“Commission”), the European Parliament (“Parliament”) and the Council of the European Union (“Council”), based on documents showing their positions (see the draft Pharmaceutical Directive (“PD”) and draft Pharmaceutical Regulation (“PR”) published on 17 June 2025). Will the Pharma Package make the EU more competitive as has been claimed, despite reducing and ‘modulating’ IP rights and regulatory exclusivities? The stakes are high. For one of the proposals being considered (obliging companies to launch in all EU Member States), the stakes have been raised further by the growing risk that the U.S. administration will use prices in certain EU Member States as a “Most Favored Nation” (“MFN”) benchmark for U.S. prices. Maarten Meulenbelt, Josefine Sommer, Chris Boyle and Zina Chatzidimitriadou discuss the EU institutions’ trilogue positions in the context of broader legal, economic and political changes.

Key issues

Key issues in the trilogue negotiations will include the following:

• Will the EU adopt “obligations to launch” in Member States requesting the product, or even in all Member States?

• If so, will these obligations expose companies to U.S. MFN pricing risks?

• Will baseline IP and exclusivities be reduced across the board, and for orphan drugs in particular?

• If there are incentives to recoup or prolong IP/exclusivities, will they be achievable, and will definitions such as “Unmet Medical Need” be clear and workable?

• Will there be safeguards to avoid that the so-called “Bolar” exemption affects core IP rights prematurely (before patent expiry and generic/biosimilar entry)?

• To what extent will the marketing authorisation system be circumvented by pharmacy compounding and ‘hospital exemption’ production?

• How will the other changes to the rights and obligations in the Pharma Package and their overall balance affect the business case (risk-adjusted Net Present Value/rNPV) for developing products in the EU?

The basic idea: modulating IP to increase innovation and access

In previous blogs (Six Surprises, Missing Numbers, Economic Reality and Uneasy IP Compromises), we discussed the main “stick and carrot” theory underpinning the Pharma Package (also known as “General Pharma Legislation” or “GPL”): if IP rights and regulatory exclusivities (including regulatory data protection (“RDP”), market protection and orphan market exclusivity (“OME”)) are reduced across the board, but there are opportunities to claw back the lost IP and exclusivities by investing in certain therapeutic areas, or by launching in every EU Member State, companies would choose to pursue those opportunities. We refer to those earlier blogs for comments on the need for forward-looking assessments to support this theory, and for an overall competitiveness check of the Pharma Package.

From the ‘carrot’ of launch conditionality to the ‘stick’ of launch obligations

Under current law, companies are not obliged to launch their products in all Member States, but once they do, they are obliged to supply sufficient quantities (Article 81 of Directive 2001/83/EC). All three EU institutions engaged in the trilogue negotiations have proposed to change this system.

• The Commission’s initial Proposals (PD and PR) of 27 April 2023 provided for “launch conditionality” to encourage companies to launch products in all Member States. As a ‘stick,’ RDP would be reduced by 2 years, and OME would be effectively reduced by about 2 years (depending on the duration of the marketing authorisation (“MA”) procedure of generic/biosimilar products) compared to current law. As a ‘carrot,’ companies would have the option to gain back 2 years of RDP (and, for orphan drugs, 1 year OME) by launching the product in “sufficient quantities” in all Member States within 2 or 3 years of obtaining an MA.
• After several stakeholders noted that launching in all EU Member States within a few years is impossible in practice, the Parliament proposed (see the Parliament’s PD and PR Legislative Resolutions of 10 April 2024) to remove the launch conditionality and, instead, to oblige MA holders “to negotiate” with Member States, and to launch the product if a reimbursement decision is “positive”. However, it was not made clear how this launch obligation would apply if the decision is positive for the Member State (e.g. because it has put a product on a ‘positive list’ of reimbursed products, at a reimbursement level attractive to the Member State), but that same decision is not positive for the company (e.g. because the P&R level is unsustainably low).
• The Council’s proposals of 4 June 2025 to amend the PD and PR did not remove the concerns about introducing launch obligations. To the contrary, the Council proposed a new Article 56a PD, obliging MA holders to submit pricing and reimbursement (“P&R”) applications, to fulfil undefined “requirements” in procurement procedures, and to establish a “roll-out plan”; in addition, if after 4 years the product is not continuously supplied in sufficient quantities in a particular Member State, the MA holder could lose all key protections (market protection, RDP, and prolongation of OME) in that Member State, fragmenting the internal market. It is not clear to what extent these rights could be removed in case of temporary shortages (an increased risk in the current global environment).

A new Article 5a PR, proposed by the Council, would add a separate obligation to “ensure, upon agreement with the respective Member State and within its responsibility, that such medicinal product is placed on the market”. A new Recital 11a PR mentions “the viability of the company” as a relevant factor in determining the degree of effort required to launch a product in each Member State, but does not mention the viability of product launches and supplies at national level (such “national” viability depends on the P&R levels).

Without clarity, these obligations to launch and supply can increase uncertainty and risk, and would therefore reduce the risk-adjusted Net Present Value (“rNPV”) of investments to develop products for the EU.

Launch obligation risks increased by U.S. MFN pricing

The debate on the risks of introducing launch obligations has become especially sensitive since the publication, by the U.S. administration, of the “Delivering Most-Favored Nation Prescription Drug Pricing To American Patients” Executive Order on 12 May 2025 and company letters sent on 31 July 2025, demanding reductions of U.S. prices. The U.S. administration has stated that lowering certain U.S. prices to the level of the price of the product in any OECD country with a GDP per capita of at least 60% of the level of the U.S. (corrected for purchasing power parity) is a policy priority. Similar to the first Trump administration’s MFN efforts, those policy efforts – as they are currently unfolding – are targeted.  The first Trump administration’s MFN efforts, which were defeated in court, focused on selecting the 50 physician-administered drugs with the highest annual spend under the U.S. Medicare Part B program in 2019. The second Trump administration’s latest effort called out 17 large pharmaceutical companies, though the message does not appear uniquely tailored to these companies.

Therefore, for those countries and categories of products that may be vulnerable to MFN comparisons with the United States, new EU launch obligations could have far-reaching consequences for global rNPV calculations, and would increase the need to establish short range and long range global pricing plans to maintain and optimize launch opportunities in the EU.

Overall reductions in baseline IP / regulatory exclusivity

All three EU institutions have proposed their own method of reducing baseline protections (RDP and market protection). Current EU law (Directive 2001/83/EC) provides an “8+2+1” system, with 8 years RDP and 2 years of market exclusivity (in total, 10 years of protection until generic/biosimilar launch), and an additional year of market protection for a new indication which brings significant benefit. Since the “+1” option is essentially maintained in the GPL, it is not discussed further.

• For the GPL, the Commission proposed a 2-year reduction of baseline RDP to create a “6+2” system, with 8 years of market exclusivity until generic/biosimilar launch.
• The Parliament put the numbers up almost to where they are today (“7.5 + 2” = 9.5 years of protection until generic/biosimilar launch), but added the launch obligations discussed above.
• The Council proposed an “8+1” system with 9 years of baseline protection until generic/biosimilar entry.

The Commission and the Parliament proposed their own mechanism to recoup the general RDP/market exclusivity losses (see blogs Economic Reality and Uneasy IP Compromises). The Council envisages two mutually exclusive methods for obtaining a 1-year recoupment of market exclusivity: (a) the product addresses an unmet medical need (“UMN”), or (b) the MA holder fulfills three cumulative requirements: (i) conducting comparator trials; (ii) conducting clinical trials in multiple Member States, and (iii) making the EU application less than 90 days after the first global submission in another country. Orphan drugs would no longer automatically satisfy the UMN criteria. This would be an important change, since the presence or absence of “UMN” status can have an impact on national P&R procedures and prices.

IP/regulatory exclusivity reductions for orphan drugs

For orphan drugs, baseline protection would be reduced under all three proposals, as well. The current baseline protection is about 11 years: 10 years of OME must pass before authorities can “accept” a generic/biosimilar MA application. The current protection also includes the time between the acceptance of that MA application and the grant of the MA, which can be about 1 year.

• The Commission proposed an OME reduction of about 2 years compared to current law: orphan drug companies would get 9 years of protection until the “grant” of a generic/biosimilar MA (with 1 year recoupment for an all-EU launch, and 1 year of additional OME for products addressing a “high unmet medical need” (“HUMN”)).
• The Parliament proposed OME for 10 years until the grant of a generic/biosimilar MA, without 1-year extensions for HUMN products and all-EU launches; but the Parliament added launch obligations.
• The Council also proposed 10 years OME until the grant of a generic/biosimilar MA without 1-year extensions for HUMN products and all-EU launches; but at the same time, the Council position suggests that a generic/biosimilar MA can already be granted “where the remainder of the duration of the market exclusivity is less than two years”, raising the prospect of a generic/biosimilar MA granted after 8 years. This inconsistency may be due to an unintended drafting error. Either way, the baseline protection is reduced from the current level.

Furthermore, all three institutions propose to remove the current possibility to obtain a new OME period for a new orphan indication (“10+10 …”). Instead, all three institutions would allow only two 1-year extensions of the basic OME (“10+1+1”), which cannot be applied for in the last two years of OME. One minor upside is that, under all three positions, the current possibility to review OME after 6 years would be abolished (the value of this amendment is limited though, as this review has not been effectively deployed to reduce OME).

One of the Commission’s assessments for its initial GPL proposals (as applied to a historic data set of products already on the market) estimated an annual loss of EUR 640 million for the OME reductions for orphan products, but regarded that loss as “invisible” (see our Missing Numbers blog). For the latest proposals, there has been no impact assessment.

Bolar exception to be expanded

The current so-called “Bolar” provision (Article 10(6) of Directive 2001/83/EC) provides that studies and trials conducted to prepare abbreviated MA applications, and the “consequential practical requirements”, shall not be regarded as infringement of patents or supplementary protection certificates (“SPCs”).

• In the Commission’s GPL proposals, this would be extended to applications for health technology assessment (“HTA”) and P&R. The purpose of this extension is to enable generic/biosimilar products to be launched on the day of expiry of the relevant patents/SPCs, with P&R procedures completed.
• The Parliament proposed to extend the Bolar to MA, HTA and P&R applications for all products (including full applications), and it would also cover “other activities” and “the subsequent practical requirements associated with such activities”.
• The Council proposed to extend the Bolar exemption further, to cover “submitting an application on procurement tenders” as well as “[d]ecisions adopted” by Member States – all as long as there is no offer to sell the generic, biosimilar, or hybrid product before patent/SPC expiry.

These proposed Bolar extensions have raised several concerns. For example, there is no mechanism to determine the date of patent/SPC expiry, and this date (“Day 1”) may vary between Member States; further, there is no mechanism to prevent tenders being organised (and potentially listings of generic/biosimilar prices being published) long before expiry. The removal of effective patent protection for these activities affects the core rights of patent/SPC holders, and raises questions of compatibility with TRIPS (the Agreement on Trade-Related Aspects of Intellectual Property Rights), e.g., because the exceptions are not “limited” and interfere with normal exploitation, and because TRIPS does not allow differentially disadvantageous treatment of inventions only in the field of medicinal products (see our Bolar and TRIPS article). There is no assessment from the EU institutions of the losses to the industry’s revenues and competitiveness resulting from any of the proposed Bolar extensions.

Pharmacy Compounding and Hospital Exemption

Current law (Article 3 of Directive 2001/83/EC) has two main “compounding” exceptions to the overall prohibition to place a medicinal product on the market without an MA, and without authorisations for manufacturing and wholesale distribution: (i) the “magistral formula”, a contemporaneous preparation in a pharmacy for an individual patient, as prescribed by a doctor; and (ii) the “officinal formula”, a stock preparation made according to the prescriptions of a pharmacopoeia (the “Pharmacopoeia Requirement”), for direct delivery to patients served by that same pharmacy (“Direct Supply Requirement”). Today, these requirements are already being applied leniently: in several cases, patient populations have been switched to ‘replacement compounding’ products (bypassing all regulatory and IP rights) in Member States that do not fully enforce the current “officinalis” requirements, which might be clarified by the Court of Justice in Case C-589/24 (pending). Yet, all GPL proposals envisage broadening the current “magistralis” and “officinalis” exceptions.

• The Commission’s GPL proposal would allow stock preparations for 7-day hospital needs to be supplied as “magistral” whilst removing the safeguards of the Pharmacopoeia Requirement and the Direct Supply Requirement.
• The Parliament proposed to expand “magistral” stock preparations to a wider and more flexible time period, and would remove the Direct Supply Requirement also for “officinalis” products.
• The Council’s proposal would reduce the risk in one respect (it would not allow compounding for biologicals, and for Advanced Therapy Medicinal Products (ATMPs) discussed below). For other products, the Council proposal would increase risks of compounding by removing the Pharmacopoeia Requirement and the Direct Supply Requirement for “magistral” stocks supplied to meet the needs of hospitals and potentially other customers too, for periods of up to 4 weeks. Again, no impact assessments have been presented for these proposals. This has raised concerns, because “replacement compounding” bypasses the MA system, as well as regulatory and IP protections, and thus negatively impacts the rNPV for ‘compoundable’ products. Recitals 20a and 20b, as proposed by the Council, emphasise that compounding should be exceptional and the conditions should be strict, and interpreted narrowly. However, to have full legal effect, restrictions and safeguards should be in the wording of the legislation itself.

For ATMPs, an ongoing topic of discussion will be the scale at which Member States would permit ATMPs “prepared on a non-routine basis” without a marketing authorisation (currently the scale of such “hospital exemption” production can be significant in some Member States).

Other issues

There are many other topics that warrant further comments and reflection. These include:

• the positive impact of “evolutionary” paediatric investigation plans (“PIPs”) and the burdens of the proposed “mechanism of action PIPs” in unrelated diseases (see blog Uneasy Compromises);
• the introduction of a new regulatory pathway for “bio-hybrids”, without clear requirements of biosimilarity to the reference product;
• the possibility for competent authorities to force companies to request new indications (including those studied by third parties), thus reducing companies’ control over clinical development programmes;
• the increased risk of rejection of MA applications on environmental grounds; and
• the Council’s proposal (building on proposals by the Commission and Parliament) to ban all comparative advertising (even to healthcare professionals) suggesting one medicinal product is safer or more effective than another one, unless the comparison of quality, safety and efficacy is supported objectively by the summaries of product characteristics.

A potential upside of the GPL is the possibility, retained in the Council proposals, to obtain 1 additional year of RDP pursuant to the grant or transfer of a transferable data exclusivity voucher for the development of a priority antimicrobial. However, the conditions for achieving a voucher have been tightened during the legislative process. The antimicrobial has to address a multi-drug resistant organism causing severe or life-threatening infections with a new mechanism of action or new active substance. Furthermore, the Council proposed to reduce the total number of vouchers available from 10 to 5, and it has retained the ‘blockbuster clause’: a voucher could only be used in the fifth year of RDP and only if the annual gross sales of the product in the EU have not exceeded € 490 million in any of the last 4 years, introducing uncertainty and risk.

Next steps – the bigger picture

The “trilogue” discussions between Council, Parliament and Commission could in theory be completed as early as the end of 2025. The outcome is likely to be a compromise between the three proposals, none of which have been the subject of a significant forward-looking economic analysis.

Before completing the trilogues, the EU institutions should, as a minimum, consider the combined effects, at global level, of all the proposed reductions in the rights of MA holders, combined with the increase in their obligations, and risks including disclosure of dossier data; the risk of launch obligations and/or tendering obligations; earlier generic/biosimilar MAs; the risks of generic/biosimilar price listings prior to patent/SPC expiry; stock obligations; tendering and other obligations brought by the Critical Medicines Act; ESG reporting obligations; the Urban Wastewater Directive; and financial penalties for non-compliance.

Recent developments in the U.S. warrant a closer look at the increased risks caused by obliging companies to launch in EU Member States, and, generally, a reconsideration of the balance of obligations and incentives needed to maintain the attractiveness and competitiveness of the EU.

Furthermore, since the publication of the GPL proposals, there have been developments in the perception of EU regulation. The Letta report (April 2024) and the Draghi report (September 2024) have emphasised the need to enhance the competitiveness of the EU. The Commission is pursuing regulatory streamlining with its “Omnibus” approach. It is to be hoped that the institutions will take account of all these developments before coming to a final agreement on the Pharma Package, and without counting on uncertain future benefits of the Biotech Act, which has not yet been proposed.

Finally, it remains to be seen whether the implementation period for the Pharma Package will be put at 36 months (as the Council has proposed) instead of the 18 months proposed by the Commission and the Parliament.

All in all, a space to be watched with great care.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.