A substantial reconsideration of the entitlement of formulation patents to receive a patent term extension (PTE) in Australia has been made in this week’s decision of the Full Federal Court in Otsuka Pharmaceutical Co Ltd v Sun Pharma ANZ Pty Ltd. Contrary to earlier interpretations of the Patents Act 1990, the Court held that the definition of a “pharmaceutical substance” is confined only to active substances (technically speaking, the active pharmaceutical ingredients). This marks a significant departure from previous first-instance decisions that treated certain formulations (i.e., active substance combined with delivery vehicle and/or excipients) as eligible for extension.
PTE eligibility has ‘returned’ to active substances only
Notwithstanding the potential for Otsuka Pharmaceutical to request special leave to appeal the decision to the High Court (which we consider to be highly likely), PTE strategies must now centre on the initial active substance patent, not the downstream delivery or formulation patent. The Full Court squarely held that a “pharmaceutical substance” as used in section 70 of the Patents Act is confined to active substances and excludes any new and useful formulations. This overturns recent assertions by the Federal Court (for example, in Spirit;[1] Pharmacia[2] and last year’s decision in Cipla[3]) that active substances combined with inert excipients could themselves be “pharmaceutical substances”. As a result of the new decision of the Full Federal Court, formulation patent claims no longer appear to be suitable candidates for PTE. In other words, only patents that claim the API per se can be extended.
The judgment emphasized that the legislative intent behind patent term extensions in Australia was to compensate patentees for regulatory delay affecting new and inventive substances. This does not extend to improvements in delivery systems, dosage forms, or methods of treatment, which do not face anywhere near the same time delays or regulatory burden. The rationale for this limitation can be traced back to the policy objectives underpinning the extension regime, which sought to align Australia’s patent framework with international standards and foster a competitive, research-driven pharmaceutical sector.[4] The development of a new drug is a long process, and often requires early patenting of the active substance to secure intellectual property rights prior to industry partnering or publication. Generally, at the time of filing a patent to a new active substance, considerable research and testing is still required before the product can enter the market. Furthermore, clinical studies can often take years to complete. As a consequence, patentees of new drugs typically have considerably fewer years under patent protection in which to maximise their return.
Further, it is incredibly expensive to bring a new drug to market,[5] and involves considerable risk of failure. Pharmaceutical companies rely heavily on patents to generate the substantial cash flows needed to finance the development of new drugs from the discovery stage, through the pre-clinical and clinical development phases, to eventual marketing. The objective of the extension regime is to provide an “effective patent life”; the period after marketing approval during which companies can earn a return on their investment more in line with that available to inventions in other fields of technology. It is also intended to ensure that Australia’s patent system remains competitive with those of other developed nations.
PTE is anchored to the original policy purpose: compensating for regulatory delay on new and inventive substances
The Otsuka Pharmaceutical v Sun Pharma decision reiterates the importance of strategically planning patent filings, to ensure that appropriate claim sets encompassing an API are fit and eligible for patent term extensions. Furthermore, innovators should treat formulation claims as valuable tools for infringement control and evergreening, but not as the PTE asset. The Court’s construction leaned heavily on legislative history including the 1998 reforms, emphasising that patent term extensions were introduced to offset lost effective life for new and inventive substances, not incremental improvements in delivery. This aligns with the High Court’s rationale in Alphapharm, that the regime balances patentee and public interests around delayed market entry for new actives. Furthermore, it is reflective of the legislative history on the whole regarding the public’s interest to access affordable healthcare sooner, whereby springboarding provisions opened up access to market entry earlier for generics.
What now for formulations?
For branded drugs, formulations are often less about clinical innovation and more about life-cycle management to extend exclusivity. Interestingly, between 1995 and 2010 and followed through to 2021 when reviewing FDA approvals and the timing of new formulations of novel drugs, 84.6% of new branded formulations were approved before the first generic entered the market. This suggests a strategic timing to shift prescribers and patients to the new formulation before generics of the original drug become available. This practice, often called “product hopping”, can delay generic substitution and preserve brand dominance.
This said, there are substantial differences between generics entry to market in Australia such as the First New Brand Price Reduction requirements by the PBS and the fact generic approval is delayed by up to 30 months if the patent holder files a lawsuit after receiving notice from the generic company. Therefore, it may be that evergreening in Australia will simply be a process with more incremental patent applications.
Is there a way around this?
Under the Australian Patents Act 1990 (Cth), a “pharmaceutical substance” must involve either (a) a chemical or physico‑chemical interaction with a human physiological system, or (b) action on an infectious agent, toxin, or poison in the human body.[6] Recall the Court has interpreted this narrowly, focusing on the API alone. However, a formulation that introduces additional components capable of creating a new chemical or physico‑chemical interaction with the API and the body should be considered differently. In such cases, the formulation is not merely a carrier; it becomes an active participant in the therapeutic mechanism. This perspective supports the argument that certain advanced formulations qualify as “pharmaceutical substances” because they fundamentally change the way the API interacts with the body rather than simply changing the route of administration or length of administration. Nonetheless, it may simply be that the relationship between the API and the additional component would represent a product patent in and of itself, which would be eligible for PTE.
This said, we recommend adopting a risk‑averse approach and awaiting the outcome of any High Court appeal if Otsuka Pharmaceuticals decides to pursue one (and be granted special leave to do so) before relying on this interpretation in practice.
[1] Spirit Pharmaceuticals Pty Ltd v Mundipharma Pty Ltd [2013] FCA 658; 216 FCR 344.
[2] Pharmacia Italia SpA v Mayne Pharma Pty Ltd [2006] FCA 305; 69 IPR 1.
[3] Cipla Australia Pty Ltd v Novo Nordisk A/S [2024] FCA 1414; 185 IPR 299
[4] Intellectual Property Laws Amendment Act 1998 (Cth); Patents Amendment Act 1989 (Cth)
[5] ‘… the median capitalized research and development investment to bring a new drug to market was estimated at $985.3 million…, and the mean investment was estimated at $1335.9 million … in the base case analysis.’ Wouters, O.J. et al, ‘Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009–2018’ (2020) 323(9) Journal of the American Medical Association 844, 844–53, doi:10.1001/jama.2020.1166.
[6] Patents Act 1990 (Cth) s 1
