Pharmaceutical Patent Term Extensions in Australia

Patent term extensions (PTEs) in Australia sit at the centre of a long-running tension between innovation policy and statutory interpretation. Introduced to compensate pharmaceutical patentees for regulatory delay, the regime has increasingly been asked to do more than it was originally designed to achieve, particularly in relation to formulation and delivery system patents.

 The Full Federal Court’s decision in Otsuka Pharmaceutical Co Ltd v Sun Pharma ANZ Pty Ltd [2025] FCAFC 161 (Otsuka) brings that tension to a head. While the decision has been criticised in some quarters as overly restrictive, a closer examination suggests something more uncomfortable: the Court may simply have applied the law as Parliament intended, leaving little room for a different outcome.

Why PTEs Exist

The economic rationale for PTEs is well understood. Pharmaceutical innovation is expensive, risky, and slow. A large proportion of the nominal 20-year patent term is consumed by clinical trials and regulatory approval, meaning that the effective monopoly period is significantly shorter than in other industries. The introduction of the PTE regime was therefore a policy choice: to restore some of that lost time and ensure that pharmaceutical innovators receive an effective term comparable to other technologies, while maintaining incentives for investment in research and development.

However, there is uncertainty that this policy was ever intended to apply universally across all pharmaceutical innovations.

The Legislative Framework

The PTE regime is governed by Section 70 of the Patents Act 1990 (Cth), which provides that, inter alia, the patentee of a standard patent may apply to the Commissioner for an extension of the term of the patent if one or more pharmaceutical substances per se are in substance disclosed in the complete specification of the patent and in substance fall within the scope of the claim or claims of that specification. At first glance, the provision appears straight forward. As it turns out, the phrase “pharmaceutical substance per se” does a lot of work and, as Otsuka confirms, it does so in a highly limiting way.

The 1998 Amendments and Their Intention

The Revised Explanatory Memorandum (REM) to the 1998 amendments to the Patents Act 1990 (Cth) makes the legislative intention explicit. Extensions were to be available “only for patents containing claims to pharmaceutical substances per se”, and such claims would “usually be restricted to new and inventive substances”. There does not appear to be any ambiguity in the intention of the legislation at this point. The focus was squarely on new active pharmaceutical ingredients (APIs) – that is, the core chemical or biological entities that undergo regulatory scrutiny and generate the delay the regime is designed to compensate. The REM does not suggest that Parliament intended to extend protection to formulation patents, delivery systems, or methods of administration. If anything, the emphasis on “per se” signals the opposite.

The Source of the Problem: A Broad Definition, A Narrow Concept

The difficulty arises because the statutory definition of “pharmaceutical substance” is broad. It includes “mixtures and compounds of substances for therapeutic use”, which on its face could encompass formulations. And this is where the interpretive tension emerges: the Act uses a broad definition but then limits eligibility to substances “per se”. The courts have had to reconcile these competing signals and, prior to Otsuka, they did so inconsistently.

Pre-Otsuka: A Drift Toward Expansion

Earlier decisions stretched the concept of “pharmaceutical substance” to include formulations:

• Pharmacia¹ treated a new solution of known drugs as PTE eligible;

• Spirit² accepted controlled-release formulations as PTE eligible;

• Cipla³ extended PTE eligibility to injectable formulations.

These decisions were often justified on practical grounds: almost all pharmaceutical products contain excipients, and excluding formulations could render the regime commercially ineffective. This reasoning arguably blurred the distinction that Parliament had drawn. It treated the economic rationale of the regime (compensating for delay) as if it were the legal test, rather than the statutory language itself.

Otsuka v Sun Pharma

The Full Court in Otsuka rejected that expansive approach. It held that:

• A “pharmaceutical substance” is the active ingredient;

• Formulations are not included;

• Therefore, patents directed to delivery systems or formulations are not eligible for PTEs.

The Court acknowledged the earlier cases but ultimately found them unpersuasive, concluding that formulations fall outside the statutory concept. Arguably, this was the court realigning the statutory boundary that had been adjusted over time.

Critics argue that Otsuka unduly narrows the regime and fails to reflect the commercial realities of pharmaceutical development. There is force in the observation that formulation innovations can be complex, costly, and subject to regulatory delay. However, the question is not whether formulations deserve protection as a matter of policy, but whether the legislation provides for it.

On that question, the answer appears increasingly clear:

• The REM emphasises new APIs;

• The statutory language requires a “pharmaceutical substance per se”;

• The structure of s 70 ties eligibility to the first regulatory approval of the substance itself.

Seen in this light, the Court in Otsuka did not so much choose a restrictive interpretation as follow the only one that coherently aligns text, structure, and legislative history.

The Real Issue: Policy vs Drafting

If Otsuka produces an unsatisfactory outcome for formulation patentees, the problem may lie not with the Court, but with the drafting of the regime. There are legitimate policy arguments for extending PTEs to formulations:

• They can take years to develop and approve;

• They often improve patient compliance and therapeutic outcomes;

• Their later filing dates naturally limit the duration of any extension.

These are arguments for legislative reform.

Where Are We Now?

In practical terms, Otsuka brings clarity – albeit of a restrictive kind. It confirms that:

• PTEs in Australia are effectively limited to patents claiming new APIs (and certain biotech products);

• Formulation and delivery system patents fall outside the regime;

• Earlier authority suggesting otherwise is now of limited weight.

IP Australia’s reported pause on assessing formulation-based PTE applications pending further appeal only reinforces the significance of the decision.

What’s Next?

The PTE regime was designed with a specific problem in mind: compensating for regulatory delay affecting new pharmaceutical substances. Over time, that rationale has widened to include other forms of pharmaceutical innovation. Otsuka rejects that expansion.

The High Court of Australia has granted special leave to hear an appeal from Otsuka, with the appeal likely to be heard later in 2026. This will be an opportunity for the highest court in the land to consider the combination of statutory language, legislative history, and structural logic points to provide some certainty to patentees. As noted above, IP Australia has paused its consideration of pending applications for PTEs to patents claiming formulations pending the outcome of the appeal. Watch this space.

Article references below

Authored by Milena Dryza of Madderns

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