Formulations are out, but are patent term extensions for certain API patents also at risk?
Introduction
In December 2025, the Full Court of the Australian Federal Court issued their decision in Otsuka Pharmaceutical Co Ltd v Sun Pharma ANZ Pty Ltd [2025] FCAFC 161 (The Otsuka decision).
It has been widely reported that the Otsuka decision makes patents covering pharmaceutical formulations ineligible for pharmaceutical term extensions (PTEs). More importantly, and less well understood, the Otsuka decision also potentially prohibits PTEs for patents covering certain first generation active pharmaceutical ingredients (APIs).
Background
The patent considered in the Otsuka decision is Australian Patent No. 2004285448, in the name of Otsuka Pharmaceutical Co. Ltd, entitled “Controlled release sterile injectable aripiprazole formulation” useful for treating schizophrenia and bipolar I disorder. The 20-year expiry date was 20 October 2024. This expiry date was extended under the PTE provisions to 25 July 2029.
One of the legal requirements for obtaining a PTE as stated in the Australian Patents Act 1990 at section 70(2)(a) is:
“one or more pharmaceutical substances per se must in substance be disclosed in the complete specification of the patent and in substance fall within the scope of the claim or claims of that specification;
Sun Pharma challenged the Otsuka patent’s PTE on the basis that the formulations covered by the claims were not “pharmaceutical substances” within the meaning of s70(2)(a) of the Patents Act because only APIs, not formulations, fall within the meaning of the term.
Considerations
The term “pharmaceutical substance” is defined in Schedule 1 of the Patents Act 1990 to mean:
a substance (including a mixture or compound of substances) for therapeutic use whose application (or one of whose applications) involves:
(a) a chemical interaction, or physico-chemical interaction, with a human physiological system; or
(b) action on an infectious agent, or on a toxin or other poison, in a human body;
Relevantly, this definition appears to clearly include formulations because it refers to a mixture or compound of substances for therapeutic use. However, in reaching their decision, the Full Court focussed squarely on part (a) of the definition and concluded that a pharmaceutical substance for the purpose of the PTE provisions can only be an active substance that involves a chemical interaction, or physicochemical interaction with a human physiological system. In this regard, the expert witnesses agreed in their Joint Expert Report that for the defined formulations “only aripiprazole can exert the desired therapeutic effect” [16]. The counterargument to this view is that the defined aripiprazole formulations are controlled release formulations, and the excipient components act together with the API to contribute to the desired therapeutic effect. It is well established that the rate of release of a therapeutic substance is integral to its ability to achieve the intended therapeutic purpose. The controlled release of an API occurs through a chemical/physiochemical interaction with the body as required by (a). At least on this issue, it is arguable that the Full Court decision is flawed.
The purpose of the Australian PTE provisions is to compensate pharmaceutical patentees for regulatory delays in bringing a product to market. Importantly, all pharmaceuticals, including formulations, require regulatory approval and are therefore subject to regulatory delays. It seems, therefore, inconsistent with the purpose of the PTE provisions that patents directed to certain pharmaceuticals should be excluded from PTE eligibility. The Full Court’s narrow reading of the term “pharmaceutical substance per se” therefore arguably does not allow patentees to obtain the benefit of the provisions for formulations, even though they are subject to similar regulatory hurdles and delays as APIs. Ultimately, the Full Court held that the term “pharmaceutical substance”, as it relates to the PTE provisions, only covers APIs. On this basis, under the Otsuka decision, only patents having claims to APIs are considered eligible for PTEs. Patents only having claims to pharmaceuticals which comprise an API combined with other components, such as excipients, appear not to be eligible.
Ramifications
Many stakeholders have limited their commentary in relation to the Otsuka decision to PTE ineligibility of patents directed to formulations. However, there are potentially greater far-reaching consequences that may limit the capacity for patentees to obtain PTEs for patents covering certain APIs.
Many new APIs include nucleic acid sequences. For example, nucleic acid vaccines and gene therapy drugs. There are two points that require consideration in relation to these types of pharmaceutical products under the Otsuka decision. Firstly, isolated nucleic acids that define genetic information that occurs in nature are not patent eligible in view of D’Arcy v Myriad Inc. [2015] HCA 35. For this reason, claims directed to only the relevant nucleic acid may not be allowed. It would, however, be possible to obtain a granted claim to the nucleic acid in a formulated form; – for example, a claim directed to the nucleic acid in a lipid nanoparticle. However, applying the Otsuka decision, a patent with these types of claims would likely be ineligible for a PTE. This situation also likely applies to patents directed to gene therapy pharmaceuticals, in which nucleic acid sequences are packaged into viral vectors.
Secondly, it is arguable under the narrow construction of the term “pharmaceutical substance” in the Otsuka decision whether a nucleic acid can, in fact, be considered as an API for the purpose of the PTE provisions. In many instances, nucleic acids do not, in themselves, exert a “desired therapeutic effect”. Rather, this typically results from a protein encoded by the nucleic acid. Under these circumstances, the nucleic acid could be considered to be a delivery vehicle for the actual API, i.e. the protein encoded by the nucleic acid. This reasoning also potentially applies to claims directed to prodrugs, where the API is only generated after administration to a subject. These circumstances were not considered by the Full Court decision and potentially compromise PTE eligibility for patents directed to first-generation pharmaceutical products.
Concluding remarks
The Otsuka decision substantially changes the landscape in relation to PTE provisions, rendering potentially a large number of existing PTEs for formulations vulnerable. The decision also potentially renders patents directed to certain first-generation pharmaceutical drugs ineligible for a PTE. These circumstances do not appear to be consistent with the intended purpose of the PTE provisions.
Because of the significant ramifications of the Otsuka decision, IP Australia has issued a statement indicating that “Processing of Extension of Term applications has been temporarily paused while we consider the decision in Otsuka Pharmaceuticals Co Ltd v Sun Pharma ANZ Pty Ltd [2025] FCAFC 161”.
Special Leave to appeal the Otsuka decision has been sought and it is likely that the matter will be determined in the High Court’s February 2026 sitting. We will keep you promptly advised of developments in relation to both the Special leave application and IP Australia interpretations of the Otsuka decision.