Healthy Skepticism Library item: 12440

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Publication type: news

Castle S, Kanter J.
European antitrust regulators raid drug companies
International Herald Tribune 2008 Jan 16
http://www.iht.com/articles/2008/01/16/business/drug.php

Full text:

European antitrust regulators raided some of the Continent’s biggest pharmaceutical companies Wednesday as part of a far-reaching investigation into whether drug makers were preventing inexpensive generic medicines from reaching millions of consumers in the European market.

Inspectors took confidential information about intellectual property rights, litigation and settlements in patent disputes in a series of surprise visits to major drug makers. The European Commission declined to identify the companies, but GlaxoSmithKline, AstraZeneca, Wyeth, Teva Pharmaceutical Industries, Sanofi-Aventis and Pfizer said they had been contacted.

Billions of euros are at stake as Brussels intensifies its scrutiny of the European market for patented and generic drugs. These “copycats,” as big pharmaceutical companies prefer to call them, have been far less present in some parts of Europe, like France, than in the United States. That has been a handicap for some European patients seeking the most effective and up-to-date medicines in parts of the Continent.

Neelie Kroes, the European competition commissioner, said she decided to investigate the entire sector because of new evidence that competition in the European pharmaceutical market “may not be working well.” In particular, the number of new drugs reaching the market has declined to an average of 28 a year between 2000 and 2004 from 40 a year from 1995 to 1999.

“Fewer new pharmaceuticals are being brought to the market, and the entry of generic pharmaceuticals sometimes seems to be delayed,” the commission said. “If innovative products are not being produced, and cheaper generic alternatives to existing products are in some cases being delayed, then we need to find out why and, if necessary, take action.”

Kroes added: “We’re not the only one active in this.”

Ian Forrester, a partner at the law firm White & Case in Brussels, said that the sector inquiry might be a sign of “increased cooperation in anti-trust prioritization between the EU and the US.” But he added that the commission is unique in seeking to use antitrust powers to achieve integration of its internal market.

The commission wants to determine whether pharmaceutical companies have made it extremely difficult, through the use of patent rights, vexatious litigation or other means, for generic copies of their patented drugs to enter the European market.

The European Federation of Pharmaceutical Industries and Associations, a body representing the major drug companies, encouraged EU regulators “to enforce competition rules and intellectual property rights, which are the trigger to new investments and new discoveries in medicines.”

Greg Perry, the director general of the European Generic Medicines Association, an industry body based in Brussels, said that the behavior of large pharmaceutical companies resulted in losses of sales by generics makers totaling several hundred million euros each year.

“We have in the past raised questions with European regulators about the abuse of patent systems, litigation systems and manipulative marketing,” said Perry, whose group had not made any formal complaint to EU authorities.

Perry said the EU was likely investigating certain types of behavior by large pharmaceutical companies, including “ring-fencing” – a practice in which pharmaceutical companies develop a large number of patents for a particular product in order to make it easier to claim later that one of those patents had been infringed.

Another category of abuse involves companies making slight variations to a product to maintain some exclusive marketing rights. In those cases, said Perry, the new products marketed by pharmaceutical companies often offered “no significant therapeutic value to patients” compared to a generic product with much the same ingredients.

The tussle between generics makers and drug companies has often resulted in litigation brought by drug companies. But those cases were sometimes aimed at forcing generics companies to delay putting drugs on the market rather than at winning such cases, according to Perry.

“We do spend a lot on this litigation,” said a senior executive at a generic medicines company in Europe who spoke on condition of anonymity because his company was involved in the EU case. “There also is litigation going on that is nonsense and just aimed at extending the monopoly position for companies that originate drugs,” the executive said.

The commission has become more aggressive in recent years about examining entire industries to determine if large companies are engaged in anti-competitive behavior that raises prices and diminishes choices for hundreds of millions of consumers in the European Union. In its most recent investigation of the multi-billion euro market for European energy supplies and distribution, Brussels pursued legal action against some of the biggest European utilities.

David Hull, partner and head of the European competition team at the law firm Covington & Burling, said the regulators’ announcement marked a shift in focus.

“The focus on generics is not surprising as the entry of generics onto the market has been a major issue for the U.S. antitrust agencies in recent years and it was only a matter of time before it arrived in Europe,” Hull said. “This will be a difficult issue for the commission; whether or not such patent settlements violate the competition rules is a highly controversial topic.”

Europe spends an average annually of �200 billion, or $293 billion, on pharmaceuticals annually, or �400 per person, the commission said. Most of the tab is picked up by government programs, and certain European governments have sought ways to reduce their expenses through the use of more generics.

Part of the problem in Europe is that some companies that produce branded pharmaceuticals have fought to slow down the introduction of generic drugs that could lower government health care costs.

That fight is part of a larger struggle in Europe over health care.

Drug companies have long been at odds with governments that operate socialized medical systems, which keep the prices of patented medicines much lower than in far more profitable markets like the United States.

Some of the fiercest fights in Europe have focused on next-generation medicines made from so-called biological materials. In those cases, drugs companies have argued that their manufacture is so complex that copying them is nearly impossible.

Manufacturers of generic drugs agree that new technologies require new rules on copying, but they accuse patent owners of seeking to impose extra testing to delay production of generics and protect profit.

The EU began cracking down on drug makers in 2005. That June, antitrust regulators fined AstraZeneca �60 million for misleading them about the timing of its patents on Losec, a drug for stomach ulcers that became the world’s best-selling drug in the 1990s.

Then, in October 2005, antitrust officials raided the offices of pharmaceutical companies in Denmark, Italy and Hungary suspected of colluding to shut out generic rivals.

Officials said that raids linked to the new drug sector inquiry went ahead to eliminate the possibility that evidence will be destroyed.

Such obstruction is not unusual according to a report for the International Competition Network in 2006.

“Numerous competition authorities have experienced blatant document destruction at the site of a dawn raid or search,” the report said. “Stories of hearing document shredders running in a back room, or hearing toilets flushing, smelling smoke from burning documents or finding documents in trash cans are not uncommon.”