The Commission published a preliminary report on its competition
inquiry into the pharmaceutical sector on Thursday. It finds that
competition in the industry does not work as well as it should.
Competition Commissioner Neelie Kroes said that the tactics that
block or delay the market entry of generic companies are presenting
significant cost to healthcare systems, consumers and
taxpayers.
"We now have a solid view of what is happening and why: the next
step is to discuss our findings with the stakeholders and to draw
the necessary conclusions," said Kroes. "It is still early days,
but the Commission will not hesitate to open antitrust cases
against companies where there are indications that the antitrust
rules may have been breached."
But the Commission also acknowledged that the practices
identified may not be actionable breaches of European competition
law.
The preliminary report focuses on the relationship between
'originator companies' – those that develop and sell new medicines;
and 'generic companies' – those that lawfully produce and sell
equivalent drugs once the originators' patents expire.
The report takes a sample of medicines that faced loss of
exclusivity in the period 2000 to 2007 in 17 Member States and
estimates that additional savings of around €3 billion would have
been possible on that sample over this period if generic medicines
had entered the market without delay.
The report shows that originator companies used a variety of
methods with the objective of delaying or blocking market entry of
generic companies and other originator companies, and therefore
maintain high income streams for the originator companies.
Documents found by the Commission during the sector inquiry
included anti-competitive declarations. "We identify options to
obtain or acquire patents for the sole purpose of limiting the
freedom of operation of our competitors," said one. "Rights
covering competitive alternatives are maintained in major markets
until risk of competing products appearing is minimal."
Another said: "I suppose we have all had conversations around
'how can we block generic manufacturers.'"
Delaying strategies included filing so-called “patent clusters”.
In one case, 1,300 EU-wide patents were filed for a single
medicine.
There were also nearly 700 cases of reported patent litigation
with generic companies, which on average lasted nearly three years.
The generic companies ultimately won more than 60% of these
cases.
Originator companies also concluded more than 200 settlement
agreements with generic companies in the EU, in which they agreed
on the terms for ending an ongoing litigation or dispute. More than
10% of the settlements were so-called “reverse payment settlements”
which limited the entry to the market of the generic medicines and
provided for payments from the originator to the generic companies.
These payments amounted in total to more than €200 million.
The Commission found that originator companies intervened in
national procedures for the approval of generic medicines in a
significant number of cases, which on average led to four months of
delay for the generic medicine.
The preliminary report also found evidence that originator
companies practice defensive patenting strategies to fence off
competition from other originator companies. This may obstruct
innovation, lead to higher costs for competing pharmaceutical
companies and delay consumers' access to innovative medicines, said
the Commission.
Guy Lougher, head of EU and competition law at Pinsent Masons,
the law firm behind OUT-LAW.COM, said the Commission may not be
able to prove breaches of competition law.
"Unless the Commission has evidence to hand that the practice of
so-called defensive patenting involves making applications for
secondary patents that are known to be invalid or misleading at the
point of application, it may well be difficult for the Commission
to bring a successful infringement case based on 'patent
clustering'," he said. "Furthermore, the Commission will have to be
careful about how it interprets the conditions of settlement
agreements and it is known they are watching with interest similar
interpretation issues in the US Courts".
"If the Commission, however, has evidence that payments by
originators to generic manufacturers were motivated by the sole
purpose of preventing new products coming to market in a timely
way, then such a practice could be vulnerable to challenge under EU
competition law," said Lougher.
Until the issue is resolved, Lougher said that other businesses
will face uncertainty.
"The Commission's forthright criticism of the commercial
practices adopted by many originators will create a cloud of
uncertainty over the extent to which companies, whether dominant or
not, can compete robustly by legitimately invoking available
administrative and judicial procedures," he said. "It is to be
hoped this uncertainty can be resolved speedily."
The preliminary findings of the sector inquiry have been
published for public consultation until 31 January 2009. A final
report is expected in spring 2009.
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