Pharmaceuticals Sector Interim Report: European Commission Attacks Practices That Prevent Competition From Generic Drugs

Main Category: Pharma Industry / Biotech Industry
Also Included In: Regulatory Affairs / Drug Approvals
Article Date: 01 Dec 2008 - 1:00 PDT

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The European Commission's 426 page Interim Report on the Pharmaceutical Sector (the "Report") , which was released on 24 November, makes no specific allegations of anticompetitive behaviour against particular companies but sets out in considerable detail how originators and generic manufacturers inter-connect within a highly regulated commercial environment. Originators are companies that develop and sell new medicines whilst generic manufacturers lawfully produce and sell equivalent medicines once the originators' patents expire.

As Guy Lougher, Head of EU & Competition Law at Pinsent Masons observes, "Although the Commission emphasises that it will use its full enforcement powers against any perceived anti-competitive behaviour, it is by no means clear that any of the practices adopted by originators and noted in the Executive Summary to the Report are actionable breaches of EC competition law. Indeed the Commission itself cautioned at its press conference against jumping to early conclusions as to whether any intervention would be required by antitrust authorities."

Main findings:

The Executive Summary of the Report outlines many practices by originators which the Commission characterised as "shocking" in its press conference. These include:

- Protecting their existing patents through a strategy of seeking additional secondary related patents, particularly nearer the time that the primary patent is due to expire. This practice of "patent clustering" is claimed to make it more difficult for competitors (including generic manufacturers) to develop innovative products.

- Resorting very readily to litigation with generic companies, despite the likelihood of losing the case. The Commission implies that this practice is seen by the originators as a valuable way of delaying the entry on the market of rival products from manufacturers.

- Settling litigation with some competing generic manufacturers on terms that might involve the transfer of alleged payments to the generic companies and which resulted in additional delays to the arrival of the generic manufacturers' products on the market.

- Creating average delays of 4 months or more in national procedures for the approval of generic medicines by raising every manner of potential objection to such applications.

Comment:

As Guy Lougher notes "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". 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. The Commission's dawn raids in the pharmaceutical sector on 24 November may have been motivated by this issue of "reverse payments".

The Interim Report is now open to consultation until the end of January 2009 with the final Report due in the Spring of 2009.

Guy Lougher adds "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. It is to be hoped this uncertainty can be resolved speedily."

Alan Davis, partner in the EU & Competition Group at Pinsent Masons adds:

"Given the emphasis in the Report of the delays caused to market entry by the regulatory system of patent protection, there will be no early and easy solutions to the perceived problems, especially given the number of failed attempts to reform the Community Patent system. We might expect, however, this Report to galvanise the Council of Ministers into pursuing structural and regulatory reform given the identified savings to the public purse that could be achieved through the purchase of more drugs from generic manufacturers. The Office of Fair Trading will also be looking at the Commission's findings carefully following its report last year on the UK Pharmaceutical Price Regulation Scheme (PPRS) in which it said that annual savings of £500million could be generated by using generic drugs instead of branded products."

A copy of the European Commission's Report, together with related documentation, is located here.

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