EU Commission raid on Pharma companies

Yesterday, EU Commissioner Neelie Kroes launched an inquiry into the workings of the pharmaceutical industry, especially into patent-dispute settlements between companies including Pfizer Inc., AstraZeneca Plc and Johnson & Johnson, which companies offices were raided yesterday by Commission officials. The reasons for this raid were expounded in a press release:

“We have launched this inquiry because pharmaceuticals markets are not working as well as they might. Patent protection has never been stronger, but the number of new pharmaceuticals coming to market is declining. Patents can sometimes be invented around and will always expire eventually, but generic manufacturers are not jumping into the markets as quickly as we would expect.”

The probe will examine whether industry agreements infringe the EC Treaty’s prohibition on restrictive business practices, and whether companies have created “artificial barriers to innovative or generic product entry, through the misuse of patent rights, vexatious litigation or other means,” Kroes said.

Although this seems all new, it is not. Already in 2007 the industry has been the subject of scrutiny by national competition (antitrust) agencies, as well as by the EU Commission. The reason is well known. Pharmaceutical houses are becoming increasingly reliant on sales from blockbuster drugs--formulations that generate at least $1 billion a year in revenue. But sales of most drugs eventually decline because of patent expiration or competition from newer generic, treatments and drugs. The problem is that less new big selling drugs are in the pipeline. The arrival of cheaper generic variants pose a legal and political challenge for both the companies involved (research based as well as generic newbies) and the EU health authorities (and the competition agencies as a result thereof).

Like any humanly endeavor to extend life where possible, industry has long been seeking to develop policies to extend the life of their successful drugs, known as “life cycle management”. Those opposing or competing the research based pharmaceutical industry rather like to use a more derogatory term, “evergreening”. Those life cycle management policies have increasing come under scrutiny from competition authorities.

In 2005, the EU Commission found against AstraZeneca in an antitrust case brought by Generics (UK) Limited and Scandinavian Pharmaceuticals Generics AB (both part of Merck Generics). AZ adopted in that case a rather extreme interpretation of "marketing authorization date". The Commission found that AZ made misleading representations to national patent offices to (a) obtain supplementary protection certificates (patent extensions) that it would not otherwise have obtained, and (b) obtain supplementary protection certificates for longer periods than it would otherwise have obtained. Secondly, AZ was found to have switched the formulation of Losec from capsules to tablets to delay generic market entry and parallel trade. This was held to be an abuse of their dominant position.

The UK Office of Fair Trading (OFT) already investigated in 2006 claims that Novartis attempted to impede generic market entry in relation to Clozapine, a schizophrenia drug. Allegedly this was a strategy of keeping the market price up by supplying potential generic competitors, charging them a relatively high price so that they could not undercut as much as they might otherwise have done. Very little detail is publicly known and the Competition Commission eventually cleared Novartis, issuing only a very short decision giving little detail.

In 2007 the European Commission issued a Statement of Objections against Boehringer Ingelheim with regard to its patenting policy on anti-cholinergics (asthma drugs). Again, there is little information about this, but it is believed that BI were trying to create a “patent thicket” to protect the expiry of one of their major products.

Another examples exist of earlier scrutinies and on-going investigations by the European Commission in the pharmaceutical industry, but these are not public. They are based, in part, on allegations of over-aggressive assertion of patents. However both in the US and in Europe it is already established that it is an abuse of a dominant position to assert a patent when you have no belief in your prospects of winning, but it is still highly debatable whether the competition authorities and/or should become involved in an evaluation of strength of a patent case. In Netherlands this was held by the Dutch the Supreme Court in the case CFS Bakel vs. Stork Titan.

When the reason for the inquiry relates to the assertion of patents against generics, we find it highly debatable whether the competition authorities should become involved in an evaluation of strength of a patent case.

to be continued