BRUSSELS/LONDON (Reuters) –
Major drug companies are delaying or blocking the entry of cheaper generic medicines, pushing up bills for taxpayers and reducing the incentive for innovation, the European Commission said on Friday.
Competition Commissioner Neelie Kroes said preliminary results of a year-long probe showed competition in the pharmaceuticals industry "does not work as well as it should."
Practices such as multiple patent applications for the same drug, litigation and settlement deals that delayed generics meant governments ended up paying billions of euros more than they should for prescription drugs.
"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," Kroes said.
Drug companies said her report exaggerated the extent of delays to generics and failed to recognize the complexity of the market.
The attack from the Commission -- the European Union's executive arm -- adds to pressure on a beleaguered global drugs sector that faces loss of patent protection on some of its biggest selling products over the next four years.
The industry also has big challenges in the United States, where incoming President Barack Obama is expected to seek ways to bear down on costs as he tries to extend healthcare coverage to millions of uninsured Americans.
3 BILLION EUROS TOO MUCH
Based on a sample of medicines that lost patent protection in 17 EU states between 2000 and 2007, the Commission estimated that delays in getting generics on the market had cost healthcare providers about 3 billion euros ($3.9 billion).
Kroes has the power to impose hefty fines on drugmakers if she finds they have engaged in unfair practices.
Such action has already been taken in the past, with AstraZeneca Plc (AZN.L) fined 60 million euros in 2005 for blocking cheaper rivals to its heartburn and ulcer pill Losec.
Kroes kicked off the sector investigation in January with a series of raids on makers of brand-name and generic drugs, including AstraZeneca, GlaxoSmithKline Plc (GSK.L), Pfizer Inc (PFE.N), Merck & Co Inc (MRK.N) and Sanofi-Aventis SA (
There have also been a smaller number of raids involving seizing documents from generic drug companies this week.
Marc Dalby, a life science expert at legal firm Lovells, said the latest raids suggested the Commission was already working on company-specific investigations but it would likely be more than a year before these were concluded.
"I think the Commission will pick a handful of cases, probably involving very big companies, and pursue them relentlessly," he said.
The Commission said it had found documents during the inquiry, which contained admissions from brand-name companies that they had tried to stop generics, and many examples of obstacles being placed in way of less-expensive competitors.
In one case, no less than 1,300 patents were filed for a single drug medicine, the Commission said. There were also nearly 700 cases of reported patent litigation, lasting on average nearly three years, with generic companies ultimately prevailing in more than 60 percent.
There were also more than 200 settlement deals between brand-name and generic companies, of which more than 10 percent limited the entry of generics and provided for payments from the originator to the generic companies.
More than 200 million euros was paid to generic companies in
"reverse payment settlements" to limit the entry of generics.
Furthermore, owners of original drugs often intervened in national procedures for the approval of generic medicines, resulting in typical delays of around four months.
FEWER GENERICS THAN U.S.
The European Generic Medicines Association welcomed the report, which it said highlighted the need to deal with "loop holes" that allowed blocking strategies.
Generic drugs account for just over 40 percent of the market by volume in Europe, against more than 60 percent in the United States.
However, major branded drug companies insisted competition was robust, adding a fall in the number of new drugs since the 1990s reflected regulatory hurdles and scientific challenges.
Arthur Higgins, chief executive of Bayer HealthCare (
"Where there is a strong commercial incentive, generics enter the market rapidly within four months or less," he said.
(Editing by Chris Wickham and Andrew Macdonald)