Market Forces
January 16, 2008
The dawn raids and sector inquiry, which the EU Commission said was not based on specific suspected violations, could lead to cartel charges against companies and potentially huge fines.
Patents are the life blood of the pharmaceutical industry but critics allege some companies misuse patent rights to delay the introduction of generic medicines in unjustified ways.
The cost of medicines is a hot-button issue in Europe, where governments are seeking to trim health care costs at the same time as encouraging the development of the pharmaceutical and biotechnology sectors.
Three of Europe's biggest drug makers -- AstraZeneca, GlaxoSmithKline and Sanofi-Aventis -- acknowledged they had been approached by EU regulators as part of the antitrust probe. US-based Pfizer, the world's top drug maker, also confirmed it was being investigated.
Looking for "something rotten"
Regulators said they suspect the firms involved may be protecting their own market shares at the expense of introducing better drugs.
"A sector inquiry is something we engage in if we have the feeling that the sector is not working optimally..." EU Competition Commissioner Neelie Kroes said. "If there is a feeling that something is rotten in the state, or something could be rotten, let's take the opportunity to find out," she added.
European citizens spend some 200 billion euros ($297 billion) a year on pharmaceutical products -- the equivalent of 400 euros for every man, woman and child in the EU, Kroes said.
Unexplained drop in product launches
But over the last decade, the number of new components launched on the market has fallen from an average of 40 per year between 1995 and 1999, to just 28 per year between 2000 and 2004.
"If innovative products aren't being produced, and cheaper generic alternatives are being delayed, we need to find out why," Kroes said.
The raids were carried out in a number of EU states with the help of local authorities, and targeted both firms based in Europe and those based outside the continent who are active in its market.
Kroes would not comment on which specific countries and companies were involved.
Major concerns confirm probe
However, AstraZeneca said in a statement on Wednesday: "We confirm that we are part of a sector inquiry instituted by the European Commission on Jan. 15, 2008 into aspects of the pharmaceutical industry." The company added it was fully cooperating with the probe.
"The inquiry relates to the introduction of innovative and generic medicines for human consumption onto the market and covers commercial practices, including the use of patents," the statement added. "We understand that several companies have been similarly approached in connection with the inquiry."
A spokesman for GlaxoSmithKline said the British group had also been visited by EU regulators as part of the investigation.
"We have been contacted by them," the GSK spokesman said. "I cannot say the date or which site or where but we can confirm we have been visited by them."
Patent disputes at heart of issue
The inquiry will pay particular attention to deals between drugs firms, such as settlements in patent disputes, and to the question of whether some companies could have abused their patent and legal rights to keep rivals out of the market.
Given that such questions deal with highly-sensitive information which "may be easily withheld, concealed or destroyed," the use of unannounced inspections was "considered appropriate," Kroes said.
The primary aim of the inquiry is to gather and analyze information on the operation of the pharmaceuticals market. However, if it brings to light evidence of specific wrong-doing, such cases will be dealt with as they arise, she said.
The commission is tasked with ensuring that EU states and companies obey EU laws, including those on competition. In the last year alone, it imposed fines of over 3 billion euros ($4.5 billion) on firms which had broken competition law.
Unlike in those cartel cases, the raids on the drugs sector were not prompted by specific indications of illegal activity, but by a more general sense that the EU market is not working, Kroes stressed.
"The inquiry is not investigating specific companies and is not based on specific evidence," she said. However, it would focus on "a couple of issues where we are not feeling safe that it is pro-competitive," she added.
AstraZeneca previously faced fines
But during a news conference, Kroes cited AstraZeneca as a clear example of a company in which competition was not functioning optimally, referring to a 2005 decision in which the Commission fined the company 60 million euros.
The Commission found that AstraZeneca had misused the patent system to delay market entry of rivals to its ulcer drug Losec.
Other companies, including Merck, Bayer Schering Pharma and Roche Holding, said they were not aware that they were involved or had not received inquiries from officials.