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Brussels, 28th November 2008

Antitrust: preliminary report of sector inquiry into pharmaceuticals – frequently asked questions

(see also IP/08/1829)

The competition inquiry into the pharmaceutical sector was launched in January 2008 with unannounced inspections in a number of pharmaceutical companies in Europe (see IP/08/49 and MEMO/08/20). The inquiry is a competition investigation based on Article 17 of Regulation 1/2003 on the application of the EC Treaty competition rules (Articles 81 and 82). The preliminary report published on 28th November 2008, the executive summary and fact sheets are available on the Europa website:

What is a sector inquiry? Why not just open a case if there is a competition problem?

The Commission can launch sector inquiries when it has indications that competition in the Single Market may be restricted or distorted in a particular sector. The Commission uses this instrument to improve its knowledge about a sector and to identify its main shortcomings, caused by market participants. It is therefore 'upstream' of any antitrust proceedings in specific cases, which may or may not follow. A sector inquiry also provides empirical evidence that may be useful in reviewing the regulatory framework governing a sector. The legal basis for a sector inquiry is Article 17 of Regulation 1/2003 on the application of the EC Treaty competition rules (Articles 81 and 82).

Is this the Commission's first sector inquiry?

No. The Commission has conducted several sector inquiries, most recently, in the areas of energy and financial services. More information on these inquiries is available at:

What were the underlying reasons for starting this inquiry?

The Commission launched this sector inquiry because market information suggested that competition may be restricted or distorted in the pharmaceutical sector. Indicators included a decline in innovation measured by the number of novel medicines reaching the market. This number has decreased over time: from 1995 to 1999, on average 40 novel molecular entities were launched per year. From 2000 to 2007 the figure was only 27. Other indications were instances of delayed market entry of generic medicines, e.g. through patent settlement agreements.

The preliminary report should not be understood to mean that company behaviour is the only reason for the observations.

Is the pharmaceutical market in Europe important enough to warrant a sector inquiry?

Yes. The pharmaceutical sector is vital to the health of Europe's citizens and medicines are a major expense. In Europe, we spend €214 billion per year - in retail prices - on pharmaceuticals. This means around €430 per year for every man, woman and child. Europe's ageing population will only increase the financial constraints on public health budgets. At the same time a significant number of patents for blockbuster (that is, the best selling) medicines are due to expire in the coming years.

What are the main findings of the sector inquiry so far?

The inquiry looks at competition between originator companies (companies developing and selling new medicines) and generic companies (companies that develop and sell medicines that are equivalent to original medicines after their patent protection has expired) and at competition among originator companies.

The main findings are that competition in this industry does not work as well as it should. According to the preliminary report there is evidence that originator companies have engaged in practices with the objective of delaying or blocking market entry of competing medicines.

Practices vis-à-vis generic companies include multiple patent applications for the same medicine (so-called patent clusters), initiation of disputes and litigation, conclusion of patent settlements which constrain market entry of generic companies and interventions before national authorities when generic companies ask for regulatory approvals. Where successful, these practices result in significant additional costs for public health budgets – and ultimately taxpayers and patients.

The report also confirms the decline in innovation as evidenced by the decline of new chemical entities reaching the market and highlights some of the possible causes. For example, originator companies are found to have applied defensive patenting strategies. Defensive patents are not foreseen to be used for innovation but primarily pursue the purpose of blocking the development of a new medicine from a competitor. The sector inquiry also showed that, in such cases, originator companies do not intend to pursue these patents in order to bring a new or improved medicine to the market.

Further information is contained in the fact sheets, which are available here:

What will happen next?

The first phase of the inquiry is now concluded and the preliminary findings have been summarised in a preliminary report. With the publication of this report, the Commission is launching public consultations to receive feedback from stakeholders on the preliminary findings. The Commission will publish a final report, expected in spring 2009.

Will the Commission launch anti-trust cases against particular companies?

The sector inquiry provides an overview of the sector and the practices deployed by companies. It is not the purpose of the preliminary report to identify wrongdoing of individual companies or provide guidance on the compatibility of certain behaviour with EU competition law. The knowledge gained during the sector inquiry will allow the Commission to determine whether or not further action under the antitrust rules would be appropriate.

Which stakeholders were consulted during the inquiry?

After the inspections in January 2008, the Commission sent out requests for information to originator companies and to generic companies. In addition, the Commission engaged in a dialogue with industry associations at the European level: e.g. the European Federation of Pharmaceutical Industries and Associations (EFPIA) representing the originator companies and the European Generic Medicines Association (EGA) representing the generic companies. The Commission consulted representatives of consumer and patients associations, insurance companies, doctors, pharmacies, wholesalers, hospitals, parallel traders, patent offices and competition authorities. Most of these stakeholders (including public bodies responsible for marketing authorisation or granting pricing and reimbursement status) also replied to questionnaires. The Commission appreciates the significant efforts made by all stakeholders to cooperate with the inquiry.

How representative is the sample of companies and products selected for the sector inquiry?

In total, 43 originator companies and 27 generic companies cooperated actively with the Commission. They represented over 80% (€ 98 billion at ex factory prices) of the total turnover generated with prescription medicines in the pharmaceutical sector of the EU in 2007. The 219 molecules selected for the analysis in the sector inquiry accounted for 47% (€57 billion) of the overall turnover of prescription medicines in the EU in 2007.

How did you choose the products under investigation?

In the first place, the analysis was conducted for medicines for which the patent protection expired in recent years and/or where generic entry occurred for the first time. For reasons of comparison, some top selling medicines were also investigated. Many of them still benefit from exclusivity, but patent expiry is expected in the coming years. In total, a representative sample of 219 molecules was selected, which should limit the administrative burden for the companies.

What is the geographic scope of the inquiry?

The inquiry covers all 27 EU Member States. In certain instances the Commission also asked for an international comparison, in particular with the US.

How does the sector inquiry fit with other Commission initiatives in pharmaceuticals?

The sector inquiry is a comprehensive stocktaking exercise which provides the Commission with a factual basis for deciding whether further action is needed to improve competition in the sector. In that respect, the sector inquiry complements other Commission initiatives, such as the creation of the Community Patent, EU support for research activities and the cooperation with national pricing and reimbursement bodies in the Pharmaceutical Forum. All of these initiatives are aimed at enhancing innovation, improving the affordability of medicines for patients and addressing the challenges of the public health systems.

What is the role of patents in the pharmaceutical sector and for how long can a medicine be patent-protected?

Patents protect intellectual property rights of inventors for a given period and provide pharmaceutical companies with incentives for innovation. In Europe, patent protection can last up to twenty years from the date of the first application. For the pharmaceutical sector, where the time between filing a patent application and the market launch of the medicine can be significantly longer than in other sectors, supplementary protection certificates (SPCs) can under certain circumstances extend the protection of products already on the market by a maximum of five years.

Is there a Community Patent?

No. Despite significant efforts, there is no single EU-wide patent and no EU jurisdiction for patent matters. The European Patent Office handles centralised patent applications, but the scope of the patent ultimately granted is national and must be challenged nationally. This can lead to diverging national decisions and is costly and time-consuming for all stakeholders concerned. The Commission is however actively pursuing the introduction of a Community Patent and specialised patent judiciary with the EU Member States. Further details are available under the following website:

Does the sector inquiry deal with parallel trade?

No, the sector inquiry does not deal with parallel trade. Competition through parallel trade is the traditional focus of the Commission's enforcement activities in the pharmaceutical sector. The fact that parallel trade is not covered by the sector inquiry does not mean that it no longer plays a role in EU competition policy. In this respect the judgment of the ECJ of 16 September 2008 (Joined Cases C-468/06 e.a. Sot. Lélos kai Sia) clarified that the protection of parallel trade in the pharmaceutical sector is within the scope of EC competition law.

Is this the first time a sector inquiry has begun with unannounced inspections? If so, why did this inquiry start with inspections rather than with requests for information?

Yes, this is the first time a sector inquiry started with unannounced inspections. The kind of information the Commission examined in this inquiry, notably concerning the use of intellectual property rights, litigation and settlement agreements covering the EU, is by its nature information that companies tend to consider highly confidential. Such information may also be easily withheld, concealed or destroyed. The Commission was keen to have immediate access to all such company information and has therefore authorised unannounced inspections. This is not to say that in future all sector inquiries will begin with unannounced inspections. Much depends on the type of information the Commission would be looking for.

Stakeholders have invested a lot of time responding to the Commission's questions. Has this effort been worthwhile?

Yes. The Commission addressed numerous questionnaires to a variety of stakeholders, including industry and consumer representatives as well as public bodies. The Commission is grateful to market players for their cooperation. Without these efforts by stakeholders, the findings of the inquiry would be less robust and detailed.

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