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European Commission

Memo

Brussels, 30 July 2012

Antitrust: Commission enforcement action in pharmaceutical sector following sector inquiry

Following its competition inquiry into the pharmaceutical sector of 2008/2009 (see IP/09/1098 and MEMO/09/321) the European Commission has issued statements of objections against pharmaceutical companies in two major cases concerning citalopram, an antidepressant, (see IP/12/834) and perindopril, a cardio-vascular medicine (see IP/12/835). At the same time the Commission's 3rd report on its monitoring of patent settlements in the pharmaceutical sector confirmed that, while the overall number of concluded settlements has significantly increased, the proportion of settlements that may be problematic for competition has fallen by half as compared to the levels observed at the time of the sector inquiry.

A. Main findings of the sector inquiry

The Commission's competition inquiry into the pharmaceutical sector, concluded in 2009, had indicated a number of structural shortcomings and problems in the companies' practices that potentially led to distortions of competition and delays to entry of new, innovative as well as cheaper generic medicines into the EU market (see IP/09/1098 and MEMO/09/321). In its final report, the Commission made a number of recommendations to address these problems. While these included policy steps, such as improving pricing and reimbursement procedures for medicines and creating a unified patent system, particular emphasis was put on stronger enforcement of competition rules and monitoring of pharmaceutical companies, especially with regard to patent settlements.

One of the main findings of the sector inquiry was that competitive pressure from generic producers, once the primary patent of the originator medicine had expired, was not as strong as expected. The conclusion of the inquiry was that this could be partly the result of so-called pay-for-delay transactions. With such agreements, an originator company removes generic companies' incentives to compete - or to challenge the patent - by transferring value to the generic company.

If an originator company eliminates or delays cheaper generic competition through significant payments or other benefits to a generic company for discontinuing or delaying the launch of generic medicine challenging the originator's patent (so-called reverse payment patent settlement), this can lead to substantial consumer harm. Such an agreement reduces the competitive pressure exercised by (potential) generic market entry in exchange of sharing the originator company's monopoly rents. Thus, it replaces competition by collusion, and is therefore considered a restriction of competition.

The sector inquiry also highlighted the competition problems linked to some unilateral practices of dominant companies, such as those aimed at shutting out generic competitors from the market. Such actions may consist of acquiring technology that is indispensable for potential competitors who want to enter the market, or the conclusion of several reverse payment settlements by a dominant undertaking.

B. Antitrust investigations

On 25 July and on 30 July 2012 the Commission has sent statements of objections to more than 14 companies in two major cases of possible distortions of competition in the pharmaceutical sector through anticompetitive agreements and, in part, unilateral practices.

In the Citalopram case, Lundbeck and several generic competitors entered into agreements which may have hindered the entry of generic citalopram into markets in the European Economic Area. The companies concluded these agreements when generic entry became in principle possible, because certain of Lundbeck's citalopram patents had expired. The agreements foresaw substantial value transfers from Lundbeck to the four generic competitors. In turn, the generic companies abstained from entering the market with generic citalopram. Lundbeck's value transfers to the generic competitors included direct payments as well as other forms such as purchase of generic citalopram stock for destruction or guaranteed profits in a distribution agreement. The Commission takes the preliminary view that this may have caused substantial consumer harm, since generic entry was delayed and prices remained high as a result of the agreements (see also IP/12/834).

In the Perindopril case, Les Laboratoires Servier and several generic competitors entered into agreements which may have hindered the entry of generic perindopril into markets in the EU. In exchange for payments by Servier the generic companies agreed not to enter the market with their cheaper generic products and/or not to further challenge the validity of the patents that protected Servier's more expensive medicine. In addition, Servier may have implemented a comprehensive strategy to prevent market entry of cheaper generic versions of perindopril, when Servier's perindopril was about to reach the end of its patent protection. Among the practices used by Servier were patent acquisitions that could potentially shut out competitors from the market and patent settlements with other companies that included reverse payments. (see also IP/12/835).

Such practices, if established, would be likely to cause significant consumer harm as national health services or insurance schemes are then forced to continue paying for the more expensive patent protected versions of a medicine when, absent the practices, cheaper generic medicines would have been available earlier.

In addition to the Lundbeck and Servier cases, the Commission has other ongoing antitrust investigations in the pharmaceutical sector. It has opened proceedings against Cephalon and Teva (see IP/11/511) and Johnson & Johnson, Novartis and its generic branch Sandoz (see IP/11/1228) for possible violations of EU competition rules, including practices involving generic companies.

In July 2010, the EU General Court upheld the Commission's decision in the AstraZeneca case (case T‑321/05 AstraZeneca v. Commission), which was the first Commission decision finding an abuse of a dominant market position in the pharmaceutical sector. The company had misused the regulatory framework to prevent or, at the very least, delay the market entry of competing generic products (see IP/05/737). The General Court confirmed the Commission's findings that such behaviour was illegal. AstraZeneca has appealed the judgment to the EU Court of Justice (pending case C‑457/10 P).

C. Patent settlement monitoring

The Commission has also published today its third patent settlement monitoring report. The continuous monitoring of patent settlements in the pharmaceutical sector had been recommended by the Commission in its final report of the sector inquiry (see IP/09/1098 and MEMO/09/321).

As in two previous monitoring exercises (see IP/10/887 and IP/11/840), the aim was to identify potentially problematic settlements from an antitrust perspective, in particular those that limit generic entry against payment from an originator to a generic company. The proportion of such potentially problematic settlements has stabilised at a low level of 11% vis-à-vis 21% in the findings of the sector inquiry.

At the same time the total annual number of concluded settlements has increased by 500% to 120 compared to the findings of the sector inquiry (24 settlements p.a.). Most of them appear to be unproblematic from an antitrust perspective. This shows that the Commission's action has not hindered companies from concluding settlements, contrary to fears expressed by certain stakeholders in that respect. At the same time the monitoring exercises may have generally increased stakeholders' awareness of competition law issues, given the lower number of problematic settlements. The continuing existence of such settlements shows the need for the Commission to stay vigilant in this area. The Commission will therefore continue to monitor settlements.

D. Policy initiatives following the sector inquiry

There were successful policy follow-ups to the sector inquiry to ensure speedy and less contentious market entry of medicines.

One of them is the review of Council Directive 89/105/EEC, which is commonly referred to as the "Transparency Directive" and which lays down harmonised provisions to ensure the transparency of national provisions regulating the pricing and reimbursement of medicinal products. In March 2012, the Commission proposed faster access to medicines for patients by streamlining and reducing the duration of pricing and reimbursement (see IP/12/205). The Transparency Directive is now in first reading in the co-decision procedure that involves the Council of Ministers of the EU and the European Parliament.

The Commission had also recommended to introduce an EU patent and a unified specialised patent litigation system in order to improve the fragmented patent system which currently causes legal uncertainty in patent disputes all over the EU, particularly as regards medicines, thus possibly contributing to delays of generic market entry. The Commission welcomes the progress made in the creation of a unitary patent system as well as a corresponding patent court.


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