European Commission publishes preliminary findings of Pharmaceutical Inquiry - and opens up a hornets' nest

At a conference in Brussels today, the European Commission delivered its preliminary findings on the Pharmaceutical Sector Inquiry. Starting with dawn raids on a number of companies, the Commission launched its sector inquiry under EC competition rules in January 2008. It was considered that competition may be being distorted or restricted in the markets for innovative and generic medicines.

Competition expert Bernardine Adkins says, "The Commission's report is largely limited to facts. It is at pains not to identify a single company or reach conclusions as to whether practices described actually infringe EC competition law. It provides the Commission with a factual basis for deciding whether further action is needed. The report also highlights the alleged cost of pharmaceutical companies' delaying tactics to consumers: an estimated €3 billion. These figures will be contested but are likely to be widely reported."

The report claims that pharmaceutical companies use a "tool box" of instruments – strategies and tactics to ensure continued revenue streams for their medicines. These, according to the Commission, have the effect of delaying or blocking entry of generics to the market.

Strategies observed include "patent clusters" – a practice that involves filing for up to 1,300 patents EU-wide in relation to a single medicine (at least in relation to one example quoted). Engaging in disputes with generic companies leading to increased patent litigation is also highlighted.

The Commission examined 200 settlement agreements between 2000 and June 2008 and found 48% of them related to the generic company's ability to market its medicine. "The inference here seems to be that originator companies are paying to keep generics out of the market, yet these agreements might be entirely legitimate, depending on the facts in each case."

Some of the statistics quoted in the report will no doubt be used to support the contention that the checks and balances already present in the system work perfectly well to prevent inappropriate behaviour. The Commission found that generic companies use the European Patent Office opposition procedure to successfully revoke or restrict patents (usually secondary patents) in 75% of cases.

Despite the Commission's apparent refusal to point the finger, it draws upon strategy documents found during its dawn raids, which apparently describe using the patent system to impede generic market entry.

Bernardine adds, "As we feared, this report, far from clarifying matters, is likely to lead to a period of great uncertainty, both in the life sciences sector and also for the patent world in general. Of the Commission's findings as to the so-called "tool box", it questions three areas of standard practice - patent applications themselves, litigation and settlements. All bread and butter to the IP world, but now, potentially at least, suspect under the competition rules."

According to Bernardine, issues impeding the development of innovative medicines seem also to have been neglected. A particular gaping hole in the report is the effect on innovation of the transfer of profits onto parallel traders benefiting from pricing disparities imposed by different national pricing systems; while contributing nothing to innovation.

The extent of competition between generic producers is also unexamined. "One thing is however welcome - the report recognises the widespread call for a single Community patent and the creation of a unified and specialised patent judiciary in Europe," concludes Bernardine.

A more detailed analysis of the preliminary report's findings will follow shortly.