**Updated 30 July 2009** DG Competition Sector Inquiry on the Pharmaceutical industry

The Pharmaceutical Sector Inquiry was launched by Commissioner Neelie Kroes on 15 January 2008 in order to determine the reasons why so few novel medicines were being brought onto the market, [generic medicine] entry is sometimes delayed and the sector is generally not working well.

Final Report

The final report of the Sector Inquiry, released on 8 July 2009, has been broadly welcomed by the large majority of stakeholder. The report is less damning to originator companies than the preliminary report released at the end of 2008, and has therefore been welcomed by some of the companies that are being investigated. try to get HAI’s position (i.e. some NGOs were less than happy as it seemed that the initial position from the preliminary statement had been watered down.)

The pharmaceutical industry in Europe represented by EFPIA is reportedly happier with the current report and feel that the Commission produced more balanced and constructive findings than the previous preliminary report.

The Inquiry’s main findings

Generic medicines are generally around 40% cheaper, two years after entry into the market place. In many cases Generic entry into the market place has been blocked by originator companies [an originator company is a company ...], causing delays of up to seven months. These delays have cost consumers 20% extra in health spending. Originator companies used a variety of instruments, such as "defensive patenting strategies," "divisional patenting" and "patent clusters" to extend the commercial life of their products and prevent Generic entry into the market. These life cycle prolonging measures have resulted in litigation between originators and Generic manufacturers costing in excess of €480 million for the period 2000 - 2007. The inquiry identified significant additional revenues gained as a result of these practices.

The inquiry also looked at the regulatory framework in this area. It can be seen that significant savings would be made and greater efficiency could be reached by a streaming of the regulatory framework governing medicines. Proposals such as strengthening the European Patent Office, preventing duplication of cases across the EU and preventing conflicting rulings across the EU were proposed by the report.

Innovation in the Pharmaceutical sector has steadily decreased in the period 2000 - 2007, the Inquiry points to certain industry practices that contribute to this. The Inquiry shows that 17% of turnover was spent on R&D and 23% on promotion and marketing.

The Conclusions and Proposed steps

In order to act upon the findings of the Sector Inquiry, the Commission proposed several actions.

Intensify Competition law scrutiny. In order to combat anticompetitive practices the Commission will pursue, with increased vigour, any antitrust infringement that is against the Community interest. The Commission will also investigate the possibility of encouraging innovation through patent law and take action in cases where Intellectual Property rights are at odds with competition law. The Commission will intensify it’s efforts to combat defensive patent strategies, in particular where the main focus is on excluding competitors without pursuing innovative efforts.

Rapid Establishment of the Community Patent and Creation of a Unified Litigation System. The Inquiry calls for an single European patent, this would have the effect of increasing "efficiency by eliminating essentially parallel court cases..." and "...enhancing legal certainty through avoidance of conflicting rulings." The report also calls for the strengthening and increasing of the powers of the European Patent Office (EPO) to accelerate procedures where appropriate. The report also commends the recent initiatives by the EPO to limit the scope and time periods for voluntary divisional patent applications to be filed (known as the "raising the bar" exercise).

Streamlining the Marketing Authorisation Process. Although it is generally acknowledged that the European framework for marketing authorisation works well, there are shortcomings which lead to delays and unnecessary administrative burdens. The Commission will provide full support to the European Medicines Agency (EMEA) to assess better allocation of resources. The Commission proposes measures to prevent third parties interfering with the marketing authorisation processes, particularly originator companies interfering with generic applications. The Commission in the report states that it fully supports further international harmonisation particularly with the United States to "reduce unnecessary regulatory divergences."

The Inquiry report also showed that some generic companies complained of attempts to mislead the public by originator companies through campaigns that state that Generics are of inferior quality. The Commission states that there is a regulatory process that ensures quality and safety, and therefore member states should look to take action on any misleading or false accusations of inferior quality.

Improving Pricing and Reimbursement Systems and Developing a Pro-Competitive Environment for Generic Uptake. Based on the projections of potential saving to public health systems in Member States, the Commission’s report states that access to generic medicines must be encouraged. Although some companies argue that this would deny access to innovative medicines, a balance must be found. The report makes reference to several community initiatives such as the Transparency Directive, which sets out a maximum time for pricing and reimbursement decisions. The Commission encourages Member States to fully implement this Directive and to consider the introduction of immediate pricing and reimbursement decisions for generic medicines. Delays in pricing and reimbursement decisions can lead to higher expenditure in health systems. The report also makes reference to the Patients’ Rights in Cross-Border Healthcare Directive and the initiative contained within on Health Technology Assessments and the Joint Action on Health Technology Assessment under the Public Health Program 2009. Through these initiatives, the Commission proposes to improve joint action and decision making on pricing and reimbursement as well as scientific assessment.

Preliminary Report

The preliminary report was presented on 28 November 2008 and the final results of the enquiry will be published in the spring of 2009. The preliminary report delivered a damning blow to the pharmaceutical industry. Although the report refused to lay blame at the door of any companies in particular, it stated that the industry, in general, was guilty of uncompetitive practices and stifling innovation by promoting marketing far above research and development (R&D).

The practices employed by the pharmaceutical industry, such as [defensive patenting strategies] and the attempted prevention of [parallel trade] are currently under investigation by DG Competition.

The report showed that the Pharmaceutical sector has been spending considerably more of its turnover (23%) on marketing current drugs than on R&D (17%) worldwide. The report also suggests that the cost to the public budget resulting from the blocking of generic drug entry into the market was in the region of €3 Billion.

EPHA Responded to the consultation with a statement that praised DG Competition for its diligence but expressed concerns over the results as they expose deep problems in an extremely important industry. To read EPHA’s response please click here

 The Commission held a consultation on the preliminary report. To read the EPHA response please click here

 To read the full report please click here.
 To read the executive summary of the preliminary report, please click here

 To read Health action International’s response to the inquiry consultation please click here
 To read a statement from Health Action International on the preliminary report event, please click here