In the Dutch leading newspaper NRC Handelsblad Mr den Exter argues that if The Netherlands – and other EU Member States – want cheaper medicines, they should hurry with establishing a European Patent Office for Medicines. Such a patent office would prevent a further delay in getting cheaper medicines and it would not let itself be intimidated so easily by the powerful big pharmaceutical companies.

For more than a year, European Competition Commissioner, Ms Neelie Kroes (taking action against business practices that restrict competition in the EU) has awaited the conclusion of an investigation of the antitrust behaviour of large multinational drug companies. On 8 July 2009 the European Commission (EC) adopted the final report on its competition inquiry into the pharmaceutical sector. This thorough investigation paints an alarming picture of how the large multinationals bar generic producers from entering the market.

In The Lancet Mr den Exter explains that the investigation presents a dilemma for the EC: how can it create an ideal business environment for pharmaceutical multinationals while at the same time ensuring universal access to drugs? Research into new drugs needs ample patent protection to cover the company's investments. Patenting new drugs creates a monopoly for innovators, leading to artificially high prices and threatening affordability. Because most prescription drugs are financed by social health insurance, the Member States' concern is how to achieve low prices. By allowing generic drugs, i.e. patent-expired drugs, onto the market, the monopoly of the large multinationals will be eliminated, which will result in lower prices. However, the companies' practice of preventing generic producers from entering the market makes drugs unnecessarily expensive. Such practice forced the EC to launch its investigation into the anticompetitive activities of the large multinationals. The results showed that intervention is required to protect consumers' interests.

One of Ms Kroes’ conclusions was that “there is something rotten in the state [of the pharma industry]”, referring to the EC’s antitrust report finding that in order to protect market share the large multinationals use several controversial techniques.

Effective delaying tactics include litigation for infringement of patent against generic companies and customers, despite patent expirations that render the allegation unfounded. Competitors and customers subsequently abstain from becoming involved in patent infringements. This tactic is open for judicial review, but that will take some time to complete (three years on average), which is time that will help the large multinationals to delay generic producers from obtaining market access. When it comes to blockbuster drugs, which have a market value of several billion euros, every month that access is denied is crucial.

Another method detailed in the investigation involves the agreement between the large multinationals and generic manufacturers to pay the generic manufacturers compensation for postponing market participation. Parties share the resulting monopoly profits. Such patent payment agreements hamper free competition and harm consumers. When parties cannot agree on the level of compensation, acquisition by a large multinational is an alternative. Thus the new owner acquires control of the introduction of the new generic medicine.

Other interventions in the report focus on national authorisation of generic medicines. Before drugs are allowed on the market, authorisation must be obtained. One of the delaying tactics of the large multinationals is to challenge such registration, while holding registration authorities liable for a breach of patent. During the subsequent legal proceedings, most such claims (nearly 60%) will be withdrawn, allowing authorisation and therefore market access, but with considerable delay. A similar practice occurs when local authorities are involved in decision making about healthcare packages. According to the investigation, another tactic is that before patent expiration the large multinationals can opt to introduce a modified formulation of the drug. Put simply, rather than offering the drug in its existing formulation, a slow-release version is produced, thereby extending patent rights.

The examples above confirm the reputation of the large multinational drug companies as a group with little social responsibility. This image was confirmed by the 2008 report of the United Nation (UN)'s Special Rapporteur on Health, in which he formulated guidelines on the role of the large multinationals to achieve global access to medicines. As early as the consultation stage, major pharmaceutical companies (with some exceptions) failed to cooperate and rejected company responsibilities as formulated in the guidelines. Acknowledgment by the large multinationals of their social responsibility by upholding UN ethics guidelines about essential medicines would be a step in the right direction. Without doubt, the pharmaceutical market cannot survive without such a code of ethics. Even though patent rights require protection, delaying tactics as identified in the EC's report should carry sanctions. Additionally, the EU Member States should step up the introduction of a so-called European patent to replace the current combination of national patents. Supposed patent breaches could then be reviewed by the European Patent Office, which would improve the quality of patents and prevent unnecessary delays.

European Commissioner for Competition Neelie Kroes commented, “We must have more competition and less red tape in pharmaceuticals. The sector is too important to the health and finances of Europe's citizens and governments to accept anything less than the best. The inquiry has told us what is wrong with the sector, and now it is time to act. When it comes to generic entry, every week and month of delay costs money to patients and taxpayers. We will not hesitate to apply the antitrust rules where such delays result from anticompetitive practices. The first antitrust investigations are already under way, and regulatory adjustments are expected to follow dealing with a range of problems in the sector.”

European policy
The sector inquiry has contributed significantly to the debate on European policy for pharmaceuticals, in particular for generic medicines.

On the basis of a sample of medicines that faced loss of exclusivity in the period 2000 to 2007 in 17 Member States, the inquiry found that citizens waited more than seven months after patent expiry for cheaper generic medicines, costing them 20% in extra spending.

Generic delays matter, as generic products are on average 40% cheaper two years after market entry compared to the originator drugs. Competition by generic products thus results in substantially lower prices for consumers. The inquiry showed that originator companies use a variety of instruments to extend the commercial life of their products without generic entry for as long as possible.

The inquiry also confirms a decline of novel medicines reaching the market and points to certain company practices that might contribute to this phenomenon. Further market monitoring is ongoing to identify all the factors that contribute to this decline in innovation.

Reacting to the findings, the EC will apply increased scrutiny under EC Treaty antitrust law to the sector and bring specific cases where appropriate. The use of specific instruments by originator companies in order to delay generic entry will be subject to competition scrutiny if used in an anti-competitive way, which may constitute an infringement under Article 81 or 82 of the EC Treaty. Defensive patenting strategies that mainly focus on excluding competitors without pursuing innovative efforts will remain under scrutiny. To reduce the risk that settlements between originator and generic companies are concluded at the expense of consumers, the EC undertakes to carry out further focused monitoring of settlements that limit or delay the market entry of generic drugs. In the case of clear indications that a submission by a stakeholder intervening before a marketing authorisation body was primarily made to delay the market entry of a competitor, injured parties and stakeholders are invited to bring relevant evidence of practices to the attention of the relevant competition authorities.

On regulatory issues the inquiry finds that there is an urgent need for the establishment of a Community patent and a unified specialised patent litigation system in Europe to reduce administrative burdens and uncertainty for companies. A full 30% of patent court cases are conducted in parallel in several EU Member States, and in 11% of cases national courts reach conflicting judgements.

It also finds that recent initiatives of the European Patent Office to ensure a high-quality standard of patents granted and to accelerate procedures are welcome. This includes measures taken in March 2009 to limit the possibilities and time periods during which voluntary divisional patent applications can be filed (so-called ‘raising the bar exercise’).

The EC is also urging EU Member States to ensure that third-party submissions do not occur and in any event do not lead to delays for generic approvals. Furthermore, they should significantly accelerate approval procedures for generic medicines; for example, the EC believes that generic products should automatically or immediately receive pricing and reimbursement status where the originator drug already benefits from such status, which would allow for a faster product launch in certain cases. Besides, they should take action if misleading information campaigns questioning the quality of generic medicines are detected in their territory. Finally, they should streamline trials that test the added value of novel medicines.

To assist EU Member States in delivering speedy generic uptake and improved price competition, the report contains an overview of national measures and their effects on generic uptake (volume, prices, and number of entrants) and encourages EU Member States that want to benefit from generic savings to consider such measures. In this light the EC will also examine existing EU rules in the area of pricing and reimbursement (Transparency Directive 89/105/EEC).