Pharmaceutical sector back in the EU antitrust spotlight

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The raids on 6 October 2009 on the premises of several pharmaceutical companies show that the European competition authorities are serious about taking action against suspected anticompetitive behaviour in the EU generics market.


While the fact that the inspections took place is in itself no real surprise – the EU's Competition Commissioner, Neelie Kroes, had after all just warned that some were in the offing in the coming weeks and months – it is interesting that the three companies that have so far confirmed the surprise visits (Novartis, sanofi-aventis and generics firm Teva) have all been targeted by the commission before.

In January 2008, the commission's competition directorate (DG COMP) conducted a series of unannounced inspections at a number of major firms including AstraZeneca, GlaxoSmithKline (GSK), Novartis (and its Sandoz generics subsidiary), Pfizer, sanofi-aventis and Teva.

Sanofi-aventis later again fell foul of the directorate, which in June 2008 began proceedings against the company to see whether, by refusing to hand over a number of documents, it had illegally obstructed the January 2008 inspection.

Teva was also back in the spotlight in November 2008, when it was among those targeted by a new round of surprise inspections. In July 2009, DG COMP opened an antitrust case against Teva and Servier (and a number of other generics firms).

The inspections have all been conducted against the backdrop of the commission's inquiry into competition in the EU pharmaceutical sector, which most notably concerns alleged practices that might be hindering generic market entry.

It is not clear exactly why Novartis, sanofi-aventis and Teva have been singled out for follow-up raids. The commission said it had reason to believe the companies may have infringed the provisions of Articles 81 and 82 of the EC Treaty that prohibit restrictive business practices and the abuse of a dominant market position.

While the commission has stressed that the carrying out of inspections does not mean the companies are guilty of anticompetitive behaviour, the fact that these three have been raided again suggests that the authorities have strong evidence to back up their case. And the fact that the commission has cited both Articles 81 and 82 suggests that it is targeting both agreements between originator and generics firms to delay generic entry, and unilateral tactics by originators to keep generics off the market. These practices and others were among those detailed in the final report on the sector inquiry, which was released in July 2009.

Exactly what activities might be the cause for these latest raids remains to be seen, as neither the commission nor the companies are giving anything away. The commission would say only that there was no set deadline for completing inquiries into anticompetitive conduct, and that the duration of such inquiries would depend on the complexity of the case, the degree to which the companies cooperated with the commission and whether they exercised their rights of defence.

Meanwhile, the commission is still embroiled in another case involving alleged infringements of EU competition law, this one concerning GSK's efforts to stem parallel trade from Spain via a dual pricing system.

The commission had decided in 2001 that the scheme constituted an agreement that restricted competition, and that GSK had not proved that it was justified in the circumstances.

In 2006 the Court of First Instance agreed that the prohibition on agreements restricting competition had been infringed but annulled the commission's decision, saying it had not fully examined GSK's request for an exemption from the competition rules. The European Court of Justice substantially confirmed this assessment on 6 October 2009 and said the commission must reconsider whether the GSK scheme might be exempted from the rules.

Views differ as to the wider implications of this ruling. Lawyers at Morgan Lewis say it means that contractual provisions that are intended to limit parallel trade are presumptively illegal, and that companies will face “an uphill struggle” in rebutting that presumption. Others say it gives companies some reassurance that limits on parallel trade can be justified in certain circumstances.

On the other hand, after years of defending parallel trade and a succession of lengthy court rulings broadly in favour of brand companies, the commission appears to be losing interest in this area and is looking elsewhere for richer pickings. Given these latest raids by the commission, and its warning that more may be on the way, it is companies involved in the generics area that should be on the alert for that early morning knock on the door.

Pharma back in the EU antitrust spotlight. Scrip News. 2009 Oct 7.

Source: Scrip News

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