GlaxoSmithKline, AstraZeneca, Sanofi-Aventis, Pfizer, Wyeth and Teva are among a number of drug manufacturers that received “unannounced” visits early yesterday morning from European Commission officials, as they began an investigation into alleged anticompetitive behaviour.

The Commission said that its officials visited the offices of “a number of innovative and generic pharmaceutical companies” and took away with them information relating to issues such as the use of intellectual property rights, litigation and settlement agreements covering the European Union. Companies regard this kind of information as highly confidential and it “may also be easily withheld, concealed or destroyed,” said the Commission, adding: “This is why inspections have been considered appropriate.”

Unlike cartel cases, the raids were not conducted because of any “positive indications of wrong-doing” by any of the firms visited, said officials. Rather, they formed the starting point of a general “sector inquiry” – investigations the Commission conducts when it feels a particular market is not working as well as it should.

It is seeking to examine the reasons why the average of 40 New Molecular Entities launched each year during 1995-1999 dropped to just 28 in 2000-2004 and, in particular, whether any agreements restricting competition or unilateral abuses of dominant position are involved. Indeed, last year the US Food and Drug Administration cleared just 19 new medicines, including 2 biologics, the lowest in 20 years.

“Fewer new pharmaceuticals are being brought to market, and the entry of generic pharmaceuticals sometimes seems to be delayed,” says the Commission. Its inquiry will pay particular attention to: whether agreements between drugmakers such as patent dispute settlements could infringe the EC Treaty’s prohibition on restrictive business practices; if companies may have created artificial barriers to entry through the misuse of patent rights, “vexatious litigation” or other means; and whether such practices could infringe the Treaty’s ban on abuses of dominant market position.

“If innovative products are not being produced, and cheaper generic alternatives to existing products are in some cases being delayed, then we need to find out why and, if necessary, take action,” the EU Competition Commissioner, Neelies Kroes, told a press conference in Brussels. She added that the EU investigators were working closely with officials in the USA and EU member states.

The Commission did not identify the companies involved in the dawn raids, but a number of drug majors have revealed that they received the unannounced visits. GSK said it had been contacted by the Commission “to help it with its investigation” and declined to comment on the nature of the investigation, describing this as confidential, but confirmed that it would be cooperating with the Commission.

Abusing the patent system? Fewer new medicines
Commissioner Kroes cited AstraZeneca, pointing to the 600 million euro fine imposed on the firm by the Commission in 2005 after finding it had abused the patent system to delay generic versions of its blockbuster ulcer treatment Losec (omeprazole) to the market. The Commission was also involved in other cases, she added, but gave no further details.

AstraZeneca acknowledged that it had been approached by the Commission investigators, and said, “the inquiry relates to the introduction of innovative and generic medicines for human consumption onto the market and covers commercial practices, including the use of patents.” Pfizer also said it had been visited by the investigators, and added: “we are fully cooperating with them.”

All three firms said they understood that other pharmaceutical companies had also been contacted.
The energy, gas, telecommunications and financial services sectors have all been subject to recent sector inquiries by the Commission, but this is the first to have commenced with company raids. Officials said these are likely to be followed up by requests for information from the firms visited, plus others, which could include companies not based in the EU but whose activities affect trade in Europe; they are covered by EU competition law and, while the Commission cannot inspect them, it can request information from them.
Stephen Rose, a partner at law firm Eversheds LLP warned that while this is a “no-fault” investigation, it may be a precursor to spin-off antitrust infringement cases, as happened with the recent energy sector inquiry.

The Commission has taken the opportunity to raise its knowledge of an area which has been analysed in some detail by US antitrust cases in recent years, but not really in Europe, he noted, adding: “the Commission wants to ensure that it is fully up to speed and in a position to take any action required to promote the competitiveness of the European pharma sector for the benefit of the EU consumer.”

The Commission plans to produce an interim report of its investigations in the third quarter of this year, and publish the final results in spring 2009. “If the industry does not take on board any recommendations made by the Commission, then spin-off antitrust actions may follow and even recommendations for legislative change,” warned Mr Rose. Companies found guilty of infringing EU anticartel regulations can be fined up to 10% of their annual sales.

Industry reaction
The European Federation of Pharmaceutical Industries and Associations (EFPIA) said it hoped the inquiry would “enable the Comission to better understand the natue and process of innovation in the pharmaceutical sector.” The Federation said it will be providing the Commission with an in-depth analysis about the way competition works in the pharmaceutical sector, including the key role of patents in driving research and innovation, and added that it was confident that the Commission’s interim report “will stress the importance of enforcing competition rules and intellectual property rights, which are the trigger to new investments and new discoveries in medicines.” Lynne Taylor