Euro Soul-Searching on Competition

"A damp squib." That's how a leading figure in the European pharmaceutical industry described the European Commission's pharmaceutical sector inquiry this month, just over a year after it delivered its findings."But," he went on, "don't quote me on that."

Which neatly sums up just how the sector inquiry has affected the European pharma industry. The high-profile, high-intensity, and high-rhetoric-infused investigation in the end led to very little action—but left plenty of people looking over their shoulders. It has had a ripple effect in other markets (South Africa, for example) in encouraging payers to consider competition restraints as a new tool for drug cost containment.

When Commission officials started their investigation back in 2007, they made out that a revolution was on the way. Hopes—or fears—of a brave new world were raised by the promised exploration of how far Big Pharma was abusing patent law, colluding with generic rivals to stifle real competition, and neglecting real innovation. The reality is that not much has happened, and little has changed, except perhaps that things have become just a little bit more confused in the European pharma market.

A European Commission investigation into the abuse of patent law by Big Pharma cost plenty of money and even more time, yet still left patent holders with such little clarity about recource or settlements, that it felt like being blindfolded in a minefield. (GETTY IMAGES / STEVEN PUETZER)

It was the Commission that started the exercise—so let's start by looking at what it got out of it.

The Commission got a lot of publicity when it released its final report, in July 2009. And most of it was complimentary, because the mass media uncritically swallowed the line pushed by Neelie Kroes, the competition commissioner who initiated the exercise. She claimed at the time that the inquiry was the biggest clean-out since the Augean Stables received a Herculean makeover, and she made a lot of noise about how it would not only put an end to murky deals to blunt generic access, but would also save everyone money and stimulate innovation.

In concrete terms, all that the Commission has achieved so far is to initiate a range of investigations into a handful of companies—often commencing with a dramatic dawn raid, but mainly focusing on smaller firms, and with no outcome yet from any of them. No convictions, no fines. It is monitoring deals reached by patent holders with generic firms, and it calculates that there has been a decrease in what it calls "potentially problematic settlements," claiming credit for what it sees as increased awareness among companies of the risks of getting caught. But as to whether all this has led to the "measurable increase in innovation" that Kroes anticipated, the Commission has come up with absolutely no evidence at all—now even backtracking with the admission that increases in innovation are pretty hard to measure at all, and still harder to ascribe to any single cause.

Within the industry, views are divided. Patent holders complain that it cost them a lot of time and money to respond to the Commission's questions during the inquiry (as well as a lot of bad press over suspected dirty deals). Worse, they lament that in spite of all the activity, there is still no more clarity now than there was before the inquiry about what is allowed and what is not in terms of patent settlements or recourse to patent protection. As a result, many of them say that they are simply out of pocket, and more confused. If they are more careful, it is that they are able to navigate precisely on the basis of unambiguous information: it is the consequence of being obliged to wander blindfolded across a minefield.

A few firms directly in the firing line are having to spend still more time and money defending themselves. Lundbeck is being quizzed for questionable practices to defend Citalopram. Servier is under investigation not only for potentially dodgy deals to protect Perindopril, but also for allegedly supplying the Commission with misleading information during the inquiry. Sanofi-Aventis, Novartis/Sandoz, Teva, Ratiopharm, and a scattering of small generics firms have also come under scrutiny. The Commission doesn't say they are guilty—but doesn't say when it might pronounce them innocent, either. And the companies themselves are keeping their heads well down.

The Commission's guns-blazing intervention has left every patent holder—even those who have emerged without so much as a flesh wound so far—with an uncomfortable sense of insecurity, since, as the Commission repeatedly makes clear, the whole thing could start up again any time. That explains in part the reluctance of even the most outspoken industry executives to go public on what they think about it all; to say too much might be to precipitate a new visitation.

The generics industry claims that the Commission inquiry vindicated its own longstanding complaints about obstructionism from patent holders, and confirmed the existence of inefficiencies in the European patent system. This, in turn, says the European Generic Medicines Association, put pressure on the European Patent Organization to tighten up its controls. But there is still no evidence of faster generic market access—and generics companies continue to complain.

For its part, the European Patent Organization (which is quite separate from the European Commission, and actually issues patents) self-righteously maintains that long before the Commission inquiry started, it was in any case reforming its procedures to limit the opportunities for patent holders to extend protection through filing dubious patent extension claims. Some additional controls will take effect this month, but the EPO resists the suggestion that its procedures have been seriously inadequate until now. Its officials privately murmur that the Commission didn't focus its inquiry very accurately—and consequently came up with only the most limited findings that didn't generate any real change.

The Commission, meanwhile, is still trying to save its honor after more or less admitting that it was wrong in its initial suggestions that patent holders were the key villains in holding up generic launches. It finally had to acknowledge what patent holders argued throughout the inquiry—that the obstacles arising from regulation cannot be ignored in exploring barriers to generics getting onto the market—or indeed to innovation. As a small gesture of appeasement, the Commission is now reviewing its legislation on how national drug pricing systems function, in the hope that this could help cut through some of the red tape, for generics and even for new drugs.

The inquiry was, of course, only one of many factors and forces influencing the European environment for pharmaceuticals—and for relations between patent holders and generic firms. In recent months, a final judgment has emerged from the European Court of Justice on a much older case, confirming that AstraZeneca misused regulatory procedures and made misleading representations to patent offices in a bid to protect Losec. There is a ceaseless series of national actions, in court or with national regulators, on the limits to patent protection. And big changes have taken place at the top level within the European Commission too. The abrasive Kroes has been replaced as competition commissioner by the more phlegmatic Joaquín Almunia—who feels less compulsion to pursue Big Pharma, especially since the focus of the Commission as a whole in the fiscal post-crisis world is on boosting recovery through innovation. Overall, therefore, even the most aggressive generics lobbies are not certain when or how more cases will be launched—and nor are the most optimistic patent holders confident that none will ensue.

It is, as one industry executive wryly commented, a typical European result. Lots of talk, lots of time wasted, and not much to show for it.

Reflector is Pharm Exec Europe's anonymous columnist, a commentator so close to the action in Europe that his identity must remain secret.