Prices and Patents Compete for Attention in Europe

What attitude will the new European commissioner for competition, Margrethe Vestager, adopt to the pharmaceutical industry? In theory, the personalities of commissioners should have little influence over the way they conduct the business they are charged with. There are laws and there are procedures and there is precedent, so the margin for maneuver might appear limited. But the very nature of competition law can lend itself to subjective judgements, since complex cases often bristle with alternative- and often almost equally defensible-interpretations. There is, in other words, plenty of scope for a personal touch from the holder of that uniquely powerful and autonomous post of competition commissioner, for this is the one field of European Union law where the European Commission has unambiguous authority.

The competition commissioners who preceded this former Danish economic affairs minister certainly imposed their own views, and notably on pharmaceutical industry behavior. It was Neelie Kroes of the Netherlands who, needled by vague allegations of shady deals between innovators and generic firms, instigated the notorious pharmaceutical sector inquiry. And it fell to her successor, the Spanish socialist Joaquin Almunia, to pursue-and take the lead on-controversial decisions imposing massive fines on Lundbeck and Servier for patent settlements that they had reached with generic competitors. Almunia also continued to drive forward the annual monitoring exercise of drug patent settlements that the inquiry sparked, and he claimed year-after-year that the Commission's actions were effectively deterring pacts that harmed consumer interests.

Taking on Sovaldi

Vestager's first personal public intervention in pharmaceutical matters displays an even-handed approach on the hottest potato in current European pharmaceutical discussions-the price of hepatitis C treatment Sovaldi. Virulently industry-hostile members of the European Parliament recently challenged her on what they describe as the "menace to the financing of health systems" posed by the behavior of the product's manufacturer, Gilead, urging her to act against the company for abusing its dominant position. The new commissioner's response was to patiently demonstrate that there were no obvious grounds for an action of abuse of a dominant position. "The Commission is aware of the allegation that prices charged by Gilead in the market for some current or upcoming medicines are too high," she said. But since price-setting in Europe takes place largely at a national level in negotiations between pharmaceutical manufacturers and healthcare systems, "member states are able to exercise their bargaining power," Vestager said. In addition, she cited the European Medicines Agency's (EMA) observation that the market Gilead plays in-for hepatitis C drugs -is a rapidly moving therapeutic area, with several new classes of direct-acting antivirals now in advanced stages of development. "This would seem to suggest that this is a dynamic market," she concluded.

Patent-settlement saga

Vestager's resistance to jumping onto the anti-industry bandwagon that Sovaldi has set in motion among European populists was an encouraging sign to company executives, reinforcing the reputation she brought with her of a fiercely impartial politician. However, she has inherited a difficult legacy with the patent settlements controls so dear to Kroes and Almunia, and the latest annual report on the issue-it appeared just weeks after she took office-suggests that some of her officials who prepared it retain a stubborn attachment to the industry-hostile views of her immediate predecessor.

Published at the end of 2014, the report amounts to a victory cry from officials jubilant at- they claim-putting an end to unscrupulous and self-serving agreements among rival drug firms to fudge competition so as to favor their own interests at the expense of consumers and health systems. Underlying the many pages of text and tables is a presumption that if an innovator challenges a generic competitor for patent infringement, the correct course is for that case to go to court and to be settled by a ruling-no matter how long that takes and how much that costs. And if the two companies decide that it makes more sense to settle out of court than to pursue the case to the end, there is an immediate suspicion that this is anti-competitive.

The report provides extensive statistics on settlements between originator and generic companies reached during the preceding year, and some densely-argued reviews of points of law. It says it aims to identify settlements that delay generic market entry to the detriment of the European consumer-and "of particular interest are settlements that may lead to a delay of generic entry in return for a value transfer (e.g., a payment) by the originator company to the generic company." It also says it aims at giving an indication of which kinds of settlements may merit further competition rules scrutiny.

But reactions to the report reveal some deep anxieties over its content, its conclusions, and its likely consequences. Much of the information in this fifth annual report is mere repetition of earlier editions-leading some lawyers to accuse the Commission of "copy-pasting." It is also accused of banality, even vacuity-"a face-saving exercise for the Commission," said another leading lawyer in the field. Worse, it lacks clarity, say its critics. Despite reviewing hundreds of settlements, there is still no clear guidance to the industry-notably in its treatment of the concept of "value transfer." It also suffers from contradictions-simultaneously arguing that there is a general principle at stake but that each agreement must nonetheless be treated on a case-by-case basis.

Overall, the Commission is accused of continuing to create confusion in the pharmaceutical sector, discouraging companies from reaching out-of-court settlements. In this way, the exercise becomes counterproductive, say industry sources and numerous lawyers: it inhibits rather than promotes generic competition. Its ambiguities and ill-defined threats condemn many potential generic competitors to choose between the costly and uncertain option of going to court, or simply abandoning their bid to market a generic.

The response from European industry associations has also been highly critical-from innovators and from copyists. The European Federation of Pharmaceutical Industries and Associations (EFPIA) said the Commission was devoting its energies to the wrong task, and should try to remedy "the inefficiencies inherent in today's patent litigation system" instead of creating "legal uncertainty for both innovators and generics without bringing any sensible solution." The European Generic Medicines Association urged "clearer guidance from the Commission," and warned of "a disincentive for companies to challenge patents" an echo of views from its US counterpart on similar cases: the Generic Pharmaceutical Association has consistently argued that "restricting drug patent settlements is not the answer to assuring that consumers are guaranteed the earliest possible access to safe and affordable generic medicines."

Reputation tested

So Vestager faces a challenge. Her reputation for fair-mindedness, impartiality, and independence will be examined partly in light of how much of her time she devotes to resolving the confusion about how the Commission will apply competition rules to patent settlements in the pharmaceutical sector. The two leading cases-Lundbeck and Servier-are still under appeal, and the time could be right for a fresh look at the underlying issues. EFPIA has explicitly urged the new Commission "to act once and for all to tackle the root cause rather than the symptoms" of the "complex and dysfunctional framework for patent enforcement" and the obscurely-motivated competition investigations it has generated.

Her first task might be to review the public statements by the Commission about its attitude to competition in the pharmaceutical sector-which have remained unaltered (and without updating) on its website for more than a year. They contain a perceptible air of missionary zeal, along with complacent reports about the sector inquiry launched in 2008. Vestager could stamp her own personality on that as she opens a new chapter in EU competition law for the pharmaceutical sector.

Reflector is Pharmaceutical Executive's correspondent in Brussels.