The Wall Street Journal-20080117-EU Raids Drug Firms in Antitrust Probe
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EU Raids Drug Firms in Antitrust Probe
European Union investigators raided drug companies in several countries as the bloc's powerful antitrust regulator set its sights on possible anticompetitive behavior in the pharmaceutical industry.
EU antitrust chief Neelie Kroes said she was starting a so-called sector inquiry that would examine whether drug companies are blocking competitors from selling cheaper generic copies, as well as rival new medicines, to safeguard profits from their own branded drugs.
Mrs. Kroes also said she was concerned that pharmaceutical companies may be colluding to cut deals that temporarily sideline generics in return for payoffs.
AstraZeneca PLC, GlaxoSmithKline PLC, Sanofi-Aventis SA, Novartis AG's Sandoz generics unit, Merck & Co., Johnson & Johnson and Pfizer Inc. said they were among the companies contacted. All of those companies said that they were cooperating with the investigation and that they hadn't been accused of wrongdoing. The commission didn't name the companies searched late Tuesday and early yesterday.
The EU's sector inquiries are broad fact-finding examinations, but regulators could later bring antitrust cases if they turn up wrongdoing. That happened in recent sector inquiries into energy markets and payment cards. Most recently, the EU declared unlawful a type of interbank fee set by MasterCard Inc. and ordered MasterCard to drop fees that are central to its business model. MasterCard says it will appeal the ruling.
In 2005, the commission fined AstraZeneca 60 million euros ($89 million) for trying to block generic-drug makers from coming out with versions of its blockbuster ulcer drug Losec. The commission said AstraZeneca gave "misleading" information to national patent offices that led them to wrongly extend the company's patents on Losec. AstraZeneca has appealed the case.
An interim report on the latest sector inquiry is due in the fall; a final version is expected in spring 2009. Pharmaceutical stocks didn't appear to react to the news of the EU's inquiry yesterday.
Mrs. Kroes said she began the inquiry out of concern that low-cost generic drugs were taking too long to get to market, keeping drug prices artificially high. "The pharmaceutical markets are not working as well as they might," she said.
The inquiry seems likely to reanimate a debate about how far competition law should go to solve intellectual-property problems. EU officials say one concern is that companies may be "misusing" patent laws to block new drugs made by rivals. Such misuse might entail overbroad patent filings or specious lawsuits. The officials say that if the companies in question are "dominant," any abusive behavior falls under their jurisdiction as a violation of EU monopoly rules.
The Brussels-based European Federation of Pharmaceutical Industries and Associations said in a statement it was "confident" the commission's interim report would "stress the importance" of both "competition rules and intellectual-property rights."
David Hull, an antitrust lawyer at Covington & Burling in Brussels, says the EU risks undermining companies' incentive to innovate if it uses competition policy to weaken intellectual-property protection.
"If they think there is something wrong with the intellectual- property system, maybe they should think about legislative solutions instead of bringing competition cases," said Mr. Hull, whose clients include pharmaceutical-industry companies.
Another potential violation being examined is collusion between companies -- for instance, agreeing not to enter each other's markets, or taking payment not to launch a competing drug. The EU is examining, among other things, settlements between brand-name manufacturers and generic makers. In so-called authorized-generic deals, the maker of a brand-name drug reaches an arrangement with the producer of a low-cost generic version. The EU wants to know if these deals amount to illegal restrictive business practices.
U.S. authorities have been active in this area. In March 2006, the Federal Trade Commission began a study to determine what effect authorized-generic deals had on the price of prescription drugs.
