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Pharmaceuticals

19 August 2009
by inadim -- last modified 19 August 2009

The role of the European Commission is to ensure that all players on the pharmaceuticals market (EU Member States, national health services and pharmaceutical companies) respect the Treaty rules on free competition and the free movement of goods and services within the internal market.


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A competitive European pharmaceutical industry is high on the agenda of the Commission in light of the Lisbon strategy. In health care, the European Union shares competences with its Member States, who are responsible for providing heath services and medical care within their territories.

The market for pharmaceuticalsis heavily regulated at the national level. For example, national pricing and re-imbursement rules for medicines are not harmonised within the Single market. This leaves less room for competition on prices and therefore market forces cannot realise their full effect here as they do in most other industry sectors.

Antitrust

In the field of antitrust, Competition Law enforcement within the pharmaceutical industry has traditionally focused on prohibiting agreements that restrict parallel trade either through the imposition of a Supply Quota System ("SQS") or by means of dual pricing. The Commission is now focusing more on attempts by companies to delay or hamper the introduction of generic medicines or of new, innovative drugs that may compete with their products already on the market. The recent sector inquiry aimed at uncovering the causes of the apparent low levels of competition in this sector.

The Commission cooperates in this tasks with national competition authorities through the European Competition Network.

Parallel trade

Supply Quota Systems (SQS)

Through SQS pharmaceutical companies allocate a certain quantity (quota) of pharmaceuticals to a particular country, set either by reference to previous purchase figures or to local consumption. Many companies complained against supply quotas in accordance with Regulation 17/1962. However the Court of Justice ruled in 2004 that quotas set unilaterally cannot be challenged as illegal agreements according to Article 81.

In the the Syfait case (C-53/03) Advocate General Jacobs gave his opinion on whether the refusal by pharmaceutical company GlaxoSmithKline to supply all orders so as to prevent customers from then exporting those products to a country with higher prices, constituted an abuse of dominant position.

In November 2006 the Athens Appeal Court asked the European Court of Justice to clarify whether supply quotas could constitute an abuse of dominant position under Article 82and to what extent State intervention that fixes prices for pharmaceuticals must be taken into account to assess the infringement.

Dual pricing systems

A company applies a dual pricing system when it sets different prices for its product depending on the product's destination within the European Union.

Dual pricing was used by GlaxoSmithKline when it required Spanish wholesalers to pay a higher price for products which they export to other Member States than for those resold on the Spanish market. The Commission prohibits dual pricing as it interferes with the Community's objective of integrating domestic markets and restricts price competition for the company's products. In this case, the Commission also concluded that the dual pricing system could not be justified on economic grounds since there was no evidence that partitioning the common market would encourage investment on innovation.

The Court of First Instance agreed that the agreements were anticompetitive, but sais that the question whether the dual price system might give rise to an economic advantage by contributing to innovation needed closer examination.

The judgement has been appealed by the Commission and the parties involved.

Intellectual property and antitrust

Pharmaceuticals enjoy patent protection for their products in order to recoup high Research and Development (R&D) costs. Once the patent has expired, producers of similar generic products can enter the market.

Pharmaceutical companies who try to prolong patent protection for a product may breach EU competition rules. Such behaviour can also have the side effect of removing incentives to innovate as competition from generic products encourages the creation of new products.

In the AstraZeneca case, , as a novelty under EC Competition Law, the Commission investigated the abuse of government procedures. AstraZeneca had abused the patent system and the system for authorisation of medicines with the aim of delaying competition to a blockbuster drug from generic and parallel imported pharmaceuticals. AstraZeneca was fined 60 million Euros. The appeal is currently pending before the Court of First Instance (case T-321/05).

As a result of this first case, the Commission intensified the monitoring of competition in the sector of generic medicines. As there were indications that competition in the market for human medicines may not be working well in Europe, the Commission carried out a sector inquiry to investigate the reasons for this.

Mergers

The concentration process in the pharmaceutical industry since the 1980s has mainly concerned multinationals, the latest big merger being that of Bayer and Schering in 2006. Important points of interest in the field of mergers are to ensure that a new concentration neither impedes generic competition, where research and development ("R&D") and generic companies merge, nor suppresses competition in R&D where two R&D companies are concerned.

State Aid

State aid mechanisms supporting the pharmaceutical industry are usually adopted within the Community rules for aid to research and development.

In recent years, the Commission has adopted a number of decisions allowing Member States to give aid in the field of pharmaceuticals. The aid has taken the form of tax exemptions or direct grants to enterprises in the framework of regional aid (innovation investments in eligible regions which are lagging behind).

Source: European Commission