EU launches anti-trust probe into patent settlements between drug companies

The European Commission (EC) has launched an investigation into patent settlements made between drug companies and generics manufacturers, questioning whether they broke EU competition rules and restrict consumers" access to cheaper medicines.

The EC has asked certain pharmaceutical companies for copies of patent settlements they have made, particularly those concluding between July 2008 and December 2009. It says it is looking at settlements in which an originator company pays off a generic competitor in return for delaying market entry of a generic drug.

"We need to monitor this type of agreement in order to understand better why, by whom and under which conditions they are concluded. The monitoring will also provide us with the possibility to act should this become necessary," said commissioner Neelie Kroes.

After receiving their responses, the EC will analyse the agreements made between the drug companies and generics manufacturers and publish a short report. If specific settlements raise additional questions, it says a more targeted request for information could follow.

"Depending on the outcome of the exercise, this round of information requests may be repeated annually for as long as the EC considers that there is a potential problem," the EC added.

The EC has not named the companies involved, but several key market players have come forward and said they have been approached. According to Reuters, this includes, among originator companies, AstraZeneca and GlaxoSmithKline. Generics manufacturers also approached include Niche Generics (part of Unichem) and Teva.

The move is a "logical step" in progressing the EC's aim to ascertain whether or not there are unnecessary, anticompetitive delays in generic drug manufacture, said Gareth Williams, partner at Marks & Clerk, the leading intellectual property law firm.

"It is important that clarification is given over the scope of this probe and the nature of the settlements involved. It is likely that larger financial deals designed to restrict a number of generic entrants coming to market for a given period of time will be put under the microscope. Such deals, of course, keep prices artificially high (if not higher), since the entry of any generic is delayed," he said.

"Patent settlements can represent a perfectly reasonable and commercial response to the threat of patent infringement litigation or challenges to patent validity. Without them, pharmaceutical firms may have no option but to become involved in costly litigation to protect their essential patents, which would in turn result in costs being passed on to consumers," said Williams.

"While the EU is right to investigate the possibility of anticompetitive patent agreements, a clearer stance needs to be taken regarding the effectiveness and legitimate use of these vehicles. The market will be cautious until more information is made available, to provide the assurance needed that these often justifiable arrangements are not being treated as inherently suspicious," he added.

The EU said last year that generic drugs are on average 40% cheaper than their branded rivals two years after they launch and that it knew of some 200 deals between generic and originator drugmakers that could restrict the market entry of generic versions.

Earlier this month the EU said it suspected Danish company Lundbeck of delaying the launch of a generic version of the antidepressant drug citalopram that it developed and sells as Celexa in the US and as Cipramil in Europe.

Meanwhile, the US Federal Trade Commission Chairman Jon Leibowitz and key members of Congress have called for legislation to end sweetheart 'pay-for-delay' deals that keep generic drugs off the market. It is estimated that these agreement delay the market entry of generic medicines by an average of 17 months at a cost to consumers of $3.5bn (Euro 2.4bn) a year.

Leibowitz is urging Congress to adopt a provision as part of the health care reform bill to stop pay-for-delay agreements. "When drug companies agree not to compete, consumers lose," he said. "Ending this practice as part of healthcare reform is one simple, effective, and straightforward way for Congress to help control drug costs."

A new FTC study, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions, found that the number of agreements with payment and delay has increased from zero in 2004 to a record 19 agreements in Fiscal Year 2009. Most of the agreements reached since 2005 are still in effect, according to the study, and they currently protect at least $20bn (â"šÂ¬13.8bn) in sales of brand-name drugs from generic competition.