EU probe into uncompetitive practices will criticise pharma

A European report on competition in the pharmaceutical industry will criticise drug companies for the way they prolong product patents and conduct litigation, according to an EU source.

Competition Commissioner Neelie Kroes is due to publish imminently interim findings of her department's broad probe of the sector. So-called "strategic patenting", whereby manufacturers use minor product changes to win extra patent life for medicines, as well as the process of litigation used to block cheap generic rivals, are both likely to come under fire in the report.

Kroes launched a wide-ranging investigation of the drug industry in January with a series of dawn raids involving makers of brand-name and generic drugs, including AstraZeneca, GlaxoSmithKline, Pfizer, Merck & Co and Sanofi-Aventis as well as Teva and Novartis's generics unit Sandoz.

Kroes said she suspected pharma companies had conspired to delay cheap generic alternatives to branded medicines. Dawn raids in the past have been reserved for serious cartel probes and have never before been used before in a sector-wide inquiry. Since then, hundreds of employees at many of the world's top drug groups have produced a mountain of evidence to convince her that competition in the sector is robust.

But executives acknowledge some harsh criticisms are inevitable.

"They have looked at major industries in the past and there has never been a positive sector inquiry," said Arthur Higgins, Bayer Healthcare's chief executive, recently. Higgins, who also heads the European Federation of Pharmaceutical Industries and Associations (EFPIA), added: "There are always negative implications that come from it."

Generic drug companies have long complained they have trouble getting their products to market in Europe. Generics account for just over 40% of the market by volume in Europe, compared with more than 60% in the US. The suspicion is that branded companies use delaying tactics to extend the patent life of their products - a process sometimes known as "evergreening".

Action has been taken in the past against some pharma companies for using unfair practices, with AstraZeneca fined b60m in 2005 for blocking rivals to its heartburn and ulcer pill Losec (omeprazole).

The Kroes report will not involve fines or other sanctions on individual companies but will include recommendations for improving competition.