Euro Soul-Searching on Competition

Oct 01, 2010

"A damp squib." That's how a leading figure in the European pharmaceutical industry described the European Commission's pharmaceutical sector inquiry this month, just over a year after it delivered its findings."But," he went on, "don't quote me on that."

Which neatly sums up just how the sector inquiry has affected the European pharma industry. The high-profile, high-intensity, and high-rhetoric-infused investigation in the end led to very little action—but left plenty of people looking over their shoulders. It has had a ripple effect in other markets (South Africa, for example) in encouraging payers to consider competition restraints as a new tool for drug cost containment.

A European Commission investigation into the abuse of patent law by Big Pharma cost plenty of money and even more time, yet still left patent holders with such little clarity about recource or settlements, that it felt like being blindfolded in a minefield. (GETTY IMAGES / STEVEN PUETZER)
When Commission officials started their investigation back in 2007, they made out that a revolution was on the way. Hopes—or fears—of a brave new world were raised by the promised exploration of how far Big Pharma was abusing patent law, colluding with generic rivals to stifle real competition, and neglecting real innovation. The reality is that not much has happened, and little has changed, except perhaps that things have become just a little bit more confused in the European pharma market.

It was the Commission that started the exercise—so let's start by looking at what it got out of it.

The Commission got a lot of publicity when it released its final report, in July 2009. And most of it was complimentary, because the mass media uncritically swallowed the line pushed by Neelie Kroes, the competition commissioner who initiated the exercise. She claimed at the time that the inquiry was the biggest clean-out since the Augean Stables received a Herculean makeover, and she made a lot of noise about how it would not only put an end to murky deals to blunt generic access, but would also save everyone money and stimulate innovation.

In concrete terms, all that the Commission has achieved so far is to initiate a range of investigations into a handful of companies—often commencing with a dramatic dawn raid, but mainly focusing on smaller firms, and with no outcome yet from any of them. No convictions, no fines. It is monitoring deals reached by patent holders with generic firms, and it calculates that there has been a decrease in what it calls "potentially problematic settlements," claiming credit for what it sees as increased awareness among companies of the risks of getting caught. But as to whether all this has led to the "measurable increase in innovation" that Kroes anticipated, the Commission has come up with absolutely no evidence at all—now even backtracking with the admission that increases in innovation are pretty hard to measure at all, and still harder to ascribe to any single cause.

Within the industry, views are divided. Patent holders complain that it cost them a lot of time and money to respond to the Commission's questions during the inquiry (as well as a lot of bad press over suspected dirty deals). Worse, they lament that in spite of all the activity, there is still no more clarity now than there was before the inquiry about what is allowed and what is not in terms of patent settlements or recourse to patent protection. As a result, many of them say that they are simply out of pocket, and more confused. If they are more careful, it is that they are able to navigate precisely on the basis of unambiguous information: it is the consequence of being obliged to wander blindfolded across a minefield.

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