The EU Raids on Pharma: EFPIA Predicts Verdict

July 1, 2008

A new European Federation of Industries and Associations report expresses industry fears after Neelie Kroes's January raids.

Few European pharmaceutical executives have had the chance to forget that the European Union launched an enquiry into the industry's business practices at the start of this year. The intervening months have seen frantic activity by individual companies and by the European drug industry association to gather and supply information to EU officials. Thousands of hours of management time have been taken up by answering questionnaires and providing voluminous annexes.

There's a lot at stake. The enquiry, driven by European competition commissioner Neelie Kroes, is aiming to assess whether drug companies in Europe are guilty of restrictive business practices, creating artificial barriers, or abuse of dominant position — in other words, have they been obstructing competition in Europe so that they can get by with little more than a series of over-priced copy products. If the EU finds them guilty as charged, new regulations could be imposed, and fines could be levied.

While each drug company in Europe has to fight its own corner in this tense situation, the industry's main lobby group, the European Federation of Pharmaceutical Industries and Associations (EFPIA), has also conducted an analysis of the industry as a whole. It has just submitted a 100+ page report (Click here to view the report), accompanied by some 500 pages of annexes, to the EU authorities, in an attempt to defend the industry's activities.

The analysis predicts that the EU inquiry will exonerate the industry. It recognises that its product development pipelines are not as strong as they used to be, and blames this on increased costs, reduced predictability and an imbalance in the risk/reward ratio. "If the output of new medicines is not keeping pace" with the explosion of medical progress, "this is for reasons other than alleged anti-competitive practices," it says.

The nature of the European drug market is such that anti-competitive behaviour is virtually impossible, claims EFPIA. "In a market where supply and demand are conditioned by state regulation and monopsony buyers, even companies with significant market shares are incapable of behaving independently of competitors and abusing market power."

Underlying the industry's concern is more than just the fear of additional regulation or financial penalties. For the innovative industry, which depends on a reliable regulatory framework, one of the greatest dangers is the introduction of new uncertainties into its operating context. It can cope with uncertainties over the outcome of its research — that is part of the game with research. What it cannot cope with is uncertainty about arbitrary change in the rules. At present it can challenge what it believes to be illicit copying of its products — and therefore erosion of its intellectual property protection — by seeking protection from the regulatory system. It fears that its scope for doing so may now be limited: "Companies must always be permitted to take their legitimate concerns to the regulator and to use such procedures lawfully, without fearing accusations of mixed motives by competition authorities at some later date," says EFPIA.

Over the next few months, the EU will make up its mind about how much fear innovative companies will have to live with. The decision will be crucial to the future health of European innovation.