Drug firms’ fears over Kroes probe fade

Europe’s drug-makers say a price squeeze has affected the market more than a high-profile Commission investigation.

The research-based pharmaceutical industry in Europe now believes it had a lucky escape from the high-profile inquiry into the sector launched in 2008 by Neelie Kroes, the then European commissioner for competition. 

Senior industry and European Commission sources admit that, one year on from the inquiry’s final report, the lengthy investigation did not dramatically change the competitive landscape for supplying medicines. Instead, innovative companies claim the real threat they face is increasing pressure from national drug-pricing authorities across Europe, as economic constraints intensify the clamp-down on health spending.

The Kroes inquiry, which aimed to root out alleged patent abuse by innovative companies and to promote a “measurable increase in innovation”, is now widely regarded as a sideshow.

Aides to Joaquín Almunia, the successor to Kroes, accept that clear results cannot be drawn. “It is too early,” said a spokesperson.

Proceedings have been opened against a handful of drug companies suspected of reaching anti-competitive deals to protect patented products against generic competition, but none of these cases has yet been resolved. No evidence has emerged of any boost to innovation. And on the regulatory barriers identified by the report, the only response so far is an incipient review of the EU rules governing national pricing and reimbursement procedures. Meanwhile, staff changes within the Commission’s competition department are seen as indicating a softer line on competition in the pharmaceutical sector.

Patent procedures

The generics industry – one of the principal instigators of the Commission’s inquiry – hailed a year ago what it saw as the confirmation of “inefficiencies in the European patent system”. But Greg Perry, head of the European generic industry association, makes only modest claims for the results – notably that the inquiry has given additional encouragement to a tightening up of patent application assessments at the European Patent Organisation (EPO).

But at the EPO (which was initially highly critical of the inquiry), sources point out that their own review of procedures was already under way and they question whether any real results will ever emerge from the Commission inquiry. Even the Commission concedes that it cannot yet confirm as a trend the “significant decrease” it says it perceives in “potentially problematic settlements”. It will need to continue monitoring “for another year to see whether any further action is needed”.

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James Killick of White & Case, a law firm, agrees that conclusions would be premature.

In contrast, across the research-based industry, senior executives are urgently redeploying their resources to cope with what they see as the much bigger threat of widespread price cuts. They are in a race to find strong common positions that can resist the gradual emergence of a de facto harmonisation approach among national authorities to assess the value of medicines. Andrew Witty, the chief executive of GlaxoSmithKline, believes pricing pressure will continue to make life difficult for funding research right through 2011. Germany agreed a plan during the summer that could cut €2 billion a year from the national drugs bill. Spain cut prices by 25% for generics and 7.5% for branded drugs earlier this year.

Witty’s view is also supported by a recent study from the Berlin-based European School of Management and Technology Competition Analysis, which argues that governments’ strict pricing regulations aimed at cutting drugs prices are likely to have a negative impact on the development of new drugs.