Will the European Union Competition Commission?s probe into out-of-court settlements between MNCs and generic companies impact the latter?s fortunes in the regulated markets in a major way? Quite unlikely. But the Commission?s move can be a disincentive for such future out-of-court deals, considering the quantum of scrutiny and accompanying litigations that those deals could generate.
The Commission, in a recent report, has alleged that generic pharma companies like Teva, Lupin and Matrix have entered into agreements with multinational firms, that might have hindered the market entry of the cheaper, generic version of a hypertension drug. The drug in question is French company Servier?s perindopril, and the Commission is probing whether delaying the entry of a generic version violates anti-trust rules. Competition Commissioner Neelie Kroes has gone a step further to say that delays in bringing cheaper generic medicines to the market have pushed up consumers? bills by 20% between 2000 and 2007. The Commission has reached these conclusions after an 18 month probe that began in January 2008 after raids at GlaxoSmithKline, AstraZeneca Plc, and Sanofi Aventis.
The reasons for the cynicism regarding a conclusive action against such settlements are many. First, there is a widespread perception among industry professionals that the EU probe may not lead to any consequential action in the end, much like the 2006 probe by the Federal Trade Commission (FTC) in the US into the phenomenon of ?authorised generics??generics that are exactly the same as branded drugs, made by the manufacturer of the original branded drug but marketed as a generic product. The FTC initiated the probe in 2006, but that has not led to any conclusive results yet. Rather, such settlements keep happening. Out-of-court agreements like Sun Pharma?s settlement with Novartis on Exelon, Ranbaxy?s dispute settlement with Astellas and Boehringer Ingelheim over Flomax, are some recent examples.
Second, the very nature of the pharmaceutical business leads to constant issues and litigations between original innovators and generic players, something which regulatory authorities are quite sensitive about. The pharmaceutical industry remains one of the most regulated sectors on the globe, and the business of big pharma companies is driven by innovative and patented products. An entry into the regulated markets calls for challenging the patents of existing drugs, and generic firms vie to benefit from the first mover advantage. At the same time, it is in the interest of the innovative companies to delay generic entry, and the US allows the manufacturer of a brand name drug to put an authorised generic on the market from day one after the patent expiry of the brand name drug.
The EU Competition Commission had made it clear that its probe is largely in areas of ?uncertainty? in settlement agreements between generics and pharmaceutical companies and not at ?genuine? patent disputes. It has said its inquiry will ?complement, not challenge, intellectual property law, as both systems share the objectives of fostering innovation, and increasing consumer welfare.? Therefore, a drastic move from the part of the EU is not expected by many. This should leave open a window of possibility for generic firms to still pursue out of court settlement opportunities.
Third, in the current context, it has not been conclusively proved that there has been a deliberative anti-competitive behaviour on part of these companies. Moreover, the European Competition Commission has been examining such cases not just in pharmaceuticals.
What this also points to is the increased interest of a highly regulated market like the EU towards promoting generics. Countries in the EU are aggressively pushing the use of generics. The EU generics market is expected to grow from $18.7 billion in 2006 to $30.2 billion in 2011, at a CAGR of 10%. The major generics markets there include the UK, Germany, France, Spain and Italy. In these countries, governments are taking measures to encourage doctors prescribe generic medicines, pharmacists to distribute generics and consumers to recognise the value of these medicines and accept them. Competitive pricing structures are also established to promote generics. Germany, the largest generics market in the EU with a market size of $7 billion, for instance, has made generics substitution by the pharmacist made compulsory, and has altered reference pricing and prescription frequency to favour generics usage. UK, the second largest, has encouraged the practice of prescribing by the international non-proprietary name or the generic name. UK has also set targets for generics prescription. Similarly, France has set generic utilisation targets. With these measures already in place, it will not be surprising to see the EU continue to put pressure on MNCs to prevent purposeful delaying of generics entry into that market.
?mg.arun@expressindia.com