[Ip-health] EU court says GSK must not refuse orders to combat parallel trading

[robert weissman]

http://www.forbes.com/markets/feeds/afx/2008/04/01/afx4837638.html

Thomson Financial News
EU court says GSK must not refuse orders to combat parallel trading UPDATE
04.01.08, 6:48 AM ET

BRUSSELS (Thomson Financial) - A top judge at the European Court of
Justice said United Kingdom-based pharmaceutical group GlaxoSmithKline
(nyse: GSK -  news  -  people ) Plc. (GSK) must not refuse cross-border
wholesale product orders in order to combat 'parallel trading'.

The advocate general, delivering a court opinion -- which is non-binding
but gives a good indication of a final court judgment at a later date --
said such activity would constitute an abuse of a dominant market
position and constitute a breach of EU antitrust rules.

Through its unit GSK AEVE, GSK distributes in Greece certain drugs for
which it holds the patent -- Imigran for migraine, Lamictal for epilepsy
and Serevent for asthma.

For a number of years, intermediary wholesalers have been buying those
medicinal products in order to supply the market not only in Greece but
also in Germany and the United Kingdom where the amount reimbursed per
medicinal product is higher than that obtained in Greece, the court
opinion said.

In 2000, GSK changed its system of distribution in Greece, no longer
meeting orders from wholesalers. It supplied hospitals and pharmacies
through a company called Farmacenter A.E.

Before the Greek civil courts, Sot. Lelos and the other wholesalers
maintained that GSK's interruption of supplies, as well as its practice
of trading through Farmacenter, amounted to anti-competitive conduct and
abuse of dominant position.

The Trimeles Efeteio Athinon (Appeal Court of Athens) therefore sought a
preliminary ruling on a number of questions concerning competition law
and the abuse of dominant position, as well as parallel exports of
medicinal products from Greece to other member states.

In Tuesday's opinion, the judge said companies in a dominant position
may 'be entitled to demonstrate the efficiency in (business) terms of
their potentially abusive conduct'.

However, in this case, the judge said that, apart from the description
of the negative consequences of parallel trade, GSK has 'not indicated
any positive aspect resulting from its cutting down on medicinal
supplies to wholesalers'.

The judge rejected the idea of a 'causal link' between the loss of
income because of parallel trading and the producer's reduction of
investment in research and development.

GSK was unavailable for comment.

The European Commission declined to comment on the opinion. A commission
press officer said the EU executive would wait for the final court judgment.

Heinz (nyse: HNZ - news - people ) Kobelt, secretary-general of the
European Association of Euro-Pharmaceutical Companies -- representative
of the pharmaceutical parallel trade in Europe -- said the body welcomed
the opinion.

'We trust now other manufacturers will learn the lesson of this opinion
and stop hindering the free movement of medicines inside the EU,' he said.

Disputes over parallel trading in the sector have been widespread over
many years.

Traders profit by exporting branded drugs from countries where prices
are kept lower, such as Greece, to countries like the UK, where prices
are typically higher. This is designed to foster competition and keep
prices down for consumers.

Through dual pricing, companies can maximise revenue from each market.
Wholesalers are dissuaded from exporting products cross-border, given
the impact on profits.

The drug industry claims parallel trading unfairly dents its profits and
limits the amount of money it can spend on research and development.

However, the wholesalers have asserted that moves by companies to
restrict the practice break competition rules, and could push health
bills up.

simon.zekaria@thomson.com
--

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E.U. adviser says GlaxoSmithKline broke law by not filling Greek orders
By Mike Gordon
Last update: 5:14 a.m. EDT April 1, 2008

  LUXEMBOURG (MarketWatch) -- Drugmaker GlaxoSmithKline PLC violated
European Union antitrust laws when it refused to fill Greek drugs
wholesalers' orders for several medications, an adviser to the bloc's
highest court said Tuesday.

Greek drug prices have long been among the lowest in Europe. Greek drug
wholesalers, taking advantage of this price differential, order large
quantities from manufacturers then re-export them to countries where
prices are higher. In doing so, they benefit from the lack of trade
barriers between E.U. states.

This practice is called parallel importation. The E.U.'s executive body,
the European Commission, has broadly supported parallel importation, in
part to encourage lower drug prices. Drug companies have come into legal
conflict with the commission over various tactics they have used to
restrict parallel trade.

GlaxoSmithKline in November 2000 cut off sales to Greek wholesalers for
three of its products: Lamictal, an anti-epileptic; Imigran, which is
used for migraine relief; and Serevent, an asthma medication. GSK said
the wholesalers' exports had created shortages in Greece.

For three months, GSK sold directly to hospitals and pharmacies. The
company resumed sales to the wholesalers, but only partially filled
their orders, so GSK was only shipping enough medication for the Greek
market.

The wholesalers complained that GSK's actions violated antitrust laws.
GSK argued that because individual E.U. countries dictate different
prices for their medications, they should be allowed to restrict
parallel imports.

"In this case, there are no objective reasons relating to state
intervention in the market which would excuse such conduct," the court's
adviser, Damaso Ruiz-Jarabo said.

Court advisers, known as advocates general, prepare reports on each case
that appears before the European Court of Justice. The court's panel of
judges then rules on the case and though they aren't obliged to follow
the adviser's opinion, they do so in about 80% of the cases they hear.