[Ip-health] FT: Tough Medicine

[Judit Rius Sanjuan]

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Tough medicine

Published: January 17 2008 19:01 | Last updated: January 17 2008 19:01

Neelie Kroes has started the year energetically. First, she launches
an antitrust investigation into Microsoft. Now, Europe=92s competition
commissioner has the pharmaceuticals sector in her sights. Dawn raids
on the world=92s biggest drugs companies show that Brussels wants 2008
to be the year it puts consumers first. This is commendable. There is,
moreover, a case to be answered. But, if drugs prices have been kept
artificially high, it may be unfair to hold manufacturers solely to
blame.

The EU Commission is concerned that the price of medicines is rising,
while innovation declines. It will look at whether drug makers abuse
patent rights to delay the introduction of low-cost generic
alternatives. There are suspicions that manufacturers cut deals with
one generic rival to exclude others and try to extend the life of
intellectual property rights to stifle competition.

This foray into one of the EU=92s most technically regulated industries
is overdue. Since AstraZeneca was fined =8060m in 2005 for abusing
market dominance with an anti-ulcer drug, an inquiry into companies=92
attempts to impede parallel trade and capture markets through their
generic subsidiaries has made sense. It is welcome evidence that,
after Europe=92s eternal constitutional wrangling, the Commission=92s
focus is firmly on public-interest issues.

There are legitimate grounds for concern. The practice of a
pharmaceutical company paying a generic rival to drop a legal
challenge to patents on its drugs is questionable, as is much
litigation by big drugs groups to stall the launch of generics.

Consumers should be told why the prices of generic drugs are not
nearly as steeply discounted as they are in the US when they come off
patent. In some EU countries, where discounting is modest, generic
manufacturers and distributors enjoy fat margins.

The answer may be that collusion between companies keeps prices high.
But the pricing of medicines in much of Europe is more government-
controlled than in the US. Companies may profit from national pricing.
In the UK, where there is a freer approach, competition is more
intense and discounting heavy. Not enough deregulation may be the
bigger problem.

If so, then Ms Kroes=92s tactics may look heavy-handed. The raids,
unprecedented for this kind of inquiry, may have prevented documents
from being destroyed. But there is no suggestion of wrongdoing. If her
worry is a decline in new medicines, there are better ways to
stimulate Europe=92s diminishing role in innovation. She should be
careful that a consumer-first approach does not become a populist one.

Copyright The Financial Times Limited 2008

Judit Rius Sanjuan
Attorney at Knowledge Ecology International
www.keionline.org / www.cptech.org
Phone: +1.202.332.2670, x18
Email: judit.rius@keionline.org