The European Commission has launched its latest sector inquiry with dawn raids at the premises of several leading pharmaceutical companies. Financial services, energy and telecoms have already been put under the competition spotlight, and it is now the turn of the pharmaceutical sector to be put under intense European scrutiny.

Why Pharmaceuticals?

The Commission is concerned about the significant reduction in the number of novel medicines being brought to the market. The number of innovative medicines being introduced to the market has dropped from 40 between 1995 and 1999 to just 28 between 2000 and 2004. There are similar concerns about generic products and the amount of time these products are taking to reach the consumer.

This is not the first time the pharmaceutical industry has been investigated, with AstraZeneca receiving a €60 million fine in 2005 for abusing the patent systems in order to delay market entry of generic anti-ulcer medicines. With €200 billion being spent on pharmaceuticals in the EU each year, Competition Commissioner Neelie Kroes believes that this sector inquiry will make a significant difference to the lives of individuals and will "benefit every European citizen". She further comments that effective competition in the pharmaceutical market is essential to providing access to state of the art medicines at affordable prices.

The Inquiry

The Commission believes it is necessary to examine the agreements between pharmaceutical companies, including patent dispute settlements, to identify whether there are any competition concerns. The Commission is also concerned that companies may have used patent rights, vexatious litigation or other means to effectively create barriers to product entry. The dawn raids therefore mark just the beginning of a long inquiry, and will be followed by calls for further information from pharmaceutical companies before the publication of a preliminary report, planned for autumn 2008.

Dawn Raids

This is the first time unannounced inspections have been used to launch a sector inquiry. The Commission has defended its actions, commenting that the procedures were necessary due to the type of information involved. Intellectual property rights, litigation and settlement agreements are regarded as highly confidential information and have the ability to be easily withheld, concealed or destroyed should the relevant companies be given warning of an inquiry. Although the Commission is refusing to reveal the names of the raided companies, Pfizer, GlaxoSmithKline and AstraZeneca are among the companies to have admitted their involvement in the investigations. The Commission is, however, keen to state that none of the companies have been accused of any wrongdoing at this stage of the investigation.

Over Regulation?

Comparisons have been drawn with the US pharmaceutical market, where the prices of generic medicines are much more heavily discounted. It is important, though, to take into account the level of regulation in Europe compared to that of America. The tight regulations in place in the European Union have been criticised as overbearing and may be seen as stifling the entry of new products on the market. While the Commission accepts that regulation may have a part to play, it nonetheless believes that this alone cannot account for the current restrictions in the market. A full sector inquiry is therefore required in order to identify and cure any ailments in the pharmaceutical industry.