The European Commission has published its final report on the pharmaceutical sector inquiry, in which it concludes that there are a number of shortcomings in the way the market operates which require further action. The Commission confirmed its findings in its preliminary report that market entry of generic drugs is delayed and that there is also a decline in the number of novel medicines being brought to the market. The final report identifies both company practices and shortcomings in the patent and regulatory framework as causes of delay of generic drugs. The proposed remedies therefore consist of a combination of increased competition law enforcement as well as a number of regulatory measures to improve the functioning of the market to the benefit of consumers. The report also calls for the urgent establishment of a Community patent and unified patent litigation system and asks Member States to accelerate the approval procedures for generic medicines.


The findings of the Commission in the final report do not add much to those outlined in the preliminary report of November 2008. Originator companies will, however, welcome the Commission's recognition of the role of the patent and regulatory systems in the delay of generic market entry.

The final report highlights a number of practices adopted by originators about which the Commission has concerns (the Commission did not examine whether competition between generics is working effectively). However, the Commission acknowledges that use of many of these practices by originators will not necessarily amount to anti-competitive behaviour - this will have to be determined on a case by case basis. Therefore drawing the line between acceptable market behaviour on the one hand and what the Commission considers to be anti-competitive behaviour on the other will remain far from straightforward, particularly on patent filing and enforcement strategies.

Background to the pharmaceutical sector inquiry

The Commission uses sector inquiries (under Article 17 of Regulation 1/2003) where it has concerns that a market is not working effectively and wishes to conduct a further investigation to understand the reasons why. Sector inquiries are therefore, in the first instance, an information gathering exercise that provides the Commission with in-depth knowledge about the markets it has concerns about. The knowledge gained about the market can then form the basis of specific enforcement initiatives at a later stage.

The Commission launched the pharmaceutical sector inquiry by a number of dawn raids at the premises of several large pharmaceutical companies in January 2008, on the basis that there were a number of indications that competition may not be working well in this sector. The inquiry was stated to be focused in particular on two issues:

  • whether certain agreements between pharmaceutical companies, such as settlements in patent disputes, infringe Article 81 EC Treaty (prohibition on anti-competitive agreements); and
  • whether companies may have created artificial barriers to entry, whether through the misuse of patent rights, vexatious litigation or other such practices which may infringe Article 82 EC Treaty (prohibition on abuse of dominance).

The Commission sent substantial questionnaires to approximately 100 producers of originator and/or generic medicines in March and May 2008, as well as numerous supplemental questions on an almost weekly basis thereafter. Approximately 100 questionnaires were also sent to other stakeholders in April and May, including marketing authorisation authorities, companies involved in parallel trade, wholesalers and national competition authorities. Pharmaceutical associations, such as the EFPIA and the European Generics Medicines Association, also sent detailed submissions to the Commission. Preliminary results were published by the Commission in November 2008.

Scope of the inquiry and findings

The inquiry seeks to examine the reasons for the delays in the entry of generic medicines to the market and for the decline in the number of new medicines coming to the market. It does not address competition between generic companies, potential shortcomings in the distribution chain or examine barriers to parallel trade. It is also important to bear in mind that a sector inquiry is an instrument for investigating the commercial practices relevant to an entire sector rather than for identifying individual cases of wrongdoing. The inquiry complements other Commission initiatives in the sector which are aimed at providing patients with safe, effective and affordable medicines while at the same time creating a competitive business environment that stimulates research and innovation.

The final report focuses on three main areas which the Commission concludes are responsible for the shortcomings which prompted the investigation: competition between originator companies and generic companies, competition between originator companies themselves and the regulatory framework.

Competition between originator companies and generic companies

The Commission concludes that originator companies use a variety of instruments to extend the commercial life of their medicines, which contribute to the delay of entry for generic medicines to enter the market. These include:

  • Patent filing strategies: the Commission has found that it has become more common for originator companies to use patent clusters in order to prolong the lifetime of the original patent, which are aimed at delaying or blocking market entry of generic medicines.
  • Patent related exchanges and litigation: the Commission has found that litigation can be an efficient means of creating obstacles for generic companies where it is used as a 'signal' to deter generic entrants rather than on its merits.
  • Patent opposition procedures and related appeal: the Commission has concluded that the length of the opposition and appeal procedures limits the ability of generic companies to clarify the patent situation of potential generic products in a timely manner.
  • Settlements between originators and generics: the Commission found that about half of all settlements restricted the generic company's ability to market the medicine and that some settlements involved direct payments to the generic company for agreeing to limit market entry.
  • Other practices affecting generic entry: these involve intervention before and litigation against the regulatory authorities granting market authorisation and pricing/reimbursement status to generics, claiming that generic products are less safe, less effective or infringe existing patent rights.
  • Life-cycle strategies for follow-on products: the Commission found that originator companies undertake intensive marketing efforts with the aim of switching a substantial number of patients to the new medicine prior to market entry of a generic version of the first generation product. If successful, the likelihood that the generic product will gain significant market share falls significantly.
  • Cumulative use of practices against generic companies: the Commission has found that all these strategies and instruments are sometimes used cumulatively with a view to delay generic entry. The Commission does however recognise that the use of several instruments that are in themselves legitimate does not necessarily render their combination contrary to competition rules. A case specific analysis would be required to establish the precise effects of such conduct on generic entry.

Competition between originator companies

The report also concludes that originator companies engage in defensive patent strategies to block the development of new competing medicines. The report found that the aim of these patents was not to bring a new medicine to the market, but instead to block the development of a competing medicine, by preventing competitors from developing the subject matter of that patent and creating prior art that prevents competitors from getting patent protection for their development. Originator companies may also find their research activities blocked where the patents held by one originator company overlap with the medicines, R&D activities and patents held by another originator company.

In addition, the inquiry confirmed that originator companies enter into settlement agreements with other originator companies in order to resolve patent disputes, oppositions or litigation, most of which include licensing arrangements. The Commission found that many other types of potentially anti-competitive agreements are concluded between originator companies, most of which contain some type of exclusivity provision, such as an exclusive supply obligation, exclusive sourcing, exclusive licensing and/or non-compete provisions with an average duration of eight years.

The regulatory framework

The Commission recognises that the pharmaceutical industry is strongly regulated and that the behaviour of companies therefore needs to be assessed in the context of the existing regulatory framework. For example, there appear to be bottlenecks in the approval and marketing of medicines, which delay entry to the market; there are discrepancies in the assessment criteria and national pricing and reimbursement procedures would also seem responsible for some delay and uncertainty.

This is reflected in the remedies the Commission is proposing which focus both on competition law enforcement and regulatory measures.

Proposed remedies

To address the shortcomings identified by the inquiry the Commission is proposing a series of remedies.

Intensify competition law scrutiny

The Commission states that it will make full use of all its competition law powers, including those relating to merger control and State aid. The inquiry has identified a number of issues which warrant further scrutiny under the competition rules and the Commission will in particular take a close look at any defensive patenting strategies by originator companies that focus on excluding competition and at settlement agreements which limit generic entry. On the same day as it published the final report, the Commission announced that it had opened a formal investigation against Les Laboratoires Servier and several generic drugs companies, on suspicion that they had conspired to delay generic competition to one of Servier's cardiovascular drugs.

Establishment of the Community patent and creation of a unified litigation system

All stakeholders who responded to the Commission's preliminary inquiry expressed strong support for the urgent creation of a single Community patent and a unified specialised patent litigation system. The inquiry has confirmed that these measures would result in significant cost and efficiency improvements, as they would reduce the costs associated with parallel court cases in different jurisdictions and enhance legal certainty by avoiding the potential for inconsistent rulings. The Commission will continue to make all efforts in order to ensure the rapid adoption of these instruments.

Streamlining the marketing authorisation process and improving pricing and reimbursement systems

The Commission broadly places the onus on Member States to address the identified shortcomings in the regulatory framework and confirms that it is prepared to take infringement actions in relation to failures to implement the EU framework in respect of marketing authorisation processes and pricing and reimbursement systems.

As with all sector inquiries, publication of the final report is only the beginning of a period of increased scrutiny of the sector. The Commission will now be able to use the insight it has gained in order to step up its antitrust enforcement. As Mrs Kroes said during the press conference launching the final report:

"The inquiry has told us what is wrong with the sector, and now it is time to act. When it comes to generic entry, every week and month of delay costs money to patients and taxpayers. We will not hesitate to apply the antitrust rules where such delays result from anticompetitive practices. The first antitrust investigations are already under way, and regulatory adjustments are expected to follow dealing with a range of problems in the sector".