With Pfizer’s $2.3 billion payment last week to settle fraud charges for marketing practices relating to its drug Bextra, it must be an interesting time to be in the pharmaceutical industry. On the international front, last summer the European Commission completed a study of competition in the pharmaceutical sector in Europe. Although the study is comprehensive in scope, one section focuses specifically on the relation between pharmaceutical companies engaged in research and development (“originator companies”), manufacturers of generic drugs and the patent system.
The most dramatic price competition occurs between originator companies and generics, who seek to sell copies of those formulations at lower prices. Because of a number of mergers over the past several years, there are fewer and larger companies on both sides of the originator-generic equation worldwide. The patent system plays a significant role here too, of course. Originator companies traditionally rely on patents to prevent generic manufacturers from copying the originator’s formulations. Where a patent bars copying, originators are the sole market supplier and can charge higher prices during the patent’s term to recoup research and development expenses needed to discover and formulate a drug. These terms run up to twenty years.
As the executive summary points out, in Europe “(e)nforcing patent rights in court is legitimate and a fundamental right guaranteed by the European Convention on Human Rights: it is an effective means of ensuring that patents are respected.” Nonetheless, the sector inquiry concludes that antitrust enforcement in this industry within the European Community is likely to apply with “increased scrutiny” because of various patenting strategies that appear to delay generic market entry. These include create “thickets” of patents around various drug formulations and other filing strategies that create uncertainty, and therefore delay market entry, of generic competitors. In addition, the summary states:
In approximately half of the settlements in question the generic company’s ability to market its medicine was restricted. A significant proportion of these settlements contained – in addition to the restriction – a value transfer from the originator company to the generic company, either in the form of a direct payment or in the form of a licence, distribution agreement or a “side-deal”.
In response, the Commission will consider “focused monitoring” of patent settlements that delay generic manufacture and contain a “value transfer” from an originator to a generic. Further, the Commission notes that the cumulative effect of mergers, patenting strategies and settlement may be impacting consumer drug prices in Europe. In later postings this week, I’ll summarize some procedural options that the Commission is considering.
Posted by Amy Landers on September 7, 2009 at 11:53 AM