Big Pharma Marketing Practices Under Spotlight as EU Launches Competition Probe

Surprise raids have been carried out at the offices of several major pharmaceutical companies after the European Commission agreed to launch a sector inquiry into competition practices within the industry. Speaking earlier this week, European Commissioner for Competition Policy, Neelie Kroes, said that the aim of the sector inquiry was twofold: to see whether agreements such as patent settlements between drug-makers infringe the European Commission (EC) Treaty's ban on restrictive competition practice, and to assess whether pharmaceutical companies have "created artificial barriers to innovative or generic product entry".

Kroes has insisted that the companies inspected as part of the inquiry had not been targeted due to any specific evidence of corporate malpractice, nor were they suspected of any "wrongdoing". While Kroes refused to publicly name any of the companies approached during the inquiry thus far, the Wall Street Journal reports that AstraZeneca (U.K.), GlaxoSmithKline (U.K.), Johnson & Johnson (U.S.), Merck & Co (U.S.), Novartis (Switzerland), Pfizer (U.S.) and Sanofi-Aventis (France) have all been contacted.

According to Kroes, some 200 billion euro (US$295.7 billion) is spent each year on pharmaceuticals across the 27 member-states of the European Union (EU), but new and innovative treatments are coming to the market at a slower rate than before. In addition, the rate at which generic drug producers are gaining market share is apparently slower than expected at an EU-wide level. With these factors in mind, Kroes's fact-finding mission will continue for over a year, with all affected players urged to contact the Commission with their views on the inquiry as well as drug marketing practices. An interim report is due to be published in the third quarter of the current year, and the final version should be ready by early-to-mid 2009.

Outlook and Implications

Pharmaceutical companies approached during the EC inquiry are not the only ones on which it could eventually have an effect; Kroes has said that any legislative changes made as a result of the inquiry would affect all drug-makers in Europe. Drug companies will have little choice but to accept the investigation and to co-operate to the best of their ability, as it is in their interest to maintain a high level of transparency. Yet these firms will have ready counter-arguments to all of the inquiry's points. The fact that innovative drugs are slower in coming to the market is largely explained by the increasingly astronomical costs—routinely passing the US$1-billion mark—associated with developing and marketing them. The regulatory emphasis in several major European countries is now on marketing genuinely innovative drugs to the market; those that offer a quantifiable therapeutic advantage over existing treatments. These drugs consequently tend to receive more favourable reimbursement levels than so-called "me-too" drugs, which are broadly similar to existing treatments and offer only a small enhancement to patients.

Many Big Pharma companies are having to restructure their R&D operations accordingly, to focus on the most profitable areas of therapeutic research, particularly in fields such as oncology. This investment is coming at a time when a generation of blockbuster drugs is facing patent expiry and subsequent generic competition. While patent protection in the EU remains strong, generics companies are nonetheless within their rights to challenge the validity of a patent before it expires, potentially making brand-name drug companies vulnerable to sales erosion even earlier than expected. From a purely business point of view, Big Pharma players are left with little alternative but to fight the genericisation of their biggest drugs in court.

Conversely, the impact of pro-generics policies has been very noticeable in Western Europe, where markets such as France and Germany support generic substitution at pharmacy level through a variety of policies. In 2006, it was estimated that generics accounted for an average of over 70% of all French prescriptions (see France: 9 January 2007: UNCAM Celebrates as 2006 Generic Substitution Goal Surpassed), while new legislation in Germany has seen generics companies able to negotiate exclusive supply contracts with public health insurance funds for drugs at discounted prices. The move is expected to see a significant uptake in generic medicines in Europe's largest pharmaceutical market (see Germany: 28 December 2007: Generic Substitution Poised for Launch in 2008 Under Germany's Rebate Scheme ). In the United Kingdom, meanwhile, doctors have been encouraged to prescribe generically when possible for years.

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