Communication from the Commission - Executive Summary of the Pharmaceutical Sector Inquiry Report {SEC(2009) 952}
Date: 2009-07-08
Institutions: European Commission
Subjects: disclosure of information, generic drug, innovation, marketing, medicinal product, pharmaceutical legislation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.7.2009 
COM(2009) 351 final 

COMMUNICATION FROM THE COMMISSION 

Executive Summary of the Pharmaceutical Sector Inquiry Report 

{SEC(2009) 952}

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COMMUNICATION FROM THE COMMISSION 

Executive Summary of the Pharmaceutical Sector Inquiry Report 

1. 

THE SECTOR INQUIRY AND THE WIDER CONTEXT 

The  pharmaceutical  sector  is  essential  for  the  health  of  Europe's  citizens  who  need 
access to innovative, safe and affordable medicines. On average approximately € 430 
was  spent  on  medicines  in  2007  for  each  European  and  this  amount  will  likely 
continue to increase as the population in Europe ages. Overall, in 2007, the market 
for prescription and non-prescription medicines for human use in the EU was worth 
over € 138 billion ex-factory and  € 214 billion at retail prices. 

This report is part of well-established Commission policies and initiatives relevant to 
the pharmaceutical sector including the Lisbon Strategy, the Commission's Industrial 
Property  Rights  Strategy1,  the  Communication  on  a  Renewed  Vision  of  the 
Pharmaceutical  Sector2  and  the  Innovative  Medicines  Initiative3.  It  should  also  be 
viewed  in  parallel  with  the  Commission’s  regulatory  activities  addressing,  in 
particular, the safety, quality and efficacy of medicines4, the transparency of national 
pricing  and  reimbursement  procedures5  and  the  protection  of  intellectual  property 
rights.  Indeed,  given  the  importance  of  the  pharmaceutical  industry  for  economic 
growth  and  employment,  as  well  as  its  role  for  public  health,  the  Commission  is 
committed to pursuing policies that create an environment conducive to ensuring the 
viability of this sector. 

The  sector  inquiry  therefore  ties  in  with  other  Commission  initiatives  aimed  at 
providing European patients with safe, effective and affordable medicines, while at 
the  same  time  creating  a  business  environment  that  stimulates  research,  boosts 
valuable innovation and supports the competitiveness of the industry6. 

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the  European  Communities  represented  by 

Commission  Communication  of  16  July  2008  on  an  Industrial  Property  Rights  Strategy  for  Europe  - 
COM(2008) 465. 
See, in particular, Commission Communication of 10 December 2008 - COM(2008) 666, 10.12.2008: 
Safe, Innovative and Accessible Medicines: A Renewed Vision for the Pharmaceutical Sector. 
The Innovative Medicines Initiative is a Public-Private Partnership (PPP) between the pharmaceutical 
industry  represented  by  the  European  Federation  of  Pharmaceutical  Industries  and  Associations 
(EFPIA)  and 
the  European  Commission.  See: 
http://imi.europa.eu/index_en.html. 
See, for instance, Regulation (EC) No 726/2004 and Directive 2004/27/EC of the European Parliament 
and of the Council of 31 March 2004 amending Directive 2001/83/EC. 
Directive  89/105/EEC  of  21  December  1988  relating  to  the  transparency  of  measures  regulating  the 
pricing  of  medicinal  products  for  human  use  and  their  inclusion  within  the  scope  of  national  health 
insurance systems. 
See, further to the above, the High Level Pharmaceutical Forum 
(http://ec.europa.eu/pharmaforum/docs/final_conclusions_en.pdf),  as  well  as  the  ongoing  market 
monitoring reviews. 

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The Key Role of Innovation 

Innovation is of key importance for the pharmaceutical sector. Innovation in human 
medicines has enabled patients to benefit from treatments that were unimaginable a 
few  decades  ago.  Moreover,  the  lack  of  adequate  treatment  for  many  diseases 
requires  continuous  innovative  efforts  in  order  to  find  new  medicines.  Without  the 
very  significant  R&D  efforts  of  originator  companies  and  other  stakeholders  (e.g. 
universities) these benefits would not be possible. 

Intellectual  property  rights  are  a  key  element  in  the  promotion  of  innovation.  The 
protection of intellectual property rights is important for all sectors of economic life 
and is paramount to Europe’s competitiveness. However, it is particularly important 
for  the  pharmaceutical  sector  because  of  the  necessity  to  address  current  and 
emerging  health  problems  and  the  long  life  cycle  of  products  (including  long 
development  periods).  The  pharmaceutical  sector  in  the  EU  indeed  has  one  of  the 
highest  investments  in  R&D  in  Europe  and  relies  significantly  on  intellectual 
property rights to protect innovation. The exclusivity periods granted through patent 
law  and  other  mechanisms  (SPC,  data  exclusivity)  provide  incentives  to  originator 
companies to continue innovating. 

The  Commission,  which  is  committed  to  the  promotion  of  innovation  through 
industrial  property  rights,  including  patents,  as  stated  in  the  2007  Patent 
Communication7 and the above mentioned 2008 Industrial Property Rights Strategy 
Communication, underlines the need for high quality patents granted in efficient and 
affordable  procedures  and  providing  all  stakeholders  with  the  required  legal 
certainty. 

The Need to Keep Public Budgets under Control 

At the same time, it is generally acknowledged that public budgets, including those 
dedicated to cover health expenditure, are under significant constraints. Competition, 
in particular competition provided by generic medicines, is essential to keep public 
budgets under control and to maintain widespread access to medicines to the benefit 
of consumers/patients.  

In  this  context  the  Final  Conclusions  and  Recommendations  of  the  High  Level 
Pharmaceutical Forum8 welcomed the shared understanding among stakeholders that 
pricing  and  reimbursement  policies  need  to  ensure  a.o.  control  of  pharmaceutical 
expenditure  for  Member  States.  In  this  respect  it  was  acknowledged  that  generic 
medicines  provide  an  opportunity  to  obtain  similar  treatments  at  lower  costs  for 
patients  and  payers,  while  liberating  budgets  for  financing  new  innovative 
medicines9.  As  stated  in  the  Communication  on  a  Renewed  Vision  of  the 
Pharmaceutical  Sector10,  "[m]any  Member  States  recognise  that  generic  medicines 
play  an  important  role  in  helping  to  limit  their  healthcare  expenditure  in  their 

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Commission Communication « Enhancing the patent system in Europe » - COM(2007) 165. 
http://ec.europa.eu/pharmaforum/docs/final_conclusions_en.pdf. 
High Level Pharmaceutical Forum: Guiding principles for good practices implementing a pricing and 
reimbursement policy (http://ec.europa.eu/pharmaforum/docs/pricing_principles_en.pdf). 
Commission  Communication  of  10  December  2008  -  COM(2008)  666,  10.12.2008:  Safe,  Innovative 
and Accessible Medicines: A Renewed Vision for the Pharmaceutical Sector. 

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reimbursement  and  prescribing  practices.  Competition  with  off-patent  products 
enables  sustainable  treatment  of  more  patients  with  less  financial  resources.  The 
generated  savings  create  financial  headroom  for  innovative  medicines.  All  actors 
should therefore ensure that generics can enter the market after expiry of patent and 
data exclusivity protections and compete effectively". 

In  particular  generic  medicines  should  reach  the  market  without  unnecessary  or 
unjustified delay. Member States that want to fully benefit from the potential budget 
savings  brought  about  by  generic  products  also  need  to  reflect  about  policies  that 
facilitate  speedy  generic  uptake  in  volume  terms  and  effective  price  competition 
among generic producers. 

Recent Changes in the Sector 

industry 

The  pharmaceutical 
significant  changes.  Several 
is  undergoing 
"blockbuster"  medicines  (i.e.  medicines  whose  annual  global  turnover  exceeds 
US$ 1 billion), which account for a substantial part of the sales and profits of large 
originator companies, have lost patent protection in recent years and more will do so 
in the coming years. At the same time, in spite of increasing investments in R&D, it 
appears to be a challenge for originator companies to refill the product pipeline and 
the number of novel medicines reaching the market has been decreasing. Combined 
with  other  factors,  this  makes  originator  companies  increasingly  dependent  on  the 
revenues  from  their  existing  best-selling  products  and  they  inevitably  wish  to 
maintain these for as long as possible. In some years the decline in novel medicines 
reaching the market will also affect the generic industry, which will have less generic 
products to launch. 

An  intensified  consolidation  in  the  sector  has  been  observed  in  recent  years. 
Originator  companies  have  undertaken  various  acquisitions  of  both  originator 
companies  and  generic  companies.  Smaller  originator  companies,  often  biotech 
based,  can  deliver  potential  novel  medicines  to  fill  the  gap  in  the  pipeline  of 
originator companies. In parallel, many larger originator companies are investing in 
the  growing  generics  market  by  taking  over  generic  players.  This  helps  them  to 
diversify  their  risk  structure  and  can  create  opportunities  to  enter  into  new 
geographic  markets.  Finally,  various  mergers  have  taken  place  between  generic 
companies,  which  may  be  driven  by  considerations  on  economies  of  scale  and 
opportunities in new geographic markets. The aim of merger control in the EU is to 
allow  these  types  of  consolidation  as  long  as  they  do  not  result  in  a  significant 
impediment to effective competition.  

Scope of the Inquiry 

Given the importance of  a well-functioning pharmaceutical sector and the presence 
of certain indications that competition in the pharmaceutical market in the European 
Union  might  not  be  working  well,  the  Commission  launched  a  sector  inquiry  into 
pharmaceuticals  on  15 January 200811.  In  particular,  the  inquiry  sought  to  examine 
the reasons for observed delays in the entry of generic medicines to the market and 

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Commission Decision of 15 January 2008 initiating an inquiry into the pharmaceutical sector pursuant 
to Article 17 of Council Regulation (EC) No 1/2003 (Case No COMP/D2/39.514). 

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the  apparent  decline  in  innovation  as  measured  by  the  number  of  new  medicines 
coming to the market. Sector inquiries allow the Commission to gather information 
for giving effect to Articles 81 and 82 of the EC Treaty.  

Taking into account that sector inquiries are a tool under EC competition law12, the 
inquiry's  main  focus  is  company  behaviour.  The  inquiry  concentrates  on  those 
practices which companies may use to block or delay generic competition as well as 
to  block  or  delay  the  development  of  competing  originator  products.  The  primary 
focus  of  the  inquiry  is  thus  the  competitive  relationship  between  originator  and 
generic companies and amongst originator companies. To this end the Commission 
selected  43 originator  companies  and  27 generic  companies  for  in  depth  analysis. 
They represent 80 % of the relevant turnover in the EU and are typically larger scale 
companies active in more than one Member State. 

As  the  industry  is  strongly  regulated  and  the  behaviour  of  companies  needs  to  be 
assessed in the context of the existing regulatory framework, the sector inquiry also 
looked in broad terms at aspects of the regulatory framework, its implementation and 
alleged shortcomings reported by stakeholders. In this respect it concentrated on the 
legislation  governing  patents,  marketing  authorisations  and  pricing  and 
reimbursement. 

Product  scope:  The  inquiry  concerns  prescription  medicines  for  human  use. 
Medicines  sold over the counter (OTC), medicines for  animal use, medical devices 
and  health  services  are  not  subject  to  the  inquiry.  A  sample  of  219 substances  was 
selected for the in-depth investigation. The selected molecules accounted for nearly 
50% of the overall turnover of prescription medicines in the EU in 2007.  

Geographic  scope:  The  geographic  scope  of  the  inquiry  is  the  27 Member  States 
currently forming part of the European Union. For certain sections the analysis was 
limited  to  a  more  narrow  selection  of  Member  States.  A  comparison  with  other 
geographic regions was only possible to a limited extent. This also implies that the 
inquiry and its findings have mainly relevance for the EU and, as such, its findings 
cannot be extrapolated to other areas of the world with diverging regulatory regimes, 
e.g. on intellectual property rights.  

Time scope: The period of inquiry is 2000 to 2007, but for certain sections updates 
up  to June 2008 were  requested.  It has to be kept in mind that during this period a 
number of changes occurred, such as the enlargement of the European Union to 25 
and later to 27 Member States. Moreover significant changes in the pharmaceutical 
regulatory  framework  entered  into  force  in  2005,  which  had  a.o.  the  objective  to 
facilitate  generic  entry13,  e.g.  the  introduction  of  the  so  called  Bolar14  provision. 

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Article  17(1)  1st  paragraph  of  Council  Regulation  1/2003  reads:  "Where  the  trend  of  trade  between 
Member States, the rigidity of prices or other circumstances suggest that competition may be restricted 
or distorted within the common market, the Commission may conduct its inquiry into a particular sector 
of  the  economy  or  into  a  particular  type  of  agreements  across  various  sectors.  In  the  course  of  that 
inquiry,  the  Commission  may  request  the  undertakings  or  associations  of  undertakings  concerned  to 
supply the information necessary for giving effect to Articles 81 and 82 of the Treaty and may carry out 
any inspections necessary for that purpose." 
See,  for  instance,  Directive  2004/27/EC  of  the  European  Parliament  and  of  the  Council  of  31  March 
2004 amending Directive 2001/83/EC. 

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Some  of  the  new  rules  (namely  the  new  harmonised  rules  on  data  and  marketing 
exclusivity) will only take effect in practice in 2013 as the new periods of protection 
apply to originator products applied for and authorised after the coming into effect of 
these rules in 2005. 

Terminology:  In  order  to  fully  capture  the  competitive  process  from  a  commercial 
perspective,  the  report  makes  use  of  the  industries'  terminology  and  concepts  to 
describe certain types of patents, products and related strategies. It is underlined that 
these terms and concepts are not defined in patent legislation. By using them in the 
context  of  the  inquiry  it  is  not  intended  to  suggest  that  these  terms  and  concepts 
should be relevant under patent law. With the same token no negative connotations, 
in  particular  with  regard  to  terms  like  "primary"/"secondary"  patents,  "defensive 
patenting" and "patent clusters" or "patent thickets" is intended, as applications are to 
be evaluated on the basis on the statutory patentability criteria (i.e. novelty, inventive 
step  and  industrial  applicability),  and  this  is  irrespective  of  the  stage  in  which 
applications  are  made,  the  intent  of  applicants  in  applying  for  patent  rights  or  how 
the patents are addressed in the company's internal strategy documents. The notion of 
“secondary patent" should therefore not be understood to mean that these patents are 
of a lower quality or value, but merely that – from a time perspective – they follow 
the  primary  patent.  As  regards  defensive  patenting,  it  is  an  inherent  feature  of  a 
patent  system  to  grant  exclusive  rights.  The  notion  of  "defensive  patents"  should 
therefore not be understood to mean that these patents are of a lower quality or value, 
but it tries to capture a classification made in industry for this type of patents from a 
commercial perspective. 

Issues  only  partly  covered  or  not  covered:  In  line  with  the  opening  decision  the 
inquiry  does  not  address  in  detail  potential  shortcomings  in  the  distribution  chain, 
which  is  currently  subject  to  a  market  monitoring  exercise15.  Nor  does  it  address 
barriers to parallel trade in the pharmaceutical sector16. Competition between generic 
companies, which broadly speaking takes place on the basis of price, was not in the 
focus of the sector inquiry, as any price fixing and/or market allocation agreements 
between competitors would be caught by Article 81 EC and the inquiry was - under 
the present circumstances – not deemed to be the adequate tool to analyse potential 
shortcomings  in  this  part  of  the  market.  However,  national  policies  that  have  an 

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Article 10(6) of Directive 2001/83/EC as amended by Directive 2004/27/EC: this provision was to be 
transposed by Member States by 31 October 2005. Prior to the introduction of the Bolar provision in the 
EU regulatory framework, pre-patent-expiry development was not regulated at EU level. Consequently, 
generic manufacturers carried out their product development and related testing in countries where the 
basic patent had already expired or where such protection did not exist, outside the EU or in European 
countries where a Bolar-type provision existed or in EU Member States where experimental work was 
in certain cases permitted (cf. section B.2.2.1 of the technical annex). 
See:  Commission  Staff  Working  Document  on  'Market  Monitoring:  State  of  Play  and  Envisaged 
Follow-Up',  at:  http://ec.europa.eu/economy_finance/publications/publication13688_en.pdf  (see 
in 
particular  Section 4  par.  5 on  monitoring  the  retail  sector);  Commission  Staff Working  Document  on 
at: 
'The 
http://ec.europa.eu/internal_market/strategy/docs/smr_oneyear_en.pdf (see in particular p. 11 par. 3 and 
the following box on market monitoring as part of the follow-up to the 2007 Single Market Review). 
See on the application of competition law to parallel trade in the pharmaceutical sector the judgment of 
the ECJ of 16 September 2008 (Joined Cases C-468/06, C-469/06, C-470/06, C-471/06, C-472/06, C-
473/06, C-474/06, C-475/06, C-476/06, C-477/06, C-478/06 Sot. Lélos kai Sia). See also pending Case 
C-501/06 P GlaxoSmithKline Services v Commission. 

Review: 

Market 

Single 

year 

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impact on generic uptake and prices are addressed in the report. Finally, as the legal 
basis for launching a sector inquiry is EC competition law, the sector inquiry did not 
analyse which other important factors – apart from company behaviour – could have 
contributed  to  a  decline  in  innovation  as  measured  by  fewer  novel  medicines 
reaching  the  market.  Reasons  given  by  the  industry  include  increased  scientific 
complexities,  high  attrition  rates  in  late  state  development  due  to  regulatory  risk 
aversion and uncertainty about financial awards. 

Market monitoring in the pharmaceutical sector: In addition to the sector inquiry, the 
Commission currently carries out further monitoring of the pharmaceutical sector17, 
whose  objective  is  to  provide  a  comprehensive,  comparative  and  macro-level 
analysis  of  the  EU  market  for  pharmaceuticals.  These  market  monitoring  exercises 
will  cover  some  of  the  areas  not  addressed  by  the  sector  inquiry  such  as  the 
distribution chains or trends in access to medicines or trends in innovation spending 
in the EU. 

Competition  law  guidance:  It  is  important  to  underline  that  –  whilst  the  report 
primarily  analyses  company  behaviour  –  it  does  not  identify  individual  cases  of 
wrongdoing or provide any guidance on the compatibility of the practices examined 
with  the  EC  competition  rules.  It  provides  the  Commission  however  with  relevant 
context and a factual basis for deciding whether  and  what  further  action  is  needed, 
including enforcement action. 

Steps of the inquiry 

Following  the  launch  of  the  inquiry  the  Commission  services  carried  out  upfront 
inspections  and  gathered  data  and  other  information  on  the  basis  of  requests  for 
information from a wide range of stakeholders, most prominently from the selected 
originator and generic companies. 

The  Commission  also  consulted  widely  with  stakeholders  such  as  industry 
associations,  representatives  of  consumers  and  patients,  insurance  companies, 
associations of doctors, pharmacists and hospitals, the European Patent Office (EPO) 
and  national  patent  offices,  national  competition  authorities,  and  other  national 
authorities.  

The  Commission  presented  its  Preliminary  Report  on  the  pharmaceutical  sector 
inquiry18 on 28 November 2008. It reached the preliminary conclusion that behaviour 
and practices of the originator industry contributed to generic delay as well as to the 
difficulties  in  innovation  while  pointing  to  the  existence  of  other  possible  factors, 
such as regulation in the sector. 

In the framework of the public consultation on the report, more than 70 submissions 
from interested parties were received19. Stakeholder responses in summary are: 

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See:  Commission  Staff  Working  Document  on  'Market  Monitoring:  State  of  Play  and  Envisaged 
Follow-Up',  at:  http://ec.europa.eu/economy_finance/publications/publication13688_en.pdf  (see 
in 
particular section 4 par. 6 on the pharmaceutical sector). 
Pharmaceutical Sector Inquiry, Preliminary Report, DG Competition Staff Working Paper, 28.11.2008. 
The 
at: 
versions 
http://ec.europa.eu/competition/consultations/2009_pharma/index.html. 

non-confidential 

responses 

available 

these 

are 

of 

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Consumer  representatives,  the  generic  industry  and  the  health  insurance  sector 
underline  the  uniqueness  of  the  report  and  submit  that  the  findings  confirm  their 
concerns that generic entry is not occurring as quickly as it should and that less novel 
medicines  reach  the  market  addressing  unmet  patients’  needs.  They  call  for  urgent 
action to remedy the problems highlighted in the preliminary report. 

Originator industry representatives, partly supported by representatives of law firms 
and  patent  attorneys, by  numbers  the largest amount of submissions,  argue that the 
Preliminary  Report  does  not  provide  evidence  that  companies'  practices  hinder 
innovation, which leads to a decline in innovation. They also suggest that delays to 
generic  entry  cannot  be  attributed  to  the  behaviour  of  originator  companies,  but 
consider factors related to the regulatory framework to be most important for delays. 
They  finally  suggest  that  the  Commission  should  investigate  other  shortcomings  in 
the market, e.g. the alleged lack of competition between generic companies. 

The European Patent Office provides input on the functioning of the European patent 
system and draws attention to the line between IP law and competition law as drawn 
by  the  ECJ.  In  particular,  it  argues  against  a  scrutiny  of  the  intent  of  applicants  in 
applying for patent rights for purposes of competition law. 

Despite the differences in views on some of the findings set out in the Preliminary 
Report,  there  is  broad  consensus  among  stakeholders  on  the  need  to  establish  a 
Community patent and for a unified specialised patent litigation system in Europe. 

The key findings of the sector inquiry can be summarised as follows.  

2. 

MARKET CHARACTERISTICS AND IMPACT OF GENERIC ENTRY 

2.1.  Main Market Features 

2.1.1.  Market Structure 

The pharmaceutical sector is highly regulated and R&D driven. On the supply side, 
there  are  two  types  of  companies.  Originator  companies  are  active  in  research, 
development, management of the regulatory process for new products including the 
clinical  trials  needed  for  marketing  authorisation,  manufacturing,  marketing  and 
supply  of  innovative  medicines.  Their  products  are  usually  subject  to  patent 
protection, which, on the one hand, provides a compensation for the often very high 
costs  spent  on  innovation  and,  on  the  other  hand,  makes  information  on  inventions 
public.  The  protection  is  limited  in  time,  encouraging  the  company  to  bring  the 
innovation to market as quickly as possible and ensuring that the company continues 
to  innovate  and  bring  forward  future  innovative  products.  The  second  category  of 
companies, manufacturers of generic products, can enter the market with medicines 
that are equivalent to the original medicines, upon patent expiry of the pre-existing 
original  products  and  when  the  data  exclusivity  period  for  the  originator  product 
expired. Their prices are typically much lower than those of the originator products. 
This helps containing public health budgets and ultimately benefits consumers. The 
market share of generic medicines varies significantly between Member States. 

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From 2000 – 2007 originator companies spent on average 17% of their turnover from 
prescription  medicines  on  R&D  worldwide20  (approximately  1.5%  of  turnover  was 
spent  on  basic  research  to  identify  potential  new  medicines  and  15.5%  of  turnover 
was  spent  on  developing  the  identified  potential  medicines  through  trials  into 
products  sufficiently  safe  and  efficacious  to  be  marketed)21.  Expenditure  on 
marketing and promotional activities accounted for 23% of their turnover during the 
period.  In  the  year  2007  manufacturing  costs  accounted  for  21%  of  originator 
companies' total turnover. Originator companies rely, to a significant degree, on the 
acquisition  of  compounds  from  third  parties.  In  2007  about  35%  of  originator 
companies' molecules where marketing authorisation was pending had been acquired 
or  in-licensed.  Some  of  these  third  parties  are  small  and  medium  sized  enterprises, 
e.g. in the biotechnology sector. The largest cost block of generic companies in 2007 
was  manufacturing  (51%),  followed  by  marketing  (13%)  and  R&D  activities  (7%), 
showing their different cost structure. 

On  the  demand  side,  the  pharmaceutical  sector  is  unusual  in  that,  for  prescription 
medicines, the ultimate consumer (the patient) is not the decision maker. Decisions 
are  generally  made  by  the  prescribing  doctors,  and  in  certain  Member  States,  the 
pharmacist  also  plays  a  role.  Yet,  neither  the  patient,  nor  the  prescriber  or  the 
dispenser  directly  bear  most  of  the  costs,  as  these  are  generally  covered  and/or 
reimbursed  largely,  or  even  wholly,  by  national  health  (insurance)  schemes.  The 
pharmaceutical  sector  is  also  unusual  in  that  prices  are  most  often  the  result  of  a 
regulated  decision-making  process,  involving  nevertheless  negotiations  between 
stakeholders. Where this is not the case, i.e. in countries with so-called free pricing, 
prices  are  dependent  on  the  regulated  reimbursement  decisions.  Because  of  this 
structure,  doctors,  pharmacists  and  patients  are  usually  not  very  price  sensitive  for 
prescription  medicines,  although  various  mechanisms  to  control  prescription 
medicine budgets do exist22. 

2.1.2. 

Impact of Generic Entry 

The sector inquiry looked at the economic conditions surrounding generic entry. The 
inquiry found that about half of the medicines subject to in depth investigation faced 
generic  entry  within  the  first  year  after  loss  of  patents  (including  SPC)  and  data 
exclusivity (EU average). Measured in value terms, these medicines represent about 
70% of sales (sales value in the year of expiry). 

It  took  more  than  seven  months,  on  a  weighted  average  basis,  for  generic  entry  to 
occur  once  originator  medicines  lost  exclusivity.  For  the  highest  selling  medicines, 
for  which  rapid  entry  matters  most,  it  took  four  months  on  average  before  market 
entry23.  However,  considerable  variations  exist  across  Member  States  and  across 
medicines. 

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22 

23 

The originator companies subject to the inquiry confirmed in the course of the sector inquiry that they 
carry out research on a global scale. 
This figure includes failed R&D efforts. 
This  factor  has  to  be  kept  in  mind  when  comparisons  are  made  to,  for  example,  the  United  States 
situation, where pricing and regulatory conditions are quite different. 
In those cases where data exclusivity under pharmaceutical law expired after patent protection period 
including SPC (about 7% of the cases in the sample), the above calculations should be considered in the 
light of the legal provisions of Community law on data exclusivity relevant during the period covered 

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Delays are important as the price at which generic companies enter the market was, 
on average, 25% lower than the price of the originator medicines prior to the loss of 
exclusivity. Two years after entry, prices of generic medicines were on average 40% 
below  the  former  originator  price.  Also  the  prices  of  originator  products  appear  to 
drop  following  generic  entry.  The  market  share  (in  volume  terms)  of  the  generic 
companies  was  about  30%  at  the  end  of  the  first  year  and  45%  after  two  years.  In 
other words, any delay will have a significant cost / revenue impact. 

In markets where generic medicines become available, average savings to the health 
system (as measured by the development of a weighted price index of originator and 
generic  products)  are  almost  20%  one  year  after  the  first  generic  entry,  and  about 
25%  after  two  years  (EU  average).  The  inquiry  points  to  considerable  differences, 
however,  in  the  effect  of  entry  of  generics  in  the  various  EU  Member  States  and 
across medicines. 

In relation to a sample of medicines analysed in the period 2000 to 2007, the report 
estimates  that  savings  due  to  generic  entry  could  have  been  20%  higher  than  they 
actually  were,  if  entry  had  taken  place  immediately  following  loss  of  exclusivity. 
According  to  the  in-depth  analysis  of  this  sample,  the  aggregate  expenditure 
amounting  to  about  € 50 billion  for  the  peri od  after  loss  of  exclusivity  would  have 
been about € 15 billion higher without generi c entry (evaluated at constant volumes). 
However, additional savings of some € 3 b illion could have been attained, had entry 
taken place immediately. 

Econometric  analysis  suggests  that  a  number  of  factors  have  an  influence  on  the 
observed  pattern  and  effect  of  generic  entry,  e.g.  the  turnover  of  the  originator 
medicines  before  the  expiry  of  the  patent/data  exclusivity  or  the  regulatory 
environment. For instance, Member States which oblige pharmacists to dispense the 
cheapest  generic  medicines  whenever  possible  appear  to  show  earlier  entry  and 
greater savings for their health budgets. Likewise, generic uptake seems to be faster 
and ultimately generic prices seem to decrease more in Member States which do not 
oblige the generic companies to respect a certain price cap (e.g. a fixed percentage of 
the originator product price). 

3. 

MAIN FINDINGS 

3.1. 

Products and Patents 

The pharmaceutical sector is one of the main users of the patent system. The number 
of pharmaceutical-related patent applications before the EPO nearly doubled between 
2000 and 2007. Patents concerning the active substances are also referred to by the 
industry  as  "primary  patents"  because  they  relate  to  the  first  patents  for  their 

by the inquiry, which in practice would not have allowed for generic market entry at the point of the 
expiry  of  data  exclusivity.  The  rules  were  amended  in  2004  so  that,  as  regards  originator  products 
applied  for  and  authorised  under  the  new  rules,  generic  applications  may  be  submitted  two  years  in 
advance of the loss of exclusivity, but the effects of the amendment will only be felt in 2013 as the new 
periods of protection apply to originator products applied for and authorised after the coming into effect 
of these rules in 2005. It should be kept in mind that the sector inquiry measured the time between loss 
of exclusivity and actual generic market entry; the delays established might have a number of reasons, 
including regulatory factors, logistics etc. 

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medicines. Further patents for such aspects as different dosage forms, the production 
process or for particular pharmaceutical formulations are referred to by the industry 
as "secondary patents"24. In general, blockbuster medicines' patent portfolios show a 
steady  rise  in  patent  applications  throughout  the  life  cycle  of  a  product,  also  after 
product  launch.  Occasionally  they  show  an  even  steeper  increase  at  the  end  of  the 
protection  period  conferred  by  the  first  patent.  In  patent  litigation  cases  originator 
companies often rely on patents that were not yet filed when their product in question 
was launched. 

3.2. 

Competition between Originator and Generic Companies – The Issues 

The findings indicate that originator companies use a variety of instruments to extend 
the commercial life of their medicines. The results of the sector inquiry suggest that 
the behaviour of companies contributes to the generic delay. 

3.2.1.  Patent Filing Strategies 

The  findings  of  the  inquiry  suggest  that  in  recent  years  originator  companies  have 
changed  their  patent  strategies.  In  particular,  strategy  documents  of  originator 
companies  confirm  that  some  of  them  aimed  at  developing  strategies  to  extend  the 
breadth and duration of their patent protection. 

Filing numerous patent applications for the same medicine (forming so called "patent 
clusters"  or  "patent  thickets")  is  a  common  practice.  Documents  gathered  in  the 
course of the inquiry confirm that an important objective of this approach is to delay 
or block the market entry of generic medicines25. 

In  this  respect  the  inquiry  finds  that  individual  medicines  are  protected  by  up  to 
nearly  100 product-specific  patent  families,  which  can  lead  to  up  to  1 300 patents 
and/or  pending  patent  applications  across  the  Member  States26.  Despite  the  lower 
number  of  underlying  patent  families  based  on  EPO  applications,  looking  from  a 
commercial  perspective,  a  challenger  may,  in  the  absence  of  a  Community  patent, 
need  to  analyse  and  possibly  confront  the  sum  of  all  existing  patents  and  pending 
patent applications in those Member States in which the generic company wishes to 
enter27. 

When the number of patents and in particular of pending patent applications is high 
(patent clusters), this can lead to uncertainty for generic competitors – affecting their 

24 

25 

26 

27 

As  pointed  out  above,  patent  law  does  not  make  a  distinction  between  "primary"  and  "secondary" 
patents, and patents need to be evaluated on the basis of the statutory patentability criteria, not on the 
basis of the stage in which applications are made. The notion of “secondary patent” should therefore not 
be understood to mean that these patents are of a lower quality or value, but merely that – from a time 
perspective – they follow the primary patent. 
All  patent  applications  do,  however,  need  to  be  evaluated  on  the  basis  of  the  statutory  patentability 
criteria by the patent offices, not on the basis of underlying intentions of the applicant. For terminology, 
see above. 
The  inquiry  confirmed  that  the  average  number  of  patents  and  patent  applications  for  the  top  selling 
medicines is 140% higher (i.e. 237) than the average of the overall sample (98.5). 
The adverse effects of the current situation would be addressed by the rapid adoption of the Community 
patent and its consequent use by stakeholders. 

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ability to enter the market28. Statements admit in internal documents collected in the 
context of the sector enquiry point at the awareness by patent holders that some of 
their patents might not be strong. 

A  second  instrument  used  by  originator  companies  could  be  identified  as  filing 
voluntary  "divisional  patent"  applications, most  prominently  before  the  EPO  where 
most patent applications in the pharmaceutical sector are filed. Voluntary divisional 
patent applications, which are foreseen in patent law as a legitimate way to split an 
(initial) parent application, cannot extend the content of the original application nor 
the  protection  period.  But  they  can  extend  the  examination  period  of  the  patent 
office,  as  the  examination  of  divisional  applications  continues  even  if  the  parent 
application is withdrawn or revoked, which, under certain conditions, can add to the 
legal uncertainty for generic companies. On 25 March 2009, the EPO took measures 
that limit the possibilities and time periods during which voluntary divisional patent 
applications can be filed29. 

3.2.2.  Patent-Related Exchanges and Litigation 

Enforcing 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.  Like  in  any  other  industry  the  inquiry's  findings  show, 
however,  that  litigation  can  also  be  an  efficient  means  of  creating  obstacles  for 
generic  companies,  in  particular  for  smaller  ones.  In  certain  instances  originator 
companies may consider litigation not so much on its merits, but rather as a signal to 
deter generic entrants. 

Taking  into  account  the  219 molecules  in  the  sample,  originator  and  generic 
companies identified at least 1 300 patent-related out of court contacts and disputes 
concerning  the  launch  of  generic  products  in  the  period  2000  to  2007.  The  vast 
majority  of  disputes  were  initiated  by  the  originator  companies,  which  most  often 
invoked their primary patents, e.g. by sending warning letters. 

The  number  of  patent  litigation  cases  between  originator  and  generic  companies 
increased  by  a  factor  of  four  between  2000  and  2007.  In  total,  698 cases  of  patent 
litigation  between  originator  companies  and  generic  companies  were  reported  in 
relation to the medicines investigated.  

Of  these,  223  cases  were  settled,  and  the  courts  rendered  final  judgements  in 
149 cases.  The  remaining  326  litigation  cases  were  either  pending  or  withdrawn. 
Whilst  the  originator  companies  initiated  the  majority  of  the  cases,  generic 
companies won 62% of the 149 cases. The average duration of the court proceedings 
was  2.8 years,  but  varied  considerably  between  Member  States,  from  just  over  six 
months to sometimes more than six years. 

28 

29 

This  concerns,  for  instance,  cases  where  generic  companies  may  have  concrete  grounds  to  doubt  the 
validity of a particular patent or consider that a pending patent application does not meet the criteria for 
patentability. 
See the Decision of the Administrative Council of the European Patent Organisation of 25 March 2009 
amending  the  Implementing  Regulations  to  the  European  Patent  Convention  (CA/D  2/09)  at: 
http://www.epo.org/patents/law/legal-texts/decisions/archive/20090325.html. 

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In  contrast  to  the  primary  patents  invoked  in  the  pre-litigation  phase,  originator 
companies mainly invoked secondary patents during litigation.  

In  30%  of  the  cases  litigation  was  initiated  between  the  same  parties  in  more  than 
one Member State with respect to the same medicine. In 11% of the final judgments 
reported,  two  or  more  different  courts  in  different  EU  Member  States  gave 
conflicting final judgments on the same issue of patent validity or infringement. 

Originator  companies  asked  for  interim  injunctions  in  255 cases,  and  were  granted 
such  injunctions  in  112 cases.  The  average  duration  of  the  interim  injunctions 
granted  was  18 months.  In  46%  of  the  cases  in  which  injunctions  were  granted  the 
subsequent  court  proceedings  in  the  main  case  ended  either  with  final  judgments 
favourable to the generic company, or settlements which appear to be favourable to 
the  generic  company  as  they  allowed  early  entry  for  the  generic  company  and/or 
foresaw  a  value  transfer  to  it.  In  addition  there  were  a  number  of  further  patent 
settlements,  for  which  a  final  classification  (i.e.  favourable  to  the  generic  or  the 
originator company) was not possible. 

The  total  cost  of  patent  litigation  in  the  EU  relating  to  the  68 medicines  on  which 
litigation  was  reported  for  the  period  2000  –  2007,  is  estimated  to  exceed 
€ 420 million, of which a significant proporti on could have been saved, if the cross-
border  duplication  of  cases  linked  to  the  absence  of  a  Community  patent  and  a 
specialised patent litigation system could have been avoided. 

3.2.3.  Oppositions and Appeals 

The sector inquiry confirms that the opposition rate (i.e. the number of oppositions 
filed  per  100 granted  patents)  before  the  EPO  is  consistently  higher  for  the 
pharmaceutical  sector30  (about  8%)  than  it  is  in  organic  chemistry  (about  4%)  and 
across  all  sectors  (overall  EPO  average:  about  5%).  Based  on  the  information 
gathered,  generic  companies  almost  exclusively  opposed  secondary  patents.  In  the 
cases  where  they  opposed,  generic  companies  prevailed  in  approximately  60%  of 
final decisions rendered by the EPO (including the Boards of Appeal) in the period 
2000 to 2007 and the scope of the originator patent was restricted in another 15% of 
the cases. 

However, on average, it took more than two years to obtain  approximately  80% of 
final  decisions  (including  appeal  procedures).  Whilst  it  is  acknowledged  that 
opposition  and  appeal  procedures  –  from  a  procedural  point  of  view  –  are  separate 
procedures, from a commercial perspective, the time until the final decision is taken 
–  be  it  in  opposition  or  appeal  –  is  relevant.  The  duration  of  the  procedures 
considerably  limits  the  generic  companies'  ability  to  clarify  the  patent  situation  of 
potential generic products in a timely manner31. 

30 
31 

The calculation is based on the closest available proxy for the pharmaceutical sector. 
EPO acknowledges the importance of timely proceedings and recalls its efforts to improve the situation. 
INQUIRY 
See  p.  5  of 
PRELIMINARY  REPORT  –  28  November  2008,  COMMENTS  FROM  THE  EPO"  at: 
http://ec.europa.eu/competition/consultations/2009_pharma/european_patent_office.pdf. 

"EUROPEAN  COMMISSION  PHARMACEUTICAL  SECTOR 

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3.2.4. 

Settlements and Other Agreements 

Patent Settlements 

The inquiry established that between 2000 and June 2008, more than 200 settlement 
agreements were concluded between originator and generic companies. They covered 
some  49 medicines,  of  which  31 medicines  (i.e.  63%)  were  best-selling  medicines 
that  lost  exclusivity  between  2000  and  2007.  The  vast  majority  of  the  settlements 
was  reached  in  the  context  of  litigation  cases32,  the  remaining  settlements  were 
concluded  in  out  of  court  disputes  and/or  in  the  framework  of  opposition 
proceedings. 

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". Direct payments occurred 
in more than 20 settlement agreements and the total amount of these direct payments 
from originator companies to generic companies exceeded  € 200 million. The latter 
type of agreement has attracted antitrust scrutiny in the USA. 

Other Agreements 

Between 2000 and 2007, originator companies and generic companies entered into a 
large  number  of  other  agreements  concerning  the  sale/distribution  of  generic 
medicines.  One  third  of  these  agreements  were  concluded  with  generic  companies 
before the originator company's product lost exclusivity ("early entry agreements"). 
One  cannot  exclude  that  theseagreements  could  be  used  to  anticipate  generic 
competition  or  to  react  to  the  presence  of  a  generic  company.  The  majority  of  the 
early entry agreements contained clauses that provided for a certain type of exclusive 
relationship between the contracting parties. 

Half  of  the  early  entry  agreements  were  concluded  in  the  last  year  before  loss  of 
exclusivity. The duration of these agreements exceeded the date of loss of exclusivity 
on  average  by  more  than  two  years.  For  most  of  those  agreements,  the  generic 
products  were  the  first  generic  products  on  the  market  and,  thus,  were  likely  to 
benefit from certain first mover advantages. 

3.2.5.  Other Practices Affecting Generic Entry 

Apart from originators' medicines obtaining patent protection, all medicines, whether 
originator or generic, need to obtain a marketing authorisation and in most Member 
States also pricing and reimbursement status before they can be put on the market. A 
number  of  originator  companies  intervened  before  marketing  authorisation  and/or 
pricing  and  reimbursement  bodies  when  generic  companies  applied  for  marketing 
authorisation  and  pricing/reimbursement  status  for  their  medicines,  claiming  that 

32 

See section 3.2.2. above. NB: One settlement agreement can relate to more than one litigation case.  

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generic  products  were  less  safe,  less  effective  and/or  of  inferior  quality33.  Certain 
originator  companies  also  argued  that  marketing  authorisations  and/or  obtaining 
pricing  or  reimbursement  status  could  violate  their  patent  rights,  even  though 
marketing authorisation bodies must not take this argument into account according to 
EU legislation. 

From the litigation reported, the claims of these originator companies were upheld in 
only  2%  of  the  cases  concerning  marketing  authorisation,  suggesting  that  the 
arguments  submitted  by  these  originator  companies  in  many  cases  could  not  be 
substantiated.  Originator  companies  had  also  a  low  success  record  in  cases 
concerning data exclusivity, i.e. when they claimed that marketing authorisation for a 
generic  product  cannot  yet  be  granted  due  to  data  exclusivity  rules  protecting  the 
originator  product.  The  final  court  judgements  confirmed  claims  of  originator 
companies in 19% of those cases. 

Intervention and litigation by originator companies in administrative proceedings for 
generic medicines can lead to delays to generic market entry. In relation to a sample 
that was investigated, the inquiry showed that marketing authorisations were granted 
on average four months later in cases in which an intervention took place. The sector 
inquiry  produced  evidence  that  such  practices  generated  significant  additional 
revenues on a number of originator products.  

Originator companies devote a significant part of their budgets to marketing of their 
products with medical doctors and other health care professionals. The sector inquiry 
produced indications that some originator companies sought to put into question the 
quality  of  generic  medicines,  as  part  of  a  marketing  strategy,  and  even  after  the 
generic product was authorised by the relevant authorities and was available on the 
market. 

Finally,  there  are  indications  that  a  number  of  originator  companies  attempted  to 
influence  wholesalers  preparing  for  the  supply  of  generic  products.  Also  some 
generic  companies  complained  about  interventions  at  supply  sources  for  the  active 
pharmaceutical ingredients needed to produce the generic medicines in question. 

3.2.6.  Life Cycle Strategies for Second Generation Products 

Incremental  research  is  important  as  it  can  lead  to  significant  improvements  of 
existing  products,  also  from  the  perspective  of  the  patients.  Amongst  others  these 
may include  the discovery  of new therapeutic uses for  a given product, which may 
represent  important  innovations  in  terms  of  public  health  protection,  or  certain 
categories of changes to the products formulation within the same indication. Patents 
protecting  the  results  of  incremental  research  must  meet  normal  patentability 
requirements of novelty, inventive step, and industrial applicability. In the course of 
the  sector  inquiry  generic  companies  and  consumer  associations  sometimes 
questioned  the  actual  improvement  of  certain  categories  of  changes,  in  particular 
with respect to their therapeutic benefits. 

33 

211  cases  were  reported  whereby  originator  companies  made  claims  regarding  generics  (sometimes 
multiple  claims).  The  claims  were  that  the  generic  products  were  less  safe  (75%  of  the  cases),  less 
effective (30% of the cases), inferior (30%) or subject to counterfeit (1.4%). 

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The  findings  of  the  inquiry  suggest  that  for  40%  of  the  medicines  in  the  sample 
selected  for  in  depth  investigation,  which  had  lost  exclusivity  between  2000  and 
2007,  originator  companies  launched  second  generation  or  follow-on  medicines. 
Nearly  60%  of  the  patent  related  litigation  cases  between  originator  and  generic 
companies  examined  in  the  context  of  the  inquiry  concern  medicines  that  moved 
from first to second generation products.  

The launch of a second generation product can be a scenario in which an originator 
company  might  want  to  make  use  of  instruments  that  delay  the  market  entry  of 
generic products corresponding to the first generation product. The companies have 
an  incentive  to  do  so  in  order  to  avoid  generic  exposure  for  the  second  generation 
product. 

In  this  respect  the  inquiry  indicates  that  in  order  to  successfully  launch  a  second 
generation  medicine,  originator  companies  undertake  intensive  marketing  efforts 
with the aim of switching a substantial number of the patients to the new medicine 
prior to the market entry of a generic version of the first generation product. If they 
succeed,  the  probability  that  generic  companies  will  be  able  to  gain  a  significant 
share of the market decreases significantly. If on the other hand generic companies 
enter  the  market  before  the  patients  are  switched,  originator  companies  may  have 
difficulties  in  convincing  doctors  to prescribe their second generation product or in 
obtaining a high price for the second generation product.  

On average the launch took place one year and five months before loss of exclusivity 
of the first generation product. In some cases the first medicine was withdrawn from 
the market some months after the launch of the second generation medicine. 

3.2.7.  Cumulative Use of Practices against Generic Companies 

Patent  and  other  strategies/instruments  described  above  may  sometimes  be  used 
cumulatively  with  a  view  to  prolonging  the  life  cycle  of  medicines.  The  extent  to 
which  these  instruments  are  used  depends  on  the  commercial  importance  of  the 
medicines.  The  sector  inquiry  shows  that  more  life  cycle  instruments  are  used  for 
best-selling medicines. 

The combined use of life-cycle instruments may increase the likelihood of delays to 
generic  entry.  Delays  due  to  the  use  of  several  instruments  may  sometimes  be 
cumulative.  More  generally,  it  may  significantly  increase  legal  uncertainty  to  the 
detriment of generic entry. In this respect it is recalled that any unwarranted delay is 
not  only  detrimental  to  individual  companies,  but  can  cause  harm  to  public  health 
budgets and ultimately consumers. 

It  should  be  clarified,  however,  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 
company  behaviour  on  generic  entry.  Whilst  such  an  analysis  must  be  left  to 
individual enforcement action where needed, the technical annex to the Final Report 
provides  a  number  of  examples  and  evidence  based  on  concrete  cases  pointing 

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towards such effects without specifying that the behaviour in question is contrary to 
EC competition law. 

3.3. 

Competition between Originator Companies – The Issues 

The  inquiry  also  sought  to  examine  whether  the  behaviour  of  originator  companies 
might  be  among  the  reasons  for  the  difficulties  to  bring  new  medicines  to  the 
market34. 

3.3.1.  Patent Strategies 

Originator  companies  continuously  identify  the  most  promising  patent  strategies  in 
order to protect their assets. This is key for their innovative efforts. In certain cases, 
however,  companies  apply  patent  strategies  which  may 
the 
development  of  a  competing  medicine.  When  such  strategies  mainly  focus  on 
excluding competitors  without pursuing innovative  efforts, they are  called by some 
originator companies "defensive patent strategies"35. 

interfere  with 

Such  "defensive  patent  strategies”  can  serve  several  purposes.  First,  they  create  an 
enforceable right, which may prevent competitors from developing the subject matter 
of  that  patent.  Secondly,  they  create  prior  art  as  soon  as  the  patent  application  is 
published.  Thus  the  development  of  the  published  invention  may  cease  to  be  of 
commercial  interest  to  other  companies  as  they  would  not  be  able  to  get  patent 
protection for their development. 

At the same time some companies disputed these findings and maintained that they 
engage in patenting activities to obtain legitimate business opportunities, e.g. through 
licensing. Furthermore, EPO recalled the policy aspect of dissemination of technical 
information, as third parties remain free to build on the information disclosed in such 
patent applications. 

Originator  companies  also  mentioned  the  possibilities  of  competitors  to  introduce 
voluntary divisional patent applications as an obstacle to their innovative efforts36.  

3.3.2.  Patent-Related Exchanges and Litigation 

In  total,  the  inquiry  reveals  at  least  1 100  instances  where  the  patents  held  by  an 
originator company potentially overlap with the medicines, R&D programmes and/or 

34 

35 

36 

As  indicated  above,  other  factors  quoted  by  the  originator  industry  for  the  decline  in  innovation  as 
evidenced  by  a  decline  of  novel  medicines  reaching  the  market  include  increased  scientific 
complexities,  high  attrition  rates  in  late  stage  development  due  to  regulatory  risk  aversion  and 
uncertainty about the financial rewards. These factors were not subject of the inquiry. 
As stated above, the term “defensive” patents cannot be found in patent law and all patent applications 
need to be evaluated on the basis of the statutory patentability criteria, not on the basis of underlying 
intentions by the applicant. Also it is an inherent feature of a patent system to grant exclusive rights. 
The notion of “defensive patents” should therefore not be understood to mean that these patents are of a 
lower quality or value, but it tries to capture a classification made in industry for this type of patents 
from a commercial perspective. 
For the efforts of the EPO to limit the possibilities of voluntary divisional patent applications see above 
footnote 29. 

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patents  held  by  another  originator  company  for  their  medicine37.  In  these  cases 
originator  companies  might  find  their  research  activities  blocked,  with  detrimental 
effects on the innovation process. 

In many cases originator companies managed to settle potential disputes, for instance 
through  licensing  arrangements.  However,  in  approximately  20%  of  the  99  cases 
where  a  licence  was  requested,  the  requesting  companies  did  not  obtain  a  licence. 
Reportedly,  in  several  cases  this  led  to  the  discontinuation  of  the  R&D  project  or 
required additional efforts to go around the obstacles. 

Whilst  the  selection  of  the  219 molecules  was  largely  based  on  patent  expiries  to 
capture  the  relationship  between  originator  and  generic  companies,  the  inquiry  still 
finds that originator companies engaged in 66 litigation cases against other originator 
companies.  The  patent-related  litigation  concerned  18 medicines.  In  64%  of  the 
cases,  litigation  was  concluded  by  means  of  settlement  agreements.  The  number  of 
cases  where  a  final  judgment  was  reported  was  relatively  low  (thirteen  of  the 
66 cases), with patent holders losing ten of the thirteen cases (77%). 

3.3.3.  Oppositions and Appeals 

Between  2000  and  2007,  relating  to  the  sample  of  medicines  under  investigation, 
originator companies mainly opposed each other's secondary patents. 

The  opposing  originator  companies  were  very  successful  when  challenging  the 
patents of other originator companies. They prevailed in approximately 70% of final 
decisions  rendered  by  the  EPO  (including  the  Boards  of  Appeal).  In  addition,  the 
scope of the patents was reduced in another 19% of the cases. 

3.3.4. 

Settlements and Other Agreements 

The  inquiry  confirmed  that  originator  companies  concluded  settlement  agreements 
with  other  originator  companies  in  the  EU  in  order  to  resolve  claims  in  patent 
disputes,  oppositions  or  litigation.  In  the  period  2000  –  2007,  some  27 settlement 
agreements relating to the sample under investigation were reported. Approximately 
67% of these settlement agreements concerned a licence agreement (including cross 
licensing). 

Besides settlement agreements, the findings of the inquiry also reveal that originator 
companies  concluded  other  types  of  agreements  with  each  other.  In  total,  some 
1 450 originator-originator  agreements  were  reported.  The  majority  of  agreements 
concerned the commercialisation phase rather than the R&D phase. 

81%  of  the  agreements  for  which  the  originator  companies  submitted  a  combined 
market  share  of  the  contracting  parties  exceeding  20%  contained  provisions  that 
provided  for  some  kind  of  exclusive  relationship  between  the  companies,  i.e.  the 
agreements  provided  for  an  exclusive  supply  obligation,  exclusive  sourcing, 
exclusive licensing or any other kind of exclusivity, and/or a non-compete obligation. 

37 

These overlaps are based on information provided by responding originator companies identifying such 
cases. 

EN 

18 

   EN 

 
                                                 
The  average  duration  of  these  agreements  with  an  exclusivity  and/or  non-compete 
obligation was eight years. 

4. 

CONCLUSIONS 

The  sector  inquiry  has  provided  the  Commission  with  reliable  data  on  how 
competition  functions  in  the  pharmaceutical  sector  as  regards  the  competitive 
relationship  between  originator  and  generic  companies  and  amongst  originator 
companies,  quantifying  industry  practices  and  pointing  to  certain  areas  of  concern. 
The  report  clarifies  in  particular  how  industry  operates  in  the  existing  legal 
framework.  The  acquired  knowledge  will  also  benefit  all  other  interested  parties  in 
their understanding of the competitive relationships in the sector. A reliable factual 
basis is indispensable for the Commission to identify specific needs for action and to 
set priorities. Furthermore, national policy makers and public authorities may decide 
to  take  further  action  based  on  the  analysis,  for  instance  in  relation  to  pricing  and 
reimbursement policies. 

Any action by public authorities in the pharmaceutical sector should aim at creating a 
competitive  environment  that  ensures  that  Europe's  citizens  have  access  to 
innovative, safe and affordable medicines without undue delays. In this respect both 
competition law enforcement and regulatory measures can and are to be considered 
to improve the functioning of the market to the benefit of consumers. 

4.1. 

Intensify Competition Law Scrutiny 

Where appropriate, the Commission will make full use of its powers under antitrust 
rules (Articles 81, 82 and 86 of the EC-Treaty), merger control (Regulation (EC) No 
139/2004)38  and  State  aid  control  (Articles 87  and  88  of  the  EC-Treaty).  The 
Commission,  in  close  cooperation  with  the  National  Competition  Authorities,  will 
pursue any antitrust infringement in the sector, wherever required by the Community 
interest. Action can also be taken at national level and in areas which were not the 
primary focus of the inquiry or are outside its scope. 

Market Concentration 

As  described  in  the  Final  Report,  the  pharmaceutical  industry  is  currently  going 
through  a  significant  phase  of  consolidation.  This  includes,  on  the  one  hand,  an 
increasing  concentration  among  (large)  originator  companies  as  well  as  the 
acquisition of biotech companies.  

On the other hand, the generic landscape is undergoing substantial changes also, in 
the form of acquisitions of generic companies by originator companies and through 
merger & acquisition activities within the generic industry.  

The trend towards increased market concentration is followed with attention by the 
Commission and analysis of these merger cases will benefit from the insights gained 
through the sector inquiry so as to preserve a competitive structure and process in the 
market. 

38 

Council Regulation (EC) No 139/2004 of 20 January 2004 (OJ L 24, 29.1.2004, p. 1). 

EN 

19 

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Company Practices 

Promotion  of  innovation  and  driving  economic  growth  are  common  goals  of 
industrial property law and competition law. Innovation constitutes an essential and 
dynamic  component  of  an  open  and  competitive  market  economy.  Intellectual 
property rights promote dynamic competition by encouraging undertakings to invest 
in  developing  new  or  improved  products  and  processes.  So  does  competition  by 
putting  pressure  on  undertakings  to  innovate.  Therefore,  both  intellectual  property 
rights and competition are necessary to promote innovation and ensure a competitive 
exploitation thereof39. If the existence and exercise of an industrial property right are 
not  of  themselves  incompatible  with  competition  law,  they  are  not  immune  from 
competition  law  intervention40.  However,  certain  practices  can  only  be  an 
infringement in exceptional circumstances41. 

The Commission and national authorities have already taken action in a number of 
cases  in  the  past  for  specific  violation  of  competition  law  in  the  pharmaceutical 
sector.  The  decisions  taken  include42:  fines  imposed  on  a  pharmaceutical  company 
by  the  UK  competition  authority  for  selling  its  products  to  hospitals  at  very  low 
prices,  whilst  selling  the  same  products  via  pharmacies  at  very  high  prices  to 
patients,  a  strategy  that  could  be  sustained  as  doctors  were  found  to  be  strongly 
influenced by the brands used in hospitals (NAPP case)43; interim measures granted 
by  the  French  competition  authority  to  a  generic  company  whose  products  were 
systematically  criticised  by  a  competing  originator  company's  sales  staff  even  after 
marketing  authorisation  (Arrow  Génériques  case)44;  the  decision  by  the  Italian 
competition  authority,  in  which  it  was  found  that  the  refusal  of  an  originator 
company  to  grant  a  licence  for  the  production  of  an  active  ingredient,  needed  by 
producers  of  generic  medicines  to  access  national  markets  where  the  originator  did 
not have any exclusive rights, constituted an infringement of Article 82 of the Treaty 
(GSK  case)45;  and  fines  imposed  by  the  Commission  for  the  abuse  of  a  dominant 
position consisting in the misuse of regulatory procedures (AstraZeneca case)46. 

39 

40 

41 

42 
43 

44 

45 

46 

Commission  Notice  –  Guidelines  on  the  application  of  Article  81  of  the  EC  Treaty  to  technology 
transfer agreements (OJ C 101, 27.4.2004, p. 2). 
See Commission Notice – Guidelines on the application of Article 81 of the EC Treaty to technology 
transfer agreements (OJ C 101, 27.4.2004, p. 2). 
See also Judgment of the Court of 27 September 1988, Case 65/86 (Bayer v. Süllhöfer), [1988] ECR, p. 
05249. 
See,  for  instance:  Joined  cases  C-241/91  P  and  C-242/91  Radio  Telefis  Eireann  (RTE)  and 
Independents Television  Publications  (ITP)  v  Commission (Magill) [1995]  ECR  I-743, para. 50;  case 
C-418/01  IMS  Health  v  NDC  Health  [2004]  ECR  I-5039;  case  T-201/04  Microsoft  v  Commission 
[2007] ECR II-3601, in particular paras. 688 et seq. Commission Communication of 16 July 2008 on an 
Industrial Property Rights Strategy for Europe - COM(2008) 465. 
A number of other cases were concluded or are ongoing. 
See  decision  of  the  director  general  of  faire  trading  No  CA98/2/2001  of  30  MARCH  2001,  NAPP 
pharmaceutical 
at: 
(NAPP), 
http://www.oft.gov.uk/shared_oft/ca98_public_register/decisions/napp.pdf). 
See  Judgment  of  the  Cour  de  Cassation  of  13  January  2009,  Pourvoi  no.  P  08-12.510  (press  release 
available at: http://www.conseil-concurrence.fr/user/standard.php?id_rub=211&id_article=865). 
See Decision of Autorità Garante della Concorrenza e del Mercato of 8 February 2006, No 15175 (Case 
A363 - Glaxo-PRINCIPI ATTIVI), available at: http://www.agcm.it/. 
See Commission Decision of 15 June 2005 (Case COMP/A. 37.507/F3 - AstraZeneca); currently under 
appeal before the Court of First Instance (T-321/05). 

subsidiaries 

(available 

holdings 

and 

EN 

20 

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The  sector  inquiry  has  identified  a  number  of  issues  that  warrant  further  scrutiny 
under  the  competition  rules.  The  Commission  in  cooperation  with  the  national 
authorities will not hesitate to make use of its enforcement powers under competition 
law,  where  there  are  indications  of  practices  that  have  the  potential  to  restrict  or 
distort  competition  in  the  market.  The  Commission  also  invites  market  participants 
who suffer from anticompetitive practices or otherwise have information about such 
practices to inform the Commission or the relevant national authorities thereof. 

With  regard  to  competition  between  originator  companies  in  particular,  defensive 
patenting  strategies  that  mainly  focus  on  excluding  competitors  without  pursuing 
innovative efforts and/or the refusal to grant a license on unused patents will remain 
under scrutiny in particular in situations where innovation was effectively blocked. 

As regards competition between originator companies and generic companies, delays 
to generic market entry are a particular point of concern. The possible use of specific 
instruments by originator companies in order to delay generic entry will be subject to 
competition  scrutiny  if  used  in  an  anti-competitive  way,  which  may  constitute  an 
infringement under Article 81 or 82 of the EC Treaty. In the case of clear indications 
that a submission by a stakeholder intervening before a marketing authorisation body 
was  primarily  made  to  delay  the  market  entry  of  a  competitor/applicant,  injured 
parties  and  stakeholders  are  invited  to  bring  relevant  evidence  of  practices  to  the 
attention of the relevant competition authorities. 

Agreements  that  are  designed  to  keep  competitors  out  of  the  market  may  also  run 
afoul  of  EC  competition  law.  Settlement  agreements  that  limit  generic  entry  and 
include  a  value  transfer  from  an  originator  company  to  one  or  more  generic 
companies  are  an  example  of  such  potentially  anticompetitive  agreements,  in 
particular where the motive of the agreement is the sharing of profits via payments 
from originator to  generic companies to the detriment of patients  and public health 
budgets. 

To  reduce  the  risk  that  settlements  are  concluded  at  the  expense  of  consumers,  it 
would  seem  useful  for  the  Commission  to  consider  further  focused  monitoring, 
within  the  context  of  the  existing  legal  framework,  of  those  settlements  with  a 
potential  to  adversely  affect  European  consumers.  This  monitoring  would  have  to 
take duly into account the administrative burden imposed on stakeholders and will be 
limited  in  time  until  the  Commission  has  gathered  sufficient  information  on  the 
subject matter to decide whether further action is needed. 

Any enforcement actions will be initiated on a case-by-case basis and will include a 
thorough examination of the specifics of each case taking into account the legitimate 
objectives to protect innovation and the regulatory framework. 

Specific enforcement action is already underway in a number of cases. For example, 
in November 2008 – outside the sector inquiry – the Commission carried out surprise 
inspections  at  several  companies  in  different  Member  States.  At  the  time  of  the 
publication of this report no final conclusion was reached. 

Other Initiatives 

EN 

21 

   EN 

 
Competition  law  enforcement  by  itself  will  be  an  important  component  for  the 
creation  of  a  more  pro-competitive  environment;  however  it  will  not  be  able  to 
address  all  main  issues  identified.  Stakeholders  made  a  significant  number  of 
comments  on  the  regulatory  framework,  which  they  consider  decisive  for  the 
pharmaceutical sector. The report summarises these comments and proposes possible 
policy  options  as  to  how  the  regulatory  framework  should  evolve  with  a  view  to 
improving  its  functioning  and  minimising  the  risk  of  anti-competitive  behaviour  in 
the  future.  The  most  important  areas  are  patent  law,  marketing  authorisation  rules 
and pricing and reimbursement provisions. 

4.2. 

Rapid  Establishment  of  the  Community  Patent  and  Creation  of  a  Unified 
Litigation System 

All  stakeholders  expressed  strong  support  for  the  urgent  creation  of  a  single 
Community  patent47  and  a  unified  and  specialised  patent  litigation  system48  in 
Europe which are currently under discussion. Rulings by the unified litigation system 
should be swift, of high quality and cost-effective. The results of the inquiry confirm 
that the Community patent and unified litigation system would create significant cost 
and  efficiency  improvements,  in  particular  by  reducing  the  costs  associated  with 
multiple  filings,  by  eliminating  essentially  parallel  court  cases  between  the  same 
parties  in  different  Member  States  and  by  enhancing  legal  certainty  through  the 
avoidance  of  conflicting  rulings.  The  Commission  continues  to  make  all  efforts 
leading to the rapid adoption of these instruments. 

Stakeholders agree on the importance that European - and in the future Community - 
patents granted by the EPO should respond to a high quality standard. Strong support 
was further received by all stakeholders that the EPO should be enabled to accelerate 
procedures  whenever  possible.  Based  on  its  findings  of  the  sector  inquiry,  the 
Commission  supports  the  recent  initiatives  by  the  EPO  to  "raise  the  bar".  In  this 
respect the Commission welcomes the recent decision to limit the time period during 
which the voluntary divisional patent applications can be filed. The Commission also 
supports the EPO in its efforts to shorten the opposition and appeal procedures. 

Regarding the request by the originator industry to introduce so-called "clearing the 
way" mechanisms to solve patent issues before generic market entry, it is not clear 
that  such  new  mechanisms  would  bring  a  positive  added  value  at  this  stage  when 
there  are  still  significant  discrepancies  between  national  legal  systems  (e.g.  on 
duration  of  court  proceedings  or  the  conditions/likelihood  to  obtain  interim 
injunctions). In this light, generic companies should remain able to maintain the first 
mover advantage in relation to other generic competitors, unless an effective national 
system  to  clear  the  way  exists.  In  any  event  the  conditions,  under  which  such  a 
mechanism could be introduced, would need to be studied carefully. 

47 

48 

EN 

The latest draft text of the proposal for a Council Regulation on the Community patent can be found in 
Council Working Document 8588/09 of 7 April 2009, at 
http://register.consilium.europa.eu/pdf/en/09/st08/st08588.en09.pdf. 
The latest text of the Draft Agreement on the European and Community Patents Court and Draft Statute 
can  be 
at 
http://register.consilium.europa.eu/pdf/en/09/st07/st07928.en09.pdf. 

in  Council  Working  Document  7928/09  of  23  March  2009, 

found 

22 

   EN 

 
                                                 
 
4.3. 

Streamlining the Marketing Authorisation Process 

regulatory 

framework 

The  sector  inquiry  does  not  include  within  its  scope  the  in-depth  analysis  of  the 
Community 
for  pharmaceuticals,  which  harmonises 
requirements  for  the  placing  on  the  market  of  medicinal  products  with  the  main 
objective  of  protection  public  health.  However,  it  acknowledges  the  role  played  by 
the  regulatory  environment  as  regards  the  market  access  of  both  originator  and 
generic medicines. In the replies to the consultation, various stakeholders have also 
commented on this legal framework. 

The  Community  rules  on  the  authorisation  of  generic  medicines  and  on  data 
exclusivity  were  substantially  reviewed  in  2004,  and  new  provisions  apply  from 
2005, although some will only show their full effects in some years' time. 

Overall, most stakeholders called for strict implementation and enforcement of both 
the  old  and  new  regulatory  framework.  The  comments  of  stakeholders  received 
during the inquiry will constitute an additional valuable information basis to be taken 
into account by the Commission in the further implementation of its policies in the 
sector. Moreover, the Commission wishes to make the following observations. 

Whilst there is broad consensus amongst stakeholders that – overall – the European 
framework governing marketing authorisation works well, stakeholders report  what 
they  perceive  to  be  shortcomings  in  implementation  that  lead  to  delays  and 
unnecessary administrative burdens for companies.  

The  Commission  will  provide  full  support  to  the  European  Medicines  Agency 
(EMEA)  and  the  national  agencies  to  assess  how  resources  and  capacity  problems 
may be solved within the network of national authorities and invites Member States 
to actively contribute to the efforts for speeding up and streamlining administrative 
procedures  to  reduce  bottlenecks  and  delays.  Moreover,  as  outlined  in  the 
Communication of 10 December 2008 on the future of the pharmaceutical sector, the 
Commission  considers  that  the  network  of  EU  medicines  authorities  requires 
optimisation  to  improve  its  efficiency,  minimise  the  regulatory  burden  it  generates 
and thus speed up market access for medicines. The ongoing EMEA review provides 
a first opportunity for this analysis. 

Stakeholders  also  complained  about  perceived  discrepancies  with  regard  to  the 
national implementation of the EU regulatory framework.  Effective enforcement as 
well  as  several  actions  by  the  Community  institutions  to  remedy  this  situation  are 
underway such as the implementation of the new Regulation on variations49 and the 
ongoing  efforts  in  the  network  of  national  marketing  authorisation  bodies.  Where 
necessary, infringement actions will need to be considered. 

49 

Changes  subsequent  to  the  placing  of  medicines  on  the  EU  market  (e.g.  change  in  the  production 
process, change in the packaging, change in the address of the manufacturer etc.) are called ‘variations’. 
Variations to the terms of a marketing authorisation are subject to the requirements of EU law, currently 
codified in Commission Regulations (EC) No 1084/2003 and (EC) No 1085/2003. From 1 January 2010 
Commission  Regulation  (EC)  No  1234/2008  of  24  November  2008  concerning  the  examination  of 
variations to the terms of marketing authorisations for medicinal products for human use and veterinary 
medicinal products will be applicable (OJ L 334, 12.12.2008, p. 7). 

EN 

23 

   EN 

 
                                                 
The Commission calls upon Member States and national agencies to make better use 
of  the  possibility  of  mutual  recognition  of  marketing  authorisations  by  enhancing 
procedures and reducing administrative burdens on companies, enabling full mutual 
recognition  without  additional 
imposed  on  companies.  The 
requirements 
Commission also underlines the need for stronger coordination between agencies in 
order  to  avoid  as  far  as  possible  discrepancies  in  the  application  of  the  legal 
framework,  making  full  use  of  the  existing  instruments  such  as  the  coordination 
group  for  mutual  recognition  established  by  Directive  2001/83/EC50  or  the  various 
Community  databases  on  medicinal  products  run  by  the  EMEA.  Marketing 
authorisation  bodies  are  encouraged  to  transfer  upon  request  and  without  delay  all 
information  needed  by  pricing  and  reimbursement  bodies  to  avoid  or  at  least  limit 
duplication of efforts. 

Industry, most prominently generic companies, complained about the possibilities of 
originator  companies  to  intervene  in  regulatory  proceedings  before  marketing 
authorisation  bodies  and  reported  about  diverging  approaches  to  the  disclosure  of 
confidential  information  taken  by  different  national  authorities.  The  Commission 
recalls that marketing authorisation procedures are bilateral proceedings between the 
applicant and the administration51. Third party submissions and even less so formal 
interventions  during  the  assessment  of  an  application  for  a  marketing  authorisation 
are not foreseen in Community pharmaceutical legislation. However given the duty 
of  the  competent  authorities  to  consider  any  information  which  may  impact  on  the 
product's assessment (safety, efficacy, quality), marketing authorisation bodies might 
not  be  able  to  simply  disregard  information  submitted  by  third  parties  during  the 
marketing  authorisation  procedure.  In  this  light  and  irrespective  of  the  reason  for 
which  a  submission  is  made,  Member  States  and  agencies  should  ensure  that  the 
submission  by  the  third  party  is  well  documented,  made  transparent  towards  the 
applicant  and  should  make  all  necessary  efforts  that  the  intervention  does  not 
necessarily  lead  to  delays  for  the  applicant.  Depending  on  the  national  legal 
framework,  companies  or  health  insurers  may  also  pursue  damage  claims  under 
national legislation in case of proven foregone revenues or savings due to unfounded 
interventions. 

The Commission will continue to strictly enforce the applicable Community law and, 
for  instance,  act  against  patent  linkage,  as  according  to  Community  legislation, 
marketing  authorisation  bodies  cannot  take  the  patent  status  of  the  originator 
medicine  into  account  when  deciding  on  marketing  authorisations  of  generic 
medicines.  The  Commission  is  also  committed  to  ensuring  that  the  new  data 
exclusivity rules introduced in Community legislation in 2004 are fully implemented 
in all Member States.  

The  Commission  equally  notes  the  comments  from  stakeholders  that  the  data 
exclusivity  framework  should  be  used  to  improve  access  to  medicines.  The 
Commission is committed to the development of an EU pharmaceutical framework 
for  the  21st century  which  promotes  innovation  in  particular  in  areas  with  unmet 

50 

51 

Directive 2001/83/EC of 6 November 2001 (OJ L 311, 28.11.2001, p. 67), last amended by Directive 
2008/29/EC of 11 March 2008 (OJ L 81, 20.3.2008, p. 51). 
Judgment of the Court of First Instance, Case T-326/99 (Olivieri) of 18 December 2003, ECR 2003 p. 
II-06053. 

EN 

24 

   EN 

 
                                                 
medical needs. In its Communication of 10 December 2008 on a Renewed Vision of 
the Pharmaceutical Sector, the Commission announces that it will adopt a report on 
the  use  of  personalised  medicines  and  ‘-omics’  technologies  in  pharmaceutical 
research and development and on the possible need for new Community instruments 
to support them, by 201052. This  report will provide  an opportunity to consider the 
current  data  exclusivity  system,  and  its  ability  to  contribute  to  innovation  and 
improve access to medicines. 

Companies also call for further international harmonisation in the area of marketing 
authorisation,  mostly between  Europe and the United States, to reduce unnecessary 
regulatory  divergences.  The  Commission  fully  supports  further  international 
harmonisation  as  this  has  the  potential  to  considerably  reduce  the  costs  of  market 
access and innovation by reducing unnecessary regulatory divergences and points to 
the strategy for this area outlined in its Communication on a Renewed Vision of the 
Pharmaceutical Sector of 10 December 2008. 

In  the  course  of  the  sector  inquiry  generic  companies  also  complained  about 
information  campaigns  organised  by  the  originator  industry  questioning  the  quality 
of  generic  medicines.  The  Commission  would  like  to  recall  that  all  medicinal 
products  (whether  originator  or  generic)  authorised  for  placing  on  the  Community 
market  are  subject  to  the  same  requirements  of  quality,  safety  and  efficacy.  Any 
campaigns  which  put  this  fact  in  question  ignore  the  key  principles  for  marketing 
authorisation in the EU and may mislead the public. The Commission urges Member 
States to take action, in particular on the basis of Article 97 of Directive 2001/83/EC, 
if any such campaigns are detected in their territory. 

4.4. 

Improving  Pricing  and  Reimbursement  Systems  and  Developing  a  Pro-
Competitive Environment for Generic Uptake 

During  the  sector  inquiry,  many  stakeholders  expressed  concerns  as  regards  the 
the  pricing  and 
delays  and  uncertainties 
reimbursement  status  of  medicines.  Originator  companies  argued  that  this  would 
deny patients access to innovative medicines and shorten the period during which the 
companies  enjoy  exclusivity.  Generic  companies  argued  that  such  delays  limit 
savings for health bodies.  

in  procedures 

regarding 

faced 

Key elements of the relevant context for the Commission’s strategy in this area are 
based  on  the  Recommendations  of  the  Pharmaceutical  Forum,  the  Commission 
Communication  of  10 December 2008  on  a  Renewed  Vision  of  the  Pharmaceutical 
Sector  and  the  in-depth  monitoring  of  the  functioning  of  markets  in  the 
pharmaceutical sector53. Depending on the final outcome of all these initiatives, the 

52 

53 

With  the  emergence  of  new  technologies  like  pharmacogenomics  and  patient-specific  modelling  and 
disease simulators, personalised medicine is now on the horizon. In the long term, doctors may be able 
to  use  genetic  information  to  determine  the  right  medicines,  at  the  right  dose  and  time.  This  field  is 
already affecting companies' business strategies, the design of clinical trials and the way medicines are 
prescribed. Although it is too early to say whether ‘-omics’ technologies will indeed revolutionize the 
sector,  the  Commission  closely  monitors  the  area  and  will  reflect  on  how  it  can  support  its 
development. 
For  details  see  recommendations  of  the  Pharmaceutical  Forum  (adopted  in  October  2008,  see 
http://ec.europa.eu/pharmaforum/), 
the  Commission  Communication  of  10  December  2008  - 
COM(2008)  666,  10.12.2008:  Safe,  Innovative  and Accessible  Medicines:  A  Renewed  Vision  for  the 

EN 

25 

   EN 

 
                                                 
Commission will examine the potential need for a review of the existing EU rules in 
the area of pricing and reimbursement (Transparency Directive 89/105/EEC). 

The Commission urges all stakeholders to ensure that the time-limits of three or six 
months  established  by  the  Transparency  Directive 89/105/EEC54  are  respected  and 
will  continue  to  investigate  all  complaints  pointing  to  an  incorrect  transposition  or 
systematic disrespect of the Directive. The Commission also draws  the attention of 
stakeholders to the possibility to challenge the alleged failure of national authorities 
to respect the requirements of the Directive before the national courts and encourages 
affected  parties  to  consider  this  possibility  –  including  damage  claims  –  when 
deemed necessary. 

The Transparency Directive 89/105/EEC lays down maximum time-limits for pricing 
and  reimbursement  decisions,  which  do  not  preclude  Member  States  from 
establishing quicker decision-making procedures where deemed appropriate. In order 
to  speed  up  pricing  and  reimbursement  decisions  for  generic  products,  the 
Commission  invites  Member  States  to  consider  the  introduction  of  national 
provisions granting automatic/immediate pricing and reimbursement status to generic 
products  (i.e.  without  detailed  assessment)  where  the  corresponding  originator 
product  already  benefits  from  reimbursement  based  on  a  higher  price.  This  would 
considerably alleviate the administrative burden for all concerned and lead to faster 
access of generic products. 

According  to  generic  companies,  delays  with  respect  to  pricing  and  reimbursement 
decisions are sometimes the result of additional requirements, e.g. information on the 
patent  status  or  an  additional  evaluation  of  the  bio-equivalence  between  the 
originator and the generic product. These additional requirements, requested by the 
pricing and reimbursement bodies, seem to provide a tool to originator companies to 
intervene and hence to prolong a given procedure. 

The Commission notes that the Transparency Directive requires Member States to set 
out objective and verifiable criteria for granting pricing and reimbursement status to 
medicines,  so  that  the  competent  national  authorities  must  not  add  criteria  or 
assessments  which  are  not  foreseen  by  national  law.  It  also  considers  that 
assessments  of  the  patent  status  and  of  bio-equivalence  should  fall  outside  the 
competence  of  pricing  and  reimbursement  bodies,  as  they  are  neither  equipped  nor 
competent  to  deal  with  these  issues.  The  entry  of  generics  is  also  affected  where 
authorities  in  Member  States  consider  that  pricing  and  reimbursement  applications 
constitute a patent violation. In this respect it is underlined that EFPIA, the European 
association representing originator companies, submitted in the context of the public 
consultation on the Preliminary Report that applications for marketing authorisations 
by generic companies would not amount to a violation of patent law. The same logic 
should apply to applications for pricing and reimbursement status. 

In  this  context,  originator  companies  should  not  intervene  before  the  pricing  and 
reimbursement authorities in order to raise bioequivalence issues or a potential patent 

54 

Pharmaceutical Sector) and the in-depth monitoring of the functioning of markets in the pharmaceutical 
sector (as announced in Objective 7 of the above referred Communication). 
The specific time limits laid down in Directive 89/105/EEC are 90 days for pricing decisions, 90 days 
for reimbursement decisions or 180 days in case of joint procedures. 

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violation  by  the  generic  applicant.  The  Commission  considers  the  pricing  and 
reimbursement  procedures  as  bilateral  proceedings  between  the  applicant  and  the 
administration. Since the pricing and reimbursement authorities are not competent to 
assess patent, bioequivalence or safety issues, Member States should disregard third 
party submissions raising such issues. They should also ensure that interventions by 
third parties are in general well documented, made transparent towards the applicant 
and do not lead to delays in processing the price and reimbursement decisions. 

Originator  companies  attribute  amongst  others  part  of  the  delays  for  originator 
medicines to cross-border referencing systems used in a number of Member States, 
and  part  to  the  trend  towards  fragmented  decision-making  at  a  more  regional/local 
level. The Commission – whilst fully acknowledging national choices – points to the 
findings  of  the  sector  inquiry  that  cross-border  referencing  can  lead  to  delays  and 
creates  sometimes  room  for  misuse  (hidden  discounts  on  published  price  lists  used 
for  reference  pricing).  Regarding  the  fragmented  decision-making,  the  Commission 
underlines that this is an issue to be dealt with by Member States. 

Stakeholders  and  in  particular  originator  companies,  also  complained  about  the 
uncertainty  of  prices/reward  when  developing  new  medicines.  The  duplication  of 
national assessments that try to establish the "added value" of the new medicine over 
and above existing medicines was specifically mentioned. There is general interest in 
cross-border  collaboration  on  scientific  aspects  of  added  value  assessments.  In  this 
respect  the  Commission  points  to  the  fact  that  the  duplication  of  the  scientific 
assessments  in  the  Member  States  results  in  additional  costs,  which  are  ultimately 
borne by the consumers/tax payers. Also there is a risk of contradicting decisions on 
essentially the same questions. Moreover, at this stage smaller Member States do not 
always have the means for the scientific assessments and thus do not benefit from the 
possibilities  available  to  larger  Member  States.  Thus  a  Joint  Action  on  Health 
Technology  Assessment  has  just  been  submitted  for  funding  under  the  Health 
Programme 2009. In addition, the Commission's proposal on the implementation of 
patients' rights in cross border healthcare contains a provision for further cooperation 
on  health  technology  assessment.  However  cost  effectiveness  analysis  is  rather 
dependent on the budgetary situation and health priorities of each Member State. 

Finally,  comments  were  received  on  national  mechanisms  that  could  foster 
competition forces in the pharmaceutical sector, in particular in the generic sector. 

Econometric analysis on the impact of generic entry carried out in the context of the 
sector  inquiry  tend  to  indicate  that  national  regimes  with  compulsory  generic 
substitution  for  pharmacists  and  encouraging  doctors  to  prescribe  the  substance  (as 
opposed to a particular brand) appear to be favourable to price competition and the 
level of generic penetration. The same holds for policies involving reimbursement of 
medicines  at  the  level  of  the  lowest  priced  product  and  a  frequent  adjustment  of 
reimbursement levels to take account of price developments in the market. Likewise, 
differential co-payment for patients further appears to favour price competition. By 
contrast, the use of price caps for generic medicines appears not favourable to price 
competition or generic penetration. 

In  this  light  the  Commission  invites  Member  States,  to  the  extent  not  yet  done,  to 
consider  policies  facilitating  rapid  generic  uptake  and/or  generic  competition. 

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Different  possible  policies  to  achieve  this  goal  are  currently  being  discussed  in  the 
context of the Transparency Committee established by Directive 89/105/EEC. 

Certain Member States have achieved significant savings to the benefit of consumers 
when  health  insurers  carried  out  tender  or  similar  processes  for  certain  generic 
products.  These  systems  can  help  ensure  that  price  reductions  offered  by  generic 
companies  do  not  stay  in  the  distribution  system,  but  are  passed  on  to  consumers. 
Whilst tenders can be a very powerful tool to reduce costs for public health budgets, 
the  medium  and  long  term  effects  need  also  be  considered  when  setting  the  tender 
conditions  (e.g.  duration  of  award  period  should  not  lead  to  market  foreclosure). 
Compliance  with  European  law  (e.g.  public  procurement  law)  when  carrying  out 
such tenders is also essential. 

The  Commission  will  facilitate  cooperation  between  Member  States  and  the 
exchange  of  best  practices  on  generic  policies  in  the  framework  of  relevant 
discussion platforms, such as the Transparency Committee established by Directive 
89/105/EEC. 

5. 

THE WAY FORWARD 

The sector inquiry confirms that generic entry does not always take place as early as 
it  potentially  could  under  the  current  relevant  legal  framework.  It  shows  that 
company  practices  are  amongst  the  causes  and  suggests  that  a  variety  of  other 
conditions  might  play  also  an  important  role.  The  sector  inquiry  also  confirms  a 
decline  of  novel  medicines  reaching  the  market  and  points  to  certain  company 
practices that might, amongst other factors,  contribute to this phenomenon. Further 
market monitoring is ongoing trying to identify the additional factors that are likely 
to play a role in this context. 

The Commission will address the issues identified in the course of the sector inquiry 
by  applying  increased  scrutiny  under  EC  competition  law  to  the  sector  and  by 
bringing specific cases, where appropriate. First enforcement action is already under 
way. To reduce the risk that settlements are concluded at the expense of consumers, 
the  Commission  will  also  consider  further  focused  monitoring  of  settlements  that 
limit  generic  entry  and  include  a  value  transfer  from  an  originator  company  to  a 
generic company. 

As  far  as  the  regulatory  framework  is  concerned,  the  Commission  reaffirms  on  the 
basis  of  its  findings  in  the  context  of  the  sector  enquiry  the  urgent  need  for  the 
establishment  of  a  Community  patent  and  of  a  unified  specialised  patent  litigation 
system  in  Europe,  which  pursuant  to  the  sector  inquiry  has  received  increased 
support from the pharmaceutical sector. With respect to patent law the sector inquiry 
also  fully  confirmed  the  relevance  of  the  recent  initiatives  of  the  European  Patent 
Office  to  ensure  a  high  quality  standard  of  patents  granted  and  to  accelerate 
procedures ("raising the bar"). 

With  respect  to  marketing  authorisation  the  Commission  will  focus  on  the  full 
implementation  and  effective  enforcement  of  the  regulatory  framework,  e.g. 
regarding patent linkage or the respect of deadlines in the approval procedures. The 
Commission  recalls  that  third  party  submissions  and  even  less  so  formal 

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interventions  during  the  assessment  of  an  application  for  a  marketing  authorisation 
are  not  foreseen  in  Community  pharmaceutical  legislation.  It  calls  upon  marketing 
authorisation  bodies  to  ensure  that  submissions  by  third  parties  that  cannot  be 
excluded  are  well  documented  and  made  transparent  towards  the  applicant,  and  to 
make all necessary efforts that submissions do not necessarily lead to delays for the 
applicants. 

Concerning  pricing  and  reimbursement  the  Commission  invites  Member  States  to 
consider (the introduction of) provisions that would grant pricing and reimbursement 
status  to  generic  products  automatically/immediately  where  the  corresponding 
originator  product  already  benefits  from  such  a  status.  Moreover,  Member  States 
should  disregard  third  party  submissions  raising  patent,  bioequivalence  or  safety 
issues. Member States should ensure that submissions by a third party at pricing and 
reimbursement  bodies  that  cannot  be  disregarded  are  well  documented,  made 
transparent  towards  the  applicant  and  should  make  all  necessary  efforts  that  the 
intervention  does  not  lead  to  unnecessary  delays  for  the  applicant.  Finally,  the 
Commission  invites  Member  States  to  the  extent  not  yet  done  to  consider  policies 
facilitating  rapid  generic  uptake  and/or  generic  competition.  It  will  facilitate 
cooperation  between  Member  States  and  the  exchange  of  best  practices  on  generic 
policies. Depending on the outcome of the various initiatives55 the Commission will 
examine  the  potential  need  for  a  review  of  existing  EU  rules  in  the  area  of  pricing 
and reimbursement (Transparency Directive 89/105/EEC). 

Based  on  the  objectives  outlined  in  this  Communication,  the  Commission  will 
continue  to  pursue  a  constructive  dialogue  with  all  stakeholders  to  ensure  that  the 
innovative  potential  of  the  Community's  pharmaceutical  industry  can  fully  develop 
and  that  patients  benefit  from  better  access  to  safe  and  innovative  medicines  at 
affordable prices without undue delays. 

55 

Recommendations  of  the  Pharmaceutical  Forum,  Commission  Communication  of  10  December  2008 
on a Renewed Vision of the Pharmaceutical Sector and the in-depth monitoring of the functioning of 
markets in the pharmaceutical sector. 

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