November 3, 2009
The recent anti-trust raids on Ranbaxy’s France unit by the European Commission (EC) has not come as a surprise, given that most pharmaceutical companies in India manufacture generic drugs. These drugs contain same active ingredients as the original formulations invented by the “originator” companies, mostly from Europe or United States, and in most cases the usual life (20 years) of the patents have expired or are about to expire
The EC apprehends that the originator pharmacy companies may be colluding with the generic companies to delay entry of cheaper generic versions of the original patented drugs in the common European markets. That may not be far from truth.
There is no denying the fact that the global pharma industry, which, due to the inelastic demand of its products, was perceived to be recession-proof at one time. It is now feeling the pinch of the economic downturn, and so some players are seeking remedies by adopting anti-competitive and even unfair trade practices. The Indian drug makers are no exception and seem to have pinned their hopes on the potential for generics business worldwide. Incidentally, our companies are not the pioneers in this strategy.
The global pharmaceutical industry has a long history of indulging anti-competitive practices, particularly, cartelisation. Two most famous cases of cartelisation i.e. the Lysine cartel and the Vitamins cartel deserve a mention. But this “historical” background of cartelisation in the pharmaceutical industry has, perhaps, no link with the recent focus on this sector by the anti-trust authorities in Europe or elsewhere.
Perhaps the large global players having learnt their lessons hard due to the heavy fines they paid for cartelisation, have now invented less harmful or offending anti-competitive techniques of “buying out” the generic drug manufacturers, particularly in developing economies such as India, China, Brazil and Russia.
The recent raids on Indian generic companies in Europe appear to be the beginning of the series of raids that may follow, given the fact that the EC under its firebrand Commissioner Neelie Kroes has taken a very pro-active stance in its anti-trust enforcement rules. The launching of “sector-inquiry” covering key sectors of the economy has become EC’s latest investigative tool. Such methods are used when a market does not seem to be working as well as it should.
Limited trade between member states, lack of new players in the market, price rigidity or such other evidence suggesting distortion of competition are some indicators for initiation of a sector inquiry. The sector inquiry in the pharmaceutical sector was initiated by the EC on January 15, 2008 and concluded with the adoption of the final report on July 8, 2009.
The primary focus of the inquiry was the competitive relationship between originator and generic companies and among originator companies. For this, 43 originator companies and 27 generic companies — representing 80% of the relevant turnover in the EU — were selected for an in-depth analysis. Needless to say, after releasing its “final report” on July 8, the EC immediately decided to open formal anti-trust investigation against French pharmaceutical (originator) company “Servier” for suspected breach of EC Treaty rules on restrictive or anti-competitive business practices (Article 81) and on possible abuse of market power or dominant position (Article 82).
As a part of this formal investigation, EC announced on the said date that it had information that three Indian generic companies, Lupin Ltd, Matrix Laboratories Ltd (subsidiary of Mylan Inc) and Niche Generics Ltd (subsidiary of Indian Unichem Laboratories Ltd) along with a Slovenian company KRRA and an Anglo-Israeli company Teva UK Ltd/Teva Pharmaceutical Industries Ltd, have entered into secret agreements with the French originator company “Servier”, apparently to delay the entry of the generic version Servier’s Perindropil, a life saving drug for hypertension.
This is not the first time that EC has looked into this malpractice in the pharmaceutical industry. On June 15, 2005, a fine of Euro 60 million was imposed on AstraZeneca AB and AstraZeneca plc (AZ) for infringement of Article 82 of Treaty, for misusing public procedures and regulations in a number of EEA states with a view to excluding generic firms and parallel traders from competing against AZ’s anti-ulcer drug Losec.
The infringement alleged to have been committed by the Indian pharma companies are similar to the one that was proved against AZ as in both the cases delay was caused in the entry of generic versions of the drug. The heavy fines imposed on AZ are likely to serve as precedent for the EC while deciding the fines on the Indian companies.
The Competition Act, 2002 also has similar provisions under section 3 and 4, that can be invoked by the newly re-constituted Competition Commission of India (CCI) to investigate similar possible collusive agreements between the originator pharmaceutical companies, mostly European or American and the Indian generic companies.
CCI is empowered under Competition Act, 2002 to institute a suo moto inquiry after an investigation by the director-general. The CCI can also seek technical assistance and sign memorandum of understanding with EC, with the prior approval of the central government, for which specific provisions exist in the Act.