Comment

But, any move against these firms may not quite send generic firms smiling to the bank

Some of the dirtiest tricks of global drug giants to corner market share and maintain monopoly have been thrown in the open by a 426-page preliminary report of the European Commission. The report, which was launched in January 2008 and announced on November 28, lashed out at innovators for a host of delaying tactics that may have deprived the European patients of cheap medicines. The final report will be published in the next few months and is expected to turn the heat on both innovators as well generic drug makers.

The inquiry looked into competition between originator companies and generic players and the various forces that govern final pricing within the European countries. The report clearly states that competition in the industry does not work as well as it should. The report claims to have gathered evidence over months of investigations that suggest companies have engaged in various practices to delay or block market entry of competing drugs.

Those practices essentially include multiple patent applications for the same medicine, initiation of disputes and litigation, conclusion of patent settlements, which constrain market entry of generic companies and interventions before national authorities when generic companies ask for regulatory approvals. “These practices result in significant additional costs for public health budgets - and ultimately tax payers and patients,” the report states.

More worrying is an observation made in the report about innovation of drugs by multinational companies. The report confirms the decline in innovation as evidenced by the number of new chemical entities reaching the market and pinpoints some reasons for that. Coming down heavily on innovators, the report says the originator (of drugs) companies are found to have applied defensive patent strategies, which are not foreseen to be used for innovation but primarily pursue the purpose of blocking the development of a new medicine by a competitor.

Remember, this has been an old practice employed by not just multinational companies mostly in the US but also Indian heavyweights in order to restrict competition. In such cases, the originator companies do not intend to pursue the patents in order to bring a new improved medicine to the market.

Few would know that between 1995 and 1999 an average of 40 novel molecular entities were launched per year in Europe, but between 2000 and 2007, that figured has dwindled to just 27.

It is important to note that generic drug companies made better margins in Europe than the US due to the high entry barriers in those markets. However, with changed laws in countries like Germany, generic prices started dropping further.

Making a serious case for its full-fledged sector enquiry (which includes several big corporations), the EC says the pharmaceutical sector is vital and is catgorised as a major expenditure account. Europe spends €214 billion per year - in retail prices - on pharmaceuticals that translates into €430 per year for every individual. It says, Europe’s ageing population will only increase the financial constraints on public health budgets. At the same time a significant number of patents for blockbuster medicines are due to expire in the next few years.

These scathing observations by the EC may go in favour of generic drug makers not just in India but all over the world. At a time when the US markets have been beaten to the pulp, any move that helps a greater generics play augurs well. Only, governments and insurance companies have also become smarter in dealing with the cut-price generic companies.

A few days ago, German insurance major AOK opened the hotly competed bids from generic companies, which according to most analysts will be largely a volumes play.

Thus, though Dr Reddy’s has been able to muster some contracts, it may not turn out to be very profitable for the company.

In the same way, most insurance companies across Europe will ideally take full advantage of the cut-throat generic competition to make cheap drugs available to their population. Therefore, the EC move against innovators will benefit generic drug makers but only in a limited way.