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Perpetual scenario

Pharmaceutical manufacturers are resorting to increasingly convoluted means in their efforts to try to restrict supplies of medicines in Europe
BoatEurope's highest court has failed to rule for or against the practice of parallel trade.  It is a seemingly never-ending story. Pharmaceutical manufacturers are resorting to increasingly convoluted means in their efforts to try to restrict supplies of medicines in Europe in order to wipe out the only competition for branded medicines they face - parallel distribution.

The practice of parallel distribution of medicines in Europe is 100 per cent legal, extremely safe and delivers savings to governments and social insurance systems across the EU. It does this by stimulating competition in a market segment that generics cannot reach - the newest, most expensive and innovative medicines.

The European single market guarantees the free movement of goods across national borders, creating incentives for economic operators to buy at a relatively low price in one Member State and resell at a higher price in another. Medicines are no exception when it comes to the principle of free movement.

Yet, the big multinational pharmaceutical manufacturers would much rather extract the highest price they can from each (country) market in the EU.

Consequently, they try to prevent the free movement of medicines. Some of the world's biggest and most profitable companies place restrictions on supplies of certain medicines to certain countries, with a view to preventing the re-export of stock, which is surplus to domestic requirements, to elsewhere in the EU.

The reason for this is that such actions have provoked many legal proceedings from a number of different companies throughout Europe. The EAEPC's members are not alone in wanting to defend their rights.

The recent decision on May 31 this year by the Luxembourg-based European Court of Justice (ECJ) was expected to be a high-water mark in this long-running saga.

The ECJ had been asked by the Greek Competition Authority to assess whether the behaviour of GSK in Greece in limiting supplies of three high-selling medicines - Lamictal, Serevent and Imigran - with the object of blocking the free movement of medicines was justified.

Unfortunately by not taking a position in case C-53/03 (Syfait vs GSK Greece) the ECJ has missed an opportunity to clarify the legal status over supply restrictions, as well as rule in favour of open competition for medicines in Europe.

The ECJ deemed that it was not in a position to offer an opinion because the Greek Competition Commission does not have the characteristics of a court which are necessary in order for it to make a reference to the ECJ.

More specifically, the ECJ noted that the body [the Greek Competition Commission] is not a `court or tribunal' within the meaning of Article 234 EC - the provision which allows national courts or tribunals to refer questions to the Court for a preliminary ruling - because it does not have certain of the characteristics for it to be classified as such: independence and the fact of being called upon to give judgment in proceedings intended to lead to a decision of a judicial nature.

The ECJ, therefore, categorically rejected the advice of its own Advocate General, Francis Jacobs, who had argued that, in his opinion, the case was admissible.

Advocate General Jacobs also argued - surprisingly given the facts - that GSK's behaviour could be justified. Of course, the pharmaceutical companies and their leading lawyers have jumped on his remarks, in order to use them to justify the extension of supply quotas.

However, the simple truth is that Jacobs' remarks have no legal value, having being rejected by the ECJ. Therefore, this will go down in the annals of the Court as one of the rare 20 per cent of cases where the ECJ does not follow the advice of the Advocate General.

Who moves next?
The ruling from Luxembourg means the ball is very firmly back in the court of the Greek Competition Commission. Of course, the latter has already found (in an interim decision in 2002) that GSK, as the dominant player in the market for these three medicines, was abusing its leading position by restricting supplies of these products to pharmaceutical wholesalers.

Until a final decision is made by the Greek Competition Commission, the interim measures adopted by it to force GSK to supply these three medicines will remain in place.

Also, the Court of First Instance of Athens granted compensation to wholesalers for the losses suffered from the refusals to supply by GSK, thereby confirming the findings of the interim decision of the Competition Commission.

Therefore, even though they will not necessarily admit it, the ECJ's decision was a big blow to the efforts of GSK, as well as a number of other pharmaceutical manufacturers working across Europe, to restrict supplies.

The Court cited procedural reasons for its refusal to rule. However, there are more profound considerations which, when examined, make it unsurprising that the Court followed this course and did not accept Jacobs' opinion.

Jacob rejection
First: the fact that the EU still lacks legal certainty on the issue of supply restrictions in the pharmaceutical sector means that a ruling along the lines of Jacobs' opinion would have been a significant step towards reducing competition and tying the hands of the regulators.

It would have set a dangerous precedent and it is obvious that the ECJ was certainly aware of the sensitive nature of this case. It would also have run counter to years of case law which supports the application of the principle of free movement to the pharmaceutical sector.

Second: the legal reasoning presented by Jacobs is highly questionable and unrelated to the precise questions at stake.

He argued that supply restrictions are justified because parallel distribution risks causing supply shortages, reduces the innovative capacity and competitiveness of pharmaceutical manufacturers, and that it does not generate meaningful benefits for the consumer.

None of the arguments cited by Jacobs is backed up by any factual evidence, and some of his points are unrelated to the core issues of domination and the free movement of goods.

Counter points
On the question of supply shortages, the facts show that disruptions in the Greek market occurred only after GSK decided to restrict its deliveries to the country's wholesalers. GSK - and not the effect of parallel distribution - was responsible for Greece's inadequate domestic supplies.

Similarly, the industry's claim that parallel distribution stifles innovation remains unfounded. There is no data available to show any direct link between parallel distribution and research and development expenditure by drug manufacturers.

In fact, as was confirmed in a recent US Senate hearing, the level of R&D spending by pharmaceutical companies in Europe remains more or less on a par with that in the US, where parallel distribution is not practised as it is in Europe.

The difference in overall R&D spending levels between the US and Europe comes essentially from public funds provided by the US National Institutes of Health, for which there is no European equivalent.  Finally, in addition to it being irrelevant in an assessment of the principle of free movement of goods, the argument that parallel distribution does not generate benefits is false.

A 2003 study by the York Health Economics Consortium found that parallel distribution does produce considerable direct and indirect savings for national healthcare providers and patients.

Looking ahead

By falling back and relying on false and rejected reasoning, GSK and other firms are refusing to meet their obligations as good corporate citizens.

Conversely, the EAEPC and its members are looking forward positively to working with national regulators and the Commission to ensure competition in Europe continues. Even at this difficult stage in the EU's development, the principles of EU-wide free trade and competition are still worth fighting for.

Our stance is that restricting supplies with the express aim of eliminating your only competitor does not seem right. What some pharmaceutical companies are doing is exploiting all legal loopholes to try to justify their position.

When will they finally get the message that competition is good in the medicines market - as in other markets - and cease their practice of restricting supplies?

The Author
Dr Heinz Kobelt is Secretary-General of the European Association of Euro-Pharmaceutical Companies (EAEPC). The EAEPC is the professional and representative voice of pharmaceutical parallel trade in Europe. Its primary aim is to safeguard the free movement of medicines.

2nd September 2008

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