A European regulator will penalize Denmark based Lundbeck ( LUN.CO), India’s No.1 pharmaceutical company Ranbaxy and seven other drug makers for limiting the supply of cheaper medicines. This is the first sanction by the European regulator to penalize companies indulging in ‘pay for delay’ deals. Following an enquiry launched in 2009, the European Union’s anti-trust regulator will impose a ‘significant’ fine on Lundbeck and lesser fines on Germany’s Merck KgaA. Seven other firms will also be fined for the discrepancy. The sanctions emphasize the determination of European Union and U.S. regulators to break agreements that involve brand name drug companies paying generic manufacturers not to deliver cheaper versions of their drugs to the market, a practice that ultimately harms the consumers. European regulators have found that consumers are paying up to 20 percent more for medicines in certain cases. Generic versions cost a fraction of the price of original medicines available in Western markets. The European Commission which heads, EU’s antitrust regulator, can fine a company up to 10 percent of its global revenue for breaching competition laws. The European Commission (EC) is the executive body of the European Union and is responsible for proposing legislation and implementation of decisions. The EU competition authority also has 2 other cases in the pipeline, involving Israel’s Teva and French drug maker Servier. The U.S. federal trade commission has battled against such deals for more than a decade. The U.S. Supreme Court is expected to decide on the fate of such cases by the end of this month, after lower courts have issued conflicting rulings.
In the case of Lundbeck, which makes an anti depressant drug, a treatment for Alzheimer’s disease it would go up to 240 million Euros. Lundbeck paid the generic firms to keep their products away from the market and bought stocks of the generic anti-depressant drug ‘citalopram’ to be destroyed. Other companies which have been fined for this violation are Generics U.K, Arrow, Resolution chemicals, Xellia Pharmaceuticals, Alpharma and India’s No.1 pharmaceutical company Ranbaxy all of whom are manufacturers of generic drugs. Brand name companies have defended “pay for delay” tactics, mainly to protect their patents and avoid costly litigation. A spokesman from Lundbeck said the company had not been notified of any fine. Lundbeck shares fell by 1.9 percent soon after media agencies reported about the fine.
The basic issue now before the courts are does a brand manufacturer, faced with a potential generic competitor, act illegally if it pays money, in some occasions a huge amount, in a deal in which brand company postpones for a period of years the substitute’s version’s marketing. This practice is popularly known as “pay for delay”. It has also been known as “reverse payment agreement”.
An analyst suggested the legality of such deals is “the most important unresolved problem in antitrust policy today.