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EU Court: GlaxoSmithKline Can Restrict Medicine Supplies
Nieuws van: Morningstar/Dow Jones Newswires
A top legal adviser at the European Court of Justice said Thursday that GlaxoSmithKline PLC (GSK) and other major pharmaceutical companies should be allowed to restrict some supplies of their patented medicines in Europe.
The opinion by Advocate General Francis Jacobs of the Luxembourg-based ECJ is a critical stage in the big pharmaceutical companies' long-running battle against a business called parallel trading. This trade eats into profits and is worth about EUR4.5 billion a year. It is also a hot issue in next month's presidential election in the U.S., where some citizens are clamoring for cheaper medicines from Canada.
The advocate general's opinions are endorsed a few months later by the full court in about 80% of cases.
Thursday, Jacobs said industry titans like Glaxo should be allowed to use quotas to stop traders from buying excess drugs in low-priced countries, like Greece and Spain, and selling them in higher-priced countries, like Germany and the U.K.
Glaxo's quotas "shouldn't be considered abusive where the differences in prices of medicines between (E.U. countries) are the result of state intervention," the court said in a summary of Jacobs' opinion.
Preventing Glaxo's quotas could "even harm the incentive for pharmaceutical companies to innovate," the court said.
In a second blow to the parallel traders, the court said that those activities do "not always produce any benefit for the consumer, or the member state as primary purchaser."
Jacobs' opinion is a big win for the pharmaceutical industry, which is struggling to maintain its profit margins in Europe under pressure from cut- price generic rivals, as well as cheaper patented medicines supplied by the parallel traders.
Many of the world's biggest drug companies have introduced quota systems in low-priced E.U. countries similar to Glaxo's regime in order to fight the traders more effectively.
But regulators, including antitrust officials at the European Union Commission, have been skeptical, suspecting drugs companies of abusing their dominance in critical medications by withholding supplies.
Glaxo spokesman Chris Hunter-Ward, said Thursday the company is "very pleased" by Jacobs' opinion. It supports Glaxo's view that "pharmaceutical companies are not automatically obliged to supply unlimited quantities of their products," Hunter-Ward said.
The pharmaceuticals industry faces a similar battle in the U.S., where Democrat presidential candidate John Kerry has backed calls to ease rules on reimportation of cheaper medicines from Canada and other countries where products are priced lower.
The majority of drugs companies warn the practice could be dangerous to patients. But a handful of executives - among them Pfizer Inc. (PFE) executive Peter Rost - say Europe has overseen similar practices safely for more than two decades.
"The industry is making a big political mistake right now to fight reimportation," Rost was quoted as saying in the Sept. 22 edition of The Wall Street Journal.
Thursday's European case focused on Greece, where national pharmacists first complained to Greek antitrust officials in late 2000 about Glaxo's restrictions on sales of three drugs - Imigran, Lamictal and Servent - and said Glaxo was refusing to supply certain wholesalers.
In an initial ruling, Greek officials found Glaxo dominant in Lamictal, an anti-epileptic drug, but decided to stay their final decision and refer the case to E.U. judges in Luxembourg for further advice on how to rule on a murky area of E.U. law.
Thursday's opinion comes only 10 months after the same court allowed German drug giant Bayer AG (BAY) to maintain its quota system. E.U. regulators had attacked that scheme, accusing Bayer of running a cartel with its wholesalers in Spain, but the regulators lost that case in court.
Greece's regulators used a different law to attack Glaxo's quota scheme, and E.U. officials had been watching Thursday's opinion carefully to see whether that approach offered a more promising way to clamp down on the practice than in the Bayer case.
Jacobs' opinion shows Greece's approach may be just as troubled for regulators.
In particular, Jacobs said regulators should use a lighter touch against pharmaceutical companies, compared with other industries, because the market in Europe isn't free in the first place, and because drug prices are determined by national governments.
"The normal conditions of competition do not prevail," the court wrote in its summary of Jacobs' opinion. Forcing Glaxo and others to supply "all export orders would, in many cases, impose a disproportionate burden" on pharmaceuticals companies, the court said.
Jacobs' conclusions came under fire from traders whose practice is to buy excess drugs in low-priced markets and sell them in higher-priced countries. They warned product costs would rise if the advice was followed.
"If confirmed by the Court, this opinion endangers any competition in the European pharmaceutical market, depriving governments and patients of lower prices and substantial savings," said Hans Bogh-Sorensen, the president of the European Association of Euro-Pharmaceutical Companies, an umbrella group representing the traders.
Jacobs did, however, leave the door open to regulators to crack down on some quota schemes in future.
He said a dominant market player's action could still be considered abusive, and quotas outlawed, if it more clearly and directly partitioned the common market or hurt competition in Europe's 25-member free-trade area.
28 Oct 2004
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