European Commission slaps Rs 575-cr fine on Lupin, Matrix and Unichem

The European Commission has imposed fines totalling Euro 427.7 million (around Rs 3,458.7 crore) on the French pharmaceutical company Servier and five generic medicine producers - including three leading Indian drug makers Niche Generics/Unichem, Lupin and Matrix Labs (now part of Mylan) - for concluding a series of deals all aimed at protecting Servier’s bestselling blood pressure medicine, perindopril, from price competition by generics in the EU. Of the total, Lupin Ltd, Matrix Laboratories and Unichem Laboratories has been fined Euro 40 million (Rs 324 crore), Euro 17 million (about Rs 138 crore) and Euro 13.96 million (about Rs 113 crore) respectively. Besides Indian drug makers, the anti-trust wing of the Commission has also penalised Israel’s Teva and Slovenia-based Krka for their alleged anti-competitive actions.

 

“Through a technology acquisition and a series of patent settlements with generic rivals, Servier implemented a strategy to exclude competitors and delay the entry of cheaper generic medicines to the detriment of public budgets and patients in breach of EU antitrust rules,” said the European Commission in a press release. 

 

According to the Commission, Servier and the five generic drug producers concluded a series of deals - all aimed at protecting the innovator company’s bestselling blood-pressure medicine from price competition from generics in the European Union.

 

Drug maker Lupin had sold certain patent applications and other related intellectual property on Perindopril to the French company in 2007 for around Euro 20 million. “We are very disappointed with the European Commission’s findings. We are still awaiting an official copy of the decision. We remain confident of our position and intend to appeal against the decision,” a spokesperson for Lupin said.

 

Niche Generics, which was overtaken by Unichem in 2006, had agreed to settle the patent litigation pertaining to Perindopril with Servier at the beginning of 2005. In a statement to BSE, Unichem said, “Unichem will vigorously appeal the European Commission decision to the EU courts and seek to attain the correct result in this matter which is in the best interests of the consumer.”

 

Perindopril is a blockbuster blood pressure control medicine and used to be Servier's best-selling product. Servier held significant market power in the market for the perindopril molecule as no antihypertensive medicines other than the generic versions of perindopril were able to meaningfully constrain Servier's sales and prices. Servier's patent for the perindopril molecule expired, for the most part, in 2003. Generic competitors continued to face a number of so-called ‘secondary’ patents relating to processes and form but these provided a more limited protection to what Servier described as its ‘dairy cow’. Producers of cheaper, generic versions of perindopril were intensively preparing their market entry.

 

In order to enter the market and overcome the remaining obstacles, generic companies sought access to patent-free products or challenged Servier's patents that they believed were unduly blocking them. There were very few sources of non-protected technology. In 2004 Servier acquired the most advanced one, forcing a number of generic projects to stop and therefore delaying their entry. Servier recognised that this acquisition merely sought to ‘strengthen the defence mechanism’ and the technology was never put to use.

 

With this way to the market cut off, generic producers decided to challenge Servier's patents before courts. However, between 2005 and 2007, virtually each time a generic company came close to entering the market, Servier and the company in question settled the challenge. “This was not an ordinary transaction where two parties decide to settle a patent claim outside of court to save time and costs. Here, the generic companies agreed to abstain from competing in exchange for a share of Servier's rent. This happened at least five times between 2005 and 2007,” said the Commission in the release. 

 

Thus, Servier gained the certainty that the generic producers would stay out of the national markets and refrain from legal challenges for the duration of the agreements.

 

According to European Commission, such behaviour violated EU antitrust rules that prohibit the abuse of a dominant market position (Article 102 of the Treaty on the Functioning of the European Union – TFEU). Each of the settlements between Servier and its generic competitors was also an anti-competitive agreement prohibited by Article 101 TFEU.

 

European Commission’s Vice-President Joaquin Almunia, in charge of competition policy, said, “Servier had a strategy to systematically buy out any competitive threats to make sure that they stayed out of the market. Such behaviour is clearly anti-competitive and abusive. Competitors cannot agree to share markets or market rents instead of competing, even when these agreements are in the form of patent settlements. Such practices directly harm patients, national health systems and taxpayers. Pharmaceutical companies should focus their efforts on innovating and competing rather than attempting to extract extra rents from patients.”