EU accuses drugmakers of blocking cheaper generics

* Drug sector competition not working well, EU report says

* Patent practices, litigation delaying generic drugs

* EU prepared to open antitrust cases against drugmakers



(Adds details, further quotes, background)

By Bate Felix and Ben Hirschler

BRUSSELS/LONDON, Nov 28 (Reuters) - European drug companies are delaying or blocking the entry of cheaper generic medicines, pushing up bills for taxpayers and reducing the incentive for innovation, a hard-hitting EU report said on Friday.

Competition Commissioner Neelie Kroes said preliminary results of a year-long probe showed competition in the pharmaceuticals industry did not work as well as it should.

Practices such as multiple patent applications for the same drug, litigation and settlement deals that delayed generics deprived European healthcare providers of some 3 billion euros ($3.9 billion) in potential cost savings between 2000 and 2007, the report estimated.

"Market entry of generic companies and the development of new and more affordable medicines is sometimes blocked or delayed, at significant cost to healthcare systems, consumers and taxpayers," Kroes said.

"It is still early days, but the Commission will not hesitate to open antitrust cases against companies where there are indications that the antitrust rules may have been breached."

The attack from the Commission -- the European Union's executive arm -- adds to pressure on a beleaguered global drugs industry which faces loss of patent protection on some of its biggest selling products over the next four years.

The industry also faces major challenges in the United States, where incoming President Barack Obama is expected to seek ways to bear down on costs as he tries to extend healthcare coverage to millions of uninsured Americans.

HEFTY FINES

Kroes has the power to impose hefty fines on drugmakers if she finds they have engaged in unfair practices.

Such action has already been taken in the past, with AstraZeneca Plc (AZN.L) fined 60 million euros in 2005 for blocking cheaper rivals to its heartburn and ulcer pill Losec.

Kroes kicked off the sector investigation in January with a series of raids on makers of brand-name and generic drugs, including AstraZeneca, GlaxoSmithKline Plc (GSK.L), Pfizer Inc (PFE.N), Merck & Co Inc (MRK.N) and Sanofi-Aventis SA (SASY.PA), as well as Teva Pharmaceutical Industries Ltd (TEVA.O) and Novartis AG's (NOVN.VX) generics unit Sandoz.

There have also been a smaller number of raids involving mainly generic drug companies this week.

The Commission said it had found documents during the inquiry which contained admissions from brand-name companies that they had tried to stop generics, and many examples of obstacles being placed in way of less-expensive competitors.

In one case, no less than 1,300 patents were filed for a single drug medicine, the Commission said. There were also nearly 700 cases of reported patent litigation, lasting on average nearly three years, with generic firms ultimately prevailing in more than 60 percent.

There were also more than 200 settlement deals between brand-name and generic companies, of which more than 10 percent limited the entry of generics and provided for payments from the originator to the generic firms.

Furthermore, owners of original drugs often intervened in national procedures for the approval of generic medicines, resulting in typical delays of around four months.

Generic drug companies have long complained that they have trouble getting their products to market in Europe. Generics account for just over 40 percent of the market by volume in Europe, against more than 60 percent in the United States.

But major branded drug companies insist competition in the sector is robust and they deny the suggestion they are dragging their heels on innovation. Companies argue they are keener than anyone to launch new drugs but are hampered by regulatory hurdles and scientific challenges. (Editing by Chris Wickham)