EU accuses drugmakers of blocking cheaper generics

By Bate Felix and Ben Hirschler

BRUSSELS/LONDON (Reuters) - Major drug companies are delaying or blocking the entry of cheaper generic medicines, pushing up bills for taxpayers and reducing the incentive for innovation, the European Commission said on Friday.

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

Practices such as multiple patent applications for the same drug, litigation and settlement deals that delayed generics meant governments ended up paying billions of euros more than they should for prescription drugs.

"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," Kroes said.

Drug companies said her report exaggerated the extent of delays to generics and failed to recognize the complexity of the market.

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

The industry also has big 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.

3 BILLION EUROS TOO MUCH

Based on a sample of medicines that lost patent protection in 17 EU states between 2000 and 2007, the Commission estimated that delays in getting generics on the market had cost healthcare providers about 3 billion euros ($3.9 billion).

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 seizing documents from generic drug companies this week.

Marc Dalby, a life science expert at legal firm Lovells, said the latest raids suggested the Commission was already working on company-specific investigations but it would likely be more than a year before these were concluded.

"I think the Commission will pick a handful of cases, probably involving very big companies, and pursue them relentlessly," he said.