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Exclusive: EU to fine Lundbeck, others for blocking generic drugs

The logo of drugs and chemicals group Merck is pictured at one of its branches in central German city of Darmstadt March 7, 2012. REUTERS/Al
The logo of drugs and chemicals group Merck is pictured at one of its branches in central German city of Darmstadt March 7, 2012. REUTERS/Al

By Foo Yun Chee

BRUSSELS (Reuters) - A European regulator will fine Denmark's Lundbeck and eight other makers of generic drugs for limiting the supply of cheaper medicines, two people with knowledge of the matter said, its first sanction against "pay-for-delay" deals.

Following an inquiry 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 this month, the people said. Seven smaller drug firms will also be fined.

The sanctions underscore the determination of EU 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 consumers.

European regulators have estimated that consumers are paying up to 20 percent more for medicines in some cases. Generic versions typically cost a fraction of the price of original medicines in Western markets.

The pharmaceutical industry will be looking for guidance from the case as to what is lawful and what is not, said Koen Platteau, a partner at Brussels-based law firm Olswang.

"The Commission clearly wants to send out a message that in circumstances, this kind of agreement can be restrictive. This is the first case where they will set a precedent," he said.

The European Commission, the EU's antitrust regulator, can fine a company up to 10 percent of its global revenue for breaching competition laws. In the case of Lundbeck, which makes an anti-depressant drug and a treatment for Alzheimer's, that would be up to 240 million euros ($311.04 million).

The people Reuters spoke to did not give the precise size of the fines.

"The fine for Lundbeck is expected to be significant, less so for the others," said one of the people, who declined to be identified because of the sensitivity of the matter.

Lundbeck paid the generics firms to keep its products from the market and bought stocks of the generic anti-depressant drug citalopram to be destroyed, the person said.

A spokesman for Lundbeck said the company had not been notified of any fine and believed it had done nothing wrong. Lundbeck shares fell 1.9 percent after Reuters reported the fine. They were trading 1.4 percent lower at 109.2 crowns by 11:16 a.m. EDT.

The other companies to be fined are Generics UK, Arrow, Resolution Chemicals, Xellia Pharmaceuticals, Alpharma, A.L. Industrier and India's No. 1 pharmaceutical company Ranbaxy, all of them makers of generic drugs. Ranbaxy declined to comment.

A Merck KGaA spokeswoman said the company, which sold subsidiary Generics UK to U.S. generic drugmaker Mylan in 2007, does not comment on pending legal issues.

Antoine Colombani, the spokesman for competition policy at the Commission, declined to comment.

The EU competition authority has two similar cases in the pipeline, involving Israel's Teva, French drugmaker Servier, Johnson & Johnson and Novartis.

The U.S. Federal Trade Commission has battled against such deals in court for more than a decade. The U.S. Supreme Court is expected to decide on the issue by the end of the month after lower courts issued conflicting rulings.

Brand name companies have defended "pay-for-delay" deals in large part to protect patents and avoid costly litigation.

In a typical case, a generic rival may challenge the patent of a brand-name competitor, which then pays the rival a sum of money to drop its challenge. Defenders of the practice call it a legitimate means to resolve patent litigation. ($1 = 0.7716 euros)

(Additional reporting by Mette Fraende in Copenhagen, Ludwig Burger in Frankfurt and Kaustubh Kulkarni in Mumbai.; Editing by Erica Billingham)

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