TWN Info Service on Health Issues (April 07/02)

12 April 2007

Italy forces drug firms to give licences for generics rivals

When developing countries issue compulsory licences to enable access to affordable medicines, they attract controversy and negative media coverage. Less publicised is the fact that some developed countries are also taking steps to provide cheaper drugs to their people.

The following article describes measures Italy took to reduce the costs of medicines. It is reproduced with permission from South-North Development Monitor (SUNS) #6228, 11 April 2007.

With best wishes
Evelyne Hong
TWN

Health: Italy compels drug companies to give licenses for generics rivals
By Sangeeta Shashikant, Geneva, 9 April 2007     

Thailand's issuing of three compulsory licences in the last few months to enable access to more affordable generic medicines was hailed by many health-related organisations around the world and also considered by experts as a legally valid measure under international and national law.

However, despite repeated attempts by the Thai government to explain the process it undertook to issue the licences and the rationale for issuing the licences, showing that the licences would not affect the profits of the multinational companies, some multinational drug companies have tried to use many methods to undermine the measures taken by the Thai authorities. Some established media have also criticised the Thai measure, while other media have strongly supported it.

While controversy seems to follow compulsory license measures in developing countries, less publicised is the fact that some developed countries are also taking measures to provide cheaper medicines to their people. And these measures have not attracted such controversy or negative press coverage.

Recently, Italy took measures to reduce the costs of medicines by introducing as early as possible competition (from generic medicines) into the market. Italy's Competition Authority has in recent years compelled pharmaceutical companies to issue licences to generic competitors without any provision for royalty to remedy the abuse by a company of its dominant position in the market.

The Italian Competition Authority decided at its meeting on 21 March that the Merck Group will be obliged to grant free licences to allow the manufacture and sale in Italy of the active ingredient Finasteride and related generic drugs, two years before the 2009 expiration of the Supplementary Protection Certificate (a patent-like IP right) provided in European Union law. Finasteride is used in the treatment of hypertrophy of the prostate as well as male pattern hair loss.

The decision brought to a close an investigation launched in February 2005 into the possible abuse of a dominant position by the companies Merck & Co. Inc. and Merck Sharp & Dohme (Italia).

According to a 26 March press release by the authority, the "corporation's commitment to remove an obstacle to the production in Italy of Finasteride and a generic version of related pharmaceuticals, among the most important drugs used in the treatment of hypertrophy of the prostate, will encourage greater competition in this market and may lead to significant reductions in retail prices and in costs for the National Health System in Italy and in other European countries."

The press release added that "This ruling needs to be seen in the wider context of the Authority's efforts to encourage businesses to adopt commitments aimed at improving market conditions, competition and consumer choice. In the pharmaceuticals sector, in particular, the Antitrust Authority's initiative is aimed at encouraging more widespread use of generic products, taking advantage of notifications from the Italian Office of Patents and Trademarks within the Ministry of Economic Development which are based on regulations governing patents in this sector."

Previously, in two other cases relating to pharmaceuticals, the Italian Competition Authority also reached similar conclusions.

The first case involves a GSK (Glaxo Smith Kline) product used to treat migraine headaches. On 23 February 2005, the Competition Authority began investigating (under Article 82 of the European Community Treaty) the alleged anti-competitive behaviour of Glaxo Group Limited, when it refused to grant a licence to Fabbrica Italiana Sintetici SpA (FIS), a chemical company that produces active ingredients for the manufacturing in Italy of sumatriptan succinate and for the commercialisation of that ingredient in other EC countries where the relevant patent has or will have expired.

The competition authority decided that Glaxo was abusing its dominant position by refusing to grant third parties the licence to produce the sumatriptan succinate active ingredient (although the patent was to expire soon). If a licence was granted by Glaxo, the generic product would be able to enter the market as soon as the patent expired. However, if no licence was granted, then the generic company would take longer to enter the market since the proceedings to obtain authorisation to commercialise pharmaceutical products in EU member states normally takes a long time.

According to Luciano Vasques from Studio Legale Agnoli Bernardi e Associati in an article titled 'Dominance in Italy' featured in Global Competition Review, Italian law provides that third parties wishing to produce and commercialise medical products outside Italy using products that are still under patent protection in Italy (but not in other EU countries), may start to negotiate with the patent owner in proceedings initiated before the Ministry of Productive Activities to obtain an export licence. According to the law (DM 10/2002), the request for the export licence should be submitted to the Italian Patent and Trademark Office.

If no agreement is reached among the parties concerned, the Ministry shall help the parties reach an agreement. However, if the intervention does not lead to any positive result, the Ministry will transmit a copy of the file of the proceedings to the Competition Authority.

Such a settlement was not accepted by Glaxo, which led to an investigation by the Competition Authority. Glaxo however took remedial actions, which led the Competition Authority to state that Glaxo's remedial actions put a stop to improper conduct, preventing delays in bringing generic medicines to market.

It is important to note that Glaxo's original refusal to deal was seen by the Authority as an abuse of dominant position. The Authority stated that a refusal to deal of a patent holder is illegal if the holder is a dominant firm and if the refusal could impede or delay access to a competitor, even one in a different geographic market.

The second case involves an antibiotic whose patent is owned by the drug firm Merck. Merck had an industrial patent in Italy giving it exclusive rights to the sale of a pharmaceutical product "Tienam" (an antibiotic intended for the treatment of particularly serious infections, most often contracted in hospitals) based on the active ingredient Imipenem Cilastatina.

In 2005, the Competition Authority found evidence of possible abuse of dominant position by Merck as it refused to grant a licence for the production in Italy of Imipenem Cilastatina to be exported for the manufacture of generic pharmaceuticals in countries not covered by patents. The Italian Competition Authority decided to order an interim measure on Merck & Co. Inc., a company of the pharmaceuticals group Merck, based on EU competition law.

Its decision obliged Merck to allow by granting a licence, the manufacture and warehousing in Italy of the active ingredient Imipenem Cilastatina. This would permit chemical companies having plants in Italy to be already in a position, at the completion of the proceedings, to export the product in question to European countries where Merck has already lost all patent rights, in advance of the arrival in those markets of generic drugs which will compete with Merck's Tienam product.

These are some cases in which the Italian Competition Authority had to assess the abusive nature of unjustified refusals to grant licences by the patent holder, which were necessary for the production of active ingredients in quantities sufficient to allow wide distribution of generic drugs, to the benefit of competition and consequently of consumers.