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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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January 17, 2008

The EU Suspects No One, And Suspects Everyone

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Posted by Derek

Thanks to a longtime reader in Germany, I have the scoop from the EU and the respected Frankfurter Allgemeine Zeitung newspaper. In an article about drug prices and drug approvals, titled “The European Pharmaceutical Industry Under Suspicion”, we find (my translation following):

”Die Kommission betonte, bislang lägen keine konkreten Indizien für wettbewerbswidrige Absprachen zwischen einzelnen Herstellern vor. Es sei aber auffällig, dass die Zahl neu angemeldeter Arzneimittel-Patente von durchschnittlich 40 in den Jahren 1995 bis 1999 auf durchschnittlich 28 im Zeitraum von 2000 bis 2004 zurückgegangen sei.

„Wenn innovative Arzneimittel nicht hergestellt werden und kostengünstige Generika zum Teil erst mit Verzögerung auf den Markt gelangen, dann müssen wir nach den Gründen suchen“, erklärte EU-Wettbewerbskommissarin Neelie Kroes.

The Commission stressed that so far there was no concrete evidence of anti-competitive agreements between individual manfacturers. It was striking, however, that the number of new registered patented medicines declined from an average of 40 in the years 1995 to 1999 to an average of 28 from 2000 to 2004.

"When innovative medicines are not being made and cost-effective generics come first on the market only with delays, then we must search for the reasons," said EU Competition Commissioner Neelie Kroes.“

(Update: Here’s more, in English, on the same story.)

Well, I’m glad they’re on the case. Hey, I’m not proud – I’ll take help from anywhere. If a commission of bureaucrats can figure out how to increase our success rates, I’m willing to listen. Mind you, I’m probably going to find something else to do with my time while I’m waiting for Neelie and the gang to get back to us, but still. I note, though, that their other concern is the “delay” in getting generics to market, and I’d like to address those accusations of shady dealing in there.

Here’s a minor problem with that theory: generics come out, on average, rather quickly over here in the US. I mean, right when those patents expire – and the generic companies are often in court, pitching various theories about how the various patents should be expiring even earlier. “Ah,” but you may be saying, “but that’s because prices in the US are so high – they’re looking to scoop up those profits as soon as they can”.

I’m not one to say bad things about the profit motive, of course, and the size of the US market is a big incentive all its own. But here’s something that a lot of people don’t realize, including perhaps members of EU commissions: generic drugs are cheaper in the US than in Europe. We have more expensive drugs on patent, but once they go generic, competition really slices them down, and the generic companies make it up on volume. The profit margin on generics is, last I heard, higher in Europe.

So that would be mighty crafty of the various drug companies, to hold back on entering a profitable market that way. What, then, could be the reason? Regulatory delays, anyone? Courtesy of the same EU superstructure that’s looking into said delays? Think of how many meetings, committees, and conferences it could take to work that one out. I’ll try to speed things up for them: Here in the US, generic companies are free to work on production and regulatory issues even before the relevant patents expire, thanks to the “research exemption”. This has not generally been the case in Europe. There’s also the problem that in many EU member states, generics account for only a tiny bit of the market, apparently due to decisions by the health insurance carriers themselves – which are either arms of the state, or heavily regulated by it.

There, maybe that will help. Of course, if the process of investigating all these suspicions were to move more quickly, the impact would be felt by various restaurants in Brussels and conference hotels all over the place, so we have to consider the economic factors. Good luck, folks!

Comments (16) + TrackBacks (0) | Category: Drug Development | Drug Prices | Press Coverage


1. HelicalZz on January 17, 2008 9:58 AM writes...

I was hoping you would offer some commentary on this when I saw the news last night. Your take is consistent with my initial thought (though witch hunt popped in there as well). Of all the things to be critical of big pharma about, lack of effective competition from generics isn't one of them.

Note to that patent laws have recently changed in the US to limit what can be included on a patent - you commented on this as well as I recall. That will only serve to better enable generics in time.


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2. MTK on January 17, 2008 10:54 AM writes...

Well, I don't blame the commissioners.

There has been more than a fair share of allegations of price-fixing and other non-competitive shenanigans within the EU chemical and pharma community.

Then you got the whole Plavix deal (apparently legal) with BMS, Sanofi, and Apotex where they settled the patent issues in exchange for Apotex agreeing to hold off a generic launch until 2011. The temptation to make illegal payoffs to generic manufacturers and the temptation for generic manufacturers to accept money to do nothing must be quite big.

I don't think any of this has a thing to do with new approvals, but it wouldn't surprise me to see some generic delays be less than on the up-and-up.

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3. Durruti on January 17, 2008 12:10 PM writes...

This is crazy, do they really think that the industry has been holding back on developing new drugs through some sort of conspiracy?

I guess that tactic of holding on to tens of thousands of R&D staff doing nothing for a decade, just to make it look 'real', was pretty good. I guess we can now lay them off, and just watch the profits role in!

Seriously, is it an ambiguous translation of the German, and that is why it sounds so stupid?

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4. SRC on January 17, 2008 2:28 PM writes...

The temptation to make illegal payoffs to generic manufacturers and the temptation for generic manufacturers to accept money to do nothing must be quite big.

Let's be a little more measured with our language. Whether such reverse payments to generic manufacturers are (or should be) illegal or not has not yet been settled, so it is reckless to characterize them as "illegal." At this point, they're not.

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5. Hap on January 17, 2008 3:33 PM writes...

If it looks like anticompetitive behavior, and smells like anticompetitive behavior then... When sellers collude at the expense of the consumer, one is probably not unreasonable to conclude the practice either is illegal or should be. These are precisely the kinds of transactions that are supposed to regulated (or rather forbidden) to keep the market free.

I do have to wonder though, where the EU thinks drugs come from. If I've heard of a place where people are happy just making drugs without making anything for their work, I hope I would have remembered it.

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6. SRC on January 17, 2008 4:03 PM writes...

When sellers collude at the expense of the consumer, one is probably not unreasonable to conclude the practice either is illegal or should be.

Let's distinguish opinion (with which I agree) from fact. That one thinks it should be made illegal (whether by enactment of new legislation of yet to be forthcoming judicial interpretation of existing law) is quite different from asserting it is illegal now.

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7. MTK on January 17, 2008 4:15 PM writes...


I wasn't calling the BMS deal illegal. In fact, it is apparently legal as I noted.

I was speaking in general terms of more blatantly illegal deals. For example, deals that would extend beyond full patent life.

A gray area would be paying off multiple generic manufacturers. In fact, when the Second Court of Appeals upheld the legality of reverse payments, one of the arguments cited was that a single reverse payment was not anti-competitive since there are other generic companies out there. The Second Court did mention, however, that the possibility existed that a brand company could payoff multiple generic manufacturers, but believed that the probability was remote.

They were wrong. PA Turnpike vs. Cephalon is currently under litigation where Cephalon made reverse payments to four generic companies.

In any event, even if these payments are legal now, they may soon be illegal pending legislation. If they are made illegal, the temptation to enter such deals which benefit both the brand and generic manufacturer will be great.

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8. SRC on January 17, 2008 5:04 PM writes...

MTK, fair enough. I drew the wrong inference, for which I apologize.

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9. MTK on January 17, 2008 6:34 PM writes...

No problem, SRC. I should have been clearer when I wrote it.

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10. Jumbo on January 18, 2008 1:28 AM writes...

The part I feel is missing from this discussion is the one point about the apparent limit in innovation. Sure there has been a decline in new drug approvals. But is the reason drug company collusion? Or is it that the EU limits what companies charge for novel drugs (and hence, limits the return on investment). Is it a coincidence (and I know it has been noted here and elsewhere) that at the same time that government interference - er, I mean regulation - has increased that innovation appears to have decreased?

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11. processchemist on January 18, 2008 4:03 AM writes...

Few comments from the european side about generics:

The statement reported by Derek is not so relevant in the european landscape: here the main (mostly untold) issue about pharma is the unbalanced competition from asian generic API producers, able until last year to export APIs in the euro market with a simple declaration of GMP compliance, in absence of certifications or audits from regulatory agencies.

And the European Commission was perfectly aware of the situation. Why they did nothing in the past six years? Because of the positive impact on the accounts of the EC countries, where pharmaceuticals treatments are an heavy component of the public medical costs.

In the last six year a small army of middleman and brokers filled his pockets finding the cheapest product from the worst asian producers and reselling it at small and not so small companies with 300-400% profits...

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12. srp on January 18, 2008 6:55 PM writes...

There is some evidence, given Wal*Mart and Target's ability to get really cheap deals on generic prescription drugs for their well-advertised programs, that Walgreens and CVS are managing to take huge markups on these products.

One wonders if "evil pharmacy chains" will ever be the new rallying cry. It looks as though, for example, Medicare could save a lot of money by bribing seniors a few bucks per prescription to go to Wal*Mart or Target. If third-party payers ever figure this out and act on it, the business models at Walgreens and CVS will have to change substantially.

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13. Otter on January 20, 2008 11:45 AM writes...

There is some evidence, given Wal*Mart and Target's ability to get really cheap deals on generic prescription drugs for their well-advertised programs, that Walgreens and CVS are managing to take huge markups on these products.

Alternatively, I suppose they might view the prescription drugs as a loss-leader to get customers in the door. And for Wal-Mart especially, they enhance the company's rather shaky public image.

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14. schinderhannes on January 21, 2008 8:42 AM writes...


thanks for the post, I was really loughing my had of when i first read this in the "Frankfurter".

be assuered that Derek did an excellent job in translating this. The German version does sound equally akward to native speakers!

Derek also very rightfully pointed to the biggest scam in the European health care system. Brand name drugs are cheaper over here (which most people like) and generics are a lot more expensive (which most people don´t even realize)!

Generics manufaturers manage to convince politicians that they are the good guys. And the politicans are stupid enough to believe it. All the cost savings pressure is on the new drugs which is extremly stupid. In the meantime generics cost up to 80% of the branded drugs and that´s considered a big saving while in fact the generics manufactures make a fortune. There is no real reason why we could´t have WalMarts pices in Germnay!
Whilst this would free money to by branded drugs where they show a clear benefit over the generics, the increased delta in prices might make it even more difficult to argue for new drugs, but that is another story....

@processchemist: so your comment makes the German prices even more absurd! If I interpret you correctly it should be possible for gerenrics to be even chaper in the EU than in the US?

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15. processchemist on January 21, 2008 1:39 PM writes...


Since 2002 prices of some generic APIs fell down by about 80%. In Italy the crisis of the generic APIs producers has been awful. This is a fact. What happened from the source to the consumer? Easy to guess...

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16. srp on January 22, 2008 9:27 PM writes...

From what I've read, Wal*Mart is not losing money on their generics program, although the margins may not be great. They've negotiated prices under $4 or whatever in return for large orders from the manufacturers. So apparently, either the big drug chains are grossing $15-20 on generic prescriptions or else they really suck at negotiating with the manufacturers.

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