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UK watchdog accuses GSK over "pay-for-delay" drug deals

Signage is pictured on the company headquarters of GlaxoSmithKline in west London July 21, 2008. REUTERS/Toby Melville
Signage is pictured on the company headquarters of GlaxoSmithKline in west London July 21, 2008. REUTERS/Toby Melville

By Ben Hirschler

LONDON (Reuters) - Britain's competition body accused GlaxoSmithKline of market abuse for striking deals with three generic drugmakers that paid them to delay launching cheap copies of its antidepressant Seroxat.

GSK, Britain's biggest drugmaker, said it believed it had acted lawfully. If it is found to have broken the law, it could be fined up to 10 percent of its worldwide turnover, which amounted to 26.4 billion pounds ($40.4 billion) in 2012.

The move by the Office of Fair Trading (OFT) is the latest example of regulators trying to curb "pay-for-delay" deals, following a series of investigations against drug companies by U.S. and European antitrust officials.

The OFT alleged on Friday that GSK concluded anti-competitive agreements with Alpharma, Generics (UK) and Norton Healthcare over the supply of paroxetine - a top-selling medicine sold by GSK under the brand name Seroxat.

The case relates to deals struck a decade ago. The patents protecting paroxetine - known as Paxil in the United States - have now expired and the supply agreements under investigation were terminated in 2004.

The British watchdog said the agreements included substantial payments from GSK to the generic companies in return for their commitment to delay launching their products. This amounted to an abuse of GSK's dominant market position, it said.

GSK disputes the allegations, which relate to deals that were effective between 2001 and 2004.

"GSK supports fair competition and we very strongly believe that we acted within the law," the company said, adding that the deals resulted in generic versions of paroxetine entering the market before GSK's patents expired.

GSK also said the paroxetine case had been reviewed by the European Commission in 2005-2006 and the EU body, which acts as antitrust regulator, formally concluded its inquiry last year with no further action.

COST SAVINGS

The OFT said it had a duty to investigate the case given the importance of generic medicines in keeping a lid on costs for the country's National Health Service (NHS).

"The introduction of generic medicines can lead to strong competition on price, which can drive savings for the NHS, to the benefit of patients and, ultimately, taxpayers," said Ann Pope, senior director of services, infrastructure and public markets at the OFT.

The companies will have an opportunity to respond to the allegations before the OFT decides if competition law has been infringed.

Mike van Dulken, head of research at Accendo Markets, said the case had taken the shine of GSK shares, following a strong performance earlier in the week, even though Seroxat/Paxil sales were only 1.4 percent of group sales in 2012.

The stock was down 0.5 percent by 5:18 a.m. ET, underperforming a 0.4 percent rise in London's FTSE 100 index.

The issue of brand-name pharmaceutical companies paying makers of generic drugs to drop patent challenges was also at the center of a European review of the sector in 2008-2009, which did not result in any action against GSK.

The topic has been thrown into the spotlight in recent years because of the growing role of generics in supplying cut-price copies of ageing blockbuster medicines in Western markets at a fraction of the cost of the originals.

In the United States, the Federal Trade Commission has also fought against pay-for-delay deals in court for more than a decade. The issue is now in front of the U.S. Supreme Court, which is expected to issue a decision by the end of June.

($1 = 0.6539 British pounds)

(Reporting by Ben Hirschler, Editing by Erica Billingham)

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