The Wall Street Journal

August 1, 2003 8:37 a.m. EDT


EU Alleges AstraZeneca Misled
Regulators to Stymie Generics

Patent Extension for Losec Is Focus of Charges
Pharmaceuticals Company Calls 'Groundless'


BRUSSELS -- European antitrust officials accused AstraZeneca PLC of misleading regulators to protect a popular ulcer drug from cheap generic competition, shortchanging "health systems and patients."

Saying the British-Swedish company is suspected of "misuses of governmental systems and procedures," European Union Competition Commissioner Mario Monti opened a formal investigation Thursday. The so-called statement of objections is a preliminary finding of suspected misconduct, and EU officials emphasized that such statements don't prejudge the outcome of the investigation or constitute a legal finding of wrongdoing.

AstraZeneca called the allegations "groundless" and said it would appeal any penalty to the European Court of Justice in Luxembourg. The company said the European Commission was using "a novel application" of EU antitrust laws.

Push for Competition

In most antitrust cases, the EU doesn't disclose its allegations so openly before conducting a formal investigation. By issuing the statement of objections now and pursuing a new legal approach, Mr. Monti appears to be escalating his efforts to force big pharmaceuticals companies to face more competition.

[Big Sellers]

The AstraZeneca investigation breaks new legal ground, EU officials said. Usually, antitrust officials gather evidence of abuses such as price manipulation or licensing restrictions. In AstraZeneca's case, the commission alleges the company misled regulators during the patent-extension process.

For example, the commission contends AstraZeneca concealed from some national patent offices the date it received the first EU marketing authorization for the ulcer drug Losec. The aim was to extend patent protection by as much as five years in those countries, the commission alleges.

If the commission determines a company has broken antitrust laws, fines of as much as 10% of annual global sales can be levied, though penalties tend to be much less, and EU antitrust investigations can drag on for years. AstraZeneca's 2002 sales totaled $17.8 billion.

Known as Prilosec in the U.S., Losec was once among the world's biggest-selling drugs. But global annual sales fell to $3.1 billion in 2002 from a peak of $6.2 billion in 2000, in part because of generic competition. AstraZeneca was formed in April 1999 through the merger of Astra AB of Sweden and Zeneca Group PLC of the United Kingdom.

Mr. Monti's move opens a new front in his efforts to allow consumers access to cheaper drugs. He already has supported allowing so-called parallel importers to buy drugs cheaply in southern Europe and re-export them to northern Europe, where they are more expensive.

Seeking Cheaper Drugs

The investigation comes as efforts to hold down drug prices are spreading. In the U.S., the House of Representatives overwhelmingly passed a measure last week allowing pharmacies and wholesalers to import cheaper prescription drugs from 25 countries. While such parallel importing exists in Europe, pharmaceuticals companies have gone to court to try to stop it. Even without cheap imports, many EU countries reduce drug spending by having a single government agency set strict limits on reimbursements.

Pharmaceuticals companies complain they are being squeezed and must rely on U.S. sales to fund vital research and development.

The commission began an informal probe of AstraZeneca after receiving complaints from two generic-drug makers in 1999. It conducted surprise raids on AstraZeneca offices in London and Soedertaelje, Sweden, in February 2000.

In addition to alleging misrepresentation to extend patent protection, the EU is challenging AstraZeneca's decision to ask national medical authorities to stop authorizing the marketing of an older capsule form of Losec in favor of exclusive marketing of a tablet form. The commission believes this so-called deregistration of the older form of Losec was intended to stymie generic-drug manufacturers and importers of the older capsule forms.

"AstraZeneca is very aggressive," said Thilo Bauroth, a lawyer for the discount importer Kohlpharma in Merzig, Germany. "They're sending us warning letters all the time."

AstraZeneca's spokesman in Sweden, Staffan Ternby, said the company will submit a formal response to EU regulators "within weeks."

Write to James Kanter at james.kanter@dowjones.com1

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Updated August 1, 2003 8:37 a.m.

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