EUROPE: Bayer, Other Drugmakers Face Price Pressure on Ruling (Update1)

[Murray Charters <mcharters@xxxxxxxxxxxxxx>]

EUROPE: Bayer, Other Drugmakers Face Price Pressure on Ruling (Update1)

Last Updated: April 1, 2004 06:40 EST

April 1 (Bloomberg) -- Bayer AG, GlaxoSmithKline Plc and other drugmakers may 
face more price pressure from discount
drug importers after the European Union's highest court backed easing 
restrictions on some drug approvals.

The ruling from the Luxembourg-based European Court of Justice benefits 
companies that profit from importing drugs from
southern European markets, where prices are lower because of state regulation, 
into more expensive northern countries
such as Germany and the U.K. The drug manufacturers have fought to overturn the 
practice, saying the trade eats into
their sales and hurts their ability to control how their products are sold.

The court said Germany was wrong to require licensing agreements between drug 
suppliers in one country and companies
seeking sales approvals in another. Authorities should instead consider whether 
the drugs sold in both markets have the
same active ingredients and are essentially similar, it said.

``It's yet another dagger in the bull,'' said Louis van Lennep, a lawyer at 
Linklaters in Brussels. ``The ruling makes
it easier for discount traders and more difficult for the pharmaceutical 
industry.''

The EU court has ruled several times in favor of parallel drug traders, which 
according to the consultant IMS Health
generate total sales of as much as 5 billion euros ($6.1 billion) a year in 
Europe. The trade is legal under EU rules
that allow the free movement of goods in the 15-member bloc.

``The court is taking a further step to enlarging the scope of parallel 
trade,'' Marlene Van Kerckhove, a partner at
law firm Arnold & Porter in Brussels, said before the ruling.

The trade costs the drug industry about 1 billion euros a year in lost profits, 
said Christophe de Callatay, a
spokesman at the Brussels-based European Federation of Pharmaceutical 
Industries and Associations, whose members
include Bayer, GlaxoSmithKline and Merck & Co. Inc.

Case Origins

The case was brought to court by Kohlpharma GmbH, Germany's largest parallel 
drug trader with sales last year of more
than 700 million euros.

``This ruling will make it much easier to get a sales license,'' Thilo Bauroth, 
head of Merzig, Germany-based
Kohlpharma's legal department, said before the decision.

The case stems from a dispute over Germany's rejection in 1994 of Kohlpharma's 
request to sell the drug Jumex, made by
Italy's Chiesi Farmaceutici SpA, to treat Parkinson's disease. Kohlpharma sued 
the German government, saying the
rejection was unjustified.

Kohlpharma's application was based on the German authorities' previous approval 
of Orion Pharma GmbH's Movergan, a drug
that contains the same active ingredient found in the Italian company's 
product. Orion Pharma is the German unit of
Finland's Orion-Yhtymae Oy, the third-largest drug company in the Nordic region.

German Appeal

The German authorities refused. They argued that both products had to have the 
same manufacturer or be bound by a
license agreement regarding the product at stake. While the drugs do contain 
the same active ingredients, the terms of
the supplier and license agreements differ.

The dispute reached a German appeals court. National judges asked the Court of 
Justice to rule whether the German
authorities broke EU rules by focusing on the license agreement. The EU 
judgment will now be sent to the German
tribunal, which will take up to a year to make its final ruling.

``The ruling makes it very easy to bring in every product under the rule of 
parallel trade with the same active
ingredient,'' said Helmut Karsten, head of regulatory affairs at Orion Pharma.

The case is C-112/02 Kohlpharma v Germany.

To contact the reporter on this story:
Matthew Newman in Brussels mnewman6@xxxxxxxxxxxxx

To contact the editor of this story:
Eamonn Sullivan at esullivan@xxxxxxxxxxxxxx

SOURCE: Bloomberg


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