The European Commission raided some of the world's largest drugmakers on Wednesday, launching a broad investigation into whether they made illegal deals or abused patents to limit competition and harm consumers.
Competition Commissioner Neelie Kroes said the European Union regulator suspected companies had conspired to delay cheap generic alternatives to branded medicines.
The sweep involved collecting confidential information from firms including Pfizer , GlaxoSmithKline, AstraZeneca, Johnson & Johnson , Merck and Sanofi-Aventis.
The dawn raids and sector inquiry, which the Commission said was not based on specific suspected violations, could lead to cartel charges against companies and potentially huge fines.
Patents are the life blood of the pharmaceutical industry but critics allege some companies misuse patent rights to delay the introduction of generic medicines in unjustified ways.
The cost of medicines is a vexed issue in Europe, where governments are seeking to clamp down on runaway healthcare bills at the same time as encouraging the development of the high-tech pharmaceutical and biotechnology sectors.
Kroes said the aim was to ensure governments and consumers got more new products and value for money. She said Europeans spent around 200 billion euros ($300 billion) annually on pharmaceuticals, or about 400 euros for each person.
"If innovative products are not being produced, and cheaper generic alternatives to existing products are in some cases being delayed, then we need to find out why and, if necessary, take action," she said in the statement.
Mike Ward, an industry analyst at stockbroker Nomura Code, said the probe highlighted the pressure on drugmakers worldwide to prove their patent maneuvers were above board.
"There have been mutterings in the United States as well, particularly with regards to deals that have been struck by companies to keep certain generics off the market," he said.
AstraZeneca in Focus
During a news conference, Kroes cited AstraZeneca as a clear example of a company in which competition was not functioning optimally, referring to a 2005 decision in which the Commission fined the company 60 million euros.
The Commission found that AstraZeneca had misused the patent system to delay market entry of rivals to its ulcer drug Losec.
AstraZeneca and other firms involved with the new investigation said they were cooperating fully with officials.
Other companies, including Roche Holding, Merck and Bayer Schering Pharma said they were not aware that they were involved or had not received inquiries from officials.
Novartis said its Sandoz generics unit was cooperating but the main branded drugs unit was not implicated.
The Commission said the probe followed concerns competition was not functioning properly and it highlighted the fact that the number of innovative drugs had decreased in recent years.
The raids will help establish if companies created barriers to competitors, whether they misused patent rights or engaged in "vexatious litigation" and if some firms abused their dominance of the market.
The European Federation of Pharmaceutical Industries and Associations said it hoped the inquiry would enable the Commission to better understand the importance of intellectual property rights in driving drug innovation.
The EU executive expects to announce preliminary results late this year and make a complete report in the spring of 2009.
The Commission said it raided firms because patents, litigation and settlement agreements are by their nature highly confidential.
"Such information may also be easily withheld, concealed or destroyed. This is why inspections have been considered appropriate," it said.
Backing up its case that the number of new drugs reaching the market had decreased, the Commission cited figures showing that from 1995 to 1999 there were 40 new "molecular entities" launched each year but the figure dropped between 2000 and 2004 to only 28.
In all cases, the Commission is focusing on medicines for human consumption.
The Commission has already conducted sector inquiries into energy, financial services and telecommunications. This marks the first time a sector inquiry has begun with raids.