Restoring trust in our economy

Association of the Danish Pharmaceutical Industry New Year Conference, Copenhagen, 27 January 2017

"Check against delivery"

Introduction

Ladies and gentlemen

Thank you for such a warm welcome on this winter day.

I always find that this time of year brings people together. When you help a friend to shovel snow from the pavement, or when a neighbour gives you a hand to get your car started, it's a little reminder that you live in a community where people can rely on each other.

An economy built on trust

And yet most of the people we rely on every day are people we never see.

When we get sick, we depend on thousands of people whose names we will never know. On the research scientists who work to find new medicines. The factory staff who produce the drugs. The distributors who deliver them to pharmacies.

I think that's quite inspiring. But it also calls for a lot of trust. As individuals, none of us has the power to control what all those people are doing. We have to trust that they will do their jobs in a way that meets our needs.

And I think we’re starting to see all around us what happens when people lose that trust.

They start to look for ways to protect themselves against a global market that doesn't seem to care. They start to put their faith in barriers and fences, not in openness.

Those defences will not help. They’ll only weaken our economies and increase prices for consumers, without giving people any more control over their own lives. But when people have the sense that markets aren’t listening to their needs, then we shouldn't be surprised if they start to look for radical alternatives.

Of course, this isn't just an issue about markets. But as a politician, you quickly learn that people don't think about politics all the time. They usually have something better to do. But they do have to deal with the market every single day. And if businesses don't seem to take their needs seriously, that affects their whole view of the society around them.

Markets that earn people’s trust

But I don't think we should despair. Because this challenge is also an opportunity.

If markets do meet people's needs, then that can help restore their trust. And here in Denmark, and throughout Europe, we have businesses that can make that happen.

Companies like yours have what it takes to develop the innovative products that people need. They have what it takes to get more efficient, and cut prices. And so they have what it takes to regain people’s trust.

Balancing rewards for innovation and competition

But I don't need to tell you that innovation isn't easy.

Coming up with a new drug, or an innovative computer chip, takes a huge amount of research, a huge number of tests and improvements. And we can't expect businesses to do that if their rivals can easily copy what they come up with. That's why it's so important to have intellectual property rights that make sure innovators can be rewarded for their work.

But those rewards can't include the right to stop others from developing alternatives.

Because it's competition that keeps companies innovating, to get the edge over their rivals. And we need that drive to make sure that tomorrow will be even better than today.

It's also competition that keeps prices under control. Because innovative products won't improve people's lives if they can't afford to buy them.

So innovation demands a balance, between rewarding companies for innovation, and keeping the drive to do better alive. And competition enforcement can help to get that balance right.

That's one of the issues in our cases involving Google. In each of those cases, we’re concerned that Google may have misused its power to make it harder for others to innovate successfully. Each time, it seems to have made it hard for rivals to get potential customers to notice their products. And there's not much point putting the effort and money into innovation, if you’re likely to have trouble getting customers to notice it.

Merger control and innovation

So competition enforcement can help give innovation the room to thrive. And that's one of the things we think about when we look at mergers.

Some of the cancer drugs that Novartis bought from GSK in 2015 were very similar to medicines that Novartis was already working on. So we thought it was unlikely that it would keep making the effort to develop both sets of drugs.

But pulling the plug on one of them could have cost patients dearly. They might have lost the chance to benefit from a drug that might have worked better for them. Or one that might have had fewer side effects. And less competition could also have meant higher prices for health systems, and ultimately for taxpayers.

So we only approved that merger after Novartis agreed to sell its pipeline products. And the companies that bought them should make them available to patients in the near future.

So I think it's clear that protecting competition is not just about the medicines that are on the market today, but also the ones in the pipeline.

That can be a challenge for our merger rules. Because at the moment, we decide whether a merger needs our approval by looking at the turnover of the companies involved. And of course a pipeline product doesn't yet have any turnover.

At the end of 2015, Novartis bought another pipeline drug from GSK. This time, it was a potential treatment for multiple sclerosis. But since that drug was under development, it had no turnover at all.

In the end, we did get to review that transaction, because our rules treated it as part of the same merger as the one I mentioned earlier. And we found that this part of the deal wouldn't harm competition.

But there are other cases like this that could threaten competition, and which we don't get to see.

That's why we’ve just finished consulting on whether we ought to change our rules, so we can review mergers that are important for competition, but where one of the companies has a low turnover, or even none at all.

We now have to think carefully about the information that we’ve had from that consultation. Even if it does show that our rules need to be changed, we have to make sure that doesn't put obstacles in the way of mergers that don't much affect competition in Europe.

Generic competition

And we need to be sure that the balance between rewarding innovation and defending competition is in the right place.

For companies like yours, of course, the balance is there in the intellectual property rules. When you come up with a new drug, you get the exclusive right to sell it for a time. But afterwards, anyone can compete with a generic version of that drug – and that competition can bring the price down by as much as 90%.

So we need to be sure that nothing delays the moment when generic medicines become available.

That’s why we’re concerned when an agreement that seems at first glance to simply settle a patent dispute turns out to be a way to pay generic companies to delay launching their products.

I know that going to court over patents – and settling those disputes – is a fact of life for companies like yours. So it's important that we’re clear about how you can put together a settlement so it doesn't harm competition.

That’s exactly what the Commission has been doing in recent years. First with the sector inquiry that ended in 2009, and since then with the decisions that we’ve taken against these so-called “pay for delay” deals. And I hope that last year’s judgment from the European courts – which confirmed our decision in a case involving Lundbeck and four generics businesses – will make things even clearer.

That work certainly seems to be having the right effect.

Since the sector inquiry, we’ve been monitoring patent settlements in Europe. And we’ve found that the proportion of settlements that could be problematic for competition has fallen by more than half, to a very low level. So I think this concern is now under control.

But pay for delay deals are only one reason why prices can stay high, even after a drug’s protection expires.

Sometimes, regulations could have the side effect of discouraging generic drugs from entering the market. Potential suppliers might decide that the profits they would make just aren't worth the costs of producing their own product.

And the best way to solve those issues is sometimes to change the regulations, not to apply the competition rules.

For example, it can make sense to give companies an exclusive right to sell a drug for a rare disease, if that's the only way to make it worth investing in these so-called “orphan medicines”. But there's no need to do that if the drug is already available, made up in a pharmacy rather than sitting ready-made on the shelves. So the Commission recently made clear that in future, companies won't necessarily get exclusive rights to sell the finished product in that case.

And the same goes for those moments when prices go up because generic companies choose not to enter the market.

Sometimes, adjusting regulation – or helping health systems to negotiate prices more effectively – can be a good solution to these problems. But there can also be times when competition rules need to do their bit to deal with very high prices – as the recent action by the British and Italian competition authorities shows.

Conclusion

Because a stable economy, a healthy society, depends upon trust. And the thing about trust is that it's hard to win, but very easy to lose.

When the price of a drug suddenly goes up hundreds or even thousands of percent. When companies agree to raise profits by charging consumers more. Those things undermine people’s confidence in the whole system which they rely on. And no amount of innovation can erase that sense of being cheated.

I don't think that sort of behaviour is the norm. I think most companies take a lot of care to follow the rules. But I also think those that don't are doing more harm than they realise.

Competition enforcement can help to avoid that sort of problem. But we can't be everywhere at once.

So in the end, business needs to step up to its responsibilities. It needs to make sure that consumers and health care providers see an industry that provide solutions rather than engage in abusive conduct. That way, however uncertain the world around us may be, we can be sure that our economies, our societies, are strong.

Thank you.