Commission plans hearings on Spanish drugs ruling

Date: 14/10/1999

By Peter Chapman

BRITISH drugs giant Glaxo Wellcome is to be given the chance to challenge a European Commission ruling outlawing its efforts to thwart profiteering distributors who buy their drugs cheaply in Spain and sell them in other member states where prices are dearer.

Anti-trust officials delivered a preliminary ruling or 'statement of objections' on the case in July, saying the company could not charge distributors a separate, higher price for drugs they intended to sell outside the Spanish market, where government controls keep prices very low.

It said the system used by the firm to prevent 'parallel imports' - mainly into the UK, where drug prices are much higher - fell foul of EU competition rules. Officials argued that Glaxo Wellcome could not be allowed to fragment the Union's single market in this way, and warned that it must give Spanish distributors a free rein or risk heavy fines.

But the company has now been given the opportunity to contest this ruling at hearings in early December. Officials say they will follow the same procedure which gave US film distribution venture United International Pictures the chance earlier this year to overturn the Commission's initial verdict that it should be wound up.

Glaxo Wellcome has so far refused to comment on the hearings, but the news is bound to be welcomed by the company, which last week suffered the double blow of massive redundancies and the rejection by the British government of its new anti-influenza drug Relenza for use by the state-run National Health Service on the grounds that it was too costly.

However, the Commission officials are hinting that the company is likely to find it harder to win a reprieve than the Hollywood film venture. "The point it makes is that margins in lower-price countries are not sufficient to fund research into new drugs," said one anti-trust expert. "But it must be said that the Spanish authorities, which set the price for drugs marketed in Spain, do take into account research costs into the drug at issue and future R&D funding."

Meanwhile, executives from the firm's rivals say that they will not be supporting the company's battle to thwart the parallel traders. "They are on their own on this one. I do not see how they can win," said one.

The EU's drugs market remains highly regulated by member states, which impose various degrees of price control. Parallel traders seize on these differentials to export drugs to countries with higher prices, mainly in the richer Union members of Northern Europe.

Former Industry Commissioner Martin Bangemann held a series of high profile 'round tables' with industry and member states in a bid to reach consensus on phasing out price controls for drugs. But these efforts foundered amid opposition, mainly from southern EU member states.

British drugs giant Glaxo Wellcome is to be given the chance to challenge a European Commission ruling outlawing its efforts the thwart profiteering distributors who buy their drugs cheaply in Spain and sell them in other Member States where prices are dearer.