Germany 's Bayer Wins Right To Limit Supply to Discounters

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Germany 's Bayer Wins Right To Limit Supply to Discounters

By James Kanter, the Dow Jones Newswires

January 6, 2004

BRUSSELS - Europe 's highest court said that BayerAG can limit supplies to prevent discount traders from exploiting drug-price differences within the European Union, handing a major victory to the pharmaceutical industry.

The case started during the early 1990s, when the German pharmaceutical company limited supplies to wholesalers to stop re-exports of its best-selling Adalat heart treatment from France and Spain -- where prices are lower because of state regulation -- to higher-priced Britain . Bayer said it was losing half its U.K. sales because of the practice.

Bayer's move soon encountered resistance in Brussels . Spanish wholesalers complained that Bayer unfairly limited supplies, and during 1996 the European Commission fined Bayer €3 million ($3.8 million) for breaking Europe 's anticartel laws. Bayer contested the fine, and the commission was overturned twice in lower courts. Judges said Bayer hadn't overstepped the law because Bayer didn't explicitly prohibit exports.

On Tuesday, the European Court of Justice, based in Luxembourg , upheld Bayer's previous victories and threw out the fine. Judges said none of the documents submitted contained evidence proving Bayer sought to ban re-exports.

Bayer's victory is critical for big drug companies facing stiff price competition from generic-drug makers and discounters. The case concerned the discounters, which buy bulk batches of medicines in EU countries such as Spain and sell surpluses into nations such as Britain , where drugs can command higher prices. The practice represents about €5 billion in sales and slices as much as €2 billion from drug companies' profits, according to Janice Haigh of IMS Global Consulting Group in London .

After the latest ruling, drug giants can fight back with quota arrangements such as Bayer's to stymie the discounters. Bayer said the ruling shows it is "under no obligation to supply the entire European market from the member state with the lowest state-regulated prices."

The ruling is a "disappointment" for regulators, acknowledged commission spokeswoman Amelia Torres. Despite these back, Ms. Torres said the commission will continue investigating "about a dozen" quota systems operated by other pharmaceutical companies, including GlaxoSmithKline PLC and Merck & Co.

Discounters are counting on those regulatory efforts. The loss in the Bayer case won't "prevent Brussels officials from finding ways of upholding fair competition in the medicines market," said Don Macarthur of the European Association of Euro-Pharmaceutical Companies, which represents discount traders. Discounters say their practices save Europe money.

In a separate but similar battle to protect higher-margin business, some big drug makers, including Pfizer Inc., GlaxoSmithKline and Eli Lilly & Co., have said they will limit sales of patent-protected medicines to Canada because of concerns that the drugs are being re-exported to the U.S. Many Americans have been turning to Internet pharmacies operating out of Canada , where medicines generally are less expensive owing to government price controls.