March 23, 2023

Britain Accuses GlaxoSmithKline of Conspiring With Rivals Over Generics

The Office of Fair Trading in Britain contended that Glaxo had abused its dominant position in the market, kept prices artificially high and denied “significant cost savings” to Britain’s state-run health provider, the National Health Service.

The British case centers on efforts by three companies, Alpharma, Generics (U.K.) and Norton Healthcare, to market an alternative to Seroxat, GlaxoSmithKline’s brand of paroxetine. The company sells it in the United States under the brand name Paxil.

In recent years, regulators in Europe and the United States have paid greater attention to pay-for-delay deals, suspecting that they may allow pharmaceutical companies to make big profits by exploiting a brief but lucrative period of monopoly over the supply of a product.

“These are blockbuster drugs,” said Farasat Bokhari, a senior lecturer in economics at the University of East Anglia, “so if they are on the market without generics challenging them then companies can maintain high, monopoly profits.

“As soon as generic entry takes place,” Mr. Bokhari added, “prices drop significantly, sometimes by up to 70 to 80 percent.”

GlaxoSmithKline, according to British authorities, warned the three companies that their generic equivalents would infringe a patent. To resolve the dispute, each of the rivals concluded one or more agreements with GlaxoSmithKline, the Office of Fair Trading said.

“The O.F.T.’s provisional view is that these agreements included substantial payments from GlaxoSmithKline to the generic companies in return for their commitment to delay their plans to supply paroxetine independently,” the regulator said. The agreements with the three companies collectively spanned the years 2001 to 2004, it said.

GlaxoSmithKline said it believed “very strongly” that it had “acted within the law, as the holder of valid patents for paroxetine, in entering the agreements under investigation.”

“These arrangements resulted in other paroxetine products entering the market before GSK’s patents had expired,” the company said. “We have cooperated fully with the Office of Fair Trading in this investigation.”

The company noted that European Union regulators had reviewed the matters covered by the agreements twice and decided to take no action.

The practice of brand-name drug companies paying generic manufacturers to delay selling their copycat versions has also come under scrutiny in the United States, where the Federal Trade Commission has argued that the practice violates antitrust law.

The matter is currently before the United States Supreme Court, which is considering whether a settlement between Solvay Pharmaceuticals, which developed the testosterone treatment AndroGel, and Actavis, which created a generic version, was illegal.

Brand-name and generic drug makers have argued that companies have a right to protect their intellectual property, and that the payments actually saved consumers money by bringing the generic versions to consumers earlier than they normally would have. But the F.T.C. has argued that the opposite is true and that the payments are delaying cheaper versions from entering the market.

The British regulator cited no estimate of the National Health Service’s costs resulting from Glaxo’s supposed deals. But pay-for-delay agreements cost American consumers an estimated $3.5 billion a year, according to the F.T.C. It says that in 2012, the number of “potentially anticompetitive patent dispute settlements” between branded and generic drug companies increased to 40, from 28 in 2011.

Before the period in the British inquiry, Seroxat was one of GlaxoSmithKline’s best-selling drugs and was used to treat, among other conditions, depression and anxiety disorders, the Office of Fair Trading said. Since that time, various generic versions of paroxetine have reached the market.

“The introduction of generic medicines can lead to strong competition on price, which can drive savings for the N.H.S., to the benefit of patients and, ultimately, taxpayers,” said Ann Pope, senior director of services, infrastructure and public markets at the Office of Fair Trading. “It is therefore particularly important that the O.F.T. fully investigates concerns that independent generic entry may have been delayed in this case.”

The action Friday was the first step in formal proceedings: the issuance of a statement of objections. The companies involved can now make written and oral responses.

“No assumption should be made at this stage that there has been an infringement of competition law,” Ms. Pope said. “We will carefully consider the parties’ representations to the statement of objections before deciding whether competition law has in fact been infringed.”

If found to be in breach of antitrust law, a company can in theory be fined up to 10 percent of its worldwide revenue, though penalties rarely are so great.

The European Commission, which is the European Union’s antitrust regulator, said Friday that it had a number of investigations under way within the drug industry and in general was “looking at the so-called pay-for-delay patent agreements.” It added that it had fined AstraZeneca for delaying market entry of generic competitors to its ulcer drug Losec in 2005.

Katie Thomas contributed reporting from New York.

This article has been revised to reflect the following correction:

Correction: April 19, 2013

An earlier version of this article misstated Solvay Pharmaceutical’s connection to the testosterone treatment AndroGel. Solvay developed AndroGel, but does not sell it. The treatment is sold by Abbott Laboratories.

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DealBook: Scrutiny Intensifies on Collusion in Rate Inquiry

A Barclays trader at the New York Stock Exchange last week.Bebeto Matthews/Associated PressA Barclays trader at the New York Stock Exchange last week.

While much of the scrutiny surrounding interest rate manipulation has centered on Barclays, regulators have said that traders at the big British bank colluded with rivals to influence a key benchmark.

As part of a three-year scheme, a senior Barclays trader in Europe worked with counterparts at Crédit Agricole, HSBC, Deutsche Bank and Société Générale, according to people with knowledge of the matter who could not speak publicly because of the investigation. Regulators are examining whether at least one other bank was involved, one of the people said.

In an effort to bolster their profits, the traders collaborated to push interest rates up or down, according to regulatory documents. By doing so, they aimed to eke out extra gains on their trades or limit losses. In its complaint against Barclays, the Commodity Futures Trading Commission described the bank’s trader as having “orchestrated an effort to align trading strategies among traders at multiple banks” to profit on their portfolios.

In June, Barclays paid $450 million to settle its case with the commission, the Justice Department and the Financial Services Authority of Britain. British and American authorities accused the bank of submitting false rates from 2005 through 2009. Regulators have also conducted investigations of others involved in the scheme.

As the rate-manipulation scandal spreads to other banks, the fallout could have major ramifications for the financial industry. Civil and criminal authorities around the world are investigating, and lawmakers in the United States have started their own inquiries. The civil and criminal actions, as well as private lawsuits, could cost the banks tens of billions of dollars.

Libor Explained

The Barclays case centers on key benchmarks, including the London interbank offered rate, or Libor, and the Euro interbank offered rate, or Euribor. Such rates are used to determine the borrowing costs for consumers and corporations. The senior trader at Barclays who worked with the four European banks specifically tried to manipulate Euribor, according to regulators.

The Barclays case was the first to emerge from the multiyear investigation, which has also touched some of the biggest banks on Wall Street. Authorities in the United States, Britain, Japan and elsewhere are also looking into the potential involvement of JPMorgan Chase, Citigroup and UBS. The Financial Times previously reported the names of the four European banks that worked with the Barclays trader.

The broad investigation has prompted outrage from lawmakers in Washington and London. In recent weeks, British central bankers and regulators testified to Parliament about their role in the rate-manipulation scandal. In the United States, politicians are asking why regulators did not stop the illegal activities, even though regulators knew about potential problems as far back as 2007.

In 2008, the Federal Reserve Bank of New York suggested changes to the process, after learning that Barclays reported artificially low rates, according to documents. The regulator then shared those recommendations with the Bank of England, the British central bank. But the New York Fed did not end the rate manipulation at Barclays.

Top central bank officials are now signaling a willingness to change the system.

On Wednesday, Mark Carney, the governor of the Bank of Canada, said he and other central bank chiefs would discuss ways of improving Libor, or even replacing it, when they are scheduled to meet on Sept. 17.

“In terms of alternatives, there is an attraction to moving toward, obviously, market-based rates if possible,” Mr. Carney said at a news conference. Mr. Carney currently heads the Financial Stability Board, a body consisting of central banks and finance ministries that was set up in 2009 to coordinate global financial regulation.

Mervyn A. King, governor of the Bank of England, sent a letter on Wednesday to central bank chiefs inviting them to discuss Libor reforms at another meeting scheduled for September. The Bank of England did not respond to a request for comment. Jeremy Harrison, a Bank of Canada spokesman, confirmed the existence of Mr. King’s letter and its purpose.

The United States Congress is also delving into the matter, as lawmakers question why the rate-setting process was not better policed.

Representative Randy Neugebauer, the Republican chairman of the House Financial Services subcommittee investigating Libor, is seeking documents from the New York Fed about JPMorgan Chase, Citigroup and Bank of America, the three American banks involved in setting the rate. Last week, Mr. Neugebauer collected transcripts from at least a dozen phone calls in 2007 and 2008 between New York Fed officials and executives at Barclays.

The House committee has also homed in on Barclays. On Monday, Congressional staff will receive a briefing about Libor from the general counsel of Barclays in America and its chief lobbyist, according to a government official.

Peter Eavis contributed reporting.

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