* Merck's Remicade important test case for biosimilars
* Discounts offered if customers didn't switch - source
* Merck unit MSD says confident complied with law
* CMA can fine companies up to 10 pct of global turnover (Adds details on past fines, more on biosimilars market)
By Ben Hirschler
LONDON, May 23 (Reuters) - Britain's competition watchdog has accused Merck & Co of operating an unfair discount scheme for its medicine Remicade that it said was designed to restrict competition from so-called biosimilar copies.
The Competition and Markets Authority (CMA) said on Tuesday it had provisionally found the U.S. company's European unit, Merck Sharp & Dohme, had abused its dominant position through the scheme, opening it up to potential financial penalties.
MSD said it did not believe it had broken competition rules.
Remicade, known generically as infliximab, is an antibody drug used to treat rheumatoid arthritis, Crohn’s disease and ulcerative colitis.
The drug is proving an important test for the emerging biosimilars industry.
It was the first antibody drug for which copycat versions were approved by European regulators, leading to the launch of discounted products from biosimilar drugmakers including South Korea's Celltrion, which works with Pfizer.
One person familiar with the investigation said MSD offered a discount to customers who continued to buy Remicade in the same quantities but not if they started buying biosimilars, which amounted to an incentive not to switch.
Remicade has been a big seller for Merck over the years but sales have been falling in the face of biosimilar competition, declining 29 percent last year to $1.27 billion. Merck sells the drug in Europe, while Johnson & Johnson markets it in the United States.
Such biotech drugs are made inside living cells so it is impossible to make exact generic copies, as happens with simple pills. Instead, regulators have come up with the notion of approving products that are "similar" enough to do the same job.
Manufacturing and developing biosimilars requires considerable expertise and is relatively costly, but the field is attracting growing investment as multiple blockbuster biotech medicines start to go off patent.
This year has seen the launch in Europe of the first biosimilar copy of an antibody drug for cancer, opening up a major new disease area to cut-price competition.
The CMA, which opened its investigation in December 2015, said it proposed to find MSD and its parent Merck & Co jointly and severally liable for the alleged infringement.
The competition regulator can fine companies up to 10 percent of their global turnover if they are found to have breached competition law, although a CMA spokesman emphasised this was a ceiling rather than a guideline for penalties.
MSD said it was cooperating fully with the CMA, adding it was confident the proceedings would show it had complied with the law.
It argued that the discounts in question meant infliximab was competitively priced and offered savings to the UK National Health Service, without hindering competition.
Tuesday's statement of objections from the CMA sets out its provisional views and does not mean there has in fact been any breach of competition law.
"The CMA will carefully consider any representations by the company under investigation before determining whether the law has been infringed," it said in a statement.
The CMA has been increasingly active in pharmaceuticals.
In December last year, it fined Pfizer a record 84.2 million pounds ($109 million) for its role in ramping up the cost of an epilepsy drug. In February 2016, it fined GlaxoSmithKline 37.6 million pounds over deals delaying the launch of generic copies of its antidepressant Seroxat.
$1 = 0.7705 pounds Editing by Susan Fenton and Edmund Blair