CLIP of the month: What is the best response to higher prices in the pharma sector?

Pricing issues in the pharmaceutical industry continue to keep European competition authorities busy. From the UK excessive pricing case involving Pfizer and Flynn (which has been remitted to the CMA following appeal – see here and here), and the Italian Aspen case (see here and here), to the European Commission’s continuing Aspen investigation (see here). Indeed, excessive pricing in the pharma sector was one of the topics discussed last week at the 130th Meeting of the Competition Committee of the OECD. The briefing paper for that session is our CLIP of the month.

The OECD paper provides a useful overview of recent competition law enforcement relating to excessive pricing in the pharma market, noting that such cases generally meet the stringent requirements developed in academic literature for the bringing of such cases: the presence of significant market power and high and durable barriers to entry, in scenarios where intervention will not adversely affect innovation, and where alternative regulatory intervention is not possible/inappropriate. In particular, the paper notes that each of the recent cases in Europe relates to:

  • medicines that have long been off-patent meaning that there were not R&D and investment recoupment justifications for high prices, nor concerns with interfering with innovation;
  • medicines which are essential to patients, and for which there was no prospect of timely market entry of alternative products (either because of supply constraints, the regulatory framework, or the limited size of the market); and
  • price increases which were sudden and significant, in respect of products that had long been in the market.

The OECD paper also notes that regulatory intervention in those cases was perceived to be unable to provide an appropriate, or at least timely, response to the price increase. Indeed, in light of the specific market and regulatory conditions, the stringent requirements for excessive pricing cases are more likely to be satisfied in the pharma sector. However, the OECD paper recognises that such cases are unavoidably fact-specific, operate ex post, are subject to high error risks and costs, and rarely set out bright-line guidance on how to set accurate prices. It therefore suggests that competition authorities should consider deploying other tools at their disposal including market studies, regulation, and joint initiatives with sectoral regulators. 

This is not the first we have seen of calls for broader methods for dealing with higher prices in the pharma market. Last year we reported on a recommendation by the Dutch Council for Public Health and Society for the government to use compulsory licences when a medicine is priced too high, or above a “socially acceptable price” (see here). However, there have not yet been any reports on the Dutch government’s response to that recommendation. 

In the UK at least, it seems that the CMA will not be abandoning its traditional competition tools for dealing with excessive pricing. In its contribution to the OECD meeting it states that new specific regulatory regimes are not always preferable to antitrust enforcement, as legislation takes time to implement and is generally fails to address the historic harm caused by higher prices. The CMA also emphasises that excessive pricing cases are important as a matter of policy, given that “[e]nsuring consumers are not exploited by unfairly high prices is at the heart of antitrust enforcement”. 

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