23 May 2017
An announcement by the European Commission last week resolves an open question about its view on the recent spate of pharma sector excessive pricing cases that have been seen in Italy and the UK. The Commission has now confirmed that, following dawn raids across four member states in February, it has opened an investigation into Aspen Pharma for suspected breach of Article 102. The concern is that Aspen’s pricing practices in relation to off patent drugs containing five ingredients used for treating cancer has led to unjustified price increases. This overlaps with the Italian Market Competition Authority’s decision in October 2016 to fine Aspen €5.2 million for unfair price increases, which covered four of the five ingredients now under investigation (see here for our report). This is the Commission’s first excessive pricing case in the pharma sector, following a trend set by the national competition authorities (including in the UK and US – although given that US antitrust does not apply to pure pricing issues, the US cases have tended to focus on another form of abuse (e.g. here) which led to the excessive prices). The EU NCAs have been well placed to deal with such conduct, as pharma markets are national in scope, and subject to significant regional differences resulting from the different formation of public health services. However, setting the benchmark price is a difficult – and controversial – aspect in any investigation (see here for our thoughts on the CMA’s recent approach) and it will be of interest to see how the Commission tackles the issue, as its approach may well be followed by other NCAs.
Bearing these points in mind, we will be particularly keen to see how the Commission deals with the following two points:
- The definition of the relevant market and whether a company is dominant – before assessing whether its prices are excessive, a pharma company must first know whether it is dominant. With diverging approaches on product market definition (definitions have been drawn from therapeutic / molecular / dosage level and from regulatory guidance), it can be difficult to make an assessment of dominance. In Aspen’s case, it has found itself one of few companies willing to manufacture low volume generic drugs, and despite low barriers to entry, no other companies have entered the market to exert a form of price control on Aspen. It has perhaps therefore become dominant as a result of market failures.
- How the Commission determines an acceptable level of profit (i.e., what is the meaning of ‘excessive’?). While under patent protection, pharmaceutical product prices are generally constrained in some way (e.g. through profit caps under the UK PPRS), but in theory, profits could be competed upwards following patent expiry, even if overall prices decline (this is a key part of the argument raised by Pfizer and Flynn in their appeals of the CMA infringement decision). The recent opinion of AG Wahl considering unfair prices (albeit in a copyright licence context) concluded that there is no single method of determining the benchmark, and acknowledges that there is a high risk of error, but a price should only be excessive if it is significantly and persistently above whatever benchmark is determined. Whilst AG Wahl was unable to point to any guaranteed failsafe methods of analysis, he stated that an authority should only intervene when there is no doubt that an abuse has been committed.
The investigation does signal that the Commission is keen to address the fairness of pricing in the pharmaceutical industry, but as with all such investigations, its approach should not be one of a price regulator. Indeed, the Commission is at pains to point out that it is looking at a case where the price increases were extremely significant (100s of percent uplift). It may reveal that a case-by-case approach is not appropriate, and the real issue is regulatory failure that will need to be corrected by legislation (such as that currently before the UK Parliament).