Economical with the truth? When providing misleading information to authorities might be an object infringement

One of the more intriguing Opinions to be given by an Advocate General recently came out in late September (Case C-179/16, F. Hoffmann-La Roche and Others v Autorità Garante della Concorrenza e del Mercato (AGCM), Opinion of Advocate General Saugmandsgaard Øe delivered on 21 September 2017). 

 It is full of interesting observations on market definition in the pharma sector; the distinction between object and effect; how to look at the question of competition between licensors and licensees under the Technology Transfer Regulation; and how to assess whether a restriction of competition exists. We will be writing about these (and more) a bit later, but thought that in the meantime those of you who are particularly interested in Life Sciences might want to take a look at our sister blog On The Pulse. A short article has been posted there which briefly summarises the Advocate General’s views on whether there is a duty on pharma companies under Article 101 not to agree to provide information which is objectively misleading to the regulatory authorities. In this instance the information found to be misleading related to the relative safety of two products, one of which was authorised to treat ophthalmic conditions and one of which was not, but which was being prescribed off-label – so quite unusual circumstances (although perhaps a situation that could be expected to arise more in future, as second, third and fourth medical uses become the norm).

You may remember that a similar legal issue has already been discussed under Article 102 in the AstraZeneca case (see here and here) where dominant companies were found to be subject to a duty to act transparently when dealing with the patent authorities. The extent of the duty was somewhat modified by the CJEU, but the obligation to provide all relevant information, and to clarify information which subsequently turns out to be incorrect, still exists. It will be interesting to see whether the CJEU follows the Advocate General in his approach to identifying a similar duty under Article 101, and whether the Advocate General’s expansive reading of when information may be misleading is approved by the Court.

Pat Treacy

Product hopping: The competition law risks of launching new product formulations

‘Product hopping’, or ‘evergreening’, are expressions used (by competition authorities and industry respectively) to describe strategies employed by pharmaceutical companies to protect sales of a successful drug on the verge of losing patent protection. For example, a pharmaceutical company might introduce a new formulation of the drug before it faces significant competition from a generic alternative.

There is nothing inherently wrong with product hopping. The European Court of Justice has recognised that it is legitimate for pharmaceutical companies to adopt strategies seeking to minimise the erosion of their sales when faced with competition from generic products1. In addition, the development of a new and improved formulation of a drug can be extremely beneficial, both to the patients that might find it more effective, and to society as a whole for the jobs created in researching, manufacturing and marketing the new product.

However, there is a growing line of case law in the US and Europe that illustrate the competition law risks involved with product hopping. In all of these cases, the issue has not been the introduction of a new formulation. Instead, it has been other specific elements of the strategies employed by pharmaceutical companies to encourage consumers to switch to the new formulation that have caught the attention of the courts and regulators, particularly where this has prevented consumers from having a choice between a branded drug and generic version. 

Europe

Cases in Europe offer some clear examples of this. When withdrawing Losec capsules in favour of new Losec tablets, AstraZeneca deregistered its marketing authorisation for Losec capsules in several EU Member States. This prevented generics manufacturers from relying upon the clinical trials conducted for Losec capsules when applying for authorisation for a generic version, making it for more difficult for generics to enter the market. The deregistrations, in the absence of any objective justification, were found to be an abuse of a dominant position2.

In the UK, Reckitt Benckiser replaced its original Gaviscon product with a new version, Gaviscon Advance. This was done after the original patent had expired but before a generic name for the original product had been published, with the result that prescriptions could only be written for the new branded product. In finding that this was an abuse, the UK regulator held that it would have been commercially irrational to withdraw the original product had it not been for the anticipated benefits of delaying generic competition3.

In both cases, the introduction of the new product was not anti-competitive, however, the combination of that and the exploitation of the underlying regulatory framework was found to breach competition law.

USA

In the US, the focus has also been on actions by pharmaceutical companies that remove the consumer’s ability to choose. 

In State of New York v Actavis4, a US Appeal Court drew a distinction between a ‘soft switch’ and a ‘hard switch’. Actavis manufactured a successful twice-daily Alzheimer’s drug, Namenda IR. In 2013, it introduced a once-daily version, Namenda XR. The new drug contained the same active ingredient, memantine. Actavis began an aggressive marketing campaign to switch patients on to Namenda XR, and made use of rebates to offer it at a low price. This was the soft switch. Then, in August 2014, a year before it was due to lose patent protection on Namenda IR, Actavis discontinued it. The Court described this as a hard switch; the discontinuation left Namenda XR as the only option for patients before the entry of a generic version of Namenda IR. The court held that the hard switch crossed the line from persuasion to coercion, and was anti-competitive.

More recently, in early September 2017, the US District Court for the Eastern District of Pennsylvania denied Indivior’s motion to dismiss a claim brought against it by the State of Wisconsin (along with a number of other States) alleging anti-competitive behaviour relating to its marketing and sale of Suboxone5. In finding that Wisconsin had a plausible claim, the court noted that Indivior had near simultaneously introduced a new Suboxone film, removed its Suboxone tablets from the market, and engaged in a marketing campaign to disparage Suboxone tablets. This was done before the entry of generic competitors into the relevant market, leading to a restriction of the ability of consumers to choose between the branded products and a generic alternative.

Interestingly, although the plaintiffs characterise Indivior’s conduct as a hard switch, the generic alternative to Suboxone tablets had been on the market for almost two weeks before the tablets were withdrawn. Arguably, Suboxone tablet prescriptions could simply have been replaced with generic tablets at this point. However, realistically this could only occur for patients who needed to renew their prescriptions in that short period of time. In addition, the plaintiffs claim that even by the time generic tablets received FDA approval in February 2013, 85% of Suboxone prescriptions were already for film instead of tablets. If this case proceeds to trial, the focus may therefore be on the soft switch elements to Indivior’s strategy: the disparagement of tablets leading to the rapid take-up of film. In denying the motion to dismiss, the judge noted that summary judgment record might be different, suggesting that he wasn’t completely convinced by the merits of the plaintiffs’ case.

Will the case law develop further?

It’s possible that in the future we may see competition authorities or courts seeking to penalise conduct that is closer to a soft switch than hard switch. After all, in France in 2016, the Cour de Cassation upheld the €40.6m fine imposed on Sanofi-Aventis by the French Competition Authority in May 20136. Sanofi-Aventis was found to have denigrated generic competitors of its drug Plavix in its communications with doctors and pharmacists; it encouraged them to indicate on Plavix subscriptions that the drug was “non-substitutable”. This was not a hard switch – there was a generic alternative available, but the conduct had a similar effect to a hard switch; it partially foreclosed generic entry to the French clopidogrel market (leading to a softening of competition, as Sanofi lost market share to generics much more slowly than it otherwise would have). 

For now though, it remains the case that pharmaceutical companies can continue to take steps to extend the lifetime of their product ranges, as long as they are careful to ensure that any introduction of a new formulation is not supported by a strategy that limits the ability of generics of the earlier formulation to enter the market. Where companies avoid that potential pitfall, the introduction of new formulations benefits patients: and pharmaceutical companies’ promotion of those positive attributes epitomises legitimate competition on the merits.

______________________________________________
1 AstraZeneca v Commission, Case C-457/10 P, at 129.
2 AstraZeneca v Commission, Case C-457/10 P.
3 Decision of the Office of Fair Trading, predecessor to the Competition and Markets Authority, in Case CE/8931/08, decision of 12 April 2011 at 6.64.
4 State of New York v. Actavis, Case No. 14-4624 (2d Cir. 2015)
5 State of Wisconsin et al. v. Indivior Inc. et al., case number 2:16-cv-05073.

Introducing On the Pulse – the Bristows life sciences microsite

Bristows has recently launched On the Pulse, a microsite offering legal analysis and practical tools that our life sciences readers may find useful.

The site is organised by sector, covering pharmaceuticals, biotech, medical devices, health care and animal health. There is a Brexit section, touching on many aspects from data protection to tax issues, and from scientific funding to the UPC. The Tools menu allows access to a number of standard documents in different areas, including competition/procurement

There are already a number of competition focused posts from our regular contributors, with Aimee Brookes writing about excessive pricing, Matthew Hunt on product hopping and rebates, Noel Watson-Doig on the NHS approach to biosimilar procurement and on standardisation agreements in pharma and Francion Brooks on CMA enforcement in the pharmaceutical sector. We hope our readers find it a useful resource and we will continue to link to any relevant articles from here.

Excessive Pricing: Aspen lose their appeal in Italy – and are in the Commission’s crosshairs

Last year we reported the Italian’s take on excessive pricing (here), where South African pharmaceutical Aspen was in the firing line for increasing the price of four cancer drugs by a hefty 300% – 1500%. The Italian Market Competition Authority (AGCM) found that this amounted to an abuse of dominance by artificially inflating the price of the drugs, which had long been off patent. The company was fined €5.2 million in October 2016. 

On 14 June 2017 Aspen lost all grounds of its appeal against the AGCM decision (the judgment – in Italian only – is here).

This loss for Aspen was set against a troubling back drop for the company: not only had the South African Competition Commission announced an investigation into Aspen, Pfizer and Roche for suspected collusion over cancer drug prices just days earlier, but on 15 May 2017 the European Commission opened a formal investigation into Aspen in relation to excessive pricing of five cancer drugs. 

The Commission’s press release states that – in addition to investigating the apparently ‘significant and unjustified’ price hikes applied to Aspen’s products – the Commission is also looking at the way in which Aspen threatened to withdraw the drugs in issue from Member States.  This was also an influential fact in the AGCM decision and subsequent appeal ruling by the Italian Appeal Court. 
 
The separate statement recording the opening of proceedings suggests that the Commission’s focus is wider than simply the negotiation of prices with national health authorities. It notes that Aspen’s negotiation practices “have included reducing the direct medicine supply and/or threatening supply reductions, as well as defining EAA-wide stock allocation strategies and implementing them in cooperation and/or agreement with local wholesalers”. It has been a while since stock management has been subject to scrutiny by the Commission, and this is likely to be an unwelcome development for the industry more widely. For now, it is probably safe to assume that this aspect of the investigation is ancillary to the primary case on pricing issues.

Meanwhile, back in the UK, the date for an appeal of the (now-published) Pfizer/Flynn decision has been set by the Competition Appeal Tribunal – a four-week hearing is due to start on 30 October. 

The Commission steps into the excessive pricing arena

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: 

  1. 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.    
      
  2. 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). 

Pay-for-delay focus on steroids

At the end of last week, the CMA sent a formal statement of objections to Actavis UK and Concordia alleging that they had entered into illegal ‘pay-for-delay’ patent settlement agreements.
 
For a number of years Actavis was the sole supplier of hydrocortisone tablets used to treat conditions such as Addison’s disease that result in insufficient amounts of natural steroid hormones. Concordia was the first potential competitor to obtain a market authorisation for a generic version of the drug. The CMA alleges that Actavis incentivised Concordia not to enter the market with its generic version of the drug by agreeing a fixed supply of its drug to Concordia at a very low price for resale to customers in the UK. As a result Actavis remained the sole supplier of the drug for most of the duration of the agreements (January 2013 to June 2016), during which time the cost of the drug to the NHS rose substantially from £49 to £88 per pack. 
 
The CMA has provisionally found that the pharma companies have breached competition law by entering into anti-competitive agreements.  It has also provisionally found that Actavis abused its dominant position by inducing Concordia to delay its independent entry into the market. This case is separate from the CMA’s other continuing investigation into Actavis UK, which it announced at the end of last year.  That investigation is looking at whether Actavis UK has abused a dominant position by charging excessive prices to the NHS for the drug following a 12,000% price rise over the course of several years.  A substantial portion of that price rise took place in the period before the start of the agreements in issue in this investigation.
 
This latest development comes amidst a number of appeals regarding the application of competition law to pay-for-delay patent settlement agreements in the pharma sector.  In particular, the General Court of the EU recently upheld the European Commission’s decision fining Lundbeck and a number of generic companies in relation to patent settlement agreements (see here and here). That decision is now on appeal to the EU Court of Justice – the grounds of appeal are available here.  Separately, the CAT is currently hearing the appeal of the CMA’s infringement decision against GSK and a number of generic companies for pay-for-delay agreements (see here and here) – this hearing is listed for five weeks, continuing until the end of this month.
 
In both of these appeals a key issue is whether the competition authorities applied the correct test in finding that the pay-for-delay agreements restricted competition ‘by object’, meaning that the effects of the agreements did not need to be considered. The appellants argue that, following the EU Court of Justice’s decision in Cartes Bancaires, ‘by object’ restrictions should be interpreted restrictively.   The Lundbeck appeal to the EU Court of Justice also raises the critical issue of how the General Court dealt with the existence of Lundbeck’s patents. With this in mind, we will be keeping a close eye on the CMA’s investigation into Actavis/Concordia, particularly the legal basis for any final finding of infringement…  

Francion Brooks

FTC settles abusive acquisition of pharma licensing rights

On 18 January, the FTC announced that Mallinckrodt ARD Inc. (formerly Questcor Pharmaceuticals, Inc.) and its parent company have agreed to pay $100 million to settle FTC charges that they violated antitrust laws when Questcor acquired the rights to a drug that threatened its monopoly in the U.S. market for adrenocorticotropic hormone (ACTH) drugs.  The announcement was made concurrently with the release of the FTC's complaint.

Antitrust (as opposed to merger) cases about acquisitions of competing technology are not an everyday occurrence.  However, this complaint has something of the flavour of the EU Commission’s Tetra Pak 1 decision.  In that case, the EU Commission objected to Tetra Pak’s acquisition (through a merger) of exclusive rights to what was at the time the only viable competing technology to Tetra Pak’s dominant aseptic packaging system.  The Commission (and subsequently the EU courts) held that this would prevent competitors from entering the market and therefore amounted to an abuse of a dominant position.  

The FTC’s Mallinckrodt complaint alleges that while benefitting from an existing monopoly over the only U.S. ACTH drug, Acthar, Questcor illegally acquired the U.S. rights to develop a competing drug, Synacthen (a synthetic ACTH drug which is pharmacologically very similar to Acthar).  This acquisition stifled competition by preventing any other company from using the Synacthen assets to develop a synthetic ACTH drug, preserving Questcor’s monopoly and allowing it to maintain extremely high prices for Acthar.  

To judge by the FTC’s complaint, the case appears to contain some pretty stark facts which may have contributed to the immediate settlement of the proceedings by Mallinckrodt.  Those facts also bring the case squarely into line with the US and EU competition regulators’ current concern over excessive pricing in pharma.

First up is the finding that Questcor had a 100% share of the U.S. ACTH market and that it took advantage of that monopoly to repeatedly raise the prices of Acthar from $40 a vial in 2001 to more than $34,000 per vial today – an 85,000% increase.  The complaint details that in August 2007 Questcor increased the price of Acthar more than 1,300% overnight from $1,650 to $23,269 per vial and that it has taken significant and profitable increases on eight occasions since 2011 pushing the price up another 46% to its current $34,034 per vial.  Acthar is a speciality drug used to treat infantile spasms, a rare seizure disorder affecting infants, as well as being a drug of last resort (owing to its cost) for a variety of other serious medical conditions.  According to the FTC, Acthar treatment for an infant with infantile spasms can cost more than $100,000.  In Europe, Canada and other parts of the world doctors treat these conditions with Synacthen which is available at a fraction of the price of Acthar in the U.S. (Synacthen is not available in the U.S. as it does not have FDA approval.)  The FTC relies on the supra-competitive prices charged in the U.S. for Acthar as evidence of Questcor’s monopoly power as well as its 100% market share and the existence of substantial barriers to entry.

It is also part of the FTC’s case that Questcor disrupted the bidding process for Synacthen when the rights came up for acquisition.  According to the complaint, Questcor first sought to acquire Synacthen in 2009, and continued to monitor the competitive threat posed by Synacthen thereafter.  When the U.S. rights to Synacthen were eventually marketed in 2011, dozens of companies expressed an interest in acquiring them with three firms proceeding through several rounds of detailed negotiations.  All three firms planned to commercialise Synacthen and to use it to compete directly with Acthar including by pricing Synacthen well below Acthar.  In October 2012, Questcor submitted an offer for Synacthen and subsequently acquired the rights to Synacthen for the U.S. and thirty-five other countries and did not subsequently bring the product to market in the US.

In addition to the $100 million payout, the proposed court order requires that Questcor grant a licence to develop Synacthen to treat infantile spasms and nephrotic syndrome to a licensee approved by the FTC, a pretty far-reaching remedy.  

This case is the latest in a string of cases on both sides of the Atlantic relating to escalating pharma prices (as discussed in our previous blog posts here and here).  While companies retain significant scope to price products as they see fit, it reaffirms that pharma companies should be wary of implementing very significant price increases in the absence of good objective reasons for doing so.  This is particularly so where the increase is facilitated by commercial strategies such as acquiring IP rights to existing/potentially competitive products.  In the EU, it is also worth remembering that – as established by Tetra Pak I (on appeal to the General Court) – an agreement which falls within a block exemption can at the same time constitute an infringement of Article 102.  So companies and their advisors should remember to wear Article 101 and 102 hats when reviewing agreements.

Helen Hopson

When the price isn’t right – CMA fines Pfizer / Flynn for excessive pricing

The year is 2011.  The Office of Fair Trading (the predecessor to the current Competition and Markets Authority) contributes to an OECD round table on excessive pricing, concluding that: “firms should not face fines for excessive pricing, and should not face the risk of private damages actions in respect of such behaviour”.

Five years later, in early December this year, the CMA announced that its investigation into the supply of phenytoin sodium capsules by Pfizer and Flynn had concluded with its highest ever fine (£90 million), and ordered the companies to reduce their prices within 4 months.  How times change…

Excessive pricing is one of the more controversial types of abuse of dominance – the lack of a bright line test between competitive and anti-competitive pricing has meant that infringement decisions in relation to this form of abuse have been rarely pursued.  Indeed, this is the first UK competition authority decision based on excessive pricing by a pharmaceutical company since the 2001 Napp decision, which involved differential pricing in the hospital and community sectors.

As we have previously reported, however, something of a sea change in competition policy currently appears to be taking place, at least for certain parts of the pharmaceutical sector. 

The full reasoning of this decision will therefore be closely reviewed.  For now, however, the text of the decision remains unpublished.  While we wait for a non-confidential version, the following 4 points seem to us to be worth noting:

  1. Phenytoin sodium is not a new drug – it has been off patent for many years, although only entered as a generic following the conclusion of a UK supply deal between Pfizer and Flynn.  The case – as with other high profile excessive pricing investigations in the EU and beyond (see here/here) – concerns a sudden and significant jump in previously established market pricing, in this case of around 2,600%.  This is an entirely different legal and commercial context to that applicable for new or branded drugs: it would be extremely surprising if this decision provides any new basis for future intervention in relation to drugs which are subject to the PPRS, even at the stage of free initial pricing.  

  2. Although two companies are involved, no anti-competitive collusion has been alleged.  Rather, the case is based only on abuse of dominance.  It is rare for such cases to involve two separate companies.  Here, the allegation appears not to be that Pfizer and Flynn are jointly dominant, but that each holds a separate dominant position and has separately proved it.  This is a surprising feature of the investigation – proving excessive pricing is notoriously difficult, and the CMA given itself the task of pulling that off twice, with each company being held separately to have extracted supra-competitive prices.  Flynn is at once the ‘victim’ of Pfizer’s excessive pricing, and the perpetrator of an abuse of its own. 

  3. The basis for the findings of dominance is also far from obvious.  While details of how the market has been defined have not yet been released, it appears from a 2015 parallel trade case also relating to Flynn Pharma’s phenytoin sodium product that the drug is only a third line treatment for certain specific types of epilepsies, and that its sales have been in decline for a number of years.  It appears that the CMA’s dominance finding may be based on clinical guidance that stabilised patients should remain on one specific brand of product rather than being switched between different formulations even of the same API.  The trend to ultra-narrow market definition in the pharma sector thus appears to be continuing (see Perindopril, Paroxetine…) – but query whether it will survive review in the Competition Appeal Tribunal. 

  4. And finally, compliance with the price reduction remedy may not be straightforward – the companies will have to calculate what measure of reduction is sufficient to bring the infringement to an end.  Pfizer has already been subject to a procedural fine for failure to comply with a procedural order; if the companies miscalculate their price reductions, further fines could follow – in addition to the now inevitable follow-on claims from, at least, the Department of Health.

We need to talk…about Pharmaceuticals and Standard Essential Patents

At the end of last month, Commissioner Vestager gave a speech at the Chillin’ Competition Conference. The focus: how competition law can protect consumers from anti-competitive behaviours. The Commissioner gave examples of situations in which intervention could be justified, two of which are of particular interest in the competition/IP sphere - pharmaceutical goods and Standard Essential Patents (‘SEPs’)

Pharmaceutical goods

Commissioner Vestager noted that people’s health often relies on a drug sold by only one company. This can be because the company has a patent, but may also simply be because no other companies are interested in coming to the market due to low levels of demand. This isn’t a problem in itself if prices stay at a reasonable level but if prices go up, the Commission suggested it may warrant action by the competition authorities.

This could not be more topical – just today the Competition and Markets Authority’s (‘CMA’) has taken a decision in the Pfizer/Flynn case, which relates to excessive pricing of an anti-epilepsy drug previously branded as Epanutin (we reported previously on this investigation here). We’ll be providing a more detailed update on the CMA’s decision soon but in the meantime, our readers will be interested to know that both Pfizer and Flynn Pharma have already announced that they intend to appeal. 

The Pfizer/Flynn case follows the CMA’s recently launched investigation into excessive pricing in the pharmaceutical sector in the UK. Concordia International announced that it was in talks with the CMA about this. However, the investigation is still at the information gathering stage, with a decision on whether or not to proceed expected in February of next year.  

An article published in the Times last week suggested that certain generics drugs continue to be subject to significant price increases – the only manufacturer of lithium carbonate tablets is reported to have raised the price of its product by £39 in the last month, and from £3.22 to £87 over the last year. 

Similarly, the Italian Competition Authority recently investigated Aspen, a supplier of cancer drugs to the Italian Medicines Agency, and in October 2016 fined it over €5 million for increasing the price of its cancer drugs by up to 1500% (see here for our report on this).  

Pharmaceutical investigations continue outside of the EU as well. Last month Bloomberg reported that the first charges in the US DOJ’s antitrust investigation into collusion over generic price increases investigation (spanning over two dozen companies) are expected by the end of the year.

The prevalence of investigations relating to pricing regulation in the pharmaceutical sector represents a major change in policy from the days when competition authorities were wary of acting as price regulators. Perhaps, as is evidenced by Vestager’s recent speech, this is largely due to a renewed focus on consumer interests.  But it is far from clear that it is sensible policy for the competition authorities to have to intervene in cases which arguably result from regulatory failures.

SEPs

In her speech, Commissioner Vestager also suggested that in some situations, phone makers may be forced to accept whatever terms they are presented with, regardless of whether these are actually FRAND (fair, reasonable and non-discriminatory).  This is particularly problematic where this takes place under threat of an injunction, and can mean that they end up paying unjustified royalties, with customers also paying more as a result. While FRAND disputes have been around for many years, the Commissioner emphasised that this remains a topical issue – with 5G and the Internet of Things, more and more products will be connected with each other; innovation is increasingly important and restrictive practices could stifle development.  

The issue of whether offers are FRAND has a reflection closer to home in the UK at the moment.  This week marks the closing submissions in the Unwired Planet v Huawei FRAND trial, which looks set to become the first EU case to determine what a FRAND offer is. A judgment in this case is likely to be handed down in the first few months of 2017… 

Excessive pricing: the Italian version

Pricing issues in the pharmaceutical industry have continued to keep competition authorities busy, this time with the Italian Market Competition Authority (AGCM) fining the multinational South African pharmaceutical company Aspen near €5.2 million on 14 October 2016, following its finding that Aspen abused its dominance to artificially inflate the price of four of its cancer drugs.

In its press release/statement, the AGCM stated that Aspen, which had acquired the rights to the four essential drugs (Leukeran (chlorambucil), Alkeran (melphalan), Purinethol (mercaptopurine) and Tioguanine (tioguanine)) from GlaxoSmithKline (GSK), had threatened to interrupt their supply to the Italian market in order to compel the Italian Medicines Agency to accept price increases for the drugs of between 300%-1,500% of the initial price. The drugs were described by the AGCM as “irreplaceable” and central to the treatment of blood cancers especially for children and elderly patients. In the relevant period Aspen was the only supplier of these drugs in the Italian market, which led to the finding that Aspen held a dominant position in the relevant national market and had unfairly increased the prices.  The AGCM noted in particular that there was no direct substitute for the drugs, the patents had been expired for years and no economic justification for the price increases could be established.

The antitrust authority applied a two-step test to determine whether the increase in pricing amounted to unfair pricing in contravention of Article 102. The AGCM first established that there was an excessive discrepancy between the manufacturing costs and the final prices of the products and secondly considered that the pricing was excessive and unfair, by reference to factors such as the change in prices and any economic basis for this change, any potential benefits for patients, and conversely any harm to the Italian National Health Service.

There is no easy method for competition authorities (or indeed companies) to determine what constitutes excessive pricing, due to the number of variables involved.  A justified price increase might be due to increased manufacturing costs or could be the reflection of a profitable market or a high-risk marketing strategy, among other factors.  Ultimately, the determination of when a price is excessive remains challenging, and – where pharmaceuticals are involved – may well vary from country to country.  As yet, the impact of excessive pricing on reference prices has not been examined.

Italy is not the only country to look at excessive pricing of off-patent drugs, however.  Another example from the UK (on which we have reported here and here) is the ongoing CMA investigation into the pricing of the anti-epilepsy drug Epanutin by Pfizer and Flynn Pharma (the latter having acquired the marketing rights of Epanutin by Pfizer in late 2012).   The CMA has recently updated its case file to push back the expected date of the conclusion of the investigation, to November 2016. The focus of the investigation is understood to be whether the pricing for phenytoin sodium capsules is excessive and unfair and thus constitutes an Article 102 and Chapter II abuse.

On the other side of the Atlantic, the antitrust authorities have considered similar issues with the 50-fold increase in the price of Turing Pharmaceuticals’ Daraprim and the more recent Mylan EpiPen controversy, caused by a six-fold price rise in the popular emergency allergy treatment.  In September 2016, Mylan became the subject of a congressional hearing on this subject. The allegations about increased pricing were followed by suggestions that Mylan had been misclassifying EpiPen as a generic, as opposed to as a branded product, in order to benefit from the lower rebate rate available (13%) than the equivalent for branded drugs (23%).  In this case, it was of significance that Mylan had a market share of around 90%, and the increase in pricing was accompanied by a direct increase in Mylan’s profits. The US FDA itself was criticised for not intervening more effectively in order to allow competing products to reach the market.

The complex topic of excessive pricing continues to be an issue in the EU more generally.  The announcement of the Aspen investigation has led to calls by public interest bodies such as the BEUC for the Commission to carry out EU-wide investigations into whether companies use similar tactics to increase pricing.  No doubt, as the case law develops, so will our understanding of when a company’s pricing tactics risk being in breach of Article 102.