For several years now, the pharmaceutical industry has stood out as being under the increased scrutiny of competition authorities worldwide. This new edition of Lexology Getting the Deal Through – Pharmaceutical Antitrust provides a comprehensive overview of the applicable legislation and recent developments across various key jurisdictions having a strong record of enforcement in the pharmaceutical sector, including, notably, the United States, the European Union, the United Kingdom, France and Italy.
Among the hottest topics, excessive pricing as an infringement of competition law is highly debated, with competition authorities taking different views. While in the US or Canada, charging high prices for drugs does not constitute, in itself, an infringement of antitrust laws, in the EU, article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits unfair pricing conditions imposed by dominant firms. However, only recently has the European Commission (the Commission) shown a renewed interest in tackling excessive prices. Following a 2016 ruling from the Italian Competition Authority against Aspen Pharma, and concerns expressed by several other member states, including notably Spain, the Commission opened a formal investigation against that same company in 2017, alleging that it abused its dominant position by charging high prices on oncological drugs. The UK is also very active on this front, with several ongoing investigations into alleged excessive prices charged by Actavis and Concordia for hydrocortisone and liothyronine tablets respectively. In 2018, the UK Competition Appeal Tribunal (CAT) also issued a landmark judgement in the Pfizer/Flynn Pharma case, setting aside the Competition and Market Authority’s (CMA) findings in relation to the characterisation of an abuse through the imposition of excessive prices. More particularly, the CAT considered that the CMA incorrectly applied the United Brands two-step test, by failing to address whether the prices charged by Pfizer and Flynn Pharma for phenytoin sodium capsules could be regarded as unfair in comparison to the price of competing products.
The battle against reverse patent settlements resulting in delaying generic market entry also continues to be a key enforcement priority, especially in the EU. Worth noting are the Lundbeck and Servier cases, which are currently pending before the European Court of Justice (ECJ) on appeal against the General Court’s judgments confirming the anticompetitive nature of certain patent settlements, including an important value transfer between an originator and a generic company in exchange for the generic company’s commitment to stay out of the market (pay-for-delay agreements). In parallel, in March 2018, on appeal against a CMA decision fining GlaxoSmithKline (GSK) and two generic companies for having entered into illegal pay-for-delay agreements regarding the distribution of paroxetine, the CAT referred several questions for a preliminary ruling to the ECJ.
Another noteworthy trend affecting life-cycle management is the increased scrutiny of communications made by pharmaceutical companies towards healthcare professionals but also to regulatory authorities, including health authorities. The French Competition Authority (FCA) is one of the pioneering and leading authorities on this front, with no less than three decisions sanctioning drug manufacturers for disparagement of generic drugs, just before or upon their launch on the market (see the Subutex (2013), Plavix (2013) and Durogesic (2017) cases). In the Durogesic case, the FCA also reviewed and sanctioned for the first time the communications made by Janssen-Cilag to health authorities concerning the alleged risks attached to switching patients undergoing a treatment with Durogesic onto a generic drug. An appeal is currently pending and the judgment is expected soon.
Misrepresentations made by pharmaceutical companies have also attracted the scrutiny of other competition authorities. At the EU level, following a question referred for a preliminary ruling by the Italian Council of State in the Roche/Novartis case, the ECJ issued a long-awaited judgment in 2018, confirming the views of the Italian Competition Authority that the dissemination of misleading information to healthcare professionals and health authorities regarding the risk of off-label use of a cancer drug for ophthalmic applications, in a context where drugs specifically indicated for the treatment of ophthalmic diseases were available on the market, could qualify as a restriction of competition under article 101 of the TFEU. In Brazil too, the CADE fined Eli Lilly in 2015 for sham litigation that subsequently allowed it to artificially obtain an undue monopoly for the distribution of the medicine Gemzar. The CADE’s theory of harm is very close to the ECJ findings in AstraZeneca or the Pfizer judgment in Italy, where both of these pharmaceutical companies have been sanctioned for having illegitimately used their intellectual property rights to delay generic entry.
More classic are the investigations into alleged anticompetitive pricing practices or rebate schemes. The Romanian Competition Council is currently investigating whether Roche engaged in an allegedly abusive pricing strategy when responding to public tenders to delay generic entry. In March 2019, after a bit more than three years’ investigation into Merck Sharp & Dohme’s discount scheme with respect to the sale of its product Remicade, the UK CMA ultimately reached the conclusion that it had no ground for action and decided to close its investigation.
The focus of antitrust scrutiny is also broadening, with more types of conducts being investigated. For example, in the US, private plaintiffs and a number of states have recently launched class actions against generic drug manufacturers that allegedly colluded on prices and engaged into market sharing with respect to the commercialisation of more than 120 drugs.
Down the distribution chain, wholesalers, pharmacists and other actors also face competition law issues. In addition to paying attention to classic vertical restraints, such as restrictions to parallel trade or resale price maintenance, competition authorities are also looking at the competitive landscape and dynamics at the wholesale and retail levels. In Romania, the Competition Council has opened a sector inquiry concerning the OTC market, where an increase in prices has been observed over the past couple of years. Following another sector inquiry regarding the distribution of pharmaceutical products, the Competition Council has also recently closed an investigation against GSK after the latter offered commitments to remedy the Council’s concerns that GSK might have engaged in illegal refusal to supply. An investigation concerning similar issues is still ongoing against Novartis. In France, on 4 April 2019, after several months of investigation, the FCA published a long and very detailed opinion that touches upon the situation of pharmacists and wholesalers in France. The opinion makes recommendations, essentially to the government, regarding, among other things, online sales of over-the-counter medicines, the distribution of drugs outside of pharmacies by large drugstores or general retail chains, funding possibilities for pharmacies or the profit margins of intermediaries in the distribution chain. Another example of distribution issues concerns the US, where the FTC filed a lawsuit in April 2017 against a company involved in electronic prescription routing and eligibility, alleging that its discount scheme might be anticompetitive.
Finally, some developments that are of interest for the pharmaceutical industry are also worth noting in merger control. While the Commission is still reflecting upon modifying the EU merger thresholds to catch certain transactions that currently fall outside of its control, especially in the pharmaceutical sector, Germany and Austria have recently introduced transaction value thresholds that may have an impact on the number of reportable mergers to their respective competition authorities. In parallel, the Administrative Council for Economic Defence in Brazil very recently declined jurisdiction to review the GlaxoSmithKline/Ares trading operation because it considered not having the means to conduct an antitrust assessment for pipeline products that do not yet have an ATC classification. This approach contrasts with the European trend whereby, on the merits, the Commission is increasingly looking at the impact of mergers on innovation. The US also made a buzz in November 2018 with the closing end of of the CVS Health/Aetna merger, a US$70 billion deal which brought together CVS’ pharmacies with Aetna’s insurance business. This transaction was cleared following a settlement between CVS and the Department of Justice, which, as part of the approval process by a federal court, is currently being reviewed by the US District Court for the District of Columbia.