An Australian federal court has upheld a previous finding that an investigation of Pfizer by the country’s competition agency failed to demonstrate abuse of dominance.
On 25 May, the Full Court of the Federal Court of Australia threw out the Australian Competition and Consumer Commission’s appeal of the Federal Court’s finding that the competition authority had failed to establish that Pfizer’s strategy was intended to block competing generics makers from entering the market after the expiration of a Pfizer patent in May 2012.
The commission launched its investigation of Pfizer in February 2014, on the grounds that the drugmaker’s “Project LEAP” marketing strategy granted an unfair advantage as the exclusive patent holder for the anti-cholesterol drug atorvastatin. Pfizer sold the drug under the brand name Lipitor.
Starting in December 2010, Pfizer rolled out direct-to-pharmacy supply models and ceased supplying its products to wholesalers. The following month, the drugmaker established an “accrual funds scheme” through which individual pharmacies could accumulate rebates with every purchase of Pfizer’s products, which they would be paid at a later date.
In the months leading up to the expiry of Pfizer’s patent in May 2012, the drugmaker announced that pharmacies active in this rebate scheme could unlock the rebates only if they entered into supply contracts of both Lipitor and Pfizer’s generic atorvastatin drug.
In the 2015 judgment dismissing the ACCC’s proceedings against Pfizer, the Honourable Justice Geoffrey Flick found that Pfizer bundled pharmacy supply contracts with existing rebate schemes in anticipation of the patent’s expiry to “remain competitive in the market” rather than to harm competition. The judge also said Pfizer no longer held “substantial” market power by the time it introduced the bundling model in January 2012.
The “well-established arrangements between the generic manufacturers and many of the pharmacies” meant that “pharmacies were likely to sell the generic product supplied by the manufacturer with which it had an arrangement,” Justice Flick wrote. “In entering the generic market, Pfizer was entering a market in respect to which it had relatively no prior experience.”
The ACCC’s statement on its loss noted that it had brought the case under an earlier version of section 46 of the Competition and Consumer Act 2010, which at the time required the agency to show a specified anti-competitive purpose for an alleged abuse of market power. Parliament’s amendment to the provision, effective 6 November 2017, now allows the ACCC to show an abuse through an effects test.
ACCC commissioner Rod Sims said that the agency is “carefully considering the judgment,” as it brought its appeal against the 2015 judgment due to concern Pfizer’s dominance in the drug’s national market harmed competition and consumers. The commissioner estimated that over 1 million Australians rely on atorvastatin.
Pfizer Australia said it welcomes the federal court’s decision: “We have always maintained that our behaviour was appropriate and reflected the high ethical standards, integrity and compliance that are central to our culture.”
The company’s legal counsel said, “The case turned on the question of Pfizer’s purpose. [...] In essence, the trial judge found that Pfizer was seeking to protect its own commercial position.”
The judge today found Pfizer’s efforts to guarantee generics supply contracts with pharmacies was a legitimate move “to allow Pfizer to compete in the atorvastatin market post patent expiry,” Pfizer’s counsel said. The lawyers declined to comment further.
Drugmaker Ranbaxy Australia was the only other supplier of atorvastatin in the country before the patent expired, but stopped supplying the drug three months before the patent’s end date due to “unrelated proceedings”, according to the 2015 judgment.
Drugmaker Warner Lambert held the original atorvastatin patent, in effect from 18 May 1987 to 18 May 2012. Pfizer acquired the company in 2000. According to the federal court’s 2015 judgment, an internal document Pfizer supplied to the court estimated its sales for Lipitor would fall from $771 million in 2011 to $70 million in 2015.
A version of this article originally appeared in PLN's sister publication Global Competition Review.
Counsel to Pfizer Australia
Partners Fiona Crosbie and Kon Stellios in Sydney