Over the last few years the pharmaceutical industry in Italy has
attracted increasingly intensive antitrust scrutiny. Last month the
Italian Competitive Conspiracy (ICA) concluded an important sector
inquiry on vaccines for human use, just after the conclusion of two
other high profile antitrust investigations in this industry.
This sector inquiry focused in particular on "essential"
vaccines, those classified as mandatory or recommended by national
vaccines plans. This is a 20 billion euro market globally, with an
average annual spending of 300 million euro in Italy alone. The ICA
has identified several shortcomings relating both to the structure
of the industry in general and the specific features of the Italian
market.
Highly concentrated market. The first critical
issue flagged by the ICA is the high level of supply concentration,
with four companies accounting for over 80% of the global market in
value. For some vaccines taken in isolation, the number of
suppliers is even smaller.
One reason for the concentration of supply mentioned by the ICA is
the essential nature of these vaccines, which the Italian
Healthcare System is required to purchase, combined with the lack
of clear information on the available vaccines and benchmarking of
their therapeutical equivalence. In this respect, the ICA advocated
for regulators to adopt clearer and more transparent criteria when
choosing the essential vaccines.
High degree of patent-related protection. The
second critical factor leading to market concentration among a few
suppliers is the relatively recent development of innovative
vaccines, which still enjoy a high degree of patent protection (as
opposed to conventional vaccines for which the patents have
expired), thus commanding premium prices. The ICA noted that the
high degree of patent protection granted to innovative vaccines
derives from the considerable number of additional components to
the active substance in the new drugs. In addition, the ICA found
that it is technically difficult to produce generic versions of
vaccines, as opposed to other traditional patented drugs for which
generic versions are usually easily available.
The ICA recommends that pharmaceuticals regulators promote
competition by easing market entry by generic vaccines or other
substitute products, through simplified authorization procedures
similar to the bioequivalence pathways that are available to
generics of other traditional patented drugs.
Product competition, pharmacological equivalence and
product differentiation. The third critical factor
reported by the ICA is the widespread level of product
differentiation: even when different vaccines exist for the same
disease, effective product competition still may not develop. Two
vaccines designed to prevent the same disease may not be considered
interchangeable because of their different serotype coverage (i.e.
the number of strains/serotypes of the disease that they act upon).
Regulators play an important role in this process, given that
pharmacological equivalence of the vaccines (very limited, compared
to other drugs) is paramount in establishing product
substitutability from an antitrust standpoint.
To this end, the ICA recommended that the regulators adopt a more
scientifically-driven evaluation of possible preventive/therapeutic
equivalence among vaccines, as a tool to improve competition
between substitutable products. Although there is no explicit
criticism of any specific regulators' decision in this
instance, one may infer the ICA suspects the regulators of
sometimes being captured by the regulated industry and validating
what may be an artificial product differentiation.
Pricing policy and market information. The last
shortcoming highlighted by the ICA concerns the tiered pricing
adopted by vaccine manufacturers to determine the retail prices of
vaccines. Such prices are calculated based on the GDP of each tier
group of countries in which the customers are located. This price
discrimination, widespread among manufacturers, is not considered
anticompetitive per se; in fact the ICA accepts that price
discrimination has the benefit of making vaccines available to
different group of customers according to their purchasing power
and provides the industry with the necessary financial resources to
carry out R&D investments.
However, the ICA found a level of opacity concerning the criteria
applied in tiered pricing strategies. In particular, the ICA found
that price-related information is highly confidential, preventing
buyers from carrying out a comparative cost/benefits analysis, the
most important aspect of any procurement process (the majority of
the clients being public bodies). In the ICA's view, this
information asymmetry has contributed to a progressive
consolidation of significant market power in the hands of a few
vaccine manufacturers.
In the light of such findings, the ICA recommended that supply
agreements of vaccines that contain stringent confidentiality
clauses on the price strategies should be closely
scrutinised.
Implications
Although the European Commission has previously considered vaccine markets in the context of merger control review, this is the first time that an EU competition law authority has conducted such a comprehensive review of the vaccine market in Europe. The ICA sector inquiry shows concern among enforcers in the EU about manufacturers that differentiate drugs and pricing policies for vaccines for human use, where a few suppliers enjoy significant market power, and competition from generics or bio-similar drugs is limited. Against this background, it should be expected that this market may continue to be scrutinized by the ICA and other competition authorities in the EU, in the context of ad hoc antitrust investigations.
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