Australia: Lipitor and atorvastatin: Pfizer successfully defends misuse of market power case

The Australian Federal Court has dismissed the case brought by the Australian Competition and Consumer Commission (ACCC) against Pfizer for misuse of market power and exclusive dealing conduct around its atorvastatin products.

Subject to any appeal the ACCC may yet bring, the decision provides some insight as to the extent to which originator pharmaceutical companies can act to protect their market share prior to the expiry of the patent underpinning their originator product.

Why did the ACCC bring proceedings?

The proceedings were brought on the basis of Pfizer's conduct prior to, and shortly after, the expiry of its patent for atorvastatin (the Patent), sold as Lipitor, then the highest selling prescription pharmaceutical in Australia. The ACCC alleged that this conduct was a misuse by Pfizer of its market power, designed to deter the introduction of third-party generic versions of atorvastatin, as well as exclusive dealing conduct that had the purpose or effect of substantially lessening competition.

The ACCC's allegations related to offers made by Pfizer to pharmacies in relation to the supply of both Lipitor and Pfizer's own generic atorvastatin product (Pfizer's Generic).

It was alleged that Pfizer was offering Pfizer's Generic to pharmacies at significant discounts (at times below cost), and the payment of rebates previously accrued from their purchase of Lipitor, provided that the pharmacy acquired an upfront minimum volume of Pfizer's Generic. The greater the volume purchased, the greater the discount received by the pharmacy, and the greater the proportion of the accrued rebate that would be paid by Pfizer to the pharmacy.

At the time the offers were made, the Patent had not yet expired, so suppliers of generic medicines were unable to make competing offers to pharmacies.

It was alleged that Pfizer was structuring its offers to pharmacies to take advantage of its power in the market for atorvastatin products and essentially extend the monopoly it had had to date as a result of the Patent. It was suggested that if pharmacies had a significant supply of Lipitor or the Pfizer Generic, then this would limit the demand for any third-party generic version.

As the payment of the accrued rebates was also conditional upon a pharmacy acquiring no more than 25% of its atorvastatin needs from third-party generics, it was alleged that this condition had the purpose of substantially lessening competition in the market for atorvastatin.

What did the Federal Court find?

In relation to the misuse of market power claim, Justice Flick held that:

• Pfizer only held substantial market power until January 2012. Even though the Patent did not expire until May 2012, in the months leading up to the expiry, Pfizer's market power was reduced by the early introduction of Ranbaxy's generic competitor product (following prior agreement with Pfizer) and the preparation made by other generic manufacturers to offer pharmacies attractive supply options that could commence as soon as the Patent expired, and
• when Pfizer did have market power in 2010-2011, it did take advantage of that power, but not for any of the proscribed purposes under section 46 of the Competition and Consumer Act, including the prohibition on taking advantage of that power to deter or prevent a person from engaging in competitive conduct in a market.

The ACCC also failed to make out its exclusive dealing claim. The Court held that Pfizer's conduct did not have the purpose of substantially lessening competition (noting, that the ACCC did not claim that Pfizer's conduct had the effect, or likely effect, of substantially lessening competition).

Why is this decision interesting?

Misuse of market power cases initiated by the ACCC are interesting in themselves, as they are few and the ACCC has often found them difficult to win.

The ACCC has been arguing for a "substantial lessening of competition" test to be introduced into the misuse of market power provisions in the Act, to replace the "purpose" test set out above. However, in this case the ACCC failed to satisfy the Court on either basis.

From an industry perspective, we found the following of interest:

• The Court's finding that the relevant market was the market for atorvastatin, rather than a broader market for pharmaceuticals. The product was determined to be such a unique product, and significant source of income, that "pharmacies had to stock" it. This definition also makes sense when you consider that when presented with a prescription for atorvastatin, a pharmacist is required to supply atorvastatin, and cannot substitute it with another pharmaceutical product.
• The finding that despite holding the Patent and a monopoly over atorvastatin products during the currency of the Patent, Pfizer's substantial market power did not continue right up until the expiry of the Patent. The Court found that market power was not only weakened as a result of the permission granted by Pfizer to Ranbaxy to sell its generic atorvastatin before the Patent expired, but also as a result of the competition Pfizer faced from other generic manufacturers, in the lead up to the expiry of the Patent, who were setting themselves up to supply their generic product as soon as the Patent expired (so pharmacies had a choice: buy now from Pfizer or wait and try and get a better deal from a third party after the Patent expired).
• The Court's view that the generic manufacturers were sufficiently able to compete with the Pfizer Generic, even in the face of the discounting and volume agreements being offered by Pfizer, and the fact that Pfizer was the only manufacturer that could bundle its offering to include the originator product, Lipitor, and
• The Court's treatment of Pfizer as if it was almost the underdog, because "in entering the generic market, Pfizer was entering a market in respect of which it had relatively no prior experience". The Court highlighted the strong relationships between leading generic manufacturers and the wholesalers and pharmacies, and accepted Pfizer's argument that the purpose of the volume incentives and large discounts that it offered were to ensure that it remained a supplier of pharmaceutical products, including both Lipitor and the Pfizer Generic, as well as to ensure it remained competitive in the atorvastatin market after the expiry of the Patent.

Take away

It remains to be seen whether the ACCC will appeal this decision.

As for all cases, this one turns on its specific facts. However, until an appeal Court determines otherwise, in a world where the traditional lines between originator manufacturer and generic manufacturer are blurring, this case provides some guidance as to the extent that an originator manufacturer will be permitted to aggressively and lawfully compete in the lead up to the expiry of its patent for a significant product.

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