The European Commission (EC) has published a report providing an overview of the enforcement of EU antitrust and merger rules by the EC and EU national competition authorities (NCAs) in the pharmaceutical sector between 2018 and 2022.

Our key takeaways and insights from the report are as follows:

1. Competition enforcement in the pharmaceutical sector remains a high priority for the Commission and NCAs

Compared to the EC's previous report, which covered the period 2009-2017, the average number of antitrust decisions adopted in the pharmaceutical sector in Europe rose from just over three per year to five per year between 2018 and 2022.

The agencies' focus on this industry is motivated by two key factors, namely:

  • Innovation in pharmaceuticals has an important societal value, as highlighted by the COVID-19 pandemic. Continued R&D efforts are crucial to developing new or improved treatments for patients and addressing unmet need; and
  • High-priced pharmaceuticals constitute a significant burden on national health systems in Europe. Pharmaceuticals represented up to c. 35% of healthcare expenditure on average across EU countries in 2020 (including the hospital and pharmacy channels).
    • Generic entry is key to maintaining low prices. According to the report, generics' prices are on average 50% lower than originators, and generic entry causes the price of innovator medicines to drop on average by 40%. Price drops from generic entry are more drastic where the originator is a blockbuster drug.

2. Transactions involving medicines that are innovative, treat rare diseases, and/or address an unmet medical need are likely to attract scrutiny

Enforcement in the pharmaceutical industry is part of a larger policy strategy, as reflected in the "pharmaceutical package" adopted by the EC in April 2023. The package proposes legislative reform to improve the accessibility (across EU Member States), availability (in terms of mitigating supply shortages), and affordability of medicines, particularly those which are innovative or address an unmet medical need, or are developed to treat rare diseases. The legislation will seek to achieve these goals by granting extended data and market protection for such medicines, while also speeding up generic and biosimilar entry after the expiry of the patent protection of the originator.

In line with these objectives, we expect the EC and NCAs to scrutinise transactions in the pharmaceutical sector, and to closely assess (among other things):

  • The acquirer's incentives to discontinue, delay, or redirect competing pipeline program(s) in order to increase the profits of the merged entity;
  • Whether the existence of competing R&D programmes would divert profitable future sales from each other in the absence of the merger; and
  • Whether a merger may reduce the parties' incentives to engage in parallel R&D efforts.

The report stresses that, in carrying out its analysis, the EC will consider both clinical and pre-clinical R&D as potential sources of competitive pressure for existing medicines as well as for other medicines in development.

3. A significant proportion of notified healthcare mergers are either blocked, subject to (structural) remedies or withdrawn.

The EC's report indicates that, in the period between 2018-2022, 17% of all pharmaceuticals transactions notified to the EC raised competition concerns and were either subject to remedies (4), or abandoned (1). The Commission also intervened in other (non-pharmaceuticals) healthcare cases, most notably in prohibiting the Illumina/Grail merger. By comparison, the total intervention rate across all sectors during the same period was only 5%.

The EC reiterated its preference for structural remedies in the report, as illustrated in recent mergers requiring the divestment of marketed drugs (e.g. GSK/Pfizer Consumer Healthcare Business; Mylan/Upjohn), and pipeline drugs (AbbVie/Allergan; Takeda/Shire). These cases show that divestment packages are extensive and can cover:

  • For marketed products: manufacturing facilities (dedicated to the production of the divested product), all IP rights, and branding relating to the divested products;
  • For pipeline products: all development, manufacture, and commercialisation rights; IP rights, data, licences/permits, and contracts related to the drug; key employees working on the pipeline; and transitional supply arrangements.

The report also confirms that the EC will continue actively to monitor pharma transactions to identify concentrations that fall below the EU thresholds but merit review by the EC (e.g., through Article 22 requests for information).

4. The EC and NCAs will continue to enforce against a broad range of anticompetitive behaviours in the pharmaceutical sector

According to the report, the EC and NCAs together adopted 26 "intervention" decisions relating to antitrust misconduct in the pharmaceutical sector (17 finding an infringement, and nine accepting binding commitments) between 2018 and 2022. Notably, at the national level, the majority of such decisions were adopted by competition authorities in the United Kingdom (until the end of the Brexit transition period on December 31, 2020), Romania, Belgium, and Spain. However, the highest fines (totalling €444 million) were imposed by the French FCA in a single case (Avastin-Lucentis).

Half of the antitrust investigations during the relevant period were brought under abuse of dominance laws, followed by restrictive horizontal agreements such as pay-for-delay (8%), cartels (31%) and vertical agreements (restrictions on promotion and sale of products from competing manufacturers) (11%). Below is an overview of the types of conduct investigated by the EC and NCAs over the reporting period:

Abuse of dominance

  • Implementing excessive price increases without justification (e.g., without reasonable relation to innovation costs) and without correlation to the value of the drug, its historic price increases, or the average price of comparable drugs – particularly where there are limited or no realistic alternatives to the product sold by the dominant company (DomCo). This conduct has recently been enforced against:
    • Aspen Pharmacare, in relation tosix off-patent drugs used to treat leukaemia and other blood cancers. The EC and Italy's NCA found the drugs' price to be excessive and required retroactive price reductions of 73% on average;
    • CD Pharma, a distributor of oxytocin (a drug administered during childbirth). The Danish NCA found a temporary (c. six months) price increase of 2000% to be abusive and reported the company to the Public Prosecutor for prosecution and fines; and
    • Leadiant, the owner of Chenodeoxycholic Acid Leadiant (CDCA), a medicine used for the treatment of ultra-rare cerebrotendinous xanthomatosis (CTX). The Dutch, Italian, and Spanish NCAs found that Laediant's (twentyfold) price increase of CDCA was abusive, notwithstanding its orphan drug designation.
  • Patent misuse, including the submission of staggered patent applications relating to overlapping content (see the EC's ongoing investigation in Teva Copaxone).
  • Vexatious patent litigation, and in particular the use of interim injunctions to prevent competitors' entry into a market. In 2022, the Spanish NCA found that Merck Sharp & Dohme abused its dominant position by alleging infringement of its Nuvaring patent, and requesting fact-finding and interim measures, in an attempt to foreclose its competitor Insud Pharma.
  • Disparagement/denigration or dissemination of misleading information relating to competitors – particularly new entrants – to hinder the uptake of their products, even when such products are used off-label (see the Avastin/Lucentis investigations brought by the Italian, French and Belgian NCAs). Enforcement of this conduct (which can also be pursued as an anti-competitive agreement) has been on the rise over the last ten years according to the report.
  • Offering rebates that are conditional on the use of DomCo's products, including via minimum purchase requirements, or reimbursement schemes.
  • Pricing products below costto undercut and exclude competitors from the market (see the Austrian's NCA investigation against MerckSharp & Dohme in relation to the pricing of temozolomide, which resulted in pricing-related commitments).
  • Squeezing wholesalers' margins, including by supplying DomCo's products to competing wholesalers at a higher price to limit the competitiveness of their bids. The Romanian NCA investigated Roche for engaging in this conduct in relation to its rituximab, trastuzumab and bevacizumab products.
  • Threatening supply discontinuation to achieve higher profits. The UK Competition and Markets Authority (CMA) required pricing and supply commitments from Essential Pharma after it threatened to discontinue the supply of Priadel, a drug used to treat bipolar disorder, to force patient to switch to a more expensive product (owned by the same company).

Anticompetitive agreements

  • Pay for delay: Generic/biosimilar company (or other potential rival) agrees to delay or restrict its independent entry in exchange for significant benefits transferred from the originator (e.g. payments, licenses, distribution or supply benefits, access to clinical data, etc.) The report notes that:
    • Following the CJEU judgment in Generics UK, pay-for-delay may constitute an infringement of competition by object when "the transfers of value provided [...] cannot have any explanation other than the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits";
    • Even a short delay can have a significant impact considering the scale of price decreases resulting from generic/biosimilar entry;
    • The conduct may be enforced under abuse of dominance rules (see the EC's Servier decision, currently under appeal).
  • Fixing the priceof products (or discounts) among competitors.
  • Fixing the resale price of products, implementing a monitoring system, and creating incentives for the implementation of such fixed resale prices (see the Portuguese NCA's 2022 settlement decision in Farmodiética, and the Italian NCA's 2021 settlement decision in SOFAR S.p.A.)
  • Market sharing,e.g., through bid-rigging, mutual sub-contracting between competitors, or simply by agreeing not to enter specific markets (see the Spanish NCA's 2021 decision against suppliers of PET radiopharmaceuticals, Advanced Accelerator Applications Ibérica and Curium Pharma Spain).
  • Exchanging competitively sensitive information, such as data relating to prices, volumes supplied, margins, etc. The CMA recently fined King, Lexon (UK) Ltd and Alissa Healthcare Research Ltd for illegally sharing commercially sensitive information to maintain high prices for nortriptyline.

According to the report, there are 30 antitrust cases currently under investigation in the pharmaceutical sector.

Although the UK has withdrawn from the EU, data from the report shows that the CMA continues to be among the most active competition enforcers in the pharmaceutical sector. Since Brexit, the CMA has been navigating its own path in this industry, including by being the first country to adopt a Prioritisation Statement to facilitate industry cooperation on combination therapies (see our earlier post on this topic). The EC has not yet taken steps in this respect, but some EU member States (e.g., Germany, Poland, and Sweden) have been exploring alternative approaches to facilitating the approval, launch, and reimbursement of combination therapies in Europe.

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