Recent announcements by both the UK Competition & Markets Authority (CMA) and the European Commission in relation to investigations in the pharmaceutical sector demonstrate that anti-competitive pricing remains an enforcement priority.
Anti-competitive rebates: the CMA’s investigation of MSD
On 23 May 2017, the CMA issued a statement of objections to Merck Sharp & Dohme Limited (MSD, a subsidiary of the US company Merck & Co Inc.) asserting that MSD had operated a discount scheme which abused the dominant position held by its branded product Remicade, used to treat gastroenterology and rheumatology sicknesses such as Crohn’s disease. A statement of objections is a formal communication to the alleged infringing party of the CMA’s case, on which MSD will have the right to comment. There are few details in the public domain regarding the CMA’s case. Its press release alleges that MSD’s discount scheme was likely to impede competition from suppliers wishing to launch new biosimilar infliximab medicines, the generic name of the relevant drug.
The CMA has six ongoing, publicised competition law cases relating to the pharmaceutical sector accounting for one third of all open competition enforcement cases. It has closed other cases in recent years. Notably, in June 2015, it closed on administrative prioritisation grounds a case also relating to anti-competitive rebates, before it had issued a statement of objections (i.e. at an earlier stage of the investigation than it has reached with the MSD case). Simultaneously with its June 2015 closure decision, it issued a short public closure statement explaining when it would regard rebates as breaching the competition rules and reflecting the European courts’ aversion to rebates which induce loyalty by customers of dominant companies, to the potential detriment of other competitors. It will be interesting to see how far this week’s new case may see a development of the CMA’s thinking on this issue. It is also significant that the CJEU is expected in coming months to issue its landmark judgment in the Intel case, relating to loyalty rebates – a case in which the Advocate General has taken a markedly different approach to that of the European Courts to date.
Excessive pricing: the European Commission’s investigation of Aspen
On 15 May 2017, the European Commission announced that it has opened a formal investigation into Aspen Pharma’s pricing practices for five niche cancer medicines. This investigation relates to excessive pricing which the Commission believes abuses Aspen’s dominant position on the relevant market. The Commission’s press release speaks of “very significant and unjustified price increases of up to several hundred per cent”, to which it has applied the term “price-gouging”. The medicines in question were sold under multiple formulations and brand names, Aspen having acquired them after patent expiry. The relevant generic names were chlorambucil, melphalan, mercaptopurine, tioguanine and busulfan.
Earlier, in September 2016, the Italian authorities imposed a €5.2 million fine against Aspen for similar practices under the same rules. The Commission’s investigation – which its press release describes as its first into excessive pricing in the pharmaceutical sector - will cover all EEA states except Italy.
Excessive pricing, above all for off-patent drugs, has been a heavy focus of competition law scrutiny. This is particularly true of the UK, where the most significant excessive pricing case is the December 2016 decision to impose an £84.2m million fine on Pfizer and a £5.2 million fine on Flynn Pharma because of their alleged excessive pricing for the production and supply of phenytoin sodium capsules. This decision is currently on appeal.
Conclusions
These two cases concern very different breaches of the prohibition of the abuse of a dominant position under competition law: the MSD case relates to an issue (rebates) which has been a longstanding subject of scrutiny, at least at EU level; the Aspen case (and comparable UK cases) relate to an issue (excessive pricing) which has rarely featured in earlier enforcement, but is now an increasing priority. One concerns the potential exclusionary effects of low price schemes; the other, the potential exploitative effects of high prices, in particular rises in prices from a lower base. Both forms of enforcement action illustrate the importance of competition law compliance in the particular circumstances of the pharmaceutical sector, where niche products for narrow indications may easily lead to a finding of dominance and where healthcare budgetary constraints, combined with the complex cost base of pharmacos, can result in variable (low or high) pricing which may be challenged.
That said, it would be a mistake to see such alleged pricing abuses as a pharma issue only. In all sectors, given the intensity of current scrutiny, companies with strong market shares should review the rationale for all their pricing, including rebate schemes and price increases, and assess whether their pricing is competition law compliant.
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