The Pharmaceutical Sector Inquiry much ado about nothing
The Pharmaceutical Sector Inquiry: much ado about nothing? “The facts outlined in the report are deep basic truths about this industry… there is nothing new on what they are reporting. “ Jacob LJ during his speech on the presentation of the Preliminary Report, Nov 2008 Competition Law Association meeting London 27 July 2009 Stephen Kon 1164540
CLA meeting, 27 July 2009 Overview • • • The rationale for the pharma sector inquiry Background to the pharma sector inquiry What insights did the pharma sector inquiry provide to the Commission in terms of enforcement and regulation in the sector?
CLA meeting, 27 July 2009 EC sector inquiries Rationale for sector enquiries more than mere fact-finding. General objectives are to: • • identify infringements of competition law for follow-up enforcement action; and make informed policy decisions in developing the regulatory framework. – “[Sector inquiries] help direct the Commission's attention to where enforcement cases should be opened by uncovering evidence and they shine a spotlight on anti-competitive business practices which sometimes is enough to get the companies themselves to solve the problems. There is a further advantage. The improved understanding these inquiries give us also informs the Commission's policy decisions about the framework for the market concerned, helping us to regulate better. " (Commissioner Kroes, SPEECH/07/186); – “[Sector inquiries are used] to look into. . . possible restrictions or distortions of competition and their possible causes, and, where appropriate, to suggest ways forward" (CPN (1) 2008); and – "[Sector inquiries are used]. . . where the trend of trade between Member States, the rigidity of prices or other circumstances suggest a restriction or distortion of competition" (Art 17 Reg 1/2003)
CLA meeting, 27 July 2009 Rationale for the pharma sector inquiry • Specific concerns identified by the Commission in the “Frequently Asked Questions” document accompanying the press release that announced the inquiry (MEMO/08/20, 16 January 2008): – – • Decline in innovation: fewer newer products - 40 per year 1995 -1999 vs 28 per year 2000 -2004; and Delayed entry of generic medicines. Commission Decision launching dawn raids on 15 January 2008 describes purposes of inquiry as being more than fact-finding: “There are indications of commercial practices by pharmaceutical suppliers including notably patenting or the exercise of patents which may not serve to protect innovation but to block innovative and/or generic competition, litigation, which may be vexatious, and agreements, which may be collusive. These practices may cause market distortion when they unduly fence off incumbent suppliers of drugs from innovative or generic competition, for example, due to de facto extended patent protection through unilateral conduct or agreements. Such practices may limit consumer choice, reduce economic incentives to invest in research and development of new products and damage public and private health budgets. In order to establish the extent of the above-mentioned practices and to assess them fully in their proper factual and economic context, the use of formal investigative powers such as those granted to the Commission for sector inquiries is required. ” (Inspection Decision initiating an inquiry into the pharmaceutical sector COMP/D 2/39. 514, 15 January 2008)
CLA meeting, 27 July 2009 Significant Commission resources dedicated to the inquiry • • Commission has dedicated team of 25 -40 staff • First use of Commission powers to conduct dawn raids to launch sector inquiry. Justification was that "highly confidential information may be easily withheld, concealed or destroyed" (IP/08/49). Criticised by industry as disproportionate. Note that in conducting dawn raids as part of sector inquiries, there is no requirement to have a suspicion for wrongdoing (as is the case with cartel investigations for example). • Proactive / oppressive approach to enforcement? Extensive questionnaires sent to over 100 originators and generics; separate questionnaires then issued to associations of doctors, pharmacists and price regulators
CLA meeting, 27 July 2009 What has inquiry added to existing enforcement action in the sector? • Some time prior to the inquiry, there had been a significant shift in the Commission’s enforcement priorities in this sector: – Nadia de Souza "the adoption of the Astra. Zeneca case has heralded a new era in the Commission's enforcement activities in pharmaceuticals aimed at promoting inter-brand competition by spurring on innovation between pharmaceutical producers and by increasing price competition stemming from generic entry after patent expiry. " (CPN (1) Spring 2007) – Commissioner Kroes to European Parliament Summer 2006: "generic competition is an area which has suffered from under enforcement in the past. . . the Commission will give greater priority to competition in the Generic sector in the immediate future. “ • Commission already moving away from focus on parallel trade in pharma sector which culminated in Bayer/Adalat (Case T-41/96, 2000 and C-2/01 P and C-3/01 P 2004) and the Greek GSK case dealing with supply quota systems (Syfait II, 2007); and the Spanish GSK case (Case T-68/0 GSK v Commission, 2006) dealing with dual pricing systems. • Commission and NCA’s practice already addressing matters under investigation in inquiry.
CLA meeting, 27 July 2009 Enforcement practice – the Astra. Zeneca case • Case history: – Commission Decision June 2005 (Case COMP/37507 Astra. Zeneca) – Astra. Zeneca appeal to Court of First Instance (CFI) in August 2005 (Case T 321/05 Astra. Zeneca) – Oral hearing held in late November 2008 – Astra. Zeneca announces in SEC filing that CFI judgment expected in Spring 2009 • First Commission Art 82 infringement decision in the pharma sector Commission levied a fine of € 60 million • Facts: misleading information was submitted to obtain an SPC in order to exclude generic firms from competing against Astra. Zeneca's anti-ulcer product Losec, accompanied by deregistration of Losec capsules in certain Member States and registration of new MUPS formulation
CLA meeting, 27 July 2009 Enforcement practice – the Astra. Zeneca case (2) The Astra. Zeneca case addresses many of the fundamental issues under investigation in the pharma inquiry: • Market definition and dominance in the application of Art 82 – Commission moves away from relying solely on ATC 3 classification in relevant pharma market definition. – Looks at structure of market (market shares); patent position; gatekeeper status; incumbency/first mover; and pricing independence. – Commission also confirmed that the special responsibility of dominant companies under Art 82 must be “considered in light of the specific circumstances of each case which show that competition has been weakened” (Case C-33/94 Tetra Pak v Commission), cf Final Report concludes that in relation to competition between originator companies “anti-competitive effects can only be assessed on a case-by-case basis, which goes beyond what a sector inquiry can do. ”
CLA meeting, 27 July 2009 Enforcement practice – the Astra. Zeneca case (3) • Abuse through Government process – The enforcement, or threatened enforcement, of a fraudulently obtained patent or a patent obtained by deliberate misrepresentation or misstatements can be a breach of Art 81 (cf application of s 2 Sherman Act, see Walker Process Equipment, 382 U. S. 172, 1965). – Commission concluded that “abuse consists of misleading representations [to patent agents, patent offices and national courts], knowingly engaged in by Astra. Zeneca as part of its overall strategy” and that this was “with a view to preventing, or least delaying generic entry”. – Clear that the Commission is not challenging the grant of the SPC per se; but no reason of principle why fact a product is covered by a patent should immunise it from Art 82. – Commission's approach in Astra. Zeneca case not fundamentally different from approach in FTC’s s 2 Sherman Act cases: i. e. in Biovail (Orange Book listing for new ‘ 365 patent even though it only claimed a method for using a metabolite not for product itself) or BMS case (Taxol - listing patent in Orange Book without a reasonable good faith belief that the relevant patent claims were valid). – Clear statement of principle in DG Competition’s Discussion paper on the application of Art 82 to exclusionary abuses at para 60, citing Astra. Zeneca as authority: “where a certain exclusionary conduct is clearly not competition on the merits, in particular conduct which clearly creates no efficiencies and which only raises obstacles to residual competition, such conduct is presumed to be an abuse. ”
CLA meeting, 27 July 2009 Enforcement practice – the Astra. Zeneca case (4) • Abuse through regulatory process/deregistration abuse – Well established in EC Case law that the existence of a regulatory framework does not exclude the application of competition law. – Selective requests for de-registration of Losec capsules for MUPS tablets. According to Commission, exclusionary intent demonstrated by: – documentary evidence (internal Astra. Zeneca documents); – selectively planned for countries where Astra. Zeneca believes there is a good chance of achieving aim; – local marketing companies would have preferred to keep Losec capsules on market in certain circumstances. – Single acts of withdrawing or requesting de-registration of a marketing authorisation will not normally be abusive – focus here is on selectivity and overall intention to exclude.
CLA meeting, 27 July 2009 Enforcement practice – the Astra. Zeneca case (5) More generally Astra. Zeneca leaves open many questions, including • • Can Art 82 apply to circumstances giving rise to ownership of an IPR? • To what extent can Art 82 interfere with a company's rights in protecting its confidential information lodged with regulatory authorities? • In what circumstances should the use or misuse of public procedures and regulations, including administrative and judicial processes, constitute an 'abuse'? Can Art 82 impose an obligation on a company to maintain an MA for a product it no longer requires? Does the Sector Inquiry Report shed any light on these questions?
CLA meeting, 27 July 2009 Enforcement Practice - further Commission and NCA investigations (1) Investigations by both DG Competition and NCAs since Astra. Zeneca address many of the fundamental issues raised during the pharma inquiry • Vexatious litigation and misuse of regulatory procedure: – Glaxo. Smith. Kline re Seroxat (2005) – Commission investigation following dawn raid concerning complaint that GSK abused dominant position in market place for Seroxat through enforcement of its IPRs, litigation surrounding regulatory approvals and marketing of Seroxat (decision on whether to proceed pending). – Cf judgment of the CFI in ITT Promedia (Case T-111/96, 1996) - bringing legal proceedings for enforcement of a right may infringe Art 82 if: – the legal proceedings cannot be regarded as an attempt to enforce legitimate rights and in fact only serves to harass the opposing party; and – proceedings must be conceived in the framework of a plan the goal of which is to eliminate the competition.
CLA meeting, 27 July 2009 Enforcement Practice - further Commission and NCA investigations (2) • Misuse of patent system – Boehringer Ingelheim (2007) - Commission opened investigation into whether BI misused the patent system in order to exclude potential competition in drugs to treat chronic obstructive pulmonary disease (COPD). We understand the case relates to whether patent should have been granted (decision pending). • Settlement and licensing agreements – between innovator companies: PPls Astra. Zeneca & Takeda litigation settlement investigated but Commission decided not to pursue. – US debate dealing with ‘reverse payment’ agreements between innovators and generics. Most recent action by FTC demonstrating that reverse payment agreements are an enforcement priority (suit against several reverse payment settlements in 2 nd Circuit Court of Appeals in New York, 6 July 2009) cf Commission Servier investigation (informal investigation launched toward end of 2008, prior to publication of Final Report; formal proceedings opened on the day the Report was published, 8 July 2009). • Unnecessary and undue interference in regulatory processes – OFT investigation that Reckitts Benckiser re Gaviscon (2008) lobbying medicines agencies not to grant an MA to a generic, lobbying doctors not to prescribe a generic, delaying introduction of a generic name for a product.
CLA meeting, 27 July 2009 Enforcement Practice - further Commission and NCA investigations (3) • Improper conduct to delay entry of generic competitor – Novartis (2006): OFT investigation into alleged financial inducements and other improper conduct to delay customers from switching to the generic form of the schizophrenia drug clozapine. Investigation closed due to lack of evidence. – Arrow Generiques (2007) Schering-Plough found to have engaged in practices aimed at denigrating Arrow's generic version of SP's product. The French Competition Council ordered SP to issue press releases in medical reviews specifying that generics are subject to MA approval which guarantees their safety. Court of Cassation confirmed decision. • Predatory pricing – OFT/CAT NAPP Decision (CA 98/2/2001) (unfair/predatory pricing) and, more recently GSK re Cerufoxime (2007) - fined € 10 million by the French Competition Council for infringing EC and French competition law by predatory pricing on the Cerufoxime market in an attempt to delay the arrival of generic products on adjacent markets where GSK patents were about to expire. Does the Final Report offer more or better insights into possible enforcement action?
CLA meeting, 27 July 2009 Does the Final Report “help the Commission to regulate better”? Final Report offers little new over the Preliminary Report (Nov 2008) • Language is toned down somewhat – Preliminary Report found that "competition in this industry does not work as well it should" and identified the reason for this as a series of practices used by originators in their "toolbox", often cumulatively, with "the objective of delaying or blocking market entry of competing medicines". In the Final Report, the reference to “toolbox” is changed to "variety of instruments" used by originator companies to extend the commercial life of their medicines which are "amongst the causes" of the delay. – The Commission clarified that enforcement action would "take into account the legitimate objectives to protect innovation and the regulatory framework". – Final Report concluded that "use of several instruments that are in themselves legitimate does not necessarily render their combination contrary to competition rules", cf Preliminary Report reference that cumulative practices may be subject to antitrust scrutiny even if individually such practices would have been lawful. (NB: Final Report mentions that a caseby-case analysis is required - this is no different to the ‘back to basics’ approach outlined in Tetra Pak v Commission Case C-33/94) • Many well-established legal principles are reiterated – “If the existence and exercise of an industrial property right are not in themselves incompatible with competition law, they are not immune from competition law intervention. However, certain practices can only be an infringement in exceptional circumstances. ”
CLA meeting, 27 July 2009 Does the Final Report “help the Commission to regulate better”? (2) • Final Report does not include any specific finding of wrongdoing/infringement, identify types of practices that could be prohibited or identify any particular default in the regulatory framework which causes competition "not to be working as well as it should". • Final Report provides many factual details about the industry practices. But how new, significant or helpful are they? eg: – Companies reported 698 cases of patent litigation initiated mainly by originators but generics won 62% of the time; – “In the period 2000 to 2007, the report estimates that savings due to generic entry could have been 20% higher that they actually were, if entry had taken place immediately following loss of exclusivity. According to the in-depth analysis of this sample […] additional savings of some 3 billion could have been attained, had entry taken place immediately”; and – “Between 2000 and 2008, more than 200 settlement agreements were concluded between originator and generic companies. They covered some 49 medicines, of which 31 medicines (ie 63%) were best-selling medicines that lost exclusivity between 2000 and 2007”. – "One cannot exclude that [early entry agreements between originators and generics] could be used to anticipate generic competition or to react to the presence of a generic company. “
CLA meeting, 27 July 2009 Does the Final Report “help the Commission to regulate better”? (3) • Patents: At EU level, the Final Report recommends the rapid establishment of the Community Patent which was under way in any event (as acknowledged in the Report). It notes that the internal documents seized in the dawn raids "confirm that [some originator companies] aimed at developing strategies to extend the breadth and duration of their patent protection and that they use a variety of instruments to extend the commercial life of their medicines". • Marketing authorisations: The Commission “calls on Member States and national authorities to make better use of the possibility of mutual recognition of marketing authorisations by enhancing procedures and reducing administrative burdens on companies, enabling full mutual recognition without additional requirements imposed on companies”. • Information campaigns: The Final Report states that Member States should take action (under Art 97 of Directive 2001/83) against campaigns by originators (or generic) companies that seek to denigrate competing generic products. However, that Article simply provides that Member States should use existing legal and administrative structures to ensure the cessation of misleading advertising or, in the event that the publication of such advertising is imminent, to prohibit such publication.
CLA meeting, 27 July 2009 Conclusions • The Final Report acknowledges that it "summarises [the facts surrounding the respondents] comments”, but it also asserts that it “proposes possible policy options as to how the regulatory framework should evolve”. However, apart from the Community Patent, it provides no specific guidance on measures at EU level (legislative, structural) that may be adopted to address matters under investigation and nor does it identify specific regulatory structures that could be modified to promote competition. • On pricing and reimbursement, the Final Report reaches the unsurprising conclusion that: – “The frequent adjustment, physicians encourage, compulsory substitution, lowest reimbursement price and, in a somewhat less pronounced way, the differentiated co-payment policies tend to have a positive effect on the extent of price competition”. • The detailed and complex regression analysis of the relationship between price drops and generic price concludes, unsurprisingly, that a host of factors such as compulsory substitution and lowest price policy “tend to” have an effect on generic substitution. While the detail is considerable, it is difficult to see what this proves or what the relationships are between the general conclusions and the specific conduct, other than the more encouragement there is for generic prescribing the more positive the impact will be on price. Will this general factual analysis assist in specific enforcement actions?
CLA meeting, 27 July 2009 Was this a valuable use of Commission resources?
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