The Competition and Markets Authority's (CMA) recent £45 million fine on GlaxoSmithKline (GSK) and two other companies is the latest in a series of competition enforcement action in the pharmaceutical sector.
The size of the CMA's fine is itself significant. The fine on GSK, £37 million, is the second largest to have been imposed on an individual company by the UK competition authorities and provides a welcome reminder of the CMA's 'teeth' with regard to competition enforcement.
The GSK case is also the first time that the UK competition authority has fined pharmaceutical businesses for so-called 'pay-for-delay' settlements aimed at delaying the entry of generic competitors into the market, although there have been similar cases in other jurisdictions in the past.
'Pay-for-delay' is a term that the competition authorities have coined to describe certain patent settlement cases that the authorities find objectionable from a competition law perspective.
As is the case in other sectors where R&D is crucial to the development of new, innovative products, the developer of a new drug will often seek to secure patent protection for their product, giving them a period of exclusivity during which they can recoup the costs involved in developing the product and bringing it to market.
However, as and when the patent expires, producers of 'generic' versions of the product can enter the market and compete with the incumbent supplier for sales. For the patent owner, the expiry of patent protection often augurs an impending revenue cliff. Newly released, off-patent, generic versions of the product introduce competition in the market, often resulting in a dramatic fall in the price of the product (in some cases by around 90%).
GSK faced such a situation with regard to its 'blockbuster' anti-depressant product, Seroxit. GSK had enjoyed patent protection for the product but, in 2001, a number of generics producers were taking steps to enter the market with their own versions of the product.
GSK responded to the threat posed by generics producers by commencing proceedings against two of them, Alpharma Limited (Alpharma) and Generics (UK) Limited (GUK), for breaching its patents. Rather than taking the matter to trial, the parties proceeded to settle the cases. The settlement terms included GSK paying certain sums to the generics producers and appointing them as its distributors of Seroxit. In return, the generics producers agreed not to launch their own products into the UK market
The settlement arrangements were brought to the attention of the Office of Fair Trading (the CMA's predecessor) in 2010. The OFT, and then the CMA, launched an investigation into whether the settlement infringed competition law.
The CMA concluded that the settlement arrangements between GSK and each of Aplharma and GUK were anti-competitive. It considered that the arrangements in effect constituted a £50 million pay-off by GSK to delay the potential entry of generic competition onto the UK market. In legal terms, the CMA characterised the arrangements as an anti-competitive agreement between GSK and each of the generics producers, and as an abuse of dominance by GSK.
The CMA imposed a fine of £37.6 million on GSK, and fines of £1.5 million and £5.8 million on Alpharma and GUK respectively.
This is the first 'pay-for-delay' infringement case in the UK, but there have been other cases elsewhere. In 2014, the European Commission fined the French pharmaceutical company Servier and five of generics companies a total of 427.7 million (EUR). In that case, Servier faced the threat of competition from generics producers as patent protection for its bestselling blood pressure medicine, perindopril, came to an end. In the Commission's view, Servier implemented a strategy to exclude competitors and delay the entry of cheaper generic versions of the product. It purchased for itself certain technology that would have assisted generics companies in launching their own products - Servier described this move as an attempt to "strengthen the defence mechanism". As and when generics companies found ways of developing their own products, Servier challenged them and subsequently settled the cases with them - in the Commission's view, Servier was in effect paying the generics companies to stay out of the market. Servier's appeal against the Commission's findings is currently before the European General Court.
In 2013, Danish pharmaceutical company Lundbeck was the target of a European Commission decision that imposed fines of nearly #150 million on Lundbeck and several generics producers. In that case, the Commission considered that the companies had entered into deals to unlawfully delay the market entry of cheaper generic versions of Lundbeck's branded citalopram, a blockbuster antidepressant.
The full text of the CMA's decision in the GSK case is yet to be published but, when it is, will bear close scrutiny by patented suppliers and generics alike. From a competition compliance perspective, it is crucial that pharmaceutical suppliers can distinguish legitimate action by a patent holder to protect their intellectual property, from the misuse of the patent settlements to restrict competition. Hopefully the CMA's decision will provide a degree of clarity in this regard.
It remains to be seen what further repercussions GSK may face from this case. It is very possible that the Department of Health with launch a claim for the amount it will say Seroxit was overpriced as a result of GSK's conduct. Other parties - including generics producers and any other customers of the product - are also likely to want to consider whether they may have suffered loss that they might seek to recoup.