The South African group Aspen Pharma was fined Euro 5.2 million two weeks ago by the Italian Competition Authority (“ICA”) for having imposed excessive prices for its antitumor drugs “Cosmos” acquired from GlaksoSmithKline in 2009.
This is the third (controversial) case in which the ICA deals with allegations of anticompetitive behaviour in the pharmaceutical sector.
In January 2012, the ICA found Pfizer in breach of Article 102 TFEU for having prevented generic entry in the market of anti-glaucoma drugs by requesting and enforcing a Supplementary Protection Certificate (SPC) on a divisional patent, after the expiry of the term for requesting the SPC based on the parent patent. The Pfizer case has raised concerns in the pharma sector for the obscurity of the legal criteria used by the ICA. In fact, the fine was revoked by the Administrative Court of Lazio, but eventually confirmed by the Consiglio di Stato (the last instance in administrative proceedings). In February 2014, the ICA fined Roche and Novartis Euro 180 million for having cooperated in devising an allegedly artificial differentiation between a drug for the treatment of visual pathologies and another (for ICA) equivalent, but substantially less expensive medicament authorised for different indications by the Italian Health Authority (AIFA). According to the ICA, the differentiation was part of a coordinated strategy aimed at discouraging off label use of such second, less expensive, drug (the case is currently under appeal and questions have been referred to the CJEU on a number of topics – case reference number: C-179/16)
As to the Aspen case, the Cosmos drugs are life-saving onco-hemathological drugs. As can be read in the ICA’s decision, their market value is limited, which is also the reason why, despite the expiry of the related patents long ago, as of today, there is virtually no competing product on the market. On this premise, the ICA’s decision assumes that Aspen holds a dominant position.
In 2013, Aspen started negotiations with AIFA aimed at having the price for the Comsos drugs increased and aligned to the price applied in other EU countries. In fact, the Italian procedure for fixing prices on reimbursable drugs provides that agreements between the registration holder and AIFA can be re-negotiated every second year.
According to the ICA, Aspen would have exploited its dominant position in the price negotiations with AIFA. Quoting from internal correspondence seized during down raids, the ICA’s decision states that Aspen would have insisted on the Cosmos products being listed in the “C” category (meaning not reimbursable) although being aware that such request was allegedly not admissible. Also, it would have threatened to withdraw the Cosmos drugs from the market and deliberately caused a shortage of the products on the Italian market during price negotiations.
This aggressive conduct by Aspen – in a situation where the Cosmos portfolio constituted lifesaving and irreplaceable drugs - would have diminished AIFA’s negotiation power causing AIFA to agree to price increases of the Cosmos drugs up to 1500%.
Regarding the legal and factual criteria to assess the unfairness of the price increase, the ICA was not shy in recognising that there is no straightforward rule as to the method to apply. The ICA made reference to established EU case law (United Brands C-27/76, Bodson C-30/87, Kanal 5 C-226/84, Deutsche Post COMP/36.915, etc.) and considered it appropriate to make recourse to two criteria. The first is based on the difference between prices and costs, measured through the gross contribution margin. The second is based on the difference between revenues and the so-called “cost plus”, which includes direct costs, the quota of indirect costs attributed to the specific products and a standard profitability measure.
Using the two above criteria, the ICA considered that there was no underlying justification for the price increase in the Aspen case. It also found that there was no extra-economic benefit for patients, nor other potential justifications (such as the need to recoup R&D investments, considering that the drugs in question had been developed years earlier and the related investment had already been recouped by previous registration holders). An important role for concluding that Aspen abused its dominant position by implementing unfair prices through its aggressive negotiations with AIFA was also played by the fact that there was a clear benchmark for the price comparison, namely the prices charged by previous registration holders up to Aspen’s acquisition.
Aspen has already announced it will appeal the ICA’s decision before the Italian Administrative Courts. It has two months to do so. In particular, they point out that prices in Italy had remained the same for nearly 50 years and still remain significantly below prices of alternative treatments in each therapeutic class. Aspen also adds that the 1500% increase referred to in the ICA’s decision is “misleading, considering that the starting prices were extremely low and completely unrelated to the actual therapeutic and economic value” of the drugs in question.
Regardless of the final outcome of this case before the Administrative Courts, one should not overestimate its scope in light of its undoubted specificities, highlighted by the ICA itself along its decision. One important general lesson can however be learnt: negotiations with the competent regulatory body (AIFA) resulting in a bilateral agreement on pricing do not exempt pharmaceutical companies from the possibility of being investigated by the ICA for alleged antitrust violations as a result of such agreement (the division of competences between the two regulatory bodies is also at stake before the CJEU in the above mentioned Roche-Novartis referral, where the CJEU is i.a. asked to establish to what extent National Competition Authorities are bound by the contents of the marketing authorisations granted by pharmaceutical regulatory authorities). The inherent paradox is evident in the cease and desist order included in the ICA’s decision, requiring Aspen to “take every measure necessary to determine fair prices for its Cosmos drugs”. Considering AIFA’s obvious role on the point, it will be interesting to see what will be AIFA’s position in such ICA-mandated new negotiation phase.