On 2 September 2015, the Romanian Competition Council (“RCC”) published on its website a series of commitments proposed by GlaxoSmithKline SRL (“GSK”) in the context of the RCC’s investigation regarding a potential abuse of dominance by GSK related to its distribution of Avodart and Seretide medicines.
In 2013, the RCC launched a sector inquiry into the pharmaceutical market, with the main goal of analysing changes in the distribution system of medicines. The analysis was conducted in the context where several producers had expressed their intention to shift from a classical distribution system (via several distributors) to a distribution system managed by the producers themselves or including only a limited number of distributors.
Within the sector inquiry, the RCC focused its attention on two cases where undertakings had changed their distribution model: the newly implemented direct-to-pharmacy system set up by GSK and the limited distribution model of Pfizer. GSK had decided to sell three of its products (i.e. Avodart, Seretide and Tyverb) only through its affiliated distributor, Europharm, whereas Pfizer had limited its distribution from 10 to 3 distributors (i.e.Farmexpert, Mediplus and Romastru) for drugs like Diflucan, Ecalta and Vfend.
The preliminary findings of the RCC’s study, shared in 2014, showed that in case a single distributor was in charge of the distribution, it would not pass on to the pharmacies the discounts it received from the producer. In other cases, where the number of the distributors decreased considerably (i.e. from 10 to 3), discounts continued to be passed on to pharmacies, but in lower percentages than before.
Apart from the sector inquiry, the RCC also launched a targeted investigation in December 2013 after having received a complaint from pharma chain Sensiblu, the distributor Mediplus and the Association of Pharmaceutical Distributors and Retailers from Romania (“ADRFR”) alleging an abuse of dominance of GSK on the Romanian supply market relating to its Avodart and Seretide medicines.
Anti-competitive concerns identified in the course of the GSK investigation
Following its preliminary assessment, the RCC expressed its concern that GSK had abused its dominant position through a series of practices related to the supply of its Avodart and Seretide products. The alleged anti-competitive practices were: (i) the implementation during 2009 – 2012 of a system of supply quotas; and (ii) the implementation starting 1 January 2013 of a new supply system involving (a) the allocation of supply quotas to the Romanian market; (b) direct-to-pharmacy distribution; (c) supply quotas at the pharmacy level; and (d) agreeing to supply over the quotas of each pharmacy only if the pharmacy in question shared information regarding prescriptions (control of the final destination of products). The RCC determined that these practices have as object or effect the creation of a supply restriction on the Romanian market to the disadvantage of consumers and, at the same time, restrict parallel exports.
The commitments offered by GSK
Earlier this month, GSK proposed a hybrid distribution system that would add two additional channels to its current direct-to-pharmacy model, a traditional distribution channel and an emergency channel.
First of all, GSK undertakes to supply the Romanian market with enough quantities of the products in question (i.e. Avodart and Seretide) on the basis of sell-out data from IMS, an external information services provider. This appears to be a reflection of principles set by the Judgment of the Court of Justice of the European Union (“CJEU”) in Cases C-468/06 to C-478/06 (Sot. Lélos kai Sia EE and Others v. GlaxoSmithKline AEVE Farmakeftikon Proïonton), where the CJEU decided that an undertaking occupying a dominant position on the relevant market for medicinal products must meet the ordinary orders. The ordinary orders are determined in the light of the needs of the national market based on sell-out data of IMS.
Secondly, GSK commits to set up a traditional distribution channel that would be added to its existing direct distribution channel. The traditional channel would function through at least three distributors designated by GSK following a transparent procedure based on objective criteria. Such criteria would include guarantees of the distributor’s compliance with anti-bribery and anti-corruption legislation (i.e. ABAC and FCPA) and ethical standards; the financial stability of the distributor and its commitment to meet several key performance indicators (i.e. a minimum coverage of the country’s territory and the obligation to pass on a part of the discount received from GSK to pharmacies).
Under the traditional distribution channel, pharmacies would have the possibility to freely choose their preferred distributor by filling in questionnaires with the distributors of their choice. Such questionnaires would be conducted by an independent market research agency contracted by GSK. At the same time, pharmacies would have the right to revise their option at any time and even pass from the traditional distribution channel to the direct-to-pharmacy channel.
GSK reserves the right to determine through an external auditor at least once a year whether the selected distributors respect the minimum conditions mentioned above and could replace any distributor not meeting its obligations.
Moreover, GSK has committed to create an emergency distribution channel, which would meet any outstanding orders initially placed by pharmacies through either direct or traditional distribution channels. GSK would receive such orders using the Patient Comes First dedicated phone line, which has already been set up. Orders received under this mechanism would be met from a buffer stock of medicine and supplied through the emergency distribution channel.
GSK also proposes an algorithm in order to establish the initial segmentation of medicine quantities intended for each distribution channel. Therefore, all active pharmacies in Romania would be split up into four categories on the basis of purchases of certain ATC class medicines during the six months prior to the implementation of the hybrid distribution system and each pharmacy would have certain votes corresponding to the weighted average of its purchases. Afterwards each pharmacy would be requested to vote either for the direct or for the traditional distribution system, and product segmentation would be made following the results of the vote.
The commitments proposed by GSK are opened for public consultation and interested parties can submit comments until 5 October 2015.