Ruchit Patel, Ropes & Gray antitrust partner, examines excessive pricing laws in the EU and the increase of cases involving generic pharmaceuticals.
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EU and UK antitrust laws make it illegal for dominant firms to charge unfair or excessive prices. These laws have most often been applied in markets that feature high barriers to entry or expansion, which enable a dominant firm to charge supracompetitive prices free of competitive challenge. Excessive pricing laws have not often been applied to generic drug markets because those markets are typically characterized by aggressive competition from lower-priced equivalents. But in the recent past, we’ve seen a spate of excessive pricing cases involving generic pharmaceuticals.
For example, in December last year, the UK Competition and Markets Authority fined Pfizer and Flynn Pharma £90m for alleged excessive pricing in generic anti-epilepsy drugs and, in the same month, issued formal objections to Actavis for its pricing behavior in generic hydrocortisone tablets. And in May this year, the European Commission commenced proceedings against Aspen Pharma for alleged excessive pricing in relation to generic cancer drugs.
So the question is: what drives the trend towards excessive pricing cases in generic drug markets and does this trend signal the start of price regulation for generic drugs?
In my view, the recent cases (Pfizer/Flynn, Actavis, and Aspen) don’t suggest a desire to regulate all generic drug prices. They instead suggest a desire to intervene in a fairly narrow set of circumstances where:
- The NHS has no choice but to continue to purchase the drug in question;
- The price increases have been significant, persistent, and unchallenged by competitors; and
- The pharma company is in a “mixed scheme,” so it sells both branded drugs under the Pharmaceutical Price Regulation Scheme and generic drugs, which are sold free of price regulation.
We shouldn’t forget that excessive pricing cases have several inherent challenges, including:
- How to identify and apportion all applicable costs;
- How to assess whether a price charged is “excessive” by reference to a reliable and probative comparative benchmark price;
- How to examine whether a price charged is merely the result of an abusive use of market power, or whether it’s the consequence of some legitimate reasons; and
- How to examine whether there’s no effective competitive pressure on pricing.
Now there’s no guarantee that these elements will be proven to the requisite legal standard in these recent cases. For example, in the Pfizer case, it is not clear that the competitive impact of Teva’s comparable anti-epilepsy drug has been properly assessed. Nor is it currently clear that the CMA fully considered the impact of the fact that Pfizer’s branded product was sold at a significant loss, meaning that nameplate price increases are not necessarily probative of excessive pricing. Indeed factors such as these can explain why other high profile excessive pricing cases (e.g., the Qualcomm standards case and the Swedish ports cases) have not been pursued by the European Commission and why other decisions have been reversed on appeal.
Finally, the Health Service Medical Supplies (Costs) Act, which entered into force in May of this year, reduces the prospect of these kinds of excessive pricing cases in the future. The Act allows the Secretary of State to control the prices of generic drugs for pharma companies who are in a “mixed scheme,” so it’s possible that, going forward, pharma companies who charge significant and persistent high prices for generic drugs may face regulatory actions rather than excessive pricing enforcement.