The UK Office of Fair Trading (OFT) initiated a market study into the distribution of medicines on April 4 2007 to consider recent and expected changes to the distribution of medicines by leading UK medicine suppliers.
Historically, medicines in the UK have typically been distributed by pharmaceutical companies via a number of competing wholesalers.
In September 2006, Pfizer Limited (Pfizer) announced a new arrangement with the wholesaler Unichem, whereby Pfizer would sell its prescription drugs solely through Unichem. Pfizer submitted details of its proposed arrangement to the OFT in October 2006.
A number of wholesalers complained to the OFT that the end of Pfizer’s distribution arrangement with them amounted to a breach of UK and EC competition law, and asked the OFT to take interim action. On February 27 2007, the OFT wrote to the wholesalers explaining that it was unclear what impact Pfizer’s new arrangement would have on competition and that it would not take interim action against Pfizer as there was insufficient proof of irreversible harm.
On February 27 2007, the wholesalers applied to the High Court for an interim injunction to prevent Pfizer from ceasing supplies to them, based on competition law grounds.
The High Court heard the application on March 5 2007, and gave its decision to refuse the application on the same day. The High Court noted (a) the delay in the wholesalers bringing their complex application, (b) the lack of time for the defendants to put forth their case and (c) the lack of time for the court to fully analyze the complex factual and legal issues. The court did not view the decision to delay an application to the High Court until the OFT reached a decision as “appropriate”.2 (In future parties should consider concurrent applications to the OFT and the High Court to increase any chances of obtaining an interim injunction.)
Pfizer’s new arrangement was implemented in March 2007.
Other medicine suppliers are expected to follow with major changes to their own distribution/supply arrangements.
These developments will have impacted the OFT’s decision to open up a general market study into the distribution of medicines.
The OFT notes that it has “received complaints regarding the change to the workings of the sector which has prompted concern among pharmacists, dispensing doctors and competing wholesalers”. Industry participants should consider submitting views to the OFT, particularly where changes to distribution arrangements are being contemplated.
The OFT is collecting information for the distribution of medicines market study pursuant to section 5 of the Enterprise Act 2002.
- The potential outcomes of OFT market studies are:
- A report that no problems exist
- Publishing information to help consumers
- Encouraging firms to adopt voluntary action to address problems
- Recommendations to sectoral regulators or the Government
- A market reference to the UK Competition Commission
Focus and Scope of the Market Study
Initially the OFT proposes to focus on the following:
- The motivation for pharmaceutical companies moving to a “direct to pharmacy model” and the resulting impact on wholesaling competition and choice
- The motivation for pharmaceutical companies entering into exclusive arrangements and any long term effects on competition
- Incentives arising out of sector specific regulations
- Potential effects of differing distribution models on (a) discounts secured by the National Health Service and pharmacies, and (b) the quality of services provided to patients.
The OFT will be consulting with the UK Government and industry.
The OFT has announced its intention to conduct a “short study” with the publication of its finding by year end.
The deadline for comments is June 1 2007, and any submissions should include:
- Summary of main points for the OFT to consider
- A detailed explanation of the points for the OFT to consider
- Supporting data such as
– financial figures, precise definitions, dates and sources
– calculations with supporting spread sheets
– chronology of events with background explanations
– comparators with justifications for using comparators
- Where willing to respond to additional OFT questions, a named point of contact
Related Development - PPRS Report and US Pedigree Laws
The OFT also published, on February 20 2007, its market report on the UK’s Pharmaceutical Price Regulation Scheme. For further detail see the Hogan & Hartson Update.
These events correspond to developments in the States to increase state regulation of pharmaceuticals. Numerous states have enacted – and continue to enact – statutes and regulations requiring that drugs be distributed with “pedigrees” that establish their chain of custody. Increasingly, these requirements threaten to pit manufacturers against distributors and wholesalers as each tries to develop arguments that the other should bear primary responsibility for creating and maintaining pedigrees. As a result, manufacturers may consider new business structures to lessen these burdens as they continue operations in all the 50 states. Of course, the regulatory issues surrounding such structures must be carefully evaluated.
There are a number of challenges in formulating strategies to contribute to the OFT’s market study, not least because it is unclear how the OFT will analyze changes in distribution arrangements which are still under consideration and thus still hypothetical. We have significant experience dealing with similar reviews of distribution/supply and wholesaling arrangements in the US and Europe. Hogan & Hartson routinely assists pharmaceutical and biotechnology companies to evaluate and respond to the legal, regulatory and policy impact of such arrangements.
Our teams can assist your company in a number of ways:
- Consider and advise on procedural and legal issues, including feedback mechanisms.
- Assist you in formulating common views and arguments to put forward to relevant governmental authorities, regulators and trade associations.
- Work with your business people and economists to analyze distribution and wholesaling arrangements.
- Consider how to address general perception issues.
- Assist you in putting your messages forward to the relevant target audiences.