The market dynamics of the pharmaceutical industry are peculiar in many ways, including the characteristics of its demand and supply sides. A key feature is the number and role of the various market players, starting with patients as the end-users of medicine and leading up to originators and manufacturers of generic products on the supply side, with a variety of stakeholders (doctors, pharmacists, national governments / health insurance providers, wholesalers, etc.) in between.
Each player has a very specific role – and particular interests – which are not necessarily aligned. The European Commission has long taken the view that these dynamics may give rise to antitrust concerns and has therefore focused on the pharmaceutical sector as regards antitrust enforcement for the better part of the last ten years. At the end of January 2019, the Commission published a report on "Competition Enforcement in the Pharmaceuticals Sector (2009 – 2017)". The report makes clear that the sector remains a top priority for the European Commission and for national competition authorities. There are several reasons for this:
- Regulators wish to ensure patients' access to affordable and innovative essential medicines;
- High prices of medicine continue to impose a burden on national healthcare systems, whereas competition from generics and, more recently, biosimilars typically represents a vital source of price competition on pharmaceutical markets and significantly drives down prices. The report states that public spending on healthcare in general has increased to between 5.7 % and 11.3 % of GDP in EU countries, and is expected to grow further;
- There is concern that national governments have limited bargaining power against pharmaceutical companies;
- Innovation is key in the pharmaceutical sector. However, market participants may engage in conduct that affects the incentives to innovate (e.g. patenting, interventions before authorities, acquisitions of competing technologies, etc.) and, in doing so, may breach competition law;
- Historical investigations have also brought to light more classical forms of misconduct, such as bid-rigging cartels, or strategies to cut off rivals from access to key inputs or customers, such as a rebate scheme designed to exclude competitors from hospital tenders.
When it comes to assessing the potential impact of this enforcement focus on companies the report makes interesting reading. At the time of the report, the Commission and national authorities were investigating over 20 cases involving pharmaceuticals and in the 2009 – 2017 period covered by the report, 29 decisions were adopted which found an infringement or acceptance of binding commitments in antitrust investigations related to pharmaceuticals for human use. Fines were imposed in 21 cases for more than EUR 1 billion in total.
Seventeen of the investigations that led to an intervention decision were triggered by complaints, eight were initiated ex officio, and four were commenced on other grounds (e.g. indicia gathered during a sector inquiry).
According to the report, the most widespread type of competition concerns leading to intervention decisions are abuses of dominance (45 % of cases), followed by various types of restrictive agreements between companies.
As far as mergers are concerned, during 2009 – 2017, the Commission analysed more than 80 transactions in the pharmaceutical sector. Of these, 19 were problematic from a competition standpoint. The main risks identified were (i) price increases for some medicines in one or several Member States; (ii) depriving patients and national healthcare systems of some medicinal products; and (iii) diminishing innovation in relation to certain treatments developed at the European or even global level.
The EU Commission and its national counterparts will look closely into the following issues.
- Preventing affordable access to pharmaceuticals:
High drug pricing continues to attract scrutiny. Recent decisional practice and position papers by competition authorities are evidence of this. While it may seem legitimate to recover the high costs of R&D by pricing, there are benchmarks and thresholds above which prices are likely to be considered excessive.
- Preventing the availability of generic drugs:
Any strategy, particularly pay-for-delay patent settlements, aimed at preventing the availability of cheaper generic drugs, should be well thought-out and defendable against antitrust concerns.
- Preventing the prescription of less expensive substitute drugs:
Competing companies should be careful not to collude with an aim to discourage the off-label use of a drug (e.g. by disseminating information that questions the drug's safety), to the benefit of another, more expensive drug.
- Reducing innovation by way of mergers:
Even if companies do not overlap in terms of the products they sell, a transaction might be opposed if it negatively impacts innovation, particularly where the products of one party overlap with a product being developed by the other party or where the parties are developing competing pipeline products.
The Commission's report makes clear that "effective enforcement of EU competition rules in the pharmaceutical sector remains a matter of high priority". Stakeholders active in the industry should be well prepared for all the attention they will receive.