Introduction

In mid-November 2018 the Stockholm Administrative Court ruled that under the so-called 'trilogue negotiations' between pharmaceutical companies, the Dental and Pharmaceutical Benefits Agency (TLV) and the Swedish regions (collectively, the regions) – previously called county councils – could require an originator company to compensate them for products marketed by parallel importers.

Facts

Under the trilogue negotiations, a side letter agreement regarding a discounted list price of a medicinal product was negotiated by an originator company and the regions, supported by a health technology assessment by the TLV.

The originator company offered to repay the regions a certain percentage of each unit of its product dispensed at the pharmacies. However, no agreement was finalised because the company did not agree to make repayments for products dispensed at the pharmacies which were marketed and sold by parallel importers. Consequently, when no agreement was concluded, the TLV limited the medicinal product's reimbursement for its indications within the pharmaceutical benefits scheme and held that the product was not cost-effective at its list price.

The originator company appealed the decision to the Stockholm Administrative Court, claiming that a requirement making the company responsible for repayments for products sold by parallel importers was incompatible with the principle of equal treatment.

In addition, the company claimed that:

  • as the decision on limiting the scope of reimbursement was incompatible with the Pharmaceutical Benefits Act, their product should be granted general reimbursement for its indications;
  • the TLV had based its decision to limit the reimbursement only on a requirement to make repayments for units of the parallel imported product, which lacked a legal basis under the act; and
  • the treatment costs of the product had complied with the cost-effectiveness requirements under the act since the company had offered to make repayments to the regions for each originator company product dispensed.

The company asserted that a requirement which obliges a party to make repayments relating to dispensed parallel imported products would render it impossible to foresee the economic risk of entering the side letter agreement. Therefore, the principles of transparency requirement of the EU Transparency Directive (89/105/EEC) was unlawful.

The TLV stated that it was the regions and not the TLV that had drafted the relevant section in the draft side letter agreement, and that there was no connection between repayment requirements for all dispensed products and the reimbursement limitation. It also considered its decision to be foreseeable and transparent and could not accept the originator company's statement that it should accept a lower price for its product as set out in the trialogue negotiations. It held that an offer of a lower price made to the regions in a negotiation cannot form the basis for the TLV to conclude that there will be an actual cost reduction.

Decision

The Stockholm Administrative Court considered the TLV's decision to be incompatible with the Act on Pharmaceutical Benefits. It further held that TLV had legitimate reasons not to consider the offer to the regions under the trilogue negotiations in its reimbursement decision. The court also thought it clear from the case documents that the regions had put forward the requirement for repayment on all parallel imported products. The court also pointed out that the originator company could have lowered the product's list price for cost-effectiveness, and that the company had been informed about this several times in the documentation.

Regarding the principle of equal treatment, the court held that all participating companies in the trilogue negotiations had been treated equally by the TLV. The fact that the TLV had not initiated negotiations with the parallel importers of the medicinal product in question did not change the conclusion.

Regarding the principle of transparency, the court held that the EU Transparency Directive does not regulate the content of actual agreements between two parties. Had an agreement such as the one in question been agreed and executed, any related dispute would have been a matter within the scope of civil law (ie, to be tried and assessed by the general court system). It was therefore not within the scope of the court's juristiction to review the draft agreement's contents.

On these grounds, the administrative court rejected the appeal.

The originator company appealed the court's judgment; however, in mid-February 2019 the case was denied leave to appeal by the Administrative Court of Appeal.

Comment

In Sweden, the implementation of the trilogue negotiations has been criticised for having no clear legal basis and blending administrative law (ie, the rule of law and principles of equal and impartial treatment) and civil law.

It is unfortunate that the present case was not granted leave to appeal. The administrative court failed to acknowledge the issue of one company being granted full reimbursement by TLV at a certain list price due to the entering into a side letter agreement with repayments, while another company which did not accept a certain term of the side letter agreement had to lower its list price to be considered cost-effective under the Pharmaceutical Benefits Act.

Thus, the question remains as to why the originator company's declaration that it would sign a side letter agreement as long as the calculation on repayments was based only on dispensed originator company products was not considered cost-effective under the Pharmaceutical Benefits Act, while an executed side letter agreement apparently is.

For further information on this topic please contact Jonas Löfgren or Måns Ullman at Westerberg & Partners Advokatbyrå Ab by telephone (+46 8 527 70 800) or email (jonas.lofgren@westerberg.com or mans.ullman@westerberg.com). The Westerberg & Partners Advokatbyrå Ab website can be accessed at www.westerberg.com.

For further information on this topic please contact Donna M ParisiGeoffrey B Goldman or Azam H Aziz at Shearman & Sterling LLP by telephone (+1 212 848 4000) or email (dparisi@shearman.comgeoffrey.goldman@shearman.com or aaziz@shearman.com). The Shearman & Sterling LLP website can be accessed at www.shearman.com.