June 2016 - On 1 June 2016 the Romanian Competition Council (‘RCC’) published a much-anticipated report detailing the results of its investigation into Romania’s pharmaceutical sector. The 499-page report is the culmination of the investigation launched in 2013 and comes only five years after the RCC’s previous report, in 2011, addressing its findings in the same sector.
The report starts with a brief executive summary presenting the main points of the RCC’s analysis and is structured in several chapters tackling (i) an analysis of relevant markets, (ii) marketing and sales promotion practices, (iii) the insufficient market presence of certain medicines, (iv) changes to medicine distribution systems and the impact on the Romanian pharma sector and (v) the RCC’s opinions and recommendations for amending pharma and health regulations issued during the reference period of the report. The final part of the report contains the overall conclusions of the RCC and its proposals for correcting the market failures identified.
Relevant markets analysed
As part of its investigation, the RCC analysed 36 different relevant markets and gathered important and significant amounts of data that led to several interesting findings. As expected, markets where generic medicines have entered decreased in value, which led to more efficient spending for consumers. In these markets, the RCC has also observed an important decrease in marketing expenses for brand-name medicines for which patents had expired.
However, the RCC found that there are still a fair number of markets where generic medicines, although present and cheaper by 35%, have not managed to attain significant market shares. This was an issue identified also in the RCC’s 2011 report. According to the RCC, all these markets have in common an increase in marketing expenses for brand-name medicines ranging between 17% and 107% during the period analysed by the RCC. Moreover, generics have not managed to penetrate 9 of the 36 markets analysed.
A more peculiar case involved markets where, although generic medicines have entered and gained market share, other brand-name medicines (e.g. Sutent from Pfizer, Seroquel from AstraZeneca, Exelon from Novartis) have been able to increase their market share to the detriment of the less expensive generics.
Marketing budgets and market penetration
The RCC believes that the level of marketing spending by pharma companies influences doctors to prescribe certain medicines, and that this leads to market distortions. For example, in markets difficult to penetrate by generics and where the market shares of brand-name medicines remained stable, the marketing expenses allocated to such brand-name medicines are far greater than the ones allocated on markets where generics have obtained significant market shares.
According to the questionnaires sent by the RCC to pharmacies, more than half of the patients buying prescription medicines request a specific commercial name, although, under Romanian law, doctors are generally supposed to prescribe the active pharmaceutical ingredient (‘API’) and only in justified, exceptional cases the commercial names of medicines. In such cases, only 23% of pharmacies said they present patients with cheaper generic options before dispensing a prescribed medication.
In addition, almost half of the surveyed pharmacies mentioned that patients received discount cards from doctors that could only be used to buy medicines from a specific pharmacy. This led to a high concentration of sales of medicines included in the national health programmes to only a few pharmacies throughout the country (e.g. out of 386 pharmacies in Iași county that dispensed medicines under the National Oncology Programme, the highest ranking pharmacy handled 69% of prescriptions in the county).
During the period analysed, pharmaceutical companies allocated approx. 6-7% of annual turnover to marketing, sales and advertising expenses (around 5% by generics producers and around 9% by producers of brand-name medicines). Such expenses included funding national or international scientific congresses and promotional meetings (about 32-38% of expenses), advertising material (about 10% of expenses), sponsorships for doctors (about 8% of expenses) and promotional objects (about 6-7% of expenses).
According to the RCC, doctors are targeted by pharmaceutical companies according to their speciality, with the most sought-after being family doctors. In addition, according to the findings of the RCC report, medicine producers seem to have a predilection towards targeting specific specialties, depending on whether they produce brand-name or generic medicines. While the former mostly target cardiologists, neurologists, oncologists and paediatricians, producers of generics are more interested in specialties such as cardiology, anaesthesiology, intensive care and gastroenterology.
Following its analysis of pharma marketing and sales promotion activities, the RCC advanced the following main proposals:
- levelling pharmacy and distribution mark-ups for all types of medicines;
- removing from the List of compensated medicines those products that are not present in sufficient quantities on the market (which are currently kept only for setting the reference price) in order to ensure market transparency and grant patients access to cheaper medicines than are actually marketed;
- eliminating tied selling of medicines by distributors;
- prohibiting the use of discount cards valid only in specific pharmacies in order to enhance competition between pharmacies;
- no longer setting the price of generic medicines by reference to the price of corresponding brand-name medicines;
- setting prices of both generic medicines and brand-name medicines no longer under patent at the same level in order to avoid discrimination in price formation for products with the same API;
- amending the current rules on reporting marketing expenses by pharmaceutical companies and doctors to the National Medicines Agency (‘ANMDM’) in order to cover all types of related expenses and displaying marketing expenses reports on the ANMDM website based on criteria such as the type of expense, name of sponsored doctor, name of pharmaceutical company or medical specialty;
- running information programmes for prescribers, pharmacies and patients;
- giving doctors financial incentives in order to prescribe generic medicines (i.e. they would have a pre-defined monthly budget for the prescription of medicines and any savings could be used by doctors for other purposes such as attending professional traineeships); and
- capping discounts granted by pharmaceutical companies and distributors for the sale of medicines (in response to the fact that discounts received by pharmacies and distributors are not passed through to final consumers).
Medicines not meeting market demands
The RCC focused its analysis on 32 medicines indicated as absent from the market by at least 10 of the surveyed pharmacies.
The RCC noted that as notions like ‘absent from the market’ or ‘meeting the needs of the market’ are not clearly regulated under Romanian law and that it is a cumbersome endeavour to determine the accomplishment of public service obligations incumbent on producers and distributors.
The RCC’s conclusion was that insufficient market presence of certain medicines was generally due to the marketing of insufficient quantities by producers and to exports made by distributors to the detriment of meeting national demand. All the medicines with shortcomings in supply that have been analysed have also been exported to a greater or lesser extent during the RCC’s reference period.
As far as the GlaxoSmithKline (‘GSK’) medicines are concerned (for which the distribution system had been changed), parallel exports of Avodart have decreased from a minimum of 21.56% in 2012 to around 3-4% during 2013-2014, whereas the figures for Seretide dropped from 31% in 2012 to around 4-5% during 2013-2014.Enbrel, a biopharmaceutical treating autoimmune diseases, which is exclusively distributed by Romastru, was exported only in limited amounts during the analysed period.
Also, out of the five medicines temporarily prohibited from export, three (i.e. Exjade, Sandostatin and Fraxiparine) had been exported in increasing amounts before being added to the export ban list, whereas the exports for the other two (i.e. Mabthera and Clexane) had already started to decrease before being added on the list.
As a general note, the RCC found that for 2014 at least 10% of the quantities of 17 of the 36 medicines under review were exported, and that the year 2012 represented the peak for exporting medicines from Romania.
In terms of recommendations, the RCC made reference to the principles established by the Judgment of the Court of Justice of the European Union (“CJEU”) in Joint Cases C-468/06 to C-478/06 (Sot. Lélos kai Sia EE and Others v. GlaxoSmithKline AEVE Farmakeftikon Proïonton) and emphasised that the prohibition of intra-Community trade in medicines is an anticompetitive practice that has often been penalised by the RCC. Thus, it recommends that medicine producers and their representatives ensure sufficient quantities of medicines on the market in order to cover national needs, but at the same time does not a prohibition onprohibit parallel exports. As far as distributors are concerned, the RCC expects them to fulfil their public service obligation (setting up a methodology for defining this concept is also advised) by primarily supplying the national market and to export only surplus quantities of medicines.
The RCC advocates improvement in the availability of medicines by recommending that distributors supply medicines to all pharmacies, irrespective of whether these are vertically integrated or not. In this sense, the authority notes that currently there are vertically integrated pharmacies that have joint management with the distributor. Consequently, products could be transferred from pharmacy to distributor without being invoiced. However, regulations that will come into effect on 1 January 2017 will require that pharmacies and distributors be separate entities and that the export of medicines that have already reached pharmacies will no longer be possible.
Changes in medicine distribution systems and their impact on the pharma market
The analysis on this topic was triggered by recent changes made by pharmaceutical companies active in Romania, or their announced intention to change their distribution system for a limited number of medicines to a direct distribution system – direct to pharmacy (‘DTP’) – or to a distribution system using a limited number of distributors. According to the RCC, the DTP system could pose competition concerns for medicines produced by companies that hold a dominant position. In such cases, the disappearance of intra-brand competition, on the background of no inter-brand competition, can incentivise the producer not to transfer any efficiencies resulting from the change of the distribution system, thus very likely negatively affecting patients and competition on the distribution chain.
The RCC concluded that, irrespective of the distribution system chosen, if the producer holds a dominant position, the advantages for pharmacies/hospitals and patients must be at least equal with those recorded prior to the change and must be clearly quantifiable at all levels - quality, level of services, financial benefits and availability - in order for the change of the distribution system not to be seen as an abuse of dominant position.
Regarding the distribution system through a limited number of distributors, the RCC states that a form of intra-brand competition can still be detected and that the system allows for a better selection of the most efficient distributors. This system also seems better suited for medicines for which there is a reduced level of demand (due to high prices, specific characteristics, etc.), as distributors could obtain better commercial terms (due to increased power of negotiation), which would permit them to reduce financial risks. The system could also indirectly lead to reduced parallel trade by limiting the number of distributors that have access to a certain medicine. In the RCC’s opinion, in case of introducing such a system with a limited number of distributors, it is important that the reduction of intra-brand competition be counterbalanced by appropriate selection criteria for distributors, to ensure the transfer of certain benefits down the distribution chain and to ensure the availability and delivery of medicines in more favourable conditions for patients.
After analysing the specifics of a DTP system and the advantages and disadvantages for producers, distributors and pharmacies under each distribution system (i.e. traditional distribution, DTP and distribution through a minimum number of distributors), the RCC reviewed the status of the changes encountered between 2012 and 2014 in medicine distribution systems involving producers present on the market, such as Pfizer, Novartis, Sanofi, Teva, GSK or Roche.
The RCC further analysed the DTP system implemented by GSK for Seretide, Avodart and Tyverb, through its affiliate distributor, Europharm, and Pfizer’s system involving a limited number of distributors. As far as GSK’s system is concerned, the RCC found that the changes in the distribution system led to price increases caused by the disappearance of intra-brand competition and a shortage of supplies, especially concerning Avodart andSeretide. In fact, the RCC had already opened an investigation against GSK for a potential abuse of dominance concerning the distribution of these two medicines and is currently considering commitments proposed by GSK in order to close the investigation (please see our publication on the matter here).
As for Pfizer, it had set up a distribution system between January and October 2013 for Diflucan, Ecalta andVfend by only using a limited number of distributors (i.e. Mediplus, Farmexpert and Romastru), selected after a tender process. The RCC carefully analysed the market implications of this system and did not find competition concerns. As a whole, certain merit was found in this system as discounts transferred by the three distributors to hospitals and pharmacies were greater than those transferred under the previous distribution system, shipment was due in only 24 hours after an order was placed, and hospitals continued to receive products even if they had payment delays.
In the press release published the same day as the report, the RCC announced that it had opened an investigation of a potential abuse of dominance by Novartis Pharma Services Romania (‘Novartis’) for its implementation of a pilot direct distribution system to specific pharmacies (while maintaining its traditional distribution system) and indicated that it had already conducted a dawn raid at Novartis headquarters. According to the RCC’s report, the alleged violation appears to be related to a DTP system operated by Novartis through a logistics agent in order to distribute medicines to a number of independent pharmacies in Bucharest. Novartis launched the system in November 2014 for the distribution of seven of its medicines (i.e. Myfortic, Sandimunn,Neoral, Exjade, Sandostatin, Jakavi, Signifor and Tasigna) but, for two of the medicines, shortages in supply have been reported by both patients and pharmacies.
On another note, the RCC also raised the issue of the potential anticompetitive effects of the norms regarding prices of generic medicines. The competition authority argues that the claw-back tax should be applied in a different manner to generics and brand-name products no longer protected by patent, on the one hand, and to brand-name medicines, on the other, as the latter are more expensive and involve higher financial efforts. In addition, the RCC argues that applying a lower claw-back to generic medicines would ensure and catalyse their market presence. RCC also commented and presented suggestions as regards the legislative framework in order to enhance competition.
Interested parties can submit comments and observations on the RCC’s report until 1 July 2016. The full report can be accessed in the Romanian language here.