On 26 January 2024, the European Commission published a report on competition enforcement in the pharmaceutical sector, highlighting the role of EU competition law in safeguarding market participants and consumers, particularly amid the challenges posed by the Covid-19 crisis. The report looks at enforcement from 2018 - 2022 and is a follow-up from the previous report which covered 2009 - 2017.

We set out below the highlights of the report, and as well as reflections from the US and UK.

Antitrust enforcement in the sector continues to be on the rise

In the five-year period from 2018 to 2022, the European Commission and national EU Member State competition authorities were involved in 26 cases in relation to pharmaceutical products that either ended in a finding of an infringement or the acceptance of binding commitments (i.e., “intervention” decisions).¹ A further 10 intervention decisions were adopted in cases concerning medical devices, and 13 in cases relating to other healthcare matters.

Comparing this to the statistics in the previous report, we see that enforcement in the EU in the pharmaceutical sector is on the rise. While the previous report from the European Commission noted that there were a similar number of intervention decisions adopted in the relevant period (29 cases), that report covered enforcement activity in the nine-year period between 2009 – 2017. The average number of decisions during the nine-year period covered by the previous report (2009 – 2017) was therefore just over 3 per year, and this figure has now risen to 5 per year between 2018 and 2022.

Between 2018 - 2022, fines close to EUR 780 million were imposed in pharmaceutical cases, with the EU Member State competition authorities being particularly active: the French authority alone being responsible for over half the total amount (EUR 444 million), and the European Commission imposing only EUR 60.5 million in fines (lower than the amount of fines imposed by the Romanian (EUR 86.4 million) and Lithuanian authorities (EUR 72.6 million), and only slightly higher than the fines imposed by the Spanish authority (EUR 54.9 million)). While fines issued by the European Commission made up 55% of the total fines issued between 2009-2017 (EUR 590 million), in the latest report covering the period between 2018 and 2022, they make up a meagre 8%.

Abuse of dominance accounts for half of all cases

Of all intervention decisions in the period covered by the report, abuse of dominance investigations accounted for 50% of the cases. This includes the European Commission’s first excessive pricing investigation in the pharmaceutical sector, which concerned six off-patent cancer medicines used to treat hematological cancers. The investigation ended with the European Commission accepting commitments from the company to reduce its prices and to guarantee supply. A series of decisions by the competition authorities in Denmark, the Netherlands, Italy, Spain, and the UK also concerned abuse of dominance by way of unfair pricing. Cases of this kind have historically been rare in the pharmaceuticals sector, but public concerns about the cost of medicines and the rise in private damages claims by healthcare providers have put pharmaceutical pricing under the antitrust spotlight.

Other types of abuse cases highlighted in the report include the abuse of dominance through vexatious litigation (as found by the Spanish authority), through disparagement campaigns² (French authority), abusive pricing and rebates (Austrian and Dutch authorities) and margin squeezing (Romanian authority).

Pay-for-delay cases continue to be enforced (and likely to feature in the future)

Restrictive horizontal agreements – including pay-for-delay agreements – accounted for 2 of the 26 intervention decisions adopted by the European competition authorities in the five-year period covered by the European Commission’s report.

The report also highlighted the development of case law in pay-for-delay cases. Of note is the Court of Justice judgment in January 2020 finding that pay-for-delay agreements can be anti-competitive by object in addition to potentially also amounting to an abuse of a dominant position. This will be the case when it is clear that “the transfers of value provided for by [the settlement agreement] cannot have any explanation other than the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits.”³

Cartel and collusive behavior also scrutinized

Cartels remained at the top of the authorities’ agenda. For example, in March 2020, the UK authority fined two suppliers EUR 1.73 million for illegally sharing commercially sensitive information about the prices and supply volumes of an anti-depressant. In a separate decision, the UK authority fined the same companies almost EUR 2.3 million for allocating portions of the market for the supply of the drug between them, in addition to fixing quantities and prices. In February 2022, the Belgian authority sanctioned two wholesalers of flu vaccines for agreeing (a) not to grant pharmacists any discounts; and (b) to refuse returns of unsold vaccines sold during the presale period. Fines of EUR 29.8 million were imposed on one wholesaler, whilst the other received immunity under the leniency program as it had exposed the cartel. Also in 2022, the Lithuanian authority imposed fines exceeding EUR 72 million on eight pharmaceutical companies and the national professional body for pharmacists. The authority had initiated a consultation on the retail and wholesale margins for pharmaceuticals defined in national legislation. The pharmaceutical companies and the professional body colluded to submit recommended margins that would generate additional profits.

Since the end of the period covered by the report, the European Commission also fined five firms for participating in a cartel to fix minimum prices to customers and to allocate quotas.

Merger control is (and will be) deployed to protect innovation

The report stresses on the importance of innovation in the pharmaceutical sector and highlights the European Commission’s interventions in pharmaceutical mergers. New in this edition of the report is the reference to the European Commission practice of investigating what it calls the different “layers” of competitive overlap when it has concerns about innovation in merger cases. This means that the European Commission will assess whether there is a concentration of R&D resources and whether the transaction will lead to a loss in innovation competition. To do this, it will look at whether the transaction will impact (i) actual competition, i.e. looking at overlaps between existing products; (ii) potential competition, i.e. looking at overlaps between marketed and pipeline products; (iii) innovation competition, i.e. looking at overlaps between pipeline products; and (iv) innovation competition in general, i.e. looking at the capability to innovate in innovation spaces, and whether there may be a structural reduction in the overall level of innovation.

The European Commission also placed special emphasis on its powers under its “recalibrated” approach to merger case referrals from EU Member State competition authorities under Article 22 of the EU Merger Regulation. Under this approach, non-notifiable mergers (i.e., those that fall below national jurisdictional thresholds for review) can be referred to the European Commission where there is a concern that the transaction would affect trade between Member States, and that - at least on a preliminary analysis - the transaction threatens to significantly affect competition in that Member State territory. The Report outlines the first case under this referral scheme, which was in the healthcare sector (there have since been others), where this new recalibrated approach was adopted: a case involving two US-based firms which ended in a prohibition decision by the European Commission.⁴

Antitrust played a role during the Covid-19 pandemic

The report also highlights the efforts of the European competition authorities during the Covid-19 pandemic period between March 2020 to 2022. This includes reporting on the temporary framework set up to issue so-called “comfort letters” to market participants (i.e., documents from the European Commission giving written comfort to companies about the antitrust assessment of their cooperation arrangements). Two comfort letters were adopted: the first to a trade association in relation to a coordination for addressing the risk of shortages of critical intensive care medicines, and the second to co-organizers of a coronavirus matchmaking event aimed at increasing the production of vaccines.

There have also been a number of competition enforcement actions during the Covid-19 crisis. The Dutch authority, for example, intervened in an access to supply case where it was alleged that a firm was withholding the recipe for its lysis buffers that were used in Covid-19 tests, making it difficult for laboratories to create their own reagent solution to use in the firm’s PCR testing machines. The case ended with commitments offered by the firm to share its recipe and to assist with the scaling up of production. The report further provides examples of action and interventions by the Greek, German, and Polish authorities, although none of these cases resulted in infringement decisions being adopted.

An overhaul of the EU pharmaceutical legislation is underway

Beyond the antitrust world, plans for an overhaul of pharmaceutical legislation are underway. Last year, the European Commission put forward proposals for new legislation with the stated goals of boosting innovation, investment, and competitiveness in the EU. If approved, there will be reforms to incentive schemes for regulatory data protection, orphan market exclusivity, and pediatrics extensions for medicinal product approvals. Further changes being proposed include those to increase the competitiveness of pharmaceutical products in the EU and to reduce prices. This includes facilitating the earlier market entry of generic and biosimilar medicines by expanding on the “Bolar exemption”, which provides that under certain conditions, procedures such as the production of samples which are necessary for regulatory approval do not infringe existing patent rights or supplementary protection certificates. Further information about the proposals can be found here. 

Perspective from the UK

For the United Kingdom, the report only covers the period until the end of 2020, which marks the end of the transition period for the United Kingdom’s withdrawal from the European Union.

The UK authority and courts are no longer required to follow precedents of the Court of Justice, or to apply EU competition law alongside UK law. In fact, where there is a reason for doing so, the authority and courts can depart from pre-Brexit precedent.

Although UK and EU laws on competition were substantively aligned at the end of the transition period, and both sides will likely want to keep pace with the strength of the others’ regulation, there is certainly scope for divergence over time. For example, the report describes an instance where the UK’s specialist competition court referred questions of EU law to the Court of Justice for a preliminary ruling. That referral was made in light of the fact that another case, raising similar questions, was simultaneously before the EU courts. The courts of England and Wales will likely continue to follow the EU position established in those cases. However, when a similar situation next arises, the UK will not have the mechanism of a preliminary ruling available to maintain alignment.

There are differences between the EU and UK rules applying to vertical agreements (see here). The UK authority has been carving its own path in the pharma industry and beyond – see its recent statement on facilitating cooperation for combination therapies and its divergent approach in relation to competition in labor markets. The UK has its own regulatory environment which will give rise to different challenges for industry and enforcers alike. What is clear is that the pharmaceutical sector remains a priority for the UK authority: just this week it announced a new abuse of dominance investigation into allegedly misleading statements about competitor products.

Perspective from the US

In the United States, the Federal Trade Commission (FTC) has been actively challenging alleged anticompetitive mergers and other conduct by corporations in the pharmaceutical sector. Like its European counterparts, the FTC has increased its enforcement of rebate schemes that may block patients’ access to competing lower-cost drugs. In June 2022, the FTC issued a policy statement addressing the rebates and fees paid by drug manufacturers to pharmacy benefit managers (PBMs), citing concerns about the rebates and fees being used to “favor high-cost drugs that generate large rebates and fees that are not always shared with patients” and that such practices “stifle competition from lower-cost drugs.”⁵ The policy statement contends that exclusionary rebates that foreclose competition for lower-cost medicines may constitute unreasonable agreements in restraint of trade, unlawful monopolization, exclusive dealing, or unfair methods of competition in violation of the U.S. antitrust laws.⁶ The FTC also launched a study of PBM business practices, issuing subpoenas to the six largest PBMs to “scrutinize the impact of vertically integrated pharmacy benefit managers on the access and affordability of prescription drugs.”⁷ The FTC study remains ongoing, with U.S. Senators pushing for a status update and urging the FTC to complete the study in a “timely manner.”⁸

The FTC’s close scrutiny of pharmaceutical mergers is also likely to continue. In June 2022, the FTC held a workshop focused on the analysis of pharmaceutical mergers. The workshop was the culmination of the Multilateral Pharmaceutical Merger Task Force, an effort launched in March 2021 by the FTC, US Department of Justice (DOJ), offices of multiple US state Attorneys General, Competition Bureau Canada, the European Commission Directorate-General for Competition, and the U.K. Competition and Markets Authority. During the workshop, panelists discussed potential changes to the agencies’ review of pharmaceutical mergers, including how (and whether) enforcers should consider prior bad acts, the assessment of innovation effects in pharmaceutical mergers, shifting the burden to firms to show merger-specific efficiency gains that outweigh potential competitive harms, and the effectiveness of merger remedies in the pharmaceutical sector. With the publication in December 2023 of the FTC and DOJ’s expansive 2023 Merger Guidelines, the agencies are likely to begin relying on new theories of harm to challenge transactions in the pharmaceutical (and other) industries that might not have been challenged in the past. This includes analyzing consolidation trends to determine whether a merger presents a threat to competition, looking at whether a merger may entrench or extend a firm’s dominant position in new markets, and considering a merger between two potential market entrants the same way it will consider a merger between an established incumbent and a potential market entrant.

Authored by May Lyn Yuen, Alice Wallace-Wright, Ashley Howlett, Jill Ottenberg, Cara Nicholson, and Johari Adje.

References

1 The European competition authorities also conducted 40 other substantial investigations into competition concerns, but these cases were closed without an intervention decision: the case in question was no longer considered a priority as the anticompetitive practices in question had been discontinued, or because the investigation uncovered insufficient evidence.

2 If collusion is involved, disparagement campaigns may also be prohibited as an anti-competitive agreement.

3 C-307/18, ECLI:EU:C:2020:52, paragraph 87.

4 The case is currently pending before the Court of Justice.

5 Federal Trade Commission “Policy Statement of the Federal Trade Commission on Rebates and Fees in Exchange for Excluding Lower-Cost Drug Products” available here. See also Federal Trade Commission press release, “FTC to Ramp Up Enforcement Against Any Illegal Rebate Schemes, Bribes to Prescription Drug Middleman That Block Cheaper Drugs” (June 16, 2022) available here.

6 Federal Trade Commission “Policy Statement of the Federal Trade Commission on Rebates and Fees in Exchange for Excluding Lower-Cost Drug Products” available here.

7 Federal Trade Commission press release, “FTC Launches Inquiry Into Prescription Drug Middlemen Industry” (June 7, 2022) available here.

8 Letter from Sen. Chuck Grassley (R-Iowa), Sen. Maria Cantwell (D-Wash.), et al. to FTC Chairwoman Lina Khan on January 22, 2024 available here.