Competition law in the pharmaceutical sector: Aspen fined for excessive pricing in Italy

drugs

The Italian Competition Authority (“ICA”) has recently found that Aspen Pharmacare had increased the prices for some of its oncohematological drugs up to 1500% and imposed to the South African multinational a 5 million Euro fine for violation of art. 102, letter a) of the TFEU. Aspen has already communicated that it will appeal the decision.

Relevant market

The relevant market identified by the ICA corresponds to the active ingredients affected by the price increase, namely chlorambucil, melphalan, mercaptopurine and tioguanine.

Dominant position

Aspen markets the active ingredients at issue under the following commercial names: Leukeran (chlorambucil), Alkeran (melphalan), Purinethol (mercaptopurine) and Tioguanine (tioguanine). Since Aspen is the only player to manufacture and sell them, no substitutable drugs are available on the market and no generics will be marketed in the near future (potential competitors probably consider the market not profitable for more than one player), Aspen was considered dominant by the ICA.

Essential  drugs and price determination

These drugs are considered essential to treat some oncohematological diseases and are subject to regulated prices, which have to be negotiated between the market authorisation’s holder (MA’s holder) and the Italian Medicines Agency (“AIFA”). The purchase of essential drugs is entirely reimbursed by the National Health System (“SSN”).

The conduct

Aspen purchased the marketing authorisation for these drugs at issue from GlaxoSmithKline in 2009 (already off-patent) and negotiated with AIFA in order to raise the prices, as they had never been raised since the 60s.

Aspen alternatively applied for:

  1. an increase of the prices;
  2. delisting the drugs to “non-essential”, so that the prices could be freely determined by the company.

However, AIFA rejected both requests as it deemed the drugs essential and the new prices proposed by Aspen unreasonably high. Following this rejection, Aspen threatened to interrupt the direct supply of the drugs to the Italian market. This aggressive strategy led AIFA to accept the proposed increases.

The assessment by the ICA

The ICA particularly focused on Aspen’s aggressive strategy based on the threat to interrupt the supply, which allowed the company to succeed in the negotiation.

The ICA measured the disproportion between prices and costs and concluded that the new prices charged by Aspen exceeded its costs by 300%/1500% depending on the active principle considered.Moreover, the ICA considered the inter-temporal comparison of prices, the absence of economic justifications for the increase, the absence of any extra-economic benefits for patients, the essential nature of Cosmos’s drugs and the damage caused to the National Health System (Sistema Sanitario Nazionale – SSN).

The interplay between competition law and the sectorial legislation

It has to be noted that, even if Aspen was found liable under competition law, Aspen’s strategy was formally compliant with the legislation applicable to the pharmaceutical sector. Indeed:

  1. the prices of essential medicines in Italy are determined through a negotiation between AIFA and the MA’s holder. If an agreement is not reached, the MA’s holder will be free to determine the prices, but the SSN will not reimburse the purchases of these medicines (art. 6, delibera CIPE n. 3/2001);
  2. the MA’s holder has the right to interrupt the direct supply of the drug for commercial reasons (art. 34, D.Lgs. n. 219/2006, confirmed by the Regional Administrative Court of Lazio, n. 8623/2012);
  3. if the MA’s holder abruptly interrupts the supply, the hospitals can purchase the drugs directly from the producer at the price charged by the producer in that country.

How much is too much?

In the past, the Commission has acknowledged that “charging a price which has no reasonable relation to the economic value of the product supplied is an abuse” (United Brands). However, the most important decisions on excessive pricing adopted by the Commission over the years have been quashed by the CJEU (i.e. General Motors and United Brands) and therefore the case law is all but settled. In particular, there is a lack of legal certainty with regard to the following aspects:

  1. how to calculate the costs sustained for a specific product by a multi-product firm;
  2. how to assess whether there is a reasonable relation between the price and the economic value of the product (25% ratio? 10%? Or what?);
  3. how a competition authority can determine and enforce the remedial actions.

In other words, when a competition authority acts like a regulator, there is wide room for inaccurate arbitrary assessments.

Avoiding aggressive strategies during the negotiations with AIFA

When negotiating drugs’ prices with AIFA, a price increase is more likely to be obtained throughout conventional bargaining tools than by means of a threat to interrupt the supply. Indeed, such a threat might turn a legal negotiation into a breach of competition law.  In absence of aggressive moves by the company, which was considered by the ICA as the key-tool through which Aspen succeeded in the negotiation, it will be more difficult for a competition agency to prove excessive pricing on the mere basis of price levels

marco.lobue@belex.com

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