The Pharmaceutical Sector Inquiry: much ado about nothing The facts outlined in the report are deep

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The Pharmaceutical Sector Inquiry much ado about
nothing?The facts outlined in the report are
deep basic truths about this industrythere is
nothing new on what they are reporting. Jacob LJ
during his speech on the presentation of the
Preliminary Report, Nov 2008
Competition Law Association meetingLondon 27
July 2009Stephen Kon
1164540
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Overview

• The rationale for the pharma sector inquiry
• Background to the pharma sector inquiry
• What insights did the pharma sector inquiry
  provide to the Commission in terms of enforcement
  and regulation in the sector?

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EC sector inquiries

• Rationale for sector enquiries more than mere
  fact-finding. General objectives are to
• identify infringements of competition law for
  follow-up enforcement action and
• make informed policy decisions in developing the
  regulatory framework.

• Sector inquiries help direct the Commission's
  attention to where enforcement cases should be
  opened by uncovering evidence and they shine a
  spotlight on anti-competitive business practices
  which sometimes is enough to get the companies
  themselves to solve the problems. There is a
  further advantage. The improved understanding
  these inquiries give us also informs the
  Commission's policy decisions about the framework
  for the market concerned, helping us to regulate
  better." (Commissioner Kroes, SPEECH/07/186)
• Sector inquiries are used to look
  into...possible restrictions or distortions of
  competition and their possible causes, and, where
  appropriate, to suggest ways forward" (CPN (1)
  2008) and
• "Sector inquiries are used...where the trend of
  trade between Member States, the rigidity of
  prices or other circumstances suggest a
  restriction or distortion of competition" (Art 17
  Reg 1/2003)

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Rationale for the pharma sector inquiry

• Specific concerns identified by the Commission in
  the Frequently Asked Questions document
  accompanying the press release that announced the
  inquiry (MEMO/08/20, 16 January 2008)
• Decline in innovation fewer newer products - 40
  per year 1995-1999 vs 28 per year 2000-2004 and
• Delayed entry of generic medicines.
• Commission Decision launching dawn raids on 15
  January 2008 describes purposes of inquiry as
  being more than fact-finding
• There are indications of commercial practices
  by pharmaceutical suppliers including notably
  patenting or the exercise of patents which may
  not serve to protect innovation but to block
  innovative and/or generic competition,
  litigation, which may be vexatious, and
  agreements, which may be collusive.
• These practices may cause market distortion when
  they unduly fence off incumbent suppliers of
  drugs from innovative or generic competition, for
  example, due to de facto extended patent
  protection through unilateral conduct or
  agreements. Such practices may limit consumer
  choice, reduce economic incentives to invest in
  research and development of new products and
  damage public and private health budgets.
• In order to establish the extent of the
  above-mentioned practices and to assess them
  fully in their proper factual and economic
  context, the use of formal investigative powers
  such as those granted to the Commission for
  sector inquiries is required. (Inspection
  Decision initiating an inquiry into the
  pharmaceutical sector COMP/D2/39.514, 15 January
  2008)

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Significant Commission resources dedicated to the
inquiry

• Commission has dedicated team of 25-40 staff
• Extensive questionnaires sent to over 100
  originators and generics separate questionnaires
  then issued to associations of doctors,
  pharmacists and price regulators
• First use of Commission powers to conduct dawn
  raids to launch sector inquiry. Justification was
  that "highly confidential information may be
  easily withheld, concealed or destroyed"
  (IP/08/49). Criticised by industry as
  disproportionate. Note that in conducting dawn
  raids as part of sector inquiries, there is no
  requirement to have a suspicion for wrongdoing
  (as is the case with cartel investigations for
  example).
• Proactive / oppressive approach to enforcement?

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What has inquiry added to existing enforcement
action in the sector?

• Some time prior to the inquiry, there had been a
  significant shift in the Commissions enforcement
  priorities in this sector
• Nadia de Souza "the adoption of the AstraZeneca
  case has heralded a new era in the Commission's
  enforcement activities in pharmaceuticals aimed
  at promoting inter-brand competition by spurring
  on innovation between pharmaceutical producers
  and by increasing price competition stemming from
  generic entry after patent expiry." (CPN (1)
  Spring 2007)
• Commissioner Kroes to European Parliament Summer
  2006 "generic competition is an area which has
  suffered from under enforcement in the past ...
  the Commission will give greater priority to
  competition in the Generic sector in the
  immediate future.
• Commission already moving away from focus on
  parallel trade in pharma sector which culminated
  in Bayer/Adalat (Case T-41/96, 2000 and C-2/01P
  and C-3/01P 2004) and the Greek GSK case dealing
  with supply quota systems (Syfait II, 2007) and
  the Spanish GSK case (Case T-68/0 GSK v
  Commission, 2006) dealing with dual pricing
  systems.
• Commission and NCAs practice already addressing
  matters under investigation in inquiry.

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Enforcement practice the AstraZeneca case

• Case history
• Commission Decision June 2005 (Case COMP/37507
  AstraZeneca)
• AstraZeneca appeal to Court of First Instance
  (CFI) in August 2005 (Case T-321/05 AstraZeneca)
• Oral hearing held in late November 2008
• AstraZeneca announces in SEC filing that CFI
  judgment expected in Spring 2009
• First Commission Art 82 infringement decision in
  the pharma sector - Commission levied a fine of
  60 million
• Facts misleading information was submitted to
  obtain an SPC in order to exclude generic firms
  from competing against AstraZeneca's anti-ulcer
  product Losec, accompanied by deregistration of
  Losec capsules in certain Member States and
  registration of new MUPS formulation

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Enforcement practice the AstraZeneca case (2)

• The AstraZeneca case addresses many of the
  fundamental issues under investigation in the
  pharma inquiry
• Market definition and dominance in the
  application of Art 82
• Commission moves away from relying solely on ATC3
  classification in relevant pharma market
  definition.
• Looks at structure of market (market shares)
  patent position gatekeeper status
  incumbency/first mover and pricing independence.
• Commission also confirmed that the special
  responsibility of dominant companies under Art 82
  must be considered in light of the specific
  circumstances of each case which show that
  competition has been weakened (Case C-33/94
  Tetra Pak v Commission), cf Final Report
  concludes that in relation to competition between
  originator companies anti-competitive effects
  can only be assessed on a case-by-case basis,
  which goes beyond what a sector inquiry can do.

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Enforcement practice the AstraZeneca case (3)

• Abuse through Government process
• The enforcement, or threatened enforcement, of a
  fraudulently obtained patent or a patent obtained
  by deliberate misrepresentation or misstatements
  can be a breach of Art 81 (cf application of s2
  Sherman Act, see Walker Process Equipment, 382
  U.S. 172, 1965).
• Commission concluded that abuse consists of
  misleading representations to patent agents,
  patent offices and national courts, knowingly
  engaged in by AstraZeneca as part of its overall
  strategy and that this was with a view to
  preventing, or least delaying generic entry.
• Clear that the Commission is not challenging the
  grant of the SPC per se but no reason of
  principle why fact a product is covered by a
  patent should immunise it from Art 82.
• Commission's approach in AstraZeneca case not
  fundamentally different from approach in FTCs
  s2 Sherman Act cases i.e. in Biovail (Orange
  Book listing for new 365 patent even though it
  only claimed a method for using a metabolite not
  for product itself) or BMS case (Taxol - listing
  patent in Orange Book without a reasonable good
  faith belief that the relevant patent claims were
  valid).
• Clear statement of principle in DG Competitions
  Discussion paper on the application of Art 82 to
  exclusionary abuses at para 60, citing
  AstraZeneca as authority where a certain
  exclusionary conduct is clearly not competition
  on the merits, in particular conduct which
  clearly creates no efficiencies and which only
  raises obstacles to residual competition, such
  conduct is presumed to be an abuse.

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Enforcement practice the AstraZeneca case (4)

• Abuse through regulatory process/deregistration
  abuse
• Well established in EC Case law that the
  existence of a regulatory framework does not
  exclude the application of competition law.
• Selective requests for de-registration of Losec
  capsules for MUPS tablets. According to
  Commission, exclusionary intent demonstrated by
• documentary evidence (internal AstraZeneca
  documents)
• selectively planned for countries where
  AstraZeneca believes there is a good chance of
  achieving aim
• local marketing companies would have preferred to
  keep Losec capsules on market in certain
  circumstances.
• Single acts of withdrawing or requesting
  de-registration of a marketing authorisation will
  not normally be abusive focus here is on
  selectivity and overall intention to exclude.

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Enforcement practice the AstraZeneca case (5)

• More generally AstraZeneca leaves open many
  questions, including
• Can Art 82 apply to circumstances giving rise to
  ownership of an IPR?
• Can Art 82 impose an obligation on a company to
  maintain an MA for a product it no longer
  requires?
• To what extent can Art 82 interfere with a
  company's rights in protecting its confidential
  information lodged with regulatory authorities?
• In what circumstances should the use or misuse of
  public procedures and regulations, including
  administrative and judicial processes, constitute
  an 'abuse'?
• Does the Sector Inquiry Report shed any light on
  these questions?

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Enforcement Practice - further Commission and NCA
investigations (1)

• Investigations by both DG Competition and NCAs
  since AstraZeneca address many of the fundamental
  issues raised during the pharma inquiry
• Vexatious litigation and misuse of regulatory
  procedure
• GlaxoSmithKline re Seroxat (2005) Commission
  investigation following dawn raid concerning
  complaint that GSK abused dominant position in
  market place for Seroxat through enforcement of
  its IPRs, litigation surrounding regulatory
  approvals and marketing of Seroxat (decision on
  whether to proceed pending).
• Cf judgment of the CFI in ITT Promedia (Case
  T-111/96, 1996) - bringing legal proceedings for
  enforcement of a right may infringe Art 82 if
• the legal proceedings cannot be regarded as an
  attempt to enforce legitimate rights and in fact
  only serves to harass the opposing party and
• proceedings must be conceived in the framework of
  a plan the goal of which is to eliminate the
  competition.

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Enforcement Practice - further Commission and NCA
investigations (2)

• Misuse of patent system
• Boehringer Ingelheim (2007) - Commission opened
  investigation into whether BI misused the patent
  system in order to exclude potential competition
  in drugs to treat chronic obstructive pulmonary
  disease (COPD). We understand the case relates to
  whether patent should have been granted (decision
  pending).
• Settlement and licensing agreements
• between innovator companies PPls AstraZeneca
  Takeda litigation settlement investigated but
  Commission decided not to pursue.
• US debate dealing with reverse payment
  agreements between innovators and generics. Most
  recent action by FTC demonstrating that reverse
  payment agreements are an enforcement priority
  (suit against several reverse payment settlements
  in 2nd Circuit Court of Appeals in New York, 6
  July 2009) cf Commission Servier investigation
  (informal investigation launched toward end of
  2008, prior to publication of Final Report
  formal proceedings opened on the day the Report
  was published, 8 July 2009).
• Unnecessary and undue interference in regulatory
  processes
• OFT investigation that Reckitts Benckiser re
  Gaviscon (2008) lobbying medicines agencies not
  to grant an MA to a generic, lobbying doctors not
  to prescribe a generic, delaying introduction of
  a generic name for a product.

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Enforcement Practice - further Commission and NCA
investigations (3)

• Improper conduct to delay entry of generic
  competitor
• Novartis (2006) OFT investigation into alleged
  financial inducements and other improper conduct
  to delay customers from switching to the generic
  form of the schizophrenia drug clozapine.
  Investigation closed due to lack of evidence.
• Arrow Generiques (2007) Schering-Plough found to
  have engaged in practices aimed at denigrating
  Arrow's generic version of SP's product. The
  French Competition Council ordered SP to issue
  press releases in medical reviews specifying that
  generics are subject to MA approval which
  guarantees their safety. Court of Cassation
  confirmed decision.
• Predatory pricing
• OFT/CAT NAPP Decision (CA98/2/2001)
  (unfair/predatory pricing) and, more recently GSK
  re Cerufoxime (2007) - fined 10 million by the
  French Competition Council for infringing EC and
  French competition law by predatory pricing on
  the Cerufoxime market in an attempt to delay the
  arrival of generic products on adjacent markets
  where GSK patents were about to expire.
• Does the Final Report offer more or better
  insights into possible enforcement action?

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Does the Final Report help the Commission to
regulate better?

• Final Report offers little new over the
  Preliminary Report (Nov 2008)
• Language is toned down somewhat
• Preliminary Report found that "competition in
  this industry does not work as well it should"
  and identified the reason for this as a series of
  practices used by originators in their "toolbox",
  often cumulatively, with "the objective of
  delaying or blocking market entry of competing
  medicines". In the Final Report, the reference to
  toolbox is changed to "variety of instruments"
  used by originator companies to extend the
  commercial life of their medicines which are
  "amongst the causes" of the delay.
• The Commission clarified that enforcement action
  would "take into account the legitimate
  objectives to protect innovation and the
  regulatory framework".
• Final Report concluded that "use of several
  instruments that are in themselves legitimate
  does not necessarily render their combination
  contrary to competition rules", cf Preliminary
  Report reference that cumulative practices may be
  subject to antitrust scrutiny even if
  individually such practices would have been
  lawful. (NB Final Report mentions that a
  case-by-case analysis is required - this is no
  different to the back to basics approach
  outlined in Tetra Pak v Commission Case C-33/94)
• Many well-established legal principles are
  reiterated
• If the existence and exercise of an industrial
  property right are not in themselves incompatible
  with competition law, they are not immune from
  competition law intervention. However, certain
  practices can only be an infringement in
  exceptional circumstances.

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Does the Final Report help the Commission to
regulate better? (2)

• Final Report does not include any specific
  finding of wrongdoing/infringement, identify
  types of practices that could be prohibited or
  identify any particular default in the regulatory
  framework which causes competition "not to be
  working as well as it should".
• Final Report provides many factual details about
  the industry practices. But how new, significant
  or helpful are they? eg
• Companies reported 698 cases of patent litigation
  initiated mainly by originators but generics won
  62 of the time
• In the period 2000 to 2007, the report estimates
  that savings due to generic entry could have been
  20 higher that they actually were, if entry had
  taken place immediately following loss of
  exclusivity. According to the in-depth analysis
  of this sample additional savings of some 3
  billion could have been attained, had entry taken
  place immediately and
• Between 2000 and 2008, more than 200 settlement
  agreements were concluded between originator and
  generic companies. They covered some 49
  medicines, of which 31 medicines (ie 63) were
  best-selling medicines that lost exclusivity
  between 2000 and 2007.
• "One cannot exclude that early entry agreements
  between originators and generics could be used
  to anticipate generic competition or to react to
  the presence of a generic company.

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Does the Final Report help the Commission to
regulate better? (3)

• Patents At EU level, the Final Report recommends
  the rapid establishment of the Community Patent
  which was under way in any event (as acknowledged
  in the Report). It notes that the internal
  documents seized in the dawn raids "confirm that
  some originator companies aimed at developing
  strategies to extend the breadth and duration of
  their patent protection and that they use a
  variety of instruments to extend the commercial
  life of their medicines".
• Marketing authorisations The Commission calls
  on Member States and national authorities to make
  better use of the possibility of mutual
  recognition of marketing authorisations by
  enhancing procedures and reducing administrative
  burdens on companies, enabling full mutual
  recognition without additional requirements
  imposed on companies.
• Information campaigns The Final Report states
  that Member States should take action (under Art
  97 of Directive 2001/83) against campaigns by
  originators (or generic) companies that seek to
  denigrate competing generic products. However,
  that Article simply provides that Member States
  should use existing legal and administrative
  structures to ensure the cessation of misleading
  advertising or, in the event that the publication
  of such advertising is imminent, to prohibit such
  publication.

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Conclusions

• The Final Report acknowledges that it "summarises
  the facts surrounding the respondents
  comments, but it also asserts that it proposes
  possible policy options as to how the regulatory
  framework should evolve. However, apart from the
  Community Patent, it provides no specific
  guidance on measures at EU level (legislative,
  structural) that may be adopted to address
  matters under investigation and nor does it
  identify specific regulatory structures that
  could be modified to promote competition.
• On pricing and reimbursement, the Final Report
  reaches the unsurprising conclusion that
• The frequent adjustment, physicians encourage,
  compulsory substitution, lowest reimbursement
  price and, in a somewhat less pronounced way, the
  differentiated co-payment policies tend to have a
  positive effect on the extent of price
  competition.
• The detailed and complex regression analysis of
  the relationship between price drops and generic
  price concludes, unsurprisingly, that a host of
  factors such as compulsory substitution and
  lowest price policy tend to have an effect on
  generic substitution. While the detail is
  considerable, it is difficult to see what this
  proves or what the relationships are between the
  general conclusions and the specific conduct,
  other than the more encouragement there is for
  generic prescribing the more positive the impact
  will be on price.
• Will this general factual analysis assist in
  specific enforcement actions?

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Was this a valuable use of Commission resources?