Competition law developments in the pharma sector – 2022 round-up and what to expect in 2023

In this update, our competition law experts consider a number of recent competition law developments in the pharma sector in the EU, France, Germany, Spain, the UK and China. This is a selective list of developments that may have practical implications on the way pharma companies carry on their business. Please feel free to get in touch with one of the authors or with your usual HSF contact if you would like to discuss any of these developments in more detail.

EU

As anticipated in our update last year, we have continued to see a number of important developments relevant to the pharmaceutical sector during the course of 2022. The European Commission (EC) continues to target the sector as one of its enforcement priorities, especially when it comes to protecting innovation.

Some of the key highlights for 2022 include:

• The Illumina/Grail saga, which continued to generate headlines and create precedents, including the EC's prohibition of the merger (see our latest update here).
• The EC's investigation in Teva Copaxone which has now resulted in a Statement of Objections (see our latest update here).
• The EC's investigation into Vifor for an alleged abuse of dominance through the carrying out of a campaign of disparagement against its competitors (see press release here).
• A long-awaited opinion by AG Kokott in the Servier pay-for-delay case relating to its drug Perindopril, in which she proposes that the Court of Justice (ECJ) should rule that all settlement agreements concluded by Servier with the generics constituted restrictions of competition by object.
• The EC, together with the Swiss competition authority, has launched an antitrust investigation into Novartis over conduct in relation to one of its patents in the broader field of dermatology treatments.

Meanwhile, 2023 looks set to continue this trend, with a number of developments expected both in terms of merger control and antitrust investigations.

Merger control:

• The protection of innovation through merger control is still very much on the EC's agenda. More particularly, the EC's revised approach to Article 22 referrals under the EU Merger Regulation (EUMR) can be expected to create tricky issues for companies in the pharmaceutical sector.
• As mentioned above, the merger review of the Illumina/Grail deal went through several phases in 2022, culminating with the EC blocking the merger on 6 September 2022 (see our latest update here) and ordering the companies to unwind the merger. 2023 is likely to bring us the outcome of some of the many appeals in this case (the parties have already lodged 7 appeals). It will be interesting to see how the EC will resolve the first gun jumping case under Article 22 EUMR, including the unwinding measures.
• In the same vein, the EC is expected to continue its tougher approach in its review of pharmaceutical deals, in particular on the protection of potential competition from pipeline drugs (including pipeline to pipeline competition and more generally innovation competition). Pharma companies should therefore be prepared to offer comprehensive and convincing remedies to the EC in order to secure merger clearance.
• The EC has recently closed its consultation on the draft revised Market Definition Notice and the new text is expected to be adopted in Q3 of this year. The new Notice will be of particular relevance to the pharma sector. A new section in the draft Notice deals with the Commission's approach to market definition in the presence of significant investments in R&D and indicates that the EC will factor in all potential outcomes of R&D processes.

Antitrust investigations:

• As indicated above, the EC currently has at least three investigations open for abuse of dominance in the pharmaceutical sector, namely against Vifor (disparagement), Teva (misuse of the patent system and disparagement), and allegedly against Novartis (vexatious litigation). The outcome of these investigations can be expected to have a key impact on the way pharmaceutical companies manage their patent prosecution and behaviour vis-à-vis competitors.
• The EC has embarked on a review of its horizontal cooperation rules (see our latest update here). Adoption of the new rules has faced delays with the EC extending the validity of the current rules until the end of June 2023. After that date any potential cooperation agreements with competitors, including R&D agreements, will need to be assessed in the light of the revised texts.

EU Courts developments:

• During the course of 2023 we can expect to see the ECJ's ruling in the Servier pay-for-delay appeal. AG Kokott has advised the ECJ to overturn the General Court's findings that the licence agreement between Servier and Krka was not in breach of Article 101 TFEU because the Commission had not demonstrated that the value transfer had induced Krka not to enter the market. It remains to be seen whether the ECJ will follow the AG's opinion and agree that the arrangement was a restriction by object.
• An appeal brought by Teva and Cephalon against the EC's infringement decision of November 2020 for pay-for-delay agreements is also pending before the General Court. The appeal raises similar issues to those in the Servier case as some of the transfer of value received by Teva includes a distribution agreement, a licence of certain Teva modafinil patents granted to Cephalon and access for Teva to certain clinical data that were highly valuable to it for a different medicine.  The ECJ's ruling in Servier can therefore be expected to influence the General Court's analysis in this case.
• As mentioned above, the outcome of the multiple appeals filed by Illumina and Grail will shape the EC's revised application of Article 22 EUMR which represents a new era of merger control enforcement in the EU.

France

Misleading or disparaging representations

• On 1st June 2022, the Supreme Court upheld the €21 million fine imposed on Janssen-Cilag for abuse of dominance. The practices at stake consisted of (i) repeatedly and unlawfully intervening with the French Medicines Agency to challenge the generic status of Ratiopharm's drug of its own Durogesic medicine, thereby delaying its registration onto the French Register for Generic Drugs and (ii) falsely disparaging Ratiopharm's drug with healthcare professionals by creating doubts over its effectiveness and safety. The Court of Appeal had previously reduced the fine imposed by the French Competition Authority (FCA) from €25 million to €21 million as it considered that the first practice was not aimed at preventing the issuing of marketing authorisations for Ratiopharm's drugs but only at challenging its generic status.

The FCA has previously addressed the issue of disparagement of generic drugs as an abuse of dominance in its decisions relating to Plavix (2013) and Avastin (2020).

The Supreme Court held that Janssen-Cilag, as the originator company, should have known that the communication directed to the French Medicines Agency was unlawful. It upheld the Court of Appeal's reasoning that a company abuses its freedom of expression when it directs communications to public authorities which it knows or should know to be unlawful and misleading, resulting in negative effects on competition.

It is worth noting here that the Supreme Court confirmed that the FCA did not infringe the Hoffmann-LaRoche case-law (C-179/16) whereby "it is not for the national competition authorities to verify compliance with EU law of the conditions under which a medicinal product […] is prescribed by doctors". The Supreme Court noted that the Janssen-Cilag's communication did not relate to health risks related to the entry of the generic medicine but was aimed at delaying its competitors' entry. The Court therefore made it clear that the FCA is entitled to review communications made by pharmaceutical companies to the French Medicines Agency from a competition law perspective, to the extent that they do not involve scientific questions. (CCass, Com, 1 June 2022, Nº19-20.99).

Germany

Collective negotiations

• In January 2023 the German Federal Cartel Office (FCO) issued a statement of objections in its investigation into alleged coordinated price increases by a group of associations of medical aids suppliers. The associations had jointly requested price increases from health insurance companies for their products and services under existing supply contracts. Under German law suppliers of medical aids are able to enter into collective negotiations with insurance companies, but this should not result in anti-competitive conduct. In this case the syndicate in question represents around 80% of the relevant medical supply stores providing medical aids in Germany and the FCO considers that it was therefore able to act as a quasi-monopolist and was able to push through coordinated price increases to the detriment of health insurance companies. The FCO's final decision in this case should hopefully provide helpful clarification on how to differentiate between legitimate collective negotiations and the exercise of quasi-monopoly powers.

Digital health platforms

• In August 2022 the FCO cleared a joint venture between NOWEDA, an association of several thousand pharmacies and Burda, a publishing house whose publications include medical information for the wider public. NOWEDA operates the platform “IhreApotheken.de” that facilitates online orders of pharmaceuticals from local pharmacies via a central platform. The FCO identified a general trend towards developing comprehensive digital health platforms linking health information with a mail order pharmacy platform and expressed no substantial concerns over the transaction. It noted that especially in this early market phase, it is important that consumers and pharmacies can use several platforms in parallel and switch platforms if required. Under the joint venture pharmacies in the NOWEDA association remain free in their choice of platform.

Spain

Recent decisions of the Spanish National Markets and Competition Commission (CNMC) show a growing interest in the pharma sector:

Patent lifecycle strategies

• On 21 October 2022, the CNMC imposed a €38.9 million fine on Merck for abusing its dominant position in the Spanish market for contraceptive vaginal rings (see our latest update here). The CNMC concluded that Merck conducted a litigation strategy against its competitor Insud Pharma, which delayed the entry of competing product Ornibel in Spain. The fine imposed was higher than the one initially proposed by the CNMC (i.e., €28 million), as the CNMC ultimately considered that the conduct affected a market with a significant impact on the population and with a strong link to the protection of the general public interest.

Excessive pricing

• On 14 November 2022, the CNMC imposed a €10.2 million fine on Leadiant for abuse of its dominant position by excessive pricing in relation to an orphan drug for the treatment of a rare disease, cerebrotendinous xanthomatosis (CTX). Leadiant has been the sole supplier of the only drug for the treatment of CTX in Spain since 2010. Leadiant withdrew the drug it had been marketing since 2010 (Xenbilox) from the Spanish market and launched a reformulated drug under a different brand name (CDCALeadiant) which was classified as an orphan drug, at a price 14 times higher. The CNMC concluded that Leadiant had developed a strategy to disproportionally increase the price of the only drug for the treatment of XCT and to exclude competitors from the market.

In the course of its investigation, the CNMC acted in close cooperation with other competition authorities that were also investigating Leadiant for a similar conduct (i.e. the various competition authorities shared documents collected during the dawn raids carried out at the premises of Leadiant group companies located in Italy, Germany and the UK).

The investigations are in line with the CNMC's most recent Action Plan which highlights its intention to increase scrutiny over the pharmaceutical sector.

UK

In the UK the Competition and Markets Authority (CMA) remains focused on the pharma sector and has made it clear that it will not hesitate to take action against any businesses that collude or abuse a dominant position at the expense of the NHS.  During the course of 2022 we saw CMA infringement decisions in relation to excessive pricing and market sharing agreements.  A number of infringement decisions are currently on appeal with rulings expected during the course of 2023.

Excessive pricing

• In July 2022 the CMA imposed a fine of £70 million on pharmaceutical companies Pfizer and Flynn for abuse of their dominant position by charging unfairly high prices for Phenytoin sodium capsules, a drug used for the treatment of epilepsy.  The drug had been de-branded which meant that it was no longer subject to price regulation, which saw an increase in prices previously charged by the manufacturer (Pfizer) of between 780% and 1,600% and by the distributor (Flynn) of between 2,300% to 2,600%.

The decision follows a remittal to the CMA by the Court of Appeal of the CMA's earlier decision in this case, following an appeal before the CAT and from there to the Court of Appeal.  The Court of Appeal's ruling in this case (see our briefing here) provides guidance on the correct methodology for assessing excessive pricing in the pharma sector and the extent to which fairness of the price should be assessed by comparison to other drugs.  The Court of Appeal held that, when investigating alleged excessive or unfair pricing, the CMA benefits from a "margin of manoeuvre" in deciding which methodology to use and which evidence to rely on, but that it must have due regard for alternative exculpatory evidence put forward by the defendants as to why prices are fair, such as prima facie valid comparators for other drugs.

Both Pfizer and Flynn have now appealed this second CMA's infringement decision again before the CAT, with the CAT's ruling expected to shed further light on the CMA's correct application of the excessive pricing test.

Market sharing agreements

• Last year the CMA imposed total fines of £35 million on a number of pharma companies for an illegal market sharing agreement in relation to the supply of the anti-nausea drug Prochlorperazine.  Under the arrangement Alliance Pharmaceuticals appointed Focus as its distributor and Lexon and Medreich were paid a share of the profits earned by Focus in return for agreeing not to compete in the supply of Prochlorperazine tablets in the UK.  During the relevant period prices paid for the drug by the NHS increased by 700%.  The CMA's decision is currently on appeal before the CAT.

The CMA has also applied to the High Court for director disqualification orders for seven directors of the companies involved in this infringement.

China

The pharma sector remains a key focus for antitrust enforcement activity in China.

Excessive pricing

• In November 2022, Tianjin Jinyao, a subsidiary of Jingyao Pharmaceutical, received a Notice of Administrative Penalty from the competition authority, which found that Tianjin Jinyao had abused its dominant position by selling carmustine injections at excessively high prices, and proposed to impose a fine of RMB27.72 million.  This is not the first time that JinYao Pharmaceuticals has been found to be in breach of the antitrust rules. On 28 April 2021, Jinyao Pharmaceutical (previously known as "Tianyao Holding") was penalised for entering into a market sharing and price fixing cartel with a total fine of 44.02 million yuan (including a fine of RMB35.12 million and confiscated RMB8.9 million of illegal proceeds).

Resale price maintenance

• In June 2022 an amended Anti-monopoly Law, under which resale price maintenance (RPM) is no longer per se illegal in China, was adopted and came into effect in August 2022. Despite this development, in July 2022 Eshun Pharmaceutical was fined for RPM arrangements, which had not yet been implemented. The competition authorities not only monitor RPM conduct that has been implemented, but also detect and review RPM agreements that have not yet been implemented. It is clear from this case that the competition authorities' approach to RPM has not yet to softened.

Pay for delay agreements

• On 18 November 2022 the Supreme People's Court issued the Draft Judicial Interpretation for Civil Anti-Monopoly Actions for public comments.  The draft interpretation guidance states that in the event that (i) the patent owner of an original drug has given or promised to give the generic drug applicant a high level of compensation by way of monetary payments or other forms of compensation; and (ii) the generic drug applicant has promised not to challenge the validity of the original drug patent or promised to delay entry into the relevant market of the original drug, the People's Court may preliminarily rule that such agreement constitutes a horizontal monopoly agreement.

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