The bulletproof post

A few bullet points to understand the European Commission report on antitrust in the pharmaceutical sector

On 28 January 2019, the European Commission published a report providing an overview of competition enforcement in the pharmaceutical sector, by the EU Commission and all national competition authorities, from 2009 (date of the pharmaceutical sector enquiry conducted by the Commission) to 2017.

• A response to concerns on high prices …

The report was requested by the European Council, which expressed concerns about “high and unsustainable price levels” in the pharmaceutical sector, and the possibility that these may result from business strategies by pharmaceutical companies and limited bargaining power of governments against these companies.

Therefore, the report aims at demonstrating that the Commission and national authorities have been “doing their job” in the competition field, by thoroughly pursuing infringements.

• … but an unbalanced starting point

The Council seems to assume that any issue on the pharmaceutical market must necessarily result from pharmaceutical companies behavior – thus minimizing the importance of the regulatory frame and particularly pricing regulations. In addition, considering that in most Member States drug prices result from a regulatory decision, it seems questionable to underline the limited bargaining power of governments.

In this respect, the Commission report notes, interestingly, that “there are limits to what competition law can do and continuous efforts by all stakeholders are needed to meet the societal challenge of ensuring sustainable access to affordable and innovative medicines”. It would have been useful to remind that certain issues in the pharmaceutical sector cannot be solved through competition enforcement, but need regulatory action. However, this point is only mentioned in the executive summary and the conclusion, and unfortunately not developed in the report.

• A useful case inventory …

The report provides a complete list of EU and national cases in the pharmaceutical sector, and a good reminder of the types of practices that attract antitrust risks, from the misuse of regulatory frame by providing false information to regulators, to more questionable infringements such as disparagement.

It is also important to note the key role played by national competition authorities, and particularly the most active ones (UK, France and Italy).

• … but an overly simplistic approach

The Commission presents the number of decisions (29 in 8 years) as being particularly high, thus reinforcing the image that the sector would be more exposed. However, this number, which covers both EU and national cases, needs to be put in perspective with the massive enforcement investment made for the 2009 sector enquiry, in terms of requests for information and dawn raids. In view of this context, and when compared to other sectors, cases do not appear to be overly numerous.

In addition, the report sometimes misleadingly portrays the case law as being settled on a number of important issues. Among others, it treads very lightly on recent court decisions that have challenged the extensive standards applied by the Commission and the national authorities to the pharmaceutical sector. For example, the recent General Court decision in the Servier case or the UK Competition Appeal Tribunal decision against the Pfizer excessive pricing case. These are dealt with in a few words, thus reinforcing the idea that case law is established, when in reality there are still a number of pending questions which could challenge the particularly strict approach followed in this sector by competition authorities.

• The importance of innovation in the merger control area

Also interesting is the overview of merger control decisions relating to pharmaceutical transactions, and the importance granted by competition authorities to the protection of innovation and, among others, potential competition. This is an element which should be carefully taken into account by all companies envisaging a merger.

• A focus on biosimilars

The report also underlines the importance of biosimilars, which it places on the same level as generics when it comes to competitive dynamics: “effective competition from generics and, more recently, biosimilars typically represents a vital source of price competition on pharmaceutical markets and significantly drives down prices”. Generics and biosimilars are presented as vectors of price drops and even a “disciplining force” towards originators.

For the time being, there have been no competition decisions sanctioning practices relating to biosimilars, and the report also mentions the differences between biosimilars and generics, which may prevent competition authorities from following an identical approach. However, the report insists on the importance of closely monitoring any possible anticompetitive behavior that may affect biosimilar entrance: “authorities must remain vigilant and pro-active in investigating potentially anti-competitive situations, including where new practices used by companies or new trends in the industry are concerned, such as the growing relevance of biosimilars.”

Therefore, enforcement pressure is to be expected in the biosimilar area.

• A renewed interest in the pharmaceutical sector

More generally, the report confirms that the pharmaceutical sector remains under the scrutiny of competition authorities, who “continue their commitment to rigorously enforce competition law in the pharmaceutical sector in the future”.