The European Commission initiates an investigation into alleged excessive pricing practices in the pharmaceutical sector

24 July 2017

Silvia Pronk

The European Commission (EC) has opened a formal investigation into certain alleged excessive pricing practices pursued by Aspen Pharmacare Holdings Limited (Aspen), so-called "price gouging", in relation to off-patent oncology medicines. This is the first excessive pricing investigation by the European Commission in the pharmaceutical sector.

On 15 May 2017, the EC opened a formal investigation into alleged excessive pricing practices by Aspen, a South African multinational company, for its sales of certain off-patent oncology medicines in the EEA, save for Italy (Case COMP 40394). The EC investigation does not include Italy because the Italian competition authority (Autorità Garante della Concorrenza e del Mercato) has already adopted a relevant decision on 29 September 2016. The Italian competition authority concluded that, following an increase of the price of certain oncology medicines by up to 1500%, Aspen abused its dominant position by setting "unfair prices". This was an infringement of Article 102(a) of the Treaty on the Functioning of the European Union (TFEU) and the Italian competition authority imposed a fine of EUR 5 million. It is understood that in February 2017, the EC carried out dawn raids on the premises of Aspen in four different Member States

Background

The medicines in question contain the following active substances: chlorambucil, melphalan, mercatopurine, tioguanine, and busulfan. The brand names of the relevant medicines include: LEUKERAN, ALKERAN, PURINETHOL, LANVIS, TABLOID, and MYLERAN. These medicines are used for the treatment of some forms of cancer (e.g. leukemia, non-Hodgkin lymphoma, and multiple myeloma) and auto-immune diseases. Aspen is the sole supplier of these medicines and, according to the EC, there are no known substitutes.

Aspen started to impose significant price increases on national medicines authorities in various Member States. When national medicines authorities were unable or unwilling to accept the price increases, Aspen threatened to stop its supply.

What is excessive pricing in the pharmaceutical sector?

Excessive pricing cases before competition authorities are rare in Europe. This is the first excessive pricing investigation by the EC in the pharmaceutical sector. However, other national competition authorities have been investigating alleged excessive pricing practices in the pharmaceutical sector in the last few years. The following national competition authorities have either adopted final decisions or have pending cases on excessive pricing in this sector.

National Competition Authority  Medicine / Brand Name Decision
Decision
Competition and Markets Authority – UK Concordia International – hydrocortisone tablets.  Pending N/A 
Competition and Markets Authority – UK  Concordia International – unknown.  Pending  N/A
Competition and Markets Authority – UK

Pfizer Limited and Pfizer Inc. and Flynn Pharma Limited and Flynn Pharma (Holdings) Limited – phenytoin sodium capsules - Epanutin.

 Final Fine of GBP 84.2 million on 07/12/2016
Autorità garante della concorrenza e del mercato – Italy Aspen - chlorambucil, melphalan, mercatopurine, tioguanine – Leukeran, Alkeran, Purinethol, and Tioguanine.  Final Fine of EUR 5 million on 29/09/2016
Excessive pricing falls within the scope of Article 102(a) TFEU, which stipulates that an abuse of a dominant position can consist of "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions".

The relevant test for establishing excessive pricing dates back to the United Brands case of 1978, which concerned the sale of bananas. According to the test, to determine whether or not a price is excessive the EC must (a) carry-out a cost-price analysis, and (b) determine whether the difference in price is excessive in itself or in comparison with the prices of competing products.

In order to establish excessive pricing in the Aspen case, the EC will have to overcome the following two hurdles:

  1. Firstly, it must demonstrate that Aspen holds a dominant position in the relevant markets. This is not straightforward, because the EC will have to show that (a) there are few or no substitutes for the medicines involved; and (b) no competitor is in a position to enter the market. This will be difficult to establish given that these medicines have been off-patent for decades.
  2. Secondly, it will have to demonstrate that Aspen's prices were excessive, meaning that they were above a price benchmark set by the EC. In setting such benchmarks, the EC will have to take into consideration the way in which the social security systems of each Member State operates and establish that, despite the high level of regulation in the sector and the negotiation process with national authorities, the prices in question are in fact excessive and unfair.

Next steps

The EC has stated that it will carry out its in-depth investigation as a matter of priority. Understandably, this is an opportunity for the EC to make a statement and to condemn excessive pricing in an industry where such pricing could lead to a shortage of supply of life-saving medicines at a very high cost to taxpayers. 

However, the launch of this investigation may also be an attempt to remedy a perceived market failure, the high price of medicines, through the enforcement of competition rules. It could be argued that such a remedy may not be appropriate and perhaps high prices in off-patent medicines could be better dealt with through regulatory measures. In fact, the UK and the US have decided to tackle such perceived market failures by introducing regulatory changes (see the Health Service Medical Supplies Bill and the US Senate report on price gouging entitled: "Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Health Care System" respectively).

If the EC finds that Aspen has imposed excessive prices upon national health services, it could face a fine of up to 10% of its global turnover. Moreover, Aspen could be subject to damages actions in various Member States.

Authors

Silvia Pronk

Associate
Belgium

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