The Commission and National Competition Authorities Continue their Scrutiny of the Pharma Sector – the Commission’s Report Regarding the Enforcement in 2018-2022 just Published
On 26 January 2024, the European Commission (the “Commission”) published a report, providing an overview of the enforcement of the EU competition rules by the Commission and the National Competition Authorities (“NCA”) in the pharmaceutical sector during the period 2018 – 2022. The scrutiny of the sector has been intense ever since the pharma sector inquiry was initiated by the Commission back in 2008. The report shows that the enforcement activity remains high all over the EU both as regards cartels, abuse of dominance and mergers. High fines have been imposed and mergers affected. Awareness of the competition rules is thus key for all pharmaceutical companies.
The current report which is available here follows a previous report covering the years 2009-2017 that was published in January 2019.
Antitrust enforcement; a large number of decisions and high fines
With respect to anti-competitive agreements and abuse of dominance, the Commission and the NCAs have since 2018 adopted 26 decisions and imposed fines totaling over €780 million. In some instances, companies have made legally binding commitments to remedy the alleged anti-competitive behavior. Moreover, 30 cases are currently ongoing.
The cases pursued covered several different practices which were considered to harm innovation and prices. These included (i) the misuse of the patent system and abusive litigation to prolong patent exclusivity; (ii) the disparagement of a competitor’s products to protect the dominant company’s sales; (iii) pay-for-delay agreements, where originator and generic companies colluded to keep generics off the market and share the originator’s profits from doing so; and (iv) excessive prices charged for off-patent medicines. In addition, certain discount systems were revised following the authorities’ initial assessment that they could hinder or delay the entry of generics or biosimilars.
The report contains summaries of selected cases that have been assessed by the authorities. Some of those relate to infringements that are specific to the pharma sector whereas others, involving retail price maintenance or bid-rigging, could happen in any industry. Certain cases may be of particular interest not only for pharma companies but also for companies in other regulated or IPR-focused sectors. The report also describes the efforts that were made during the pandemic to enable e.g., vaccine companies to cooperate and to ensure deliveries of important medicines. It also briefly describes the suggested amended regulatory rules for pharmaceuticals in the EU in the reform of the EU pharmaceutical legislation, which was presented by the Commission 26 April 2023.
Merger control scrutiny has been intense
There has been a lot of consolidation in the pharma sector the last few years, and we have also witnessed acquisitions by big players of smaller innovative companies which has led to merger scrutiny. The Commission reviewed more than 30 mergers in the sector and found concerns in five cases, including fear for higher prices, concentrated markets, less consumer choice or reduced research and development. Four of these mergers were only cleared by the Commission after the companies had offered remedies to address the Commission’s concerns, such as e.g., selling off a certain product or therapy area where the parties had too large market shares. One transaction was abandoned after the Commission raised initial competition concerns.
As previously reported, the pharma and biotech sector attracts the authorities’ interest even when a merger does not meet the mandatory notification turnover thresholds. Here, the Commission may use so-called Article22 referrals according to which NCAs may request the Commission to assess mergers that do not meet either national or EU merger thresholds provided that they appear problematic from a competition law perspective. See our previous blog post regarding the Illumina/Grail merger.
Concluding remarks
The interventions of the competition authorities have led to severe financial consequences as well as bad-will for many pharma companies. And there are still several pending investigations. Thus, it is important for pharmaceutical companies to be aware of the intensive competition law scrutiny in the sector and take appropriate action to ensure compliance which includes policies, guidelines and trainings so that the employees are well aware of when competition law assessment is warranted and may carry out such assessments at an early stage. Considering the extensive regulatory rules as well as complex market structures it is important to ensure that competition law assessments are an integrated part of various workstreams. This especially given that measures that comply with regulatory rules or IP rules but, which may have negative effects on competitors may be perceived as anti-competitive and therefore unlawful.
It is also important to assess mergers and investments at an early stage as these may not only be subject to merger control but also the foreign direct investment rules. Companies in nearby markets such as medical devices and healthcare should also be aware that they may be subject to increased scrutiny since those sectors also affect patients’ and taxpayers’ money.