In this eloquent legal brief, Marie Minzikian, partner at FEUture International Consulting, makes a strong argument for pharmaceutical companies to conform with the spirit of competition law.
In January 2019, the European Commission intensively repeated that “effective enforcement of
European Union competition rules in the pharmaceutical sector remains a matter of high priority and
the competition authorities will continue to monitor and be pro-active in investigating potential anticompetitive situations”.[1] The pharmaceutical industry is specifically seen as a flagship driver of
future economic growth in the EU.[2] Since the start of the 21st century, EU competition law
enforcement has started focusing more on companies’ endeavours to delay or hamper the
introduction of generic medicines or of new, innovative drugs that may compete with their products
already on the market. Indeed, the pharmaceutical companies’ behaviours not conforming with EU
antitrust laws have required closer legal scrutiny.
To conform or not to conform with antitrust law: what is at stake?
Formerly expressed by the European Union Council and the European Parliament, anti-competitive
practices may endanger patients’ access to affordable and innovative essential medicine and medical
devices. The high prices of medicine impose a high burden on the national healthcare systems of EU
Member States, in which it is easy to acknowledge that pharmaceuticals already account for a
significant share of spending.[3]
Reverse payment settlements and “killer acquisitions” are both behaviours which pose concerns for
competition law. The first behaviour is assessed by the European Commission, or by the National
Competition Authority of the twenty-eight Member States (before Brexit) under Article 101 of the
Treaty on the Functioning of the European Union (TFEU), prohibiting all agreements that infringe
competition law and affect trade between Member States on the common market. They call for an
ex-post assessment. The second behaviour, “killer acquisitions”, so far calls for an ex-ante
assessment, before it produces any effect on the market. These acquisitions happen when larger
firms acquire smaller ones and discontinue projects under development that may eventually become
Not conforming by delaying
In the United States, the Division of Justice (DOJ) and the Federal Trade Commission (FTC), being
suspicious of the so called “pay for delay” agreements, have expressed special concern with this
practice in the pharmaceutical industry. Indeed, in this sector, holders of patents for valuable drugs
and generic manufacturers frequently find themselves in lawsuits. Commonly, on the one hand, the
patent holder accuses the generic manufacturer of infringement and on the other hand, the generic
manufacturers blame the patent holder of monopolization. By going through the reverse payment
agreements method, the patent holder pays the generic manufacturer to abstain from competing
with the patent holder for an indicated period.
This technique is a “win-win” for companies. Brand-name pharmaceutical prices stay high while the
brand and the generic share the benefits of the brand’s monopolised profits. The losers are the
consumers: they miss out on generic prices that can be as low as 90 percent less than brand prices.
As an illustration, the FTC has found that brand-name medication that costs $300 per month might
be sold as a generic at $30 per month.[4] European competition authorities have resolutely sanctioned practices and conducts that curb the market entry or the expansion of generics. Some landmark decisions had been taken by both the Commission (Lundbeck, Fentanyl and Servier cases) and the Competition Markets Authority of the United Kingdom (Paroxetine case) against pay-for-delay cases.
Not conforming by merging
High prices that endanger patients’ health, and healthcare systems in general, might also arise from mergers of pharmaceutical companies in which the pricing power of the merged company is strengthened. Indeed, according to M. Bourreau and A. de Streel, after an acquisition one significant concern is that the acquiring firm could choose to kill the innovation of the acquired firm instead of developing it.[5] This occurs when incumbent firms may acquire innovative targets solely to
discontinue the target’s innovation projects and pre-empt future competition. In that respect, the
incumbent’s incentive to kill the acquired firm’s innovation is led by the idea that the entrant, and
potential rival, has an incentive to develop its innovation if it enters the market because it embodies
a competitive threat for the incumbent company. In this regard, it has been assumed that more than six percent of all acquisitions in the pharmaceutical industry in the U.S. fit this definition.[6] The “killer acquisition” has two anticompetitive effects: competition is decreased and innovation is harmed at the expense of patients. A recent paper by the co-authors Colleen Cunningham, Florian Ederer and Song Ma provides empirical evidence of “killer acquisitions” in the pharmaceutical sector. After having looked at today’s U.S. pharmaceutical industry to assess to what extent acquisitions can harm competition, they conclude that these mergers lead the acquiring firms to terminate projects that overlap with their existing
According to three eminent lawyers from White & Case, new tools are needed to assess such
acquisitions: one is focused on the option of introducing a value-based transaction threshold.[7] The
idea behind this tool is that the purchase price of the acquired drug company better reflects the
target’s (future) market potential than its current turnover (which is often insignificant). Finally, the
second option is centred on the burden of proof: instead of having the Competition authority prove
that the transaction will result in a significant impediment to effective competition - which is, in
general, part of companies’ economic freedom, the acquiring company will need to show the benefits
and efficiency of the transaction.
[1] European Commission, Report on Competition enforcement in the pharmaceutical sector (2009-2017). (Luxembourg: Publications Office of the European Union, 2019).
[2] Matthew Hall, “EU Competition Law in the Pharmaceutical Sector: What Has Happened Since 2009?” International Antitrust Bulletin, American Bar Association 4 (2011).
[3] European Commission, Report on Competition enforcement in the pharmaceutical sector (2009-2017).
[4] Federal Trade Commission, “Pay-for-Delay: How Drug Company Pay-offs Cost Consumers Billions,” January 2010.
[5] Marc Bourreau and Alexandre de Streel. “Big Tech Acquisitions Competition & Innovation effects and EU merger control,” Centre on Regulation in Europe (CERRE), 5 February, 2020.
[6] Dault, “"Killer" Acquisitions"”.
[7] Jacquelyn MacLennan, Tilman Kuhn, and Thilo Wienke, “Innocent Until Proven Guilty – Five Things You Need to Know About Killer Acquisitions,” Informa Connect, 3 May 2019.