The latest competition law developments in life sciences

Multiple CMA investigations in the life sciences sector

It has been a busy time for competition law in the UK life sciences sector.  This note summarises the latest position on two of the most significant areas.

 

Excessive pricing – Pfizer, Flynn and the impact on the CMA’s current investigations

In June the Competition Appeal Tribunal (“CAT”) overturned the Competition and Market Authority (“CMA”) decisions against Pfizer and Flynn regarding phenytoin.  This was on the basis that the CAT considered that the CMA had adopted too narrow an approach in finding that the price of phenytoin sodium capsules constituted an excessive pricing abuse.  The CAT held that in seeking to establish an abuse the CMA was overly reliant on a ‘Cost Plus’ approach and should amongst other things have properly assessed the possible impact of meaningful comparators such as phenytoin tablets.

The CMA has been denied permission to appeal the CAT’s judgment, and will now seek leave to appeal from the Court of Appeal.  In the meantime the case has been remitted to the CMA for further consideration, and the CAT has stated it sees no reason why the consideration of the remitted case and other similar cases should be delayed pending any appeal.

The CMA did however strike a cautious tone in the immediate aftermath of the judgment, stating that “It has several active investigations which may now be severely delayed.”  In line with this, the CMA has recently confirmed on its website delays to a number of its ongoing investigations, with further developments now expected towards the end of 2018.

Even if the CMA chooses to advance those investigations to formal statement of objection or decision while any appeal is ongoing (which is far from certain) the outcome in the phenytoin cases appears to place an increased burden on the CMA to establish excessive pricing by reference to a wider set of evidence than it had relied on in the Pfizer and Flynn cases.

Pay for delay - GSK and others and the Paroxetine reference

Earlier this year the CAT referred a number of questions for a ruling from the Court of Justice, in relation to GSK and others’ appeal of the CMA’s Paroxetine infringement decision.  The reference asks key questions in relation to the correct approach to so-called ‘pay for delay’ cases.  In such cases patent holders pay generic companies to refrain from entering the markets containing the (alleged) patent protected drug.  Typically such payments occur in the context of settling patent litigation. 

Put simply these cases turn on the distinction between:

  1. an agreement by which competitors agree not to compete and instead share monopoly profits which one might say is typically unlawful; and
  2. the right parties have to settle litigation, which may well include some value transfer and an agreement not to engage in the potentially (patent) infringing conduct, which is typically lawful. 

Pay for delay cases are particularly difficult because there is an uncertain outcome but for the settlement:  For example if but for the settlement the patent were upheld then the generic would not be entitled to enter the market.  In such circumstances the settlement would not in fact have led to a reduction in competition.  From a generic companies perspective the question becomes when is it legal to forfeit a chance to compete for a commercially rational alternative strategy? From a patent holders perspective the question is when is it legal to pay money to a generic in order to avoid the costs and uncertainty of outcome associated with litigation.

The CAT’s reference asks a number of questions with a view to clarifying the distinction between lawful and unlawful conduct, covering the following (broadly summarised) areas:

  • Whether parties to a dispute should as a consequence of that dispute be considered potential competitors.
  • The circumstances in which agreeing to settle proceedings with an uncertain outcome should be considered an ‘object infringement’ of competition law.
  • The circumstances in which agreeing to settle proceedings where the generic would probably have succeeded could be considered an infringement ‘by effect’.
  • The extent to which litigants are in the same relevant market even where the outcome of such litigation is uncertain (and could have the effect of excluding the generic from the market).
  • Whether entering into a patent settlement agreement could be considered a form of abuse of dominance.

The CJEU’s ruling on the reference, along with judgments in current appeals concerning the company Servier and the drug Perindopril and company Lundbeck and the drug Citalopram should significantly clarify the boundary between lawful and unlawful conduct in this area.  As well as having an impact on compliance, they are likely to have an impact on the CMA’s investigation of similar cases.

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