This article first appeared in Chemical Practice Chronicles, Triannual Newsletter of the AIPLA Chemical Practice Committee’. To view the issue in full, please go to http://www.aipla.org

Overview of the Antitrust and Competition legal system in Europe

European antitrust policy is developed from two central rules set out in the Treaty on the Functioning of the European Union (TFEU): Art. 101 and 102. Details of the implementation of those articles are set out in the Council Regulation1 (EC) no. 1/2003 of 16 December 2002 (the Antitrust Regulation).
Article 101 of the TFEU prohibits agreements between companies which prevent, restrict or distort competition in the EU and which may affect trade between Member States (anti-competitive agreements). These include, for example, price-fixing or market-sharing cartels. Anti-competitive agreements are prohibited regardless of whether they are concluded between companies that operate at the same level of the supply chain (horizontal agreements) or at different levels (vertical agreements).
Article 102 of the TFEU prohibits abusive conduct by companies that have a dominant position in a particular market, for example by charging unfair prices, by limiting production, or by refusing to innovate to the prejudice of consumers.
These rules and the procedures set out in the Council Regulation (EC) 1/2003 can be applied by both the European Commission (that has a number of investigative powers and may also impose fines) and the National Competition Authorities (NCAs) of each EU member state.

Overlap of Patent and Antitrust Law in Pharma
Patents are important tools for the business success of the pharmaceutical industry.
However, patent law, which creates monopolies, and antitrust law, which promotes freedom of competition, lead to an inevitable tension.
Recently, financial pressure on the health expenditure of EU member states has created an environment in which there is an increasing focus on freedom of competition in the pharma sector, which could lead to the provision of cheaper drugs and healthcare services. It is therefore no surprise that in recent years, the pharmaceutical industry has been subject to rigorous scrutiny by antitrust authorities and the European Commission.
Areas which have attracted attention from antitrust authorities include pay-for-delay deals, that try to delay the entry of generic drugs on the market, and abuses in obtaining and enforcing patent rights.

Recent Case Law relating to pay-for-delay deals and abuse of dominant position 
Both the European Commission and the National Competition Authorities have imposed heavy fines on a number of pharmaceutical companies that were found to be in breach of competition law by entering into pay-for-delay or other anti-competition agreements.
The following are some decisions of the European Commission.

I. Omeprazole (AstraZeneca): the first abuse in the pharmaceutical sector recognized by the European Commission
In June 2005, the European Commission imposed a €60 million fine to AstraZeneca for abuse of its dominant position relating to the drug omeprazole for two reasons: 1) misuse of the patent system to obtain supplementary protection certificates (SPCs); and 2) misuse of the pharmaceutical regulatory system by selective withdrawal of certain marketing authorisations.
The first abuse of dominance involved statements made by AstraZeneca to patent offices in various EU Member States regarding the date of the first marketing authorisation of omeprazole obtained in a European Union member state. The duration of an SPC is calculated starting from the first marketing authorisation in any of the EU Member States.
The date of first marketing authorisation is therefore a key factor and AstraZeneca referred to March 1988 as the “first authorisation date,” whereas the Commission demonstrated that a marketing authorisation had been issued in France in 1987. This resulted in AstraZeneca gaining an additional period of protection for omeprazole in some countries, thus delaying market entry of the generic version by several months.
The second abuse found by the European Commission was the withdrawal by AstraZeneca of marketing authorisations for omeprazole in some EU Member States when it ceased marketing capsules in those markets and launched omeprazole tablets instead. By withdrawing the marketing authorizations for the capsules, generic companies were unable to rely on the clinical data that were used to obtain the marketing authorisation of the original product for the launch of their own generic omeprazole capsules. This resulted in unlawful delay of the launch of generic omeprazole.
This decision was ultimately upheld by the Court of Justice of the European Union (CJEU) in December 2012.

II. Citalopram: Lundbech and generics Merck KGaA, Arrow, Alpharma and Ranbaxy fined for anti- competition agreement by the European Commission

In June 2013, the European commission imposed a fine of €93.8 million on Lundbeck, patent owner of citalopram, an antidepressant medicine, and fines totalling €52.2 million on a number of generic pharmaceutical companies (Merck KGaA (now part of Mylan), Arrow, Alpharma and Ranbaxy) who agreed with Lundbeck not to launch citalopram products in return for payments and inducements. According to the commission, Lundbeck paid significant lump sums, purchased generics’ supplies for the sole purpose of destroying them, and offered guaranteed profits in a distribution agreement. Citalopram is a blockbuster antidepressant medicine and was Lundbeck’s best-selling product at the time.
After this decision, the misuse of patent and regulatory procedures could be regarded as an abuse of dominant position where such conduct has the over-riding purpose of excluding new entrants and in particular generic companies. The fact that the conduct in question may be lawful with respect to the patent and regulatory system will not be a defence where the conduct can be shown to have been pursued with an anti-competitive strategy of excluding new entrants from the market.

III. Perindopril: Servier and generics Niche/Unichem, Matrix, Teva, Krka and Lupin fined for anti-competition agreement by the European Commission

Perindopril is a blockbuster blood pressure control medicine and was the French pharmaceutical company Servier’s best-selling product. Servier’s patents for the perindopril molecule expired, for the most part, in 2003. Although a number of so-called ‘secondary’ patents were still in force, generic companies were intensively preparing their market entry.
According to the European Commission, in order to avoid competition from generic versions of perindopril, Servier implemented a strategy to exclude competitors and delay the entry of cheaper generic medicines. Sevier’s delay strategy included technology acquisition and a series of patent settlements with generic rivals that had challenged the perindopril patent portfolio. Such strategy was found to be in breach of European antitrust legislation and fines totalling €427.7 million were imposed on Servier and the five generic pharmaceutical companies involved in the patent settlements (Niche/Unichem, Matrix (now part of Mylan), Teva, Krka and Lupin) in July 2013.

IV. Fentanyl: Johnson & Johnson and Novartis fined for anti-competition agreement by the European Commission

The European Commission imposed fines of approximately €10.8 million and €5.5 million on Johnson & Johnson and Novartis, respectively, in December 2013, whose Dutch subsidiaries (Janssen-Cilag and Sandoz, respectively) entered into a “co-promotion agreement”, which delayed the launch of a generic version of fentanyl in The Netherlands.
Fentanyl is a pain-killer 100 times more potent than morphine. It is used especially for patients suffering from cancer. In 2005, Johnson & Johnson’s protection on the fentanyl depot patch had expired in The Netherlands and Novartis’ Dutch subsidiary, Sandoz, was preparing to launch the product. According to the Commission the product launch was, however, delayed by seventeen months due to a “co-promotion agreement” between the two companies that was found to be in breach of antitrust law.

According to the Commission the product launch was, however, delayed by seventeen months due to a “co-promotion agreement” between the two companies that was found to be in breach of antitrust law.

Following the case law set out by the European Commission, National Authorities have recently placed pharma sector agreements under close scrutiny and, as a result, have imposed heavy fines on recognised cases of anti-competitive behaviours.

The following are some decisions of the National Authorities.

I.Bevacizumab (Avastin)/Ranibizumab (Lucentis): Italian Competition Authority fines La Roche and Novartis for breaching competition law

On February 27, 2014 the Italian Competition Authority (ICA), in an unprecedented decision concerning the pharmaceutical industry in Italy, issued total fines of more than €180 million against F.Hoffman-La Roche Ltd. and Novartis AG, as well as their Italian affiliates. The two companies were found to have restricted competition in connection with the commercialisation of two drugs known by the brand names of Avastin and Lucentis.

The fines issued by the ICA, however, did not only affect Roche and Novartis. The ICA decision triggered in fact, within a few months, new legislation and case-law on off-label use of medicinal products, making it effectively easier for physicians to prescribe such products so long as their prices are lower than authorised alternatives.
Furthermore, the ICA decision made it painfully clear to the industry that mere compliance with the specific regulations applicable to pharmaceutical products will no longer shield companies from antitrust scrutiny.

  1. Facts

Aventis and Lucentis had been employed in the treatment of several eye diseases, including in particular age related macular degeneration (‘AMD’) and neovascular glaucoma.
Both drugs had been approved by the European Medicines Agency (‘EMA’) pursuant to the centralized authorisation procedure. According to applicable legislation, medicines derived from biotechnology processes are subject to a single marketing authorisation issued by the EMA, which is valid in the entire territory of the European Union.

Avastin, a drug developed by Genentech (a fully owned subsidiary of Roche), had been approved by both the FDA and EMA in 2004 and 2005, respectively, for the treatment of colorectal cancer. The marketing authorisation had not been sought for the treatment of eye diseases. However, Avastin had been consistently employed off-label by ophthalmologists in the treatment of AMD. While Genentech had retained the rights to market Avastin in the US, it had assigned distribution rights for the rest of the world to Roche in exchange for royalties.
Neither Genentech nor Roche had ever submitted a request for a marketing authorization for ophthalmological indications.

Lucentis had also been developed by Genentech and had been approved by the FDA and EMA, in 2006 and 2007, for the treatment of AMD. Genentech had assigned the distribution of Lucentis (except in the US) to Novartis and sold the active principle (ranibizumab) to Novartis.

  1. The anticompetitive arrangements concerning the marketing of Avastin and Lucentis

The price of Lucentis was significantly higher than the price of Avastin: as of November 2012 the price reimbursed by the national health service for Lucentis per injection was equal to €902. Avastin, on the other hand, had a price per treatment ranging from €15 to €81 and had been included in the list of off-label drugs for the treatment of AMD.

In line with then applicable legislation, the arrival on the market of Lucentis triggered the cancellation of Avastin from the list of off-label drugs for most of its off-label uses, since a valid alternative treatment, duly authorized for the same indication, was available on the market. The Italian Drug Agency cancelled Avastin from the list of off-label drugs in October 2012 following a change in the summary of product characteristics previously filed by Roche with the EMA in order to account for certain adverse events in the ophthalmic use of Avastin.

The ICA in its decision points to a concerted allocation of the market between Roche and Novartis, with the latter focusing on the ophthalmic sector and the first focusing on antitumor drugs. In line with this shared marketing strategy, the ICA held that the two companies artificially restricted the use of Avastin, also by undertaking a variety of regulatory actions aimed at limiting its off-label use.

Roche, on the other hand, claimed that any such actions were in line with its pharmacovigilance duties, as they related to adverse events in connection with the use of Avastin in ophthalmic settings.

It is quite interesting to note that the actions undertaken by Roche regarding Avastin
were at face value completely in line with the current regulatory framework. Roche, in fact, was under no obligation to seek a marketing authorization for the treatment of AMD and was actively reporting any adverse events occurring in connection with the off-label use of Avastin.

According to the ICA, however, all such actions in the aggregate had the specific goal
of restricting competition and were instrumental to a restrictive agreement between competitors, even if they were formally in line with pharmaceutical regulations. The allegations made by the ICA were supported by the economic and contractual ties between Roche and Novartis and their common interest in the commercialisation of the two products.

The ICA, in assessing whether the above practices had an impact on the market, also examined the higher costs borne by the national health service in connection with the prescription of Lucentis instead of Avastin and estimated such higher costs in the amount of €540 million in 2013 and €615 million in 2014. While such higher costs had not been taken into account by the ICA in defining applicable sanctions, but rather to show that the practice of Roche and Novartis had actual effects on competition, they quickly became the basis for a claim by the Italian Ministry of Health, who – soon after the ICA decision – stated that it was willing to seek reimbursement for damages suffered as a consequence of the alleged
anticompetitive arrangements.

I. Latanoprost: Italian Competition Authority fines Pfizer for abuse of dominant position by misuse of the patent system

  1. Facts

The “Pfizer saga” started in 1989, when Pharmacia (a company acquired in 2003 by the
Pfizer group) filed a patent request to the European Patent Office (EPO) for a number of active ingredients, including latanoprost (i.e. the active ingredient used for Xalatan, an analogue to prostaglandins used to treat glaucoma). As a result, EP ’417 patent2 was granted in 1994 with an original expiry date of 6 September 2009.

In 1994, the EP ’417 patent was validated in a number of European States, including Italy, where Pharmacia marketed Xalatan for the first time in 1997. At that time, Xalatan was the first analogue to prostaglandins and the first speciality to be used for the treatment of glaucoma as an alternative to beta blockers, demonstrating an improved level of tolerance and safety.

In 1997, Pharmacia also applied for a supplementary protection certificate (SPC) in several EU Member States to extend the duration of the EP ’417 patent until 11 July 2011, so as to be compensated for the time needed to obtain regulatory marketing approval. However, no SPC application was filed in Italy (or in Spain and Luxembourg), where the duration of the EP ’417 patent remained limited to 6 September 2009. As a result, the duration of the EP ’417 patent differed among EU Member States, and in those countries where no SPC was applied for, generics could enter the market as of September 2009.

Furthermore, in 2002 Pharmacia filed a divisional patent request (DPR) to the EPO concerning the EP ’417 patent. From a competition perspective, in light of the characteristics of Xalatan, when Pharmacia submitted such request to the EPO, it was essentially a monopolist on the market for the production and marketing of medicines analogous to prostaglandins. In 2009, the Pfizer group held a market share of approximately 60 per cent of the Italian market for medicines analogous to prostaglandins.

The divisional EP ’168 patent3 was granted in 2009 with the same duration as the parent the EP ‘417 patent. However, on the basis of the divisional EP ’168 patent, Pfizer, the legal successor of Pharmacia, applied for an SPC in Italy and was thus able to extend its patent protection until July 2011.

In January 2011, Pfizer applied for a further extension of the duration of the SPC in order to carry out paediatric trials, thus extending its patent coverage until January 2012.

The ICA’s decision

In a decision dated 11 January 2012, the ICA imposed on Pfizer Italia S.r.l., Pfizer Health A.B. and Pfizer Inc. (together, Pfizer) a fine of €10.6 million for abuse of a dominant position in breach of Article 102 of the TFEU.

The investigation was prompted by two complaints filed by Ratiopharm Italia S.r.l. (a generics manufacturer) and the European Generic Medicines Association, alleging that Pfizer was abusing administrative procedures to artificially extend patent protection for the glaucoma drug Xalatan, to prevent, or delay, market entry for generic products based on the same active ingredient.

Within the context of the ICA proceedings, Pfizer had offered a number of commitments to allay the competitive concerns raised by the ICA in its decision opening the investigation. In particular, Pfizer had offered the following remedies:

  • to grant a free licence for non-exclusive use in Italy of the invention covered by the

EP ’168 patent;

  • to put an end to administrative and civil proceedings at that time pending with

generics before the Courts of Rome and Milan;

  • to withdraw the request for a further patent extension for paediatric use; and
  • to advertise on its website all the available alternatives to Xalatan, stressing the availability of less expensive, but equally effective, versions of Xalatan. In addition, Pfizer offered to adequately inform doctors and pharmacists in particular as to the drugs available on the market based on the same active ingredient.

Following a market test on 25 August 2011, the ICA rejected Pfizer’s commitments as inadequate and found that Pfizer had infringed Article 102 of the TFEU.

The ICA found that Pfizer had abused administrative procedures by filing for a divisional patent in 2002 concerning the glaucoma drug Xalatan. As mentioned above, the divisional patent was granted in 2009, and enabled Pfizer to apply for an SPC in Italy on the basis of the divisional patent, even though the original SPC deadline under the parent patent had already expired in Italy.

While the conduct concerning the filing of a divisional patent played a key role in the finding of abuse, the ICA considered that such conduct was part of a complex exclusionary strategy including the following elements:

  • Conduct aimed at artificially extending the patent protection for Xalatan:
  1. applying for a divisional patent in 2002;
  2. validating the divisional EP ’168 patent only in some EU countries (amongst them, Italy) to request an SPC only in those countries, thus obtaining the same duration of the patent protection in all EU countries; and
  3. requesting a further patent coverage extension until January 2012 to conduct paediatric trials.
  • Conduct directly aimed at hindering or delaying market entry for generics in Italy:
  1. addressing the Italian Drug Agency in order to prevent the granting of marketing authorisations to generics manufacturers;
  2. sending formal legal notices to Xalatan generics manufacturers warning them not to market their products before the expiry of Pfizer’s patent protection in July 2011; and
  3. bringing several legal actions (claiming significant damages) aimed at discouraging, making more expensive or hampering the marketing of generics.

In particular, in the ICA’s view, this strategy had created a “situation of legal uncertainty” as to the possibility of marketing the generic version of Xalatan, to the detriment of generics’ legitimate expectations to enter the market as of September 2009, and ultimately had (i) exacerbated market entry costs (in terms of planning and production) for generics manufacturers and (ii) delayed their entry.

As regards Pfizer’s exclusionary intent, according to the ICA, evidence demonstrated that Pfizer was: (a) fully aware that its conduct was aimed solely at delaying market access for generics manufacturers, in particular in light of the fact that no new product was marketed on the basis of the divisional patent; and (b) afraid of losing market share and revenues to generic versions of Xalatan.

As a result of the investigation, the ICA concluded that Pfizer had abusively managed to delay – for a 7-month period – market entry for generics manufacturers and to maintain its monopolistic revenues arising from the patent after its expiry.

In addition, the ICA considered that the Italian healthcare system was damaged by Pfizer’s conduct, given (i) the impossibility to have access to generics, and (ii) the payment of a higher price for Pfizer’s branded product. The ICA quantified such damages as amounting to around €14 million.

This decision was ultimately upheld by the Italian Supreme Court in December 2012.

Conclusions

Aside from the details of the above case law however, the key takeaway for the pharmaceutical industry is that compliance with the regulatory framework no longer shields pharmaceutical companies from antitrust investigations. Both the European commission and the National Competition Authorities have made it very clear that they will independently assess commercialization and marketing strategies of pharmaceutical companies, regardless of their formal compliance with regulatory requirements. If other authorities across the world are willing to follow this path, it might well be time for the industry to reassess their marketing strategies.

***

1A ‘regulation’ is a binding legislative act. It must be applied in its entirety across the EU without changes to the provisions.

2EP 0 364 417.

3EP 1 225 165.


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