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Medicines and Pricing - How Much Is Too Much?

on Tuesday, 21 November 2017.

The pharmaceutical industry has been in the firing line of competition law regulators ever since the European Commission's 2008 pharmaceutical sector inquiry...

 ... which focused on pay-for-delay agreements between innovators and generic companies at patent expiry.

However, the attack seems to have widened to alleged excessive pricing when the Commission announced earlier this year that it was initiating a formal investigation into Aspen Pharma in relation to five of its cancer drugs.

Both EU and UK competition laws have long permitted the authorities to intervene if they consider that a company with a dominant 'market' position has abused that dominance. However, recent cases have suggested a lowering of the threshold for assessing and finding dominance with the trend pointing towards markets being defined more narrowly. The consequence of this is that it would be easier to hold a company operating in that narrow space as dominant. The Commission may however have problems proving Aspen's dominance on the market in light of the fact that the patents on the drugs in question have long since expired.

As well as establishing dominance the Commission will also have to prove that pricing was excessive. The Commission will have to pinpoint the level at which prices are excessive and there would be real difficulties in establishing the 'unfairness' of a given price. There is no ready test as to how competition authorities determine 'excessiveness' and hence what constitutes a reasonable price with an acceptable profit margin.

Moreover, in industries such as pharmaceuticals with traditionally high research and development costs, intervention as to pricing levels where there has been no exclusion of competitors has been resisted on the basis that profits are needed to develop future products and technologies. Some therefore argue that such enforcement would have a negative effect on investment and innovation.

The Commission is merely following in the wake of the UK's own Competition and Markets Authority (CMA) which in in two cases in December 2016 imposed fines and statements of objection against substantial price rises of de-branded generic products. In addition, it is currently investigating Concordia International for the increased prices it charged to supply certain pharmaceutical products. The Italian and Spanish competition authorities have also taken action recently in the face of such price increases.  

Comment

So far the prosecutions have been limited to those companies imposing dramatic price increases of 'niche' off-patent medicines sold only in low volumes for treatment of rare diseases. Although this new trend may indeed prove to be confined, there may be concerns that the principle may be extended beyond substantial increases to existing prices in unpatented drugs to innovative, high priced medicines where the high price reflects the small patient populations. It is worth watching this space to see how the trends continue. 


Please contact Paul Ranson in our Pharmaceuticals and Life Sciences team if you have concerns as to product pricing.   

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