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European commission attacks co-promotion agreements

19/03/2013

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Agreements between pharmaceutical manufacturers and generic companies, never out of the antitrust news bulletins for long, are in the headlines again.  Companies from across the pharmaceutical industry have just completed their submissions for another round of patent settlement monitoring carried out by the European Commission – the fourth such exercise.  The FTC’s equivalent monitoring programme has been in existence for rather longer, and has just published its 9th such report, in which it observed an increase in so-called “pay for delay” settlements.

The European Commission has not yet ruled on any of the pharma sector cases on which it issued Statements of Objections during 2012.  Despite this, in late January 2013, it announced that a new Statement of Objections had been sent, this time to Janssen-Cilag (subsidiary of Johnson & Johnson) and Sandoz (subsidiary of Novartis).  The Commission alleges that the companies entered into an agreement which resulted in a delay to the entry of generic Fentanyl, a pain relief drug, in the Netherlands.  However, whereas the 2012 cases related primarily to agreements settling patent litigation (which were said to have delayed generic entry), the case against Janssen-Cilag and Sandoz is not explicitly a settlement of patent litigation.  Rather, it relates to a co-promotion agreement concluded between the parties. According to the Commission, this agreement involved monthly payments being made by Janssen-Cilag to Sandoz in return for Sandoz refraining from entering the market.

Co-promotion agreements are commonly used by pharmaceutical companies to improve the marketing and product penetration of products in particular countries.  The product manufacturer often elects to use co-promotion where a development partner could bring an added dimension to the marketing, for example where the latter has a particularly strong marketing network in a particular country or market segment (e.g. hospital/retail).  Competition between different types of pharmaceutical product which treat the same medical condition is driven at least in significant part by the relative success of each company’s marketing measures.  Unlike true consumer products where a great variety of types and methods of advertising are used to reach potential consumers, medical products are required to be marketed with great care, and subject to a complex and nationally varying set of rules.  Such information efforts are, of course, directed at prescribers rather than at users.  These factors mean that pharmaceutical companies commit considerable efforts and resources to explaining medical products to doctors. 

The Commission appears to assume that the co-promotion agreement concluded between Janssen-Cilag and Sandoz is a sham, and that the true purpose of the agreement was to delay entry by Sandoz with its own generic version of Janssen-Cilag’s product.  It cannot, however, be assumed that an agreement which continues until the generic company is able to enter the market in fact delays entry.  It may well be the case that Sandoz experienced product development or regulatory difficulties (both of which are not uncommon in generic product development) which pushed back its likely entry date.  If that is the case, the agreement with Janssen-Cilag may have helped it to achieve an income stream in relation to the product during a period before it was in fact able to enter the market. The fact that the agreement only relates to one EU Member State suggests that Sandoz’s expertise at marketing this kind of product in that country may well have been a key motivating factor for the companies.  Since a proper application of EU competition law requires the authority to have regard to the true economic context of the agreement, these are matters which will doubtless be at the heart of the Commission’s investigation.

Following the Commission’s launch of this case, pharmaceutical companies will need to look carefully at the merits of entering into co-promotion agreements, in particular where the appointed promoter is itself in the process of developing a generic version of the same product.  Given the current attitude of the competition authorities, a similar approach would apply if an agreement of this kind were entered into following a settlement of patent litigation.  In such circumstances, the authorities would be likely to view the co-promotion arrangement as a form of “value transfer” (to use the Commission’s term) to the generic company.  Indeed, it is worth noting that in the FTC’s most recent report on patent settlements, the types of agreement which might be considered as a form of payment to the generic is expanding, with a commitment by the originator company not to launch an authorised generic also counting as a form of “reverse” payment.  Whilst the US regulatory context differs significantly from the EU’s, companies wishing to settle patent litigation relating to pharmaceutical products should continue to be careful about non-monetary “compensation” passing to the generic company.  Such deals are likely to remain of interest to the competition authorities for some time to come.

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