COVID-19 and its impact on Competition Law for the UK pharma sector

14.04.2020

With COVID-19 now a global problem, the life sciences industry is facing immense pressure and unprecedented challenges to treat patients and prevent further spread of the virus.  By the end of March, around 20 pharmaceutical companies were developing medicines for treatment of the virus, while others work to develop a vaccine.  More day-to-day initiatives include national wholesalers joining forces to ensure that patients have the supplies they need as rapidly as possible.

Collaboration clearly has the potential to fast-track such developments and ensure adequate supplies, but companies must also continue to abide by competition law which restricts anti-competitive collaboration between competitors.  However, in recognition of the need to balance effectively tackling COVID-19, and upholding the law, competition regulators around the world are indicating that there will be a certain level of flexibility, particularly in industries that are considered to be providing essential services.  We focus here on the lessening of restrictions for the UK pharmaceutical sector.

Permitted collaboration

Pharmaceutical companies around the world are joining the effort to prevent the spread of the virus, diagnose, and provide treatment.  Some have taken individual action (such as not enforcing patent rights), whilst others are pooling resources and working together.

The European Commission (in tandem with the European Competition Network (ECN) and the CMA) are aware that in the current crisis, some cooperation between companies may be necessary to ensure that essential goods and services can still be provided, particularly in the healthcare industry.  Some agreements may benefit from R&D Block Exemption safe harbour, but the CMA has also explicitly stated that “provided that any such coordination is undertaken solely to address concerns arising from the current crisis and does not go further or last longer than what is necessary” it will not take enforcement action.  It follows that the CMA will not take enforcement action against temporary measures which:

  • are appropriate and necessary in order to avoid a shortage, or ensure security, of supply;
  • are clearly in the public interest;
  • contribute to the benefit or wellbeing of consumers;
  • deal with critical issues that arise as a result of the COVID-19 pandemic; and
  • last no longer than is necessary to deal with these critical issues.

It is therefore vital to ensure that any collaboration goes no further than what is required to overcome the current crisis, and is temporary in nature.  For example, discussions between companies to coordinate the supply and fair distribution of essential goods and services is likely to be permitted, where intended to ease shortages and/or avoid excess production (for example if all pharmaceutical companies were to channel their efforts into manufacturing paracetamol, at the expense of other necessary drugs).

Similarly, some measure of information sharing and data pooling between pharmaceutical companies could also facilitate accelerated efforts to develop treatments and therapies for COVID-19.  This would not be an entirely novel development, or one that would necessarily be precluded outside of the emergency frameworks currently in force.  For example, in June 2019 a consortium of seventeen, including ten major pharmaceutical companies, announced their intention to pool data to feed into an AI-based search for new antibiotics.  The use of blockchain technology can facilitate the safe sharing of relevant data whilst protecting sensitive commercial information from competitors.

In a further attempt to support the healthcare needs of the UK during this crisis, the UK government passed an Order on 27 March to exempt from Chapter I of the Competition Act agreements which have as their purpose assisting the NHS in addressing the effects or likely effects of coronavirus on the provision of health services to patients in England.

Co-ordination in manufacture and distribution

The CMA has set out additional guidance to assist businesses in their self-assessment of whether they can rely on the exemption from the rule prohibiting anti-competitive agreements under s.9 of the Act during this crisis.  Applying that guidance, the types of permitted coordination are:

  • to avoid a shortage or ensure security of supply;
  • to ensure a fair distribution of scarce products;
  • to continue essential services; or
  • to provide new services such as food delivery to vulnerable customers, provided that the actions do not go further than can reasonably be considered necessary.

The CMA’s exemptions are particularly relevant to those companies trying to maintain the flow of critical medicines to patients that are not being treated for COVID-19, with a number of drugs affected by supply chain disruptions – raw materials often flow from China to manufacturing facilities in India for import to the UK and other countries.  They may also be relevant when it comes to the scaling up of any approved vaccine – any single facility would struggle to produce the large quantities that are needed.  The manufacture and distribution of a vaccine will likely require a huge cross-industry partnership, whilst continuing the supply of other essential medicines.

The European Commission has also published a temporary framework designed to provide guidance to companies co-operating in response to the current coronavirus outbreak.  It recognises the unprecedented nature of the crisis, and the importance of certain forms of cooperation to accommodate in particular the huge surge in demand for medicines and medical equipment.  The Commission’s framework expressly recognises that there may need to be coordination and reorganisation of production “with a view to increasing and optimising output so that not all firms focus on one or a few medicines, and other medicines remain in underproduction, where such re-organisation would allow producers to satisfy demand for urgently needed medicines across Member States”.  The framework points to the acceptability of using a trade association or other independent body for the purpose of identifying risks of shortages, aggregating production and capacity information, and predicting demand. It is important to note that antitrust safeguards remain in place, which require the measures taken to be necessary to increase output in the most efficient way, to be temporary in nature, and not to exceed what is strictly necessary to address or avoid shortage of supply of supply of essential products or services.

Conclusion

Given the unprecedented situation we currently face, the competition authorities understand that it is inevitable that companies will need to collaborate to combat the crisis in a timely and resource-efficient manner.  However, the CMA has made it clear that companies do not have a “free pass”, and are not permitted to opportunistically exploit the current crisis and use it as a veil for anti-competitive conduct.  Information sharing on future pricing or business strategy, or price fixing would not fall within the COVID-19 exceptions and the CMA could take investigative action; companies should bear in mind the CMA’s open letter to the pharmaceutical and food and drink industries, and the establishment of a COVID-19 taskforce to scrutinise markets and take action on harmful sales and pricing practices.  In line with the UK position, other national competition authorities have been quick to open investigations, such as those into inflated prices of hand sanitiser in Italy and of face masks in Poland. The CMA has itself actively encouraged manufacturers of these products to impose a maximum price at which retailers can sell their products.

Sophie Lawrance

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Aimee Brookes

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Milly Wickson

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