Global convergence on pharma deals close to patent expiry

20.02.2014

I have noticed a couple of recent developments which seem indicative of increasing global convergence on conduct which might have the effect of delaying generic entry after patent expiry.
One area is agreements between pharmaceutical companies and pharmacies. The last couple of months have seen Pfizer being investigated in Australia, and, as reported here the recent fine levied by the French Competition Authority (FCA) against Schering-Plough also related in part to this issue.
It was established in Reckitt Benckiser (an OFT infringement decision back in 2011) that the role of drug selection and dispensing in the pharmaceutical supply chain can give rise to potentially anti-competitive market distortions. The key in both of these new cases (with the caveat that there are only a limited number of news reports in the public domain about the Pfizer investigation, which is at an early stage) appears to be the concern that pharma companies are “buying” prolonged exclusivity by entering into deals before patent expiry which leave pharmacies with a large surplus of stock, effectively eliminating demand for the newly entering generics and, in many countries, delaying price decreases. The mechanisms used may be varied – Pfizer is alleged to have offered discounts conditional on pharmacies committing to minimum volumes of around 12 months’ worth of supplies of its Lipitor drug, while Schering-Plough offered discounts targeted at pharmacies which were the largest buyers of its Subutex product, as well as payment facilities (e.g. longer-term credit) and reductions for cash payment which were not usually offered to pharmacies. The FCA concluded that the purpose of such schemes was exclusionary – designed to saturate pharmacies before the first generic entered the market and thus to delay full generic entry. As with so many cases in this sector, it was the evidence of exclusionary intent which was crucial in finding that Schering-Plough had infringed the competition rules. Without this evidence, the FCA may have found it more difficult to condemn a practice consisting primarily in straight-line volume rebates with no prolonged lock-in. Equally, the competition authorities are clearly concerned about the impact on public health budgets of even short-term delays to generic entry, so it is unsurprising that they seek to look at fidelity-building effects over a shorter time period than in other sectors.
So far, the competition authorities have not turned their attention to other pricing practices which may be used around generic entry such as equalisation deals – indeed, unless there is actual lock-in, there is no reason why they should do, although the trend is now to challenge reduced generic uptake as well as actual delayed entry.
Another theme which goes beyond the originator-generic dynamic of patent settlement agreements is the scrutiny of possible agreements between originators or between generics.
Again, the FCA is part of this dynamic, with its report on the distribution of medicines (here – in French only) listing a number of different types of potentially anti-competitive practice, notably around pricing where the French method of pricing across groups of drugs within the same therapeutic class appears to create the conditions for possible collusion.
The US (District of New York) has recently sanctioned a generic-generic agreement between Teva and Ranbaxy. This was again sparked off by the particular legislative background, in this case the Hatch-Waxman exclusivity regime for first generic filers. It has been reported (e.g. here) that the two companies agreed not to challenge the first filer status (i.e. giving market exclusivity) of the other in relation to a number of drugs, in return for agreement about which of them would launch a generic of Pfizer’s Lipitor.
While the particular regulatory context in the relevant jurisdiction clearly has an impact on the competitive impact of agreements of this kind, the ‘take home message’ is that any agreement or practice which may delay effective generic entry could be challenged, even if it is not a classic ‘pay-for-delay’.

Sophie Lawrance

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