Not just another excessive pricing case: pharma stock management in the spotlight in the Commission’s Aspen Decision


Earlier this year we commented on the commitments given by Aspen Pharma to bring the Commission investigation into its high prices to a close. The Commission has since published its full commitments decision which supports the acceptance of Aspen’s commitments. Not only does the decision contain a helpful breakdown of how to apply the test of excessive pricing (originally set out in United Brands) in pharma cases, but it also assesses several other types of conduct that may give rise to competition concerns in the pharma sector.

More than just high prices

While the case involves a relatively rare foray by the Commission into the realm of excessive pricing, the conduct which (according to the preliminary findings in the commitments decision) led to the infringement involved much more ‘classic’ abuse of dominance conduct. Aspen employed a strategy to compel customers to accept its high prices, for example, by threatening to de-list products from reimbursement lists or to withdraw products from the market if price increases were not accepted by health authorities. These tactics were viewed as “direct measure[s] to overcome the resistance of national pricing and reimbursement authorities” to the proposed price increases, as well as being something that risked jeopardising patient safety, in that it threatened access to medicines.

Aspen was also found to have taken steps to defeat or mitigate the impact of policies such as external reference pricing (where reimbursement authorities base their prices on those of particular other authorities). By initially getting prices established in territories with free initial pricing, Aspen was able to ensure that the external reference points would be set at a higher level, contributing to higher prices overall.

Another strategy involved stock management. The Commission highlighted the fact that, following price increases in some member states, Aspen withdrew deliveries of products in other member states to ensure that customers in the member states where prices had increased would buy the products only at the increased domestic prices (and not from parallel traders).

Stock allocation systems are commonplace in the pharmaceutical industry, and have been widely used in particular since the Bayer (Adalat) judgment of the Court of Justice back in 2003. That judgment opened the way for stock allocation schemes to be structured in a way that did not usually engage Article 101 TFEU, because there was no relevant agreement (‘concurrence of wills’) between the manufacturer and its distributors.

The position under abuse of dominance rules was also clarified by the Court of Justice in Sot Lelos kai Sia (aka the ‘Glaxo Greece’ case). There, the Court held that the suppression of parallel trade may be found to amount to an abuse of a dominant position, for example, where an undertaking refuses to meet its “ordinary” orders with certain wholesalers in order to restrict parallel trade (as discussed by). The Commission’s preliminary analysis in the Aspen case builds on this, and suggests that the Commission will not look favourably on pharma companies that use stock management schemes as a way to suppress parallel imports and thereby reinforce excessively high prices in certain member states.

Other factors that the Commission took into account when conducting its preliminary assessment of whether the prices were unfair included:

  • the fact that the medicines had been off-patent for decades;
  • since acquiring the products Aspen had not made any significant innovations or improvements in relation to the products, so there was no significant investment to recoup;
  • there were no other legitimate reasons underlying Aspen’s high prices.

The Commission therefore took a broad approach to its analysis of whether Aspen’s prices were unfair, considering not just its high profit margin, but also the wider context behind Aspen’s pricing strategy. By highlighting the fact that other factors besides high prices contributed to the Commission’s concerns about Aspen’s conduct, the Commission has gone some way to avoiding acting simply as a ‘price regulator’ (as discussed in our earlier article).

Does cross-subsidisation justify high prices?

Another key takeaway from the Aspen decision is that the need to subsidise one product cannot justify pricing other products at a disproportionately high level. Aspen had argued that price increases were partly driven by the need to cross-subsidise certain markets where the products were loss-making. The Commission said that this did not justify the level of price increases, stating that “cross-subsidisation between markets cannot give a dominant undertaking carte blanche to disproportionately hike up prices, especially in a context, such as that at stake, where the Products were profitable at portfolio level already before the price increases”.

Pharma (and other) companies should therefore be wary of using cross-subsidisation as an excuse for price increases: although cross-subsidisation may be a legitimate reason for price increases, it should not go beyond what is necessary to secure the continued supply of an loss-making product.

No compensation for health authorities

One of the commitments offered by Aspen was a so-called ‘transitory rebate’, where for a transitional period before the imposed reduced prices took effect, Aspen would have to pay the difference between its actual sales and hypothetical sales had the same quantities been sold at the reduced prices. Although a number of interested third parties requested that the rebate also be applied retroactively, the Commission decided against this, because “the commitments…have the purpose of addressing the preliminary competition concerns…and not of compensating all those who may have suffered harm through the suspected infringement”. The supra-national nature of the European Commission makes provision for direct compensation to health authorities – such as has been seen in some recent settlements by pharma companies with the CMA – is not a realistic option.

In summary, although it does not come to a conclusion on whether Aspen’s conduct in relation to pricing amounted to an abuse of a dominant position, the commitments decision does provide some much-needed clarity on the Commission’s approach to excessive pricing cases. That said, the decision is not simply an analysis of whether Aspen’s prices were too high, and the Commission’s discussion of other strategic practices that were employed by Aspen to support its price increases is likely to be of particular interest to pharmaceutical companies and other industry players.