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European Commission and National Authorities Take a Stand Against Excessive Pricing by the Pharmaceutical Industry

The European Commission and national competition authorities (NCAs) are very actively fighting a number of anticompetitive practices in the pharmaceutical industry. Enforcing the prohibition against excessive pricing has become a particular area of focus for competition authorities in Europe.

The European approach to excessive pricing differs from that followed in the United States, where excessive pricing does not amount to a violation of antitrust laws.

In the European Union (and the United Kingdom, for now), dominant businesses are not allowed to directly nor indirectly impose unfair purchase or selling prices. The Court of Justice of the European Union (CJEU) has established a two-pronged test for use in investigating excessive pricing. It must be determined i) whether the difference between costs actually incurred and the price actually charged is excessive, and, if yes, ii) whether or not a price has been imposed that is either unfair in itself or when compared to competing products.

In practice, competition authorities have historically been wary of prosecuting excessive pricing, partly because they do not want to act like price regulators, and partly because it can be difficult for an authority to establish that a price is excessive. In the last couple of years, however, the Commission and several NCAs have overcome their reticence.

Click here to read the full article in our latest International News.




THE LATEST: Health Care Antitrust Enforcement Remains a Top Priority for New FTC Commissioners

On April 27, 2018, the United States Senate confirmed President Trump’s five nominees for Commissioners of the Federal Trade Commission (FTC). Three are Republicans: Chairman Joseph Simons, Noah Phillips and Christine Wilson, and two are Democrats: Rohit Chopra and Rebecca Slaughter. The Senate’s vote returns the FTC to a full complement of Commissioners for the first time under the Trump Administration. Of note to participants in the health care sector: the FTC shares civil antitrust law enforcement jurisdiction over the health care industry with the Department of Justice Antitrust Division, but takes the lead when it comes to the health care provider, pharmaceutical and medical device industries. (more…)




THE LATEST: Losing Bidder for Pharmaceutical Triggers FTC Investigation, Fix, and $100 Million Fine in Non-HSR-Reportable Transaction

A private lawsuit filed by Retrophin Inc. (Retrophin), under then-CEO Martin Shkreli, likely triggered an investigation by the FTC into a consummated transaction.  Both the private lawsuit and the FTC complaint resulted in settlement.  In addition, the FTC levied a $100 million penalty.

WHAT HAPPENED:
  • In 2013, Questcor Pharmaceuticals, Inc. (Questcor) acquired the U.S. rights to Synacthen Depot (Synacthen) from Novartis (Mallinckrodt later acquired Questcor).
  • Questcor’s $135 million deal with Novartis out-bid several companies seeking to acquire Synacthen, including biopharmaceutical company Retrophin, who bid $16 million for the Synacthen license.
  • In 2014, Retrophin (under then-CEO Martin Shkreli) filed suit against Questcor, alleging that the purpose of the transaction between Questcor and Novartis was to eliminate competition for Achthar, Novartis’ ACTH drug used to treat infantile spasms and nephrotic syndrome, by shutting down Synacthen.
  • Retrophin’s case was settled in 2015 with Mallinckrodt (who acquired Questcor in the interim) paying Retrophin $15.5 million.
  • There are reports that the FTC challenged the consummated transaction of Questcor/Novartis following Retophin’s lawsuit. The FTC’s challenge recently resulted in a $100 million monetary payment and licensing of Synacthen for treatment of infantile spasms and nephrotic syndrome to an FTC approved licensee.
WHAT THIS MEANS:
  • Even if a transaction is non-reportable under the Hart-Scott-Rodino (HSR) Act, the FTC or DOJ may open an investigation into the transaction. The Questcor/Novartis transaction was not reported under the then-existing HSR rules because Novartis, the licensor, retained some manufacturing rights to Synacthen.
  • The FTC and DOJ may learn about potentially anticompetitive transactions in numerous ways, including HSR filings, news reports, complaints from disgruntled customers or competitors, private litigation involving the transaction, and as shown here, from the losing bidder.
  • HSR clearance or a determination that a transaction is not HSR reportable does not mean that the transaction is free and clear of government antitrust investigations or private litigation.



Out-of-Market Divestiture Required to Resolve Competitive Concerns

On January 30, 2015, the Federal Trade Commission (FTC) announced a settlement of its investigation into Sun Pharmaceutical Industries Ltd.’s (Sun) acquisition of Ranbaxy Laboratories Ltd. (Ranbaxy) from Daiichi Sankyo Co., Ltd.  Sun and Ranbaxy are both multinational pharmaceutical companies that produce a range of generic and branded drugs.

In its complaint, the FTC alleges the relevant product market to be “the development, license, manufacture, marketing, distribution, and sale of generic minocycline hydrochloride 50 mg, 75 mg, and 100 mg tablets (‘minocycline tablets’).”  Ranbaxy is currently one of only three U.S. suppliers of the relevant doses of minocycline tablets, with Sun being one of a limited number of firms likely to enter the alleged market in the near future.  The complaint further alleges that the acquisition would eliminate a potential future competitor and therefore tend to substantially lessen competition by foregoing or delaying Sun’s entry into the relevant market and increase the likelihood that the combined entity would reduce price competition.

To resolve the competitive concern, the FTC is requiring divestiture not only of the minocycline tablets but also a product outside of the alleged relevant market—minocycline capsules.  In its aid to public comment, the FTC states that this out-of-market divestiture is necessary to ensure that the divestiture buyer “achieves regulatory approval to qualify a new [active pharmaceutical ingredient] supplier for its minocycline tablets as quickly as Ranbaxy would have.”

Once the FTC or U.S. Department of Justice  determines that a competitive problem exists, the agency will seek potential remedies, including divestiture.   A cornerstone principle the agencies apply in evaluating a proposed remedy is that the remedy must restore competition to the level that would have existed had the underlying merger or acquisition not proceeded.   This case illustrates an application of that principle, where the FTC required the divestiture of the out-of-market assets because, in its view, if those assets were not included the remedy would have left the relevant product market less competitive than it would have been if Sun and Ranbaxy remained independent competitors.

Although not a common outcome, firms considering a transaction involving products subject to regulatory approval should take note of the potential for out-of-market divestitures when assessing a potential deal.

The FTC’s complaint and related documents can be found here.




Getting the Deal Through: Pharmaceutical Antitrust 2014

McDermott has contributed to the Italian chapter of the 2014 edition of “Pharmaceutical Antitrust” published by Getting the Deal Through, a valuable work tool for legal practitioners dealing with antitrust rules in the pharmaceutical sector.  The chapter addresses the most significant regulatory and antitrust issues affecting the marketing, authorization and pricing of pharmaceutical products in Italy.

Click here to read the full chapter.




Federal Judge Puts Narcolepsy Drug Horizontal Conspiracy Claims to Bed

On Monday, June 23, 2014, a Federal Judge in the Eastern District of Pennsylvania granted summary judgment for five pharmaceutical companies on horizontal conspiracy claims brought by Apotex Inc. and direct purchaser and end payor plaintiffs regarding the popular narcolepsy drug Provigil.  Provigil’s key ingredient is modafinil, “a wakefulness-promoting agent” used to treat sleep disorders like narcolepsy.  Apotex and the Provigil buyers claimed that Cephalon, Inc. unlawfully restrained trade and maintained a monopoly on modafinil sales by facilitating a horizontal conspiracy through reverse payment settlements with generic-drug manufacturers.

Cephalon, which manufacturers Provigil, entered into reverse payment settlements (also known as “pay-for-delay”) between 2005-2008 to settle patent infringement litigation with Teva Pharmaceutical Industries Ltd., Ranbaxy Laboratories Ltd, Mylan Inc., and Barr Laboratories, Inc.  Although Judge Mitchell Goldberg previously held the plaintiffs’ claims were sufficient to withstand a motion to dismiss, on summary he judgment he found insufficient evidence of a conspiracy.

Judge Goldberg held that the plaintiffs lacked sufficient evidence to demonstrate the existence of the alleged hub-and-spoke conspiracy.  He reasoned that evidence of “conscious parallelism” among the defendants’ behavior was not enough to levy an antitrust claim when equally plausible independent explanations for their behavior exist.  For example, the generic-drug manufacturers were separately compensated and some would receive favored treatment regarding royalty rates.  The “pay-for-delay” settlement agreements also created contingent launch provisions, reassuring generic companies that they would not lose the opportunity to launch if another generic-drug manufacturer obtained an earlier date.  Had the agreements been contrary to the generic-drug manufacturers’ self-interest, the claims would have more closely resembled noteworthy hub-and-spoke conspiracy cases.

Judge Goldberg cautioned, however, that the court’s opinion does not address the legality of each individual “pay-for-delay” settlement agreements between Cephalon and the generic-drug manufacturers.  The Federal Trade Commission is separately challenging the settlements under antitrust law.




Pay-for-delay to Stay FTC’s Top Priority

In a recent interview, Federal Trade Commission (FTC) Bureau of Competition chairwoman Deborah Feinstein announced that targeting pay-for-delay arrangements by pharmaceutical companies would continue as a top priority for the FTC.  Pay-for-delay deals arise when pharmaceutical companies marketing branded drugs pay a pharmaceutical company to enter into a patent settlement with manufactures of generic drugs.  Under the patent settlements, the branded pharmaceutical company pays a large fee to the generic pharmaceutical manufacturer in order to delay entry of the generic drug into the market.  The FTC views such deals as anticompetitive and harmful to consumers because they stifle competition by preventing a lower-cost alternative from entering the market.

Feinstein stated that in addition to two ongoing litigation matters challenging pay-for-delay arrangements, the FTC continues to vigilantly monitor fillings submitted under the Medicare Prescription Drug, Improvement and Modernization Act.  Likely, the FTC will open additional investigations into pay-for-delay deals.  Feinstein also commented that the FTC will proactively advance federal antitrust law and its policy toward pay-for-delay through amicus brief filings in private litigation matters.

Earlier this year, the Supreme Court ruled in FTC v. Activis, Inc. that pay-for-delay deals are subject to antitrust scrutiny and should be assessed under the rule of reason to balance the procompetitive benefits against the anticompetitive effects.  Additionally, the antitrust Subcommittee of the Senate Judiciary Committee has held hearings focusing on the anticompetitive effects of pay-for-delay arrangements.  Several senators, including Senators Al Franken (D-Minn.) and David Vitter (R-La.) have proposed legislation promoting pharmaceutical competition by offering alternatives to non-settling generic drug companies for challenging a patent and entering the drug market.  Effectively, this would permit some drug companies to circumvent market restrictions created by pay-for-delay deals.




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