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RECENT KEY CASES IN THE
PHARMACEUTICAL SECTOR
IN ITALY
4TH JOINT MEETING OF THE WORKING GROUP ON RESEARCH
OF COMPETITION ISSUES IN THE PHARMACEUTICAL SECTOR
MOSСOW, 11-12 MARCH 2014
RENATO FERRANDI - AGCM
THIS PRESENTATION SOLELY REFLECTS THE VIEWS OF THE AUTHOR.
IT IS NOT MEANT TO REPRESENT THE OFFICIAL POSITION OF THE AUTHORITY
SUMMARY
 Peculiarities of the pharmaceutical sector
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Products, players and business models
Type of competition
Distribution, demand structure
Underlying objectives
 The Roche/Novartis case
 The Xalatan case
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The Authority’s decision
TAR Lazio’s judgement
Council of State’s ruling
PECULIARITIES OF THE PHARMACEUTICAL SECTOR
Pursues a fundamental interest: health
Huge economic relevance: each European patient spends
€ 430/year on prescription medicines
(source: EU Pharmaceutical Sector Inquiry, 2009)
Two types of products
 originator: a novel drug that was under patent protection
when launched onto the market
 generic: medicinal product sold after expiration of the
originator’s patent protection. Same qualitative and
quantitative composition; bioequivalence has been
demonstrated
PECULIARITIES OF THE PHARMACEUTICAL SECTOR
Two main types of players, two business models
 Originators: high R&D expenditures, high margins on patented
medicines, high dependency on blockbusters (annual revenues
over $ 1 billion)
 Generics: lower R&D expenditures, manufacturing of products
which are equivalent to those no longer under patent protection
Two types of competition
 dynamic non-price competition (market process mainly based on
product innovation - patent system as a pro-competitive tool)
 static price competition (when patent expires the main source of
competition is the entry of generics offering lower prices)
PECULIARITIES OF THE PHARMACEUTICAL SECTOR
Regulated distribution
 wholesalers need to be authorized
 pharmacies’ activity subject to opening hours, entry restrictions,
ownership, distance selling
 prices negotiated between National Health System and producers
 margins are established by law (production 66,65%, wholesale
6,65%, retail 26,7%)
 no incentive for pharmacies to sell low price products
Three-edged demand structure
 decisions made by doctors
 medicines paid by national health schemes
 patient swallows the pills
PECULIARITIES OF THE PHARMACEUTICAL SECTOR
Conflicting objectives
R&D
(Industry)
Healthcare
(Citizens)
 Foster R&D and innovation
(let Originators get
appropriate reward from their
inventions)
 Limit public expenditure
(allow for price competition
by Generics)
Public
Expenditure
(State)
I/760 THE ROCHE-NOVARTIS CASE
I/760 THE ROCHE-NOVARTIS CASE
The Italian Competition Authority (ICA) imposed a € 90,5 million
fine on Roche and a € 92 million fine on Novartis (February 2014)
Infringement of Art. 101 of the EU Treaty (agreement) in the Italian
market of pharmaceutical products for severe ophthalmic
diseases (Age-related Macular Degeneration, «AMD»)
AMD is the main cause of blindness in developed countries
1 million people under AMD risk in Italy
I/760 THE ROCHE-NOVARTIS CASE
Agreement to exclude, or at least downsize, the ophthalmic use of
the pharmaceutical product Avastin in Italy
Objective: shift purchases to another product, Lucentis
An injection of Lucentis: € 900
Off-label injection of Avastin € 81
Both medicines developed by Genentech (owned by Roche) but
marketed outside the U.S. respectively by Roche and Novartis
I/760 THE ROCHE-NOVARTIS CASE
Avastin (Roche) introduced in Italy in May 2007
Approved for colorectal, lung and kidney cancer…
… but it works for Age-related Macular Degeneration (off-label),
despite no registration for ophthalmic use
Price: € 81
I/760 THE ROCHE-NOVARTIS CASE
Lucentis introduced in Italy in December 2008
Specifically approved for AMD
(active substance similar to Avastin’s)
Price: € 900
Produced by Roche
Marketed by Novartis
(licence agreement)
I/760 THE ROCHE-NOVARTIS CASE
Independent comparative studies showed the equivalence of
Avastin and Lucentis
Since 2011, Roche and Novartis agreed to develop a strategy
aimed at differentiating the two products by stressing an alleged
major safety risk of Avastin when used within the eye
Novartis sold Lucentis
Roche collected royalties from Novartis
I/760 THE ROCHE-NOVARTIS CASE
Roche
 Request for modification of the Summary of Product
Characteristics of Avastin by the European Medicines Agency
(EMA) to warn against ophthalmic use of Avastin (“very unusual”
for off-label use)
 Warning letter to ophthalmological professionals against the use
of Avastin
Novartis
 Systematically informed about Roche’s activities vis-à-vis EMA
 Strategic plan to produce and disseminate evidences related to a
major risk of Avastin
Roche and Novartis
 Joint program for managing media and political-institutional issues
on the topic
Coordinated strategy that went far beyond a normal licensor/licensee
cooperation
I/760 THE ROCHE-NOVARTIS CASE
Quantification of the effects
 hindered access to treatment for many patients
 caused the National Health Service to sustain additional
expenses estimated at € 45 million in 2012
 increased future costs might possibly exceed € 600 million per
year
A/341 THE XALATAN CASE
ICA imposed a € 11 million fine on Pfizer for abuse
of dominant position for production and provision of
anti-glaucoma eye drops in Italy (January 2012)
Decision reversed by the Regional Administrative
Court (TAR) in September 2012
Council of State confirms ICA’s decision in February
2014
A/341 THE XALATAN CASE
Pfizer’s dominant position
 Xalatan, first prostaglandin-analogue anti-glaucoma in the
market (1997)
 Patent for active principle latanoprost
 Ten year track record of effectiveness and safety
 Still 60% share despite the entry of two competitor drugs
(based on different active principles)
A/341 THE XALATAN CASE
Latanoprost protected by a patent by the European Patent
Office (EPO) until September 2009
Pfizer obtained a supplementary protection certificate,
exclusive right extended until 2011 in many European countries
but not in Italy
In April 2009, Pfizer submitted an application for a divisional
patent only in Italy
• Divisional applications are used in cases where the parent
application includes more than one invention. The applicant splits
the parent into more divisional applications each claiming only a
single invention
A/341 THE XALATAN CASE
Pfizer cautioned generic drug producers against marketing
generics
but
No launch of a new medicine by Pfizer follows the divisional
patent
Generic drug producers appealed the divisional patent
EPO repealed the divisional patent
Pfizer pled against EPO’s decision and obtains suspension
therefore
Legal uncertainty created by Pfizer delayed entry of generics by 8
months
A/341 THE XALATAN CASE
Commitments proposed by Pfizer
 Grant free licences to generic producers
ICA’s reply
 Free selling your own product is different from selling under a
licence agreement
 Effects had already taken place
 Rejection of commitments and € 11 million fine
A/341 THE XALATAN CASE
TAR Lazio’s judgement
 Commitments suitable to allow for immediate entry of generics,
rejection by ICA was unjustified
 The divisional patent was granted by EPO and hence lawfully
obtained by Pfizer
 Pfizer simply protected its legitimate rights and interests
 ICA’s decision annulled
A/341 THE XALATAN CASE
Council of State’s ruling
 The key issue is to what extent a dominant firm may protect its
legitimate rights and interests
 Whether the divisional patent has been lawfully obtained or not
is not relevant as regards competition assessment
 The notion of abuse of dominant position implies the existence
of a lawful right, which is strategically “abused” to exclude
competitors
 Abuse is an unjustified disproportion between the benefit for
the right holder and the detriment for the counterparty
A/341 THE XALATAN CASE
 Pfizer’s conduct caused a delay of generics’ entry without
leading to an additional use of the active substance
 The real objective exceeded the protection of legitimate rights
and was to delay the sale of generics
 In addition, the commitments were utterly unsuitable to
eradicate the anti-competitive effects already produced by the
conduct
 Instead of removing the abuse of dominant position, it
reinforces the effects by implying Pfizer’s capacity to grant
licences on the active substances
CONCLUSIONS
 Complex antitrust enforcement
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Intellectual property rights issues
Price and non-price competition
Trade-off between innovation and savings
 An agreement to shift purchases to a more expensive product
 An abuse of dominant position to delay the sale of generics