Following an extensive competition law investigation by the EU Commission, leading pharmaceutical manufacturer, Aspen, offered legally binding Commitments to reduce its prices in Europe for six critical cancer medicines by 73% on average and to backdate those price reductions to 2019.
In addition, under the terms of the Commitments, Aspen must ensure the continued supply of these off-patent medicines for a significant period. The original Commitments were offered last year by Aspen. They have now been market tested and amendments made in light of stakeholder comments. On 10th February 2021 the EU Commission announced it had now accepted and made the amended Commitments legally binding.
Background
Aspen is a global pharmaceutical company headquartered in South Africa, with several subsidiaries in Europe.
On 15 May 2017, the Commission initiated proceedings into concerns that Aspen had abused its dominant position contrary to Article 102 TFEU. The Commission’s investigation centred on Aspen’s pricing practices regarding six critical off-patent cancer medicines mainly used in the treatment of leukaemia and other haematological cancers. After acquiring these cancer medicines following their acquisition from another company, Aspen started in 2012 to progressively increase its prices, often by several hundred percent, in all countries in Europe where it sold the medicines.
This had a pronounced effect of national health authorities in the EU which individually negotiate pricing or medicines with pharmaceutical companies and decide on treatments they wish to reimburse under their social security systems. However, in cases of critical medicines where there are no or few therapeutic alternatives, the negotiating power of authorities is minimal. In this instance this proved to be the case and allowed Aspen to successfully maintain large increases in price.
During its investigation, the Commission found that:
- Aspen’s accounting data showed that, after the price increases, they had consistently earned very high profits from its sale of these medicines in Europe;
- the profit levels they had were very high when compared to the profit levels of similar companies in the industry.
- Aspen’s prices exceeded its relevant costs by almost three hundred percent on average, including when accounting for a reasonable rate of return. However, these prices did vary between products and countries.
The Commission concluded that Aspen did not appear to have any objective justification for their very high profit levels. The medicines in question had been off-patent for 50 years and any R&D investment on the medicines had long since been recouped. The lack of available alternatives to these particular cancer medicines meant that Aspen was able to sustain those price increases. The Commission states that when national authorities tried to resist Aspen’s requests for price increases, Aspen went as far as threatening to withdraw the medicines from the national list of reimbursable medicines and in some cases was ready to even withdraw from normal supply in the market.
Therefore, the Commission concluded that there were serious concerns that Aspen’s behaviour could breach Article 102TFEU on the grounds that, absent objective justification, the imposition of excessive prices on customers was prohibited.
The Commitments
In response to the Commission’s conclusions Aspen offered to address the Commission’s concerns by proposing a set of Commitments on 15th July 2020. Following receipt of Aspen’s proposals the Commission market tested whether the proposed Commitments would remove the competition concerns identified by the Commission. In light of the outcome of the market test and the views of stakeholders, Aspen made certain adjustments to its proposed Commitments.
The Commission concluded that as a result of the amendments made to the original Commitments, the proposed undertakings offered a fast, comprehensive and lasting solution to the competition concerns it had identified. The Commission therefore entered into an agreement with Aspen under Article 9(1) of the Council Regulation 1/2003 to make those undertakings legally binding.
The Commitments entered int provided as follows:
- Price Reductions: Aspen will reduce its prices across Europe for the six cancer medicines by, on average, approximately 73%, which is on average below the prices of 2012, before Aspen’s price increases started;
- No Price Increases: The reduced price will be the maximum that Aspen can charge for the coming 10 years and the price reductions will be backdated to 1 October 2019; and
- Guarantee of Supply: Aspen guarantees the supply of the medicines for the next five years, and, for an additional five-year period, will either continue to supply or make its marketing authorisation available to other suppliers.
The Commitments will remain in force for ten years and a Monitoring Trustee will be appointed by the Commission to monitor the implementation and ensure compliance with the Commitments. If Aspen were to breach the commitments, the Commission could impose a fine of up to 10% of Aspen’s total annual turnover, without having to find an infringement of EU competition rules.
Conclusion
This was an important case for the EU Commission as the continuing supply of these crucial medicines at a reasonable price for the treatment of certain serious forms of blood cancer, including myeloma and leukaemia depended upon its successful resolution.
Some patients, including young children depended on these medicines and there were few, if any, alternatives. The effect of not agreeing a speedy resolution to this case would have cost European health systems many dozens of million Euros and endangered the supply of these crucial medicines. Therefore, one can understand the Commission’s willingness to accept Commitments from Aspen.
However, the giving of Commitments is without prejudice to the legal rights of Aspen and does not constitute an admission that they have infringed the competition rules. So despite the strong evidence collected ,the Commission has opted for an early resolution of the case to maintain continuity of supply. There will be no ongoing proceedings and no fines or other sanctions imposed although the commitments can be legally enforced and fines can be imposed in default.
When announcing its decision, the EU Commission commented that “Today’s decision gives a strong signal to other dominant pharmaceutical companies not to engage in abusive pricing practices to exploit our health systems.”
The Commission’s acceptance of Commitments without any legal determination that competition law has been infringed and no fines imposed does send out a rather confusing signal.
It is far from the aggressive enforcement strategy against alleged excessive pricing by pharmaceutical companies the Commission wishes to paint. This case is bound to reignite the debate about when it is appropriate for the Commission to accept Commitments instead of proceeding to a fining decision. This in addition would allow customers to take legal action for damages to recover any loss as a result of anti-competitive behaviour.
