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Info Service on Health Issues (Oct21/07) Chennai, 6 Oct (Shiju Mazhuvanchery*) — A recent decision of the Authority for Consumers and Markets (ACM), the Dutch competition authority, may go a long way in addressing the abuse of market exclusivity of orphan drugs through excessive price. In July this year, ACM imposed a fine of 19,569,500 euros on Leadiant Biosciences, an Italian pharmaceutical company, for excessive pricing of its drug CDCA-Leadiant used in the treatment of cerebrotendinous xanthomatosis (CTX), a rare genetic metabolic disorder. It is a life-long lifesaving medicine that the CTX patients are required to take. The drug, originally marketed under the trade name Chenofalk, was acquired by Leadiant in 2008. The acquisition resulted in the prices increasing from 46 Euros in 2008 to 14,000 Euros in 2017 for 100 capsules. The timeline given below captures the price increase over a period. 2008: Sigma-Tau Pharmaceuticals?(now Leadiant Biosciences) acquires Chenofalk from Dr Falk Pharma. Price 46 Euros for 100 capsules. 2009: The brand name is changed to Xenbilox and the price is increased to 885 Euros for 100 capsules. 2014: Leadiant applies for orphan drug designation and again increases the price to 3103 Euros for 100 capsules. Orphan drug designation was granted, which also provides a 10-year market exclusivity in the EU. 2017: The drug is introduced into the Dutch market under the brand name CDCA-Leadiant and no longer sold under the brand name Xenbilox. The change is only in the brand name and there is no difference in the product safety and efficacy. The price is further increased from 3103 Euros to 14,000 Euros for 100 capsules. ACM’S DECISION Imposing “unfair prices” is considered as an abuse of dominant position under European competition law. Thus, as a first step ACM was to find out whether Leadiant is in a dominant position. It found Leadiant having 100% market share in the Dutch market for CDCA-based drugs for the treatment of CTX and concluded that it was in a dominant position. The ACM found the price to be excessively high and unfair, going by the two-part test laid down in the case of United Brands v. Commission (1978). This test first examines whether “the difference between the costs actually incurred and the price actually charged is excessive”. Then “if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products”. In order to find out whether there is an exorbitant price, ACM considered the investments made and the cost incurred by Leadiant to manufacture and distribute the drug. ACM found that the company had not introduced any innovation and the fact that the drug did not have any added therapeutic value compared with previous CDCA-based drugs led to the conclusion that the price charged was unfair. ACM stated that “the price is not only exorbitantly high, but also unfair”. SPECIAL RESPONSIBILITY TO NEGOTIATE One of the arguments put forward by Leadiant in its defence was that it had always been its intention to negotiate the price with the Ministry of Health and the insurers, and it was ready to agree on a much lower price. ACM rejected that argument and observed that there was nothing in the records to show that Leadiant was serious about negotiating the price and the fact that they continued to charge the exorbitant price did not show that they were willing to negotiate. ACM held that as an undertaking in a dominant position, Leadiant had a special responsibility to negotiate effectively and seriously and not to charge and collect excessive prices. The importance of this holding is that if there are allegations of excessive pricing of pharmaceutical products that did not have effective substitutes available in the market, there is a duty on the part of the company to initiate and engage in meaningful price negotiations with the government, insurers and in the context of many developing countries where the patients pay out of their pockets for medicines, NGOs and other groups working in the health sector. DETERMINATION OF EXCESSIVE PRICE Determination of what is fair price and what is excessive price especially with regard to pharmaceutical products is a tricky one. There is always a shroud of secrecy around the investments made in the production, cost of regulatory approval and what is a reasonable rate of return. ACM, in this decision, had considered the cost incurred by Leadiant for the production, distribution, and regulatory approvals and reached the conclusion that the price charged was exorbitantly high. ACM went even further to the extent of observing that Leadiant would already have achieved a significant profit if it had charged less than one third of the price it actually collected. It is also significant to note that ACM took 15% as a reasonable return for investors. Another important aspect is that ACM considered only the cost incurred with regard to the particular drug in question. This may be due to the fact that the drug was not originally developed by Leadiant and was acquired by the company after it was launched in the market. Even then it is significant as many a time excessive prices are justified on the claim that pharmaceutical companies have to factor in the cost involved in R&D of those products that did not result in commercialisation. Again, R&D costs are also shrouded in secrecy and often exaggerated by including other indirect costs. CONCLUSION The decision by ACM is the latest example of how competition law can discipline pharmaceutical companies that overcharge patients for lifesaving drugs. Aspen (2016) in Italy, Pfizer and Flynn Pharma in the UK (2017), and CD Pharma in Denmark (2018) are examples of national competition authorities intervening in excessive drug prices. However, the Leadiant decision is an important move towards disciplining abuse of market monopoly. As a designated orphan drug, CDCA-Leadiant had a market exclusivity for ten years when the investigation was launched. Irrespective of the market exclusivity, ACM examined the cost from orphan drug designation and the cost of production to make the finding on the exorbitant price. The observation that “it is not market exclusivity that is under discussion, but rather the way in which that was used” is significant in the context of abuse of market exclusivity to charge excessive price. This approach of ACM is relevant in addressing the excessive prices of lifesaving drugs under patent protection. Like a patent, market exclusivity purportedly rewards innovation and helps to recoup investment. If it is not the exclusivity that is under consideration before a competition authority but the abuse of it, many patent protected lifesaving drugs can come under the scanner of competition law. This approach is paving the way for the removal of the opaqueness around R&D expenditure for drug development, which is often used for charging exorbitant prices. It may be recalled here that so far no successful proceedings on excessive pricing have been taken against patented drugs. Though the decision of ACM is subject to appeal, this decision may show the way for future antitrust scrutiny of highly priced patent protected lifesaving drugs. [* Shiju Mazhuvanchery is a professor at Sai University, Chennai, India.] +
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