Encouraging the development of innovative medicines and at the same time maintaining the steady flow of existing ones so that patients can access treatment at the point of need is an ongoing challenge for the pharmaceutical industry: in this context the ability to extract profits from the sale of these drugs with a view to re-investing them in the development of new products often means that producers, especially those holding patents on “blockbuster” medication, are especially wary of potential competitors. Especially when the life of their patents is coming to an end, outside pressure originating from the perspective of generic entering a hitherto lucrative market on which up to that time the patent holder had enjoyed a degree of market power may provide the incentive to engage in practices designed to delay entry of rival drugs. It is in this light that arrangements such as ‘pay for delay’ agreements (whether “naked” ones or those entered as a means of settling an existing patent dispute) should be looked at. Originally negotiated in order to settle “genuine” IP litigation, these practices have however increasingly come under fire: it was in fact argued that especially when they are stipulated by a powerful patent holder they may result in making entry into a specific market segment far more difficult for rivals, whether actual or potential. These practices have been found to be not just relatively frequent but also extremely problematic for a number of reasons: from a competition law and policy standpoint, pay-for-delay deals have been regarded as creating a de facto barrier to the entry into often lucrative markets for new competitors. On this point, the EU Commission found in its final report to the Pharmaceutical sector inquiry that if similar arrangements resulted in rivals of the patent holder being de facto either unable or impaired in its ability to supply a competing drug–e.g. because the deal involved a non-compete or a no-challenge clause–they would have been likely to be caught by Article 101(1) TFEU; similar conclusions were reached also in respect of agreements aimed at limiting the rival’s freedom to choose its own distribution mechanisms or marketing strategy or to source supplies necessary for the production of their drugs from suppliers other than the original patent holder. At the core of the Commission’s concern, therefore, was the need to ensure that pharmaceutical markets, which are by their own nature investment-intensive and strongly reliant on innovation, remain contestable–in other words, avoiding bottlenecks and preserving lively rivalry are regarded as fundamental to ensure not only that prices are kept as low as possible (something which is extremely important in view of the limited monetary resources that domestic health services have at their disposal in order to fund health care for individuals affiliated to them); it also contributes to avoiding that the market power that holding a patent inevitably confers on its holder does not result in innovation and development of new drugs be slowed down. In this specific context, it is undeniable that a delicate balance needs to be struck between the need to allow “first movers” to exploit economically their discovery, so that future generations of drugs may eventually emerge via fresh investment, and the demands of open markets, so that new contestants in this “race” not just “in” but “for the market” can be allowed to emerge and thrive. “Efficient markets” however cannot exist and should not be pursued as a goal in a policy vacuum: paramount to these considerations concerning market access are the already anticipated more general concerns for the financial stability of national health services for which the “drugs bill” is among the most considerable. From the standpoint of health authorities the possibility to source cheaper alternatives to “branded” drugs, such as generics, is extremely appealing since it allows taxpayer money to “go the extra mile” and thereby reach out to a wider array of patients to whom care can be delivered in the same way and to the same standards but at a cheaper price: as was explained by the EU Commission in 2009, generics tend to be on average 40% less expensive than the patented alternative after 2 years of patent’s expiration.
IN light of the forgoing analysis, it is therefore not surprising at all that the EU Commission together with its national partners has been very wary of these practices. As was anticipated, the 2009 report concluding the Commission’s Inquiry in the Pharmaceutical sector (see: http://ec.europa.eu.ezproxy.is.ed.ac.uk/competition/sectors/pharmaceuticals/inquiry/index.html had found that ” (…) originator companies use a variety of instruments to extend the commercial life of their products without generic entry for as long as possible. (…)” (see EU Commission, press release IP/09/1098, available at: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-09-1098_en.htm?locale=en). As a result of such delay, not only had drugs’ prices been held higher than it could have been had rivalry from unbranded products been allowed to exist, with considerable drawbacks for availability of care and, more generally, for the financial viability of national health services throughout the EU; it was also found that there had been a decline in the production and licensing of new drugs, something which was likely to have been linked to sluggishness in the entry of new, “maverick” producers.
It was therefore unsurprising that, since the 2009 report, the EU Commission has not hesitated to take to task 3 major pharmaceuticals, all of which held patents on very popular drugs for the treatment of widespread diseases (for a summary of these cases see e.g. Fraile et al., “”Drug test: when are pay-for-delay agreements illegal?”, (2014) GCLR 214). In 2013 Lundbeck was fined close to 94 million Euros–and its co-cartelists were hit by sanctions totalling more than Eur 52 million–for having entered into a number of ‘pay-for-delay’ agreements designed to induce generics producers to postpone the sale of the generic anti-depressant drug citalopram, arguably one of the most prescribed such drugs across Europe (see: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-13-563_en.htm). In the same year Johnson & Johnson and Novartis, together with Novartis’ subsidiary Sandoz, were fined Eur 16 million for a number of practices designed to de facto “extend” the patent life of a very popular painkiller (Fentanyl) and which also included the delay in the promotion and supply of the generic drug (see: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-13-1233_en.htm). More recently, the French producer Servier and five generics’ manufacturers were fined close to Eur 428 million for having agreed to share markets and, in those markets where Servier had retained the exclusive right to sell the drug, to delay the release of generic drugs that would have competed with the patented version of a widely prescribed blood pressure medicine for almost four years (see: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-14-799_en.htm).
Against this background, it is suggested that today’s CMA decision concerning pay-for-delay agreements concluded between GlaxoSmithKline (GSK) and a number of smaller generics manufacturers and entailing the transfer of money and “other value transfers” with a view to delaying the release of the generic version of paroxetine–a very commonly prescribed anti-depressant hitherto patented by GSK under the name of Seroxat–remains fully consistent with this general commitment to ensure contestability and genuine and effective rivalry in the pharmaceutical industry (see: https://www.gov.uk/government/news/cma-fines-pharma-companies-45-million). As was affirmed by the EU Commission in its 2009 Report, it would ultimately be the consumer who would bear the brunt of these “defensive strategies” put in place by the original patent holder, in the form of either more costly or less widely available medicines. In addition, it is suggested that relegating generics producers at the margin of otherwise profitable segments of the pharmaceutical market may preclude their engagement with an innovation cycle that must instead be supported. Seen in this light, the concurrent concerns for the affordability of treatment and the maintenance of ongoing incentives to enter, invest and develop this industry emerge as decisive drivers for the CMA decision. As was stated by one of the agency’s executive directors, preventing restrictive practices that are aimed at slowing down entry is essential to “(…) protect consumers, to encourage legitimate business activity that such practices stifle, and to stimulate innovation and growth. (…)” In this context, protecting the financial stability of the NHS–namely the biggest buyer of medicines in the UK–and consequently the interests of taxpayer represents a key concern that, in the CMA’s view, should justify proactive competition intervention against these agreements.
In light of the forgoing, the decision on the pay-for-delay practices affecting the release of generic paroxetine is not at all surprising but reflects widely held and well-justified concerns for preserving accessibility and rivalry in pharmaceutical markets, so that medical treatment can be as widely available as possible for patients and, at the same time, innovation and efficiency in supply can be allowed to thrive without being unduly affected by the presence of powerful suppliers that may seek to extend prima facie exclusive rights such as those arising from existing patents. At the same time, however, it is submitted that a degree of caution is warranted when it comes to the assessment of these practices, for which a case-by-case analysis is required: as was suggested by the EU Commission, “pay-for-delay” agreements, especially when they are stipulated by parties to an existing dispute–whether patent-related or of other nature–remain an acceptable and prima facie legitimate way of bringing that conflict to an end. It is their “content and purpose”, seen against its “legal and economic context”, and in particular the extent to which they can contribute to the foreclosure of a market where competition is already limited by the existence of a “powerful supplier”–on account of its status as patent holder–that is decisive for the outcome of their competition assessment: if as a result of the delay in the release of a generic rival drug the interests of consumers have been harmed, e.g. because they were denied access to the same drug but at a significantly lower price, or if the agreement significantly restricted the freedom of generics’ suppliers to determine how to market their products it will be very difficult for the patent holder to argue that the agreement in question served the (legitimate) objective of settling an existing dispute or protecting the value of its invention.
In conclusion, the CMA decision concerning paroxetine and adopted today must certainly be applauded as a clear expression of the UK competition authority’s commitment to preventing the foreclosure of innovative and prima facie rather rivalrous markets through practices that despite being prima facie justified in the name of the integrity of intellectual and industrial property, de facto prove detrimental to innovation as well as to more general interests of a public policy nature. It is also clear that this decision touches once again upon more general issues as to how the balance between genuine competition in “investment-hungry” markets” and the need to reward innovation so that future investment is possible going forward. Whatever the answer to these questions, however, it is indispensable to bear in mind the public policy background in which these decisions are adopted: concerns for the stability, especially financial, of the national frameworks for the provision of health services free at the point of need via limited monetary resources provided by taxpayers appear to provide a powerful justification for adopting a proactive stance when it comes to policing these types of practices, especially when the latter seem to “stretch” the demands of IP protection “a bit too far” having regard to the essence of these rights and the public interest function that each legal system assigns to them.