22 July 2021
When looking at recent EU cases on excessive pricing, the one common denominator – besides exorbitantly high prices – is pharmaceutical companies. For a long time, excessive pricing has not been on the agenda of national competition authorities. Over the last few years, however, it has developed into a key area of competition law within the pharmaceutical sector. The latest decision by Dutch authority the ACM, which imposes a €19.5 million fine on Italian pharmaceutical company Leadiant Biosciences (Leadiant), continues this trend.
In 2008, Leadiant took over a CDCA-based drug from another pharmaceutical company; the drug was used for the treatment of a rare genetic disease called cerebrotendinous xanthomatosis (CTX). At this stage, the drug was sold for €46 per pack of one hundred capsules in the Netherlands.
One year later, Leadiant changed the name of the drug to Xenbilox and increased the price by 1800%, to €885 per one hundred capsules. The price increased again in 2014, following an application for the assignment of orphan drug status for Xenbilox, to €3,103 – another 250% increase. Leadiant then received marketing authorisation in April 2017, acquiring the sole right to market a CDCA-based agent for the treatment of CTX for 10 years.
Finally, in 2017, Leadiant introduced the drug under the name CDCA-Leadiant on the Dutch market together with a final price increase, from €3,103 to €14,000, making the drug almost five times more expensive. For the 60 patients (approximately) in the Netherlands who suffer from CTX this meant a yearly bill of approximately €153,000 each, compared to approximately €500 in 2008.
In September 2018, the Holding Pharma Accountable foundation lodged a complaint against Leadiant for allegedly overpricing an orphan drug, launching the investigation that ultimately led to Leadiant's €19.5 million fine.
Over the course of the two and half year violation period (2017-2019), Leadiant had a market share of 100% for the distribution of CDCA drugs in the Netherlands. During that time, no other drugs (such as Kolbam) could have served as a comparable substitute for treating CTX. By filing a complaint, Leadiant forced the only alternative source of CDCA, the Amsterdam University Medical Center (UMC), to stop its compounded preparation of the drug, because the raw material contained impurities. Amsterdam UMC was only able to resume manufacturing CDCA in January 2020 Amsterdam.
The ACM concluded that Leadiant had abused this dominant position. Leadiant insisted that it indented to agree on a much lower price than that of €14.000, but blamed the health insurers and the Ministry of Health, Welfare and Sport (VWS) for impeding the negotiations. However, the ACM’s investigation showed that Leadiant did not sufficiently show such intention and barely made any attempt to initiate negotiations with the health insurers and the VWS. Leadiant, as a dominant market player, did not fulfil its special responsibility to effectively and seriously negotiate to agree on a non-excessive price.
Excessive pricing cases are unavoidably fact-specific, often subject to detailed scrutiny by courts and rarely set out clear guidance on how to set accurate prices. For these reasons, It is widely thought that excessive pricing cases should only be brought in extraordinary circumstances.
However, there are indications that the conditions that led to the pricing practices sanctioned in pharmaceutical markets over recent years may follow a systemic pattern. Over the past two years, various national competition authorities in the EU – notably the Italian AGCM and the Competition and Markets Authority in the UK – have taken up excessive pricing cases targeting the pharmaceuticals sector and following the approach outlined below. That said, the outcome of these cases (especially the CMA’s decision in the Pfizer/Flynn case) sometimes illustrate how difficult it can be for the national competition authorities to sufficiently prove the abusive pricing conduct.
For the purposes of competition law, a price is considered to be excessive – and as such, an abuse of a dominant position – if that price is exorbitantly high and unfair. This is also the case if that price is charged for an orphan drug in a situation of market exclusivity, such as in the case of Leadiant. It was not Leadiant’s exclusive market position that raised anti-competitive concerns, but rather the way that Leadiant used this exclusivity.
In general, there are situations in which a higher drug price can be justified. For example, if the manufacturer must recoup high costs or if the product offers many benefits or is innovative. Leadiant argued that the price increase for CDCA-Leadiant was justifiable due its application to obtain orphan drug designation and market authorisation; the ACM, however, did not agree.
To be able to determine whether a price can be considered exorbitantly high, various aspects can come into play. In the case of Leadiant, the ACM assessed what costs and revenues could actually be attributed to its project to obtain orphan drug designation and marketing authorisation. In doing so, the ACM considered the investments Leadiant had made since the start of the project in 2014, as well all costs that Leadiant incurred manufacturing and distributing the drug. The ACM also factored in the risk of failure linked to the project. As a point of reference for the revenues, the ACM has used the revenues of Xenbilox’s price increase in 2014, plus revenues from sales of CDCA-Leadiant from the moment Leadiant brought this drug to market.
Based on its extensive investigation, the ACM concluded that the price Leadiant charged was exorbitantly high, and Leadiant would already have achieved a significant profit if it had charged less than one third of the price it actually collected.
To fall under the scope of article 102 TFEU, a price not only has to be exorbitantly high but also unfair. Leadiant only receiving the orphan drug designation because of the very limited number of CTX patients, and CDCA-Leadiant not containing any added therapeutic value compared to previous CDCA-based drugs indicated that the charged price was unfair. On top of that, CDCA-based drugs have been safely and effectively prescribed to CTX patients already for a long time. In that sense, CDCA-Leadiant did not offer any benefits that can generally be found in other registered drugs. This, coupled with a comparison between CDCA-Leadiant and the prices of other CDCA-based drugs (which are molecularly identical) led the ACM to conclude that Leadiant’s prices were unfair.
According to Martijn Snoep, Chairman for the ACM, this was a serious violation because Leadiant, after a small, low-risk investment, implemented a huge price increase for a drug that had already existed for year and did not contain any innovation. The price increase offers Leadiant a very high return, but it offers patients very few additional benefits. Ultimately, Mr. Snoep argued that the excessive price that Leadiant collected is paid for by Dutch society as a whole – not just by health insurers but also by all insured people, as both premium-payers and taxpayers.
Fines imposed by the ACM for the abuse of a dominant market position are rare and the ACM’s effectiveness as a deterrent competition law enforcer has been questioned when it comes to the enforcing article 24 of the Dutch Competition Act, which prohibits abuses of a dominant market position. With this recent fining decision against Leadiant, the ACM is illustrating that it is determined to change its enforcement reputation as far as abuses of dominant market positions are concerned.
It is also a new and important precedent, because it is the first time that the ACM has fined a pharmaceutical company for excessive pricing. Whether this fine can actually withstand the judicial review inevitably coming its way remains to be seen. In the meantime, though, all eyes will be on Italy, Spain, and France, where Leadiant is facing similar charges regarding the price of its CDCA drug.
To discuss the issues raised in this article in more detail, please reach out to a member of our Life Sciences & Healthcare team.