The legal battle surrounding the pharmaceutical company Leadiant has captivated attention not only for its implications on drug pricing but also for its competition law aspects. At the heart of this controversy lies a question: Did Leadiant abuse its dominant market position to impose excessive prices on a life-saving medication? The Dutch courts have been tasked with addressing this issue, and the resulting fines and legal consequences could have far-reaching effects on how the pharmaceutical industry operates in Europe.
In this blog post, we will explore two recent rulings by the Dutch District Court of Rotterdam (the “court”). In the first ruling the court confirmed the fine imposed by the Dutch Authority for Consumers and Markets (“ACM”) on drug manufacturers Essetifin S.p.A., Leadiant Biosciences Ltd. and Leadiant GmbH (jointly “Leadiant”). The ACM was right to find that Leadiant abused its dominant position by charging excessively high prices for Chenodal, a drug used to treat the rare condition cerebrotendinous xanthomatosis (“CTX”). On the same day, the second ruling of the court concluded that the ACM was wrong to disregard enforcement requests by Leadiant into alleged anti-competitive behavior of insurers that were possible buyers of the drug. Please find more information about the rulings below.
Ruling 1: Fine for excessive pricing
In July 2021, the ACM imposed a fine of EUR 19.5 million on manufacturer Leadiant for excessive pricing from June 2017 to December 2019 (the “infringement period”). The ACM stated that Leadiant abused its dominant position as the sole provider of the drug Chenodal with a market share of 100% on the Dutch market for CDCA-based drugs for CTX. Leadiant sold the drug for EUR 13,090 per package. During the infringement period, there were no alternatives for patients suffering from CTX in the Netherlands.
Leadiant did not agree with the fine and objected against the ACM decision. Even though the ACM lowered the fine to around EUR 17 million on the basis of a shorter infringement period, the decision to fine the manufacturer was upheld. Consequently, Leadiant appealed to the court.
The court decided that Leadiant had a special responsibility in setting the price for the drug, particularly because of the reference price system used to determine drug prices and Leadiant’s market exclusivity in Europe. Patients suffering from CTX have been heavily dependent on the availability of CDCA-based drugs for a long time. The fact that Leadiant repeatedly charged excessive prices shows that it had a dominant position which it abused. The ACM correctly found that the price was excessive through the balancing of the price against the costs of manufacturing, and that there were no legitimate reasons for the price increase from EUR 46 to 13,090 per package (although with intermediate steps). According to the court, this is a “textbook example” of abuse. For that reason, the court declared that the ACM was right to impose a fine on Leadiant. However, a fine reduction of EUR 15,000 was applied, because the time of the procedure exceeded the limits of what was reasonable. This resulted in a total fine of EUR 17,029,000.
Ruling 2: Enforcement decision against alleged cartel
Leadiant also decided to litigate against the ACM in a related matter. In July 2021, Leadiant requested the ACM to take action against twelve Dutch insurance companies, the Association of Dutch Healthcare Insurers (Zorgverzekeraars Nederland), the Pharmagister Foundation (Stichting Pharmagister) and Pharmagister B.V. (jointly “Pharmagister”) and the CbusineZ Foundation (Stichting CbusineZ) (jointly “defendants”). The ACM decided not to take action, primarily taking into account its prioritization policy. After its objections did not lead to a different outcome, Leadiant appealed to the court.
In Leadiant’s opinion, the defendants acted contrary to competition law by concerting and conspiring their conduct to boycott and replace Leadiant’s drug with their own magisterial preparation prepared by the Amsterdam University Medical Center. Leadiant believed that the defendants aimed to remove and replace its drug from the market, during the ten years that Leadiant had market exclusivity.
Even though the court declared Leadiant’s conduct abusive in the first ruling, it agreed with the company in this second case. According to the court, the ACM did not sufficiently motivate why it refrained from conducting an investigation into the defendants, as it solely based this on reasons of prioritization. The ACM’s prioritization policy is based on whether enforcement requests would require the ACM to start an investigation into an area in which it has not done any research yet and whether this new investigation would justify the reallocation of resources. The court opined that the ACM could not ignore that research had already been conducted with regards to the fine imposed on Leadiant for excessive pricing. Further investigation would therefore not require a significant commitment of people and resources.
The ACM also has been unable to prove that further investigation would be inefficient. The evidence submitted by Leadiant portrayed that the insurance companies contacted each other frequently about pharmaceutical compounding and that they were aware of what this would do to their position on the market. Pursuant to the court, the ACM could not simply dismiss this evidence on the ground that all health insurers individually determined whether or not to negotiate with the manufacturer, because their separate decisions could be the result of mutual contact and coordination. ACM’s argument that magisterial preparation by the defendants created more competition on the market and that enforcement by the ACM would prevent such competition, could not be used to justify the collusive behavior of the defendants because of potential consumer welfare risks.
Therefore, the court did not express that the defendants infringed competition law or that the violation could be justified, but solely stated that the ACM did not provide sufficient grounds as to why it refrained from enforcement. This means that the ACM must take a new decision on the enforcement matter taking into account the court’s ruling.
Key takeaway
Both judgments portray that even though the ACM was correct to fine Leadiant for excessive pricing, this does not preclude the ACM to further scrutinize the health insurance companies as potential buyers of Leadiant’s drug. Essentially, the ACM was not allowed to determine that the insurers’ conduct was justified merely because Leadiant’s behavior was abusive. The decision of the court to side with Leadiant relating to its enforcement request is a rare occurrence; often, when the court rules on ACM’s prioritization policy after an enforcement request was denied, the court sides with the ACM. The ruling is also special in another sense, because the court’s ruling might lead the ACM to investigate whether the Dutch healthcare insurance companies have abused an alleged dominant position, something which the insurance companies were accused of repeatedly in the past. Both the ACM and the Dutch Healthcare authority (which is the enforcement authority with regards to the Dutch Healthcare Market Regulation Act which also contains special provisions aimed at preventing abuse of dominant market positions in the healthcare sector) were criticized in the past for not enforcing strongly enough against these healthcare insurance companies.
