Press Release

 The surprise inspections announced by the Commission today come just over a week after Commissioner Kroes warned of further antitrust cases in the pharmaceutical sector in the coming months and three months after publication of the Commission's Final Report in the Pharmaceutical Sector Inquiry. The latter report also coincided with the launch of a formal investigation into suspected breaches of Article 81 and 82 by Laboratoires Servier and a number of generic companies.

For observers who expected a flurry of infringement cases, the Commission's sector inquiry has up to now been something of a damp squib with only one investigation announced until today. The latest round of raids is a sign of the Commission's continued focus on the pharma industry. Companies active in the sector, both branded manufacturers and generic suppliers, will be watching with interest as the proceedings unfold.

Market definition and dominance in the pharma sector
Interestingly, the Commission has indicated that it is investigating potential infringements of both Article 81 and 82.

The initial stages of the sector inquiry were focused very much on Article 82 but as the inquiry developed the emphasis turned more to restrictive agreements, and particularly settlements in patent disputes. If the Commission is to mount a successful Article 82 case, it will need to undertake a much more rigorous examination of dominance and abuse than set out in the final report, in particular through a more in-depth examination of the concept of exclusionary abuse. As the sector inquiry did not purport to have the final say on this issue, it did not address head on whether the conduct of specific companies may amount to an abuse or whether individual companies may be treated as dominant under EC competition law.

If the Commission does pursue an abuse of dominance case, it will need to confront the definition of the relevant market in pharmaceutical cases. The final report made no conclusive findings on this point.

In merger cases, the Commission's approach to market definition has traditionally focused on horizontal overlaps based on two similar drug classification systems: (i) the Anatomical Therapeutic Chemical Classification System of the World Health Organisation (WHO) and (ii) the system used by the European Pharmaceutical Market Research Association (EphMRA).

To date, the Commission has used the third level of the EphMRA system (commonly referred to as "ATC3") as a starting point. This looks at the intended use of the drug in order to determine product substitutability. This approach is well established in pharma merger cases going back a number of years. However, the Commission is open to consideration of the parties' and third parties' views on how products should be grouped together. In some recent cases (Teva/ Barr and Sanofi-Aventis/ Zentiva) while using ATC3 as the starting point, the Commission has recognised that certain markets may be more narrowly defined.

In a merger case, the use of a narrower market definition may be helpful to the merging parties as this may mean that they do not overlap at the horizontal level. However, in a behavioural case (i.e. abuse of dominance), a narrower market definition may mean that a company is treated as dominant within a discrete market.

It is still too early to tell how the Commission's ongoing enforcement of the EC competition rules in the pharma sector will play out as the Commission has not fully addressed market definition in that context. However, the fact that in the sector inquiry the Commission sought company data at the molecular level (narrower than segmentation by therapeutic use) is a sign of the Commission's recognition of product heterogeneity in the sector. Whether this approach should be used for market definition in merger and behavioural cases is of course a different matter. It is not possible to generalise about pharma products as they may differ in many ways. Any examination of substitutes should focus on such factors as the treatment for which the drug is indicated, the side-effects, the means of administration and any contraindications. Other relevant factors are price, prescribing practices and monitoring and regulatory requirements. Suffice to say, the issue of market definition in the pharma sector is not an exact science and should be approached carefully in concrete cases."

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Last updated on: 27/08/2010 11:40:18