Malta: Pharma No Longer Under The Competition Radar

Last Updated: 10 July 2019
Article by Finance Malta

The use of competition law to regulate the pharmaceutical industry is beginning to see a new impetus. While traditionally competition authorities struggled to use competition law to address the pharmaceutical sector's practices, EU legislators have given a clear political signal that something needs to be done to address anti-competitive practices of pharmaceutical companies which, they believe, are endangering patients' access to affordable and innovative essential medicines.

ENOUGH IS ALMOST ENOUGH

The warning came back in 2009 when the European Commission carried out a sector inquiry to investigate causes of low levels of competition in the market for human medicines in Europe (See: Final Report of the sector inquiry). The result was clear: market access for generic medicines needed to be improved! The question was "how"? The answer was "Competition law"!

This triggered the Commission to use competition law to investigate various practices of the pharmaceutical sector to secure access to innovative and affordable medicines for patients and healthcare systems. Thus, attempts by originator companies to delay or hamper the market entry of generic medicines, or of new, innovative drugs that may compete with their products already on the market were targeted by the competition authorities.

More than €1 billion in fines were actually imposed in a span of 8 years (2009-2017) by National Competition Authorities (NCAs) and the European Commission on practices related to pharmaceuticals for human use and high prices through abuses of dominance (45 % of the cases), followed by different types of restrictive agreements between companies.

Examples include anti-competitive practices that lead to higher prices of medicines ranging from (i) exclusionary conduct to delay the entry of generic medicines into the market, to (ii) market sharing/price fixing practices and (iii) pay-for-delay agreements, where originator and generic companies colluded to keep the generics off the market and shared the originator's profits from doing so. Several investigations concerned (iv) excessive prices charged for off-patent medicines. Higher prices may also result from mergers of pharmaceutical companies where the pricing power of the merged company is strengthened and in this respect the Commission reviewed more than 80 mergers in the pharmaceutical sector where competition concerns were detected in 19 cases, where mergers could have led to price increases, in particular for generic products or biosimilar products.

The overall picture emerging in 2016-2017 was clear: the EU needed to intervene to secure access to affordable and innovative medicines. So on 17 June 2016, the governments of all EU Member States within the EU Council of Ministers adopted Conclusions which reflected all Member States' concerns regarding patients' access to affordable medicines and invited the Commission to prepare yet another report, a sort of fact finding mission.

A year later, on 2 March 2017, the European Parliament adopted a Resolution on EU options for improving access to medicines, where it also expressed concerns about insufficient access to essential medicinal products and high prices of innovative medicines. The EP highlighted the importance and effectiveness of competition law to address the sector's anti-competitive behaviour consisting in the abuse or misuse of patent systems and of the system for authorisation of medicines.

STATUS QUO?

The EU Commission heard the political signals and on 28 January 2019 it submitted a Report to the Council and the EP outlining how EU antitrust and merger rules have been enforced in the pharmaceutical sector in 2009-2017 and how this has helped to safeguard EU patients' access to affordable and innovative medicines. This provides clear legitimization to the continued application and enforcement of competition law in the pharmaceutical sector.

The priorities set out in the Report are twofold:

Affordable prices: as high prices of medicines impose a high burden on the national healthcare systems, and

Innovation: certain conduct that affects the incentives to innovate (patenting, interventions before authorities, acquisitions of competing technologies, etc.) may breach competition law.

To achieve these priorities the Commission and national competition authorities are being encouraged to actively enforce competition law, at least to begin with. Over the next few years competition authorities will therefore continue to take positive action against practices that could distort the incentives to innovate, thereby helping maintain high levels of innovation. Examples include, in particular, attempts to delay the entry of generic medicines into the market, which can allow companies to unduly draw profits from older products instead of having to compete with new, innovative medicines.

In addition merger control activity also contributed to innovation and increased choice of medicines, by preventing transactions that could have compromised research and development efforts to launch new medicines or to extend the therapeutic use of existing medicines.

The conclusion of the Commission is a confirmation that there is scope for further competition enforcement action in the pharmaceutical sector. In particular the Report concludes, perhaps unsurprisingly, that:

the pharmaceutical sector requires close scrutiny by competition authorities;

enforcement of competition law increases the level of innovation and close scrutiny by competition authorities will help to safeguard competition concerning prices and also stimulates innovation.

The executive summary and the report are available in all official EU languages on the Commission's competition website.

HOW DOES THE BOLAR BEAR OUT?

The Roche Bolar rule – or Bolar exemption as it is sometimes referred to – effectively impedes patent holders from obstructing any third parties using their patented product for purely experimental or scientific research, or for purposes related to the development and presentation of information regarding the production, use or sale of medicinal or pharmaceutical products.

In practice this allows generic companies to establish themselves in Malta and carry out research and development and testing activities, and also to seek regulatory and/or administrative authorisations whilst the patented product benefits from the last years of patent protection. This would mean that generic companies can then launch their product commercially without undue delay immediately after the lapse of the relevant patent, saving valuable research and administrative time.

Malta's Patents and Designs Act incorporates the Bolar exemption in the broadest of ways especially if one were to compare to jurisdictions such as the UK which has chosen to maintain a more restrictive and limited form of this exemption. This consideration has been very material in making Malta a jurisdiction of choice for the establishment of generic companies and the local pharmaceutical manufacturing sector is a clear testament to this.

QUO VADIS?

The action taken by competition authorities both nationally and at European level since 2009 to curtail attempts by originator companies to delay or hamper the market entry of generic medicines, or of new, innovative drugs that may compete with their products already on the market, coupled with the recent 2019 Report, reassure us that the spirit of the Bolar exemption is very much alive and that the authorities are ready to step in to address practices which attempt to negate this.

The aim of securing access to innovative and affordable medicines for patients and healthcare systems is very much a priority of EU legislators and the effective enforcement record of the competition authorities to date provides a solid basis for these authorities to continue and to focus their enforcement efforts.

We expect an interesting next phase to unfold pursuant to the 2019 Report with respect to the enforcement of competition law and pharmaceutical industry players would be well advised to seek broader guidance on how to ensure that they comply with the law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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