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Focus on Regulation

Excessive pricing in pharmaceutical products attracts the European Commission’s attention

scan medicineIn recent years competition authorities in a number of EU Member States have stepped up in their pursuit against companies active in the Life Sciences sector for excessive pricing. Last week, the European Commission issued a press release signalling that it will not be left behind on the action when it launched a probe into a pharmaceutical supplier of cancer drugs. This could be one of the very first examples of intervention at the European Commission level in a pure excessive pricing case, let alone in the Life Sciences sector.

Should companies in the Life Sciences sector be concerned?

Excessive pricing can be a potential antitrust concern if a company enjoys a dominant position on the market. A company is dominant if it company enjoys a level of market power such that they can act independently from customers and competitors on the market.

Recent cases have suggested a lowering of the threshold for assessing and finding dominance. The trend is pointing towards markets being defined more narrowly. The European Commission and other national EU Member State authorities have used the anatomical therapeutic classification (“ATC”) as a reference tool for market definition for some years now, but in recent cases, pharmaceuticals at ATC level 5 have been considered as forming a separate market on their own. The consequence of this is that it would be easier to hold a company operating in that narrow space as dominant.

Once dominance is established, the long-held test for whether a price is excessive is a two part test that compares the price of the product to the cost of the product and then considers whether the price is in itself excessive compared to other products. The complexity in applying this test should not be underestimated: there is little guidance available, not least on how one should interpret “cost”, and on how one determines “excessive”.

Competition authorities have typically shied away from direct price regulation and there are good reasons for this. In the Life Sciences sector, pricing is often already regulated by separate bodies set up specifically for this purpose. The increased spotlight on these excessive pricing Life Sciences cases, not least measured by column inches in the press, and the perceived direct consumer impact has, however, appeared to have incentivised intervention from a competition law perspective. Ultimately there are cases where a competition authority has to act. And there are cases where they have to be seen to act.