Price increases in the pharma sector may be considered abuse of a dominant position

21 April 2018

In a recent case, the Danish Competition Council ruled that CD Pharma had abused its dominant position by increasing the price on the medicinal product Syntocinon by 2,000 % in 2014. The decision is the first Danish ruling on excessive pricing in the pharmaceutical sector.

The EU and several national jurisdictions have focus on excessive pricing in the pharmaceutical sector. The case concerning CD Pharma’s excessive prices to Amgros (a wholesale buyer for hospitals) is one among many cases within the EU.

Even though there are many new decisions, it is still difficult to assess when prices on medicinal products are excessive contrary to the competition rules. The pharmaceutical companies should therefore pay attention on this issue, especially in connection with tenders to the hospital sector and other public authorities.

The CD Pharma case

The Danish Competition Council has ruled that the Swedish pharmaceutical distributor CD Pharma has abused its dominant position on the market by drastically increasing the price of the oxytocin product Syntocinon, used for contraction stimulation and treatment of haemorrhage after delivery. The price increased by 2,000 % from DKK 45 to DKK 945 per package in the period 28 April to 26 October 2014. In this period, the medicinal product was the only oxytocin product with a Danish marketing authorisation.

The price increase took place a few weeks after the parallel importer Orifarm had informed Amgros that it was not able to deliver the full amount of Syntocinon in accordance with their contract. The delivery difficulties meant that Amgros had to buy Syntocinon from CD Pharma which – in addition to Orifarm – was the only supplier of Syntocinon in Denmark. CD Pharma was also the owner of an exclusive distribution agreement with the manufacturer of Syntocinon and was thereby ensured stable delivery.

The price increase resulted in Amgros paying approx. DKK six million more than the price in the original contract with Orifarm. Due to a provision in the original contract, Orifarm was obligated to pay compensation to Amgros in relation to Amgros’ additional costs for purchasing Syntocinon from CD Pharma.

The Danish Competition Council: CD Pharma’s prices were excessive

The Danish Competition Council found that the price increase of 2,000 % was excessive and anti-competitive. The Danish Competition and Consumer Authority has stated that a price increase of this nature may restrict the parallel importer’s possibilities of competing as the price increase significantly increases any compensation relating to non-delivery if the parallel importer cannot provide the medicinal products offered. It was also considered whether Amgros could be subject to exploiting abuse by having to pay a higher price. However, this was not a problem as Amgros could redirect the cost to Orifarm under the original contract.

The Danish Competition Council found that the price increase was not objectively necessary or justified by innovation, research or development as Syntocinon had been made since the 50’ies, and as the patent had expired.

The Danish Competition Council ordered CD Pharma to end the abuse and to refrain from any conduct with the same or similar purposes or consequences in the future. In addition, the Danish Competition Council reported CD Pharma to the Public Prosecutor for Serious Economic and International Crime (SØIK) for the purpose of criminal prosecution and fine.

More casses on excessive pricing in the pharma sector

In recent years, several European competition authorities have issued fines for excessive pricing in the pharma sector. In Italy, the competition authorities ordered Aspen Pharma to pay a fine of more than DKK 37 million for excessive pricing of four cancer drugs in 2016. Aspen Pharma had abused its dominant position by having increased the price of cancer drugs by 300-1,500 % and having threatened the Italian authorities to stop delivering the drugs if the authorities did not accept the prices. This decision resulted in the European Commission initiating an investigation in the spring of 2017 of Aspen Pharma’s prices of five cancer drugs in the remaining EU Member States.

Also in the UK, the competition authorities have had a close eye on the pharmaceutical companies. For instance, the authorities ordered Pfizer and Flynn Pharma to pay fines of more than DKK 700 million for excessive pricing on anti-epileptics. The UK authorities are also conducting an investigation on Actavis UK’s price increase of 12,000 % in relation to hydrocortisone tablets.