Commission fines Johnson & Johnson and Novartis for delaying market entry of generic painkiller | Practical Law

Commission fines Johnson & Johnson and Novartis for delaying market entry of generic painkiller | Practical Law

On 10 December 2013, the European Commission announced that it has fined Johnson & Johnson and Novartis for breaching Article 101 of the TFEU by virtue of an agreement that delayed the market entry of a generic version of the drug fentanyl.

Commission fines Johnson & Johnson and Novartis for delaying market entry of generic painkiller

by Practical Law Competition
Published on 10 Dec 2013 • European Union
On 10 December 2013, the European Commission announced that it has fined Johnson & Johnson and Novartis for breaching Article 101 of the TFEU by virtue of an agreement that delayed the market entry of a generic version of the drug fentanyl.
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On 10 December 2013, the European Commission announced that it has fined Johnson & Johnson EUR10.8 million and Novartis EUR5.5 million for agreeing to delay the entry into the Dutch market of a generic version of the drug fentanyl. The Commission has found that the Dutch subsidiaries of Johnson & Johnson and Novartis (Janssen-Cilag and Sandoz respectively) entered into a co-promotion agreement which provided Sandoz with financial incentives not to launch a generic product on the Dutch market. The co-promotion agreement delayed the entry of a cheaper generic version of fentanyl for 17 months and kept prices for fentanyl artificially high in the Netherlands during that time. The Commission has concluded that this agreement had an anti-competitive object and breached Article 101 of the TFEU.

Background

Fentanyl is a painkiller stronger than morphine. It is used to treat patients with severe pain. It was initially developed by the US pharmaceutical company Johnson & Johnson (J&J) and J&J has commercialised Fentanyl in its different formats since the 1960s.
On 21 October 2011, the Commission announced that it had opened an own-initiative investigation to assess whether contractual arrangements between J&J and the generic branches of the Swiss-based company Novartis may have had the object or effect of hindering the entry on to the market of generic versions of fentanyl, in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU) (see Legal update, Commission opens Article 101 investigation into agreement between Johnson & Johnson and Novartis).
On 31 January 2013, the Commission announced that it had sent a statement of objections to J&J and Novartis (see Legal update, Commission sends statement of objections to Johnson & Johnson and Novartis on delayed entry of generic painkiller).

Decision

The Commission has found that:
  • In 2005, J&J's protection on the fentanyl depot patch had expired in the Netherlands and Novartis' Dutch subsidiary, Sandoz, was on the verge of launching its generic fentanyl depot patch. It had already produced the necessary packaging material and obtained marketing authorisations.
  • In July 2005, instead of actually starting to sell the generic version, Sandoz concluded a "co-promotion agreement" with Janssen-Cilag, J&J's Dutch subsidiary.
  • The co-promotion agreement provided strong incentives for Sandoz not to enter the market. In particular, the agreed monthly payments exceeded the profits that Sandoz expected to obtain from selling its generic product, for as long as there was no generic entry.
  • As a result of the agreement, Sandoz did not offer its product on the market as it had planned.
  • The agreement was ended in December 2006 when a third party was about to launch a generic fentanyl patch.
On the basis of these facts, the Commission has concluded that the co-promotion agreement delayed the entry of a cheaper generic medicine for 17 months and kept prices for fentanyl artificially high in the Netherlands (possibly by as much as 30%).
The Commission has concluded that the object of the co-promotion agreement was anti-competitive and that it, therefore, breached Article 101 of the TFEU. The anti-competitive object of the agreement was evidenced by internal documents of the parties that showed that:
  • Sandoz agreed to abstain from entering the Dutch market in exchange for "a part of [the] cake".
  • Instead of competing, Janssen-Cilag and Sandoz agreed on co-operation so as "not to have a depot generic on the market and in that way to keep the high current price".
  • Janssen-Cilag did not consider any other existing potential partners for the co-promotion agreement but just focused on its close competitor Sandoz.
  • Sandoz engaged in very limited or no actual co-promotion activities.
The Commission considers that it was clear from the evidence that the co-promotion agreement was not about marketing, but about sharing monopoly profits. J&J was paying its competitor to keep the generic medicine out of the market.
The Commission has decided to impose the following fines:
  • J&J and Janssen-Cilag B.V., jointly and severally: EUR10,798,000.
  • Novartis AG and Sandoz B.V., jointly and severally: EUR5,493,000

Comment

In announcing this decision, Vice President Almunia commented that the practices of J&J and Novartis were "simply intolerable". He noted that competition in the pharmaceuticals sector brings significant benefits to patients and to welfare systems. Competition by generic medicines, in particular, gives access to the same treatment at a much lower cost. Generics make a key contribution to ensuring affordable access to healthcare. In addition, competition by generics, gives an incentive to pharmaceutical companies to invest in R&D and develop new original medicines.
Following on from the Lundbeck decision in June 2013, Vice President Almunia comments that this decision serves as a further warning that "pay for delay" agreements are illegal in the EU. Therefore, "companies across the sector should think twice before entering into deals of this type, as they will be pursued and eventually sanctioned through the enforcement of antitrust rules".
Although the Lundbeck case involved a payment in the context of a patent settlement agreement, and this case does not involve the use of intellectual property in any way, in both cases a company paid a competitor to delay the entry on the market of the generic version of its drug (see Legal update, Commission fines Lundbeck and other pharmaceutical companies for delaying market entry of generic medicines).
For further discussion of "pay for delay" cases see the opinion articles, The Big Bad Wolf (aka the pharmaceutical companies) v the Competition Authorities: the economics of "pay-for-delay" settlements and Pay-for-Delay: The end of sweetheart deals.
It should be noted that Lundbeck and various of the generics companies involved have appealed against the Commission's infringement decision (see Lundbeck/ generics companies appeals). Lundbeck is, in particular, challenging the Commission's conclusion that the patent settlement agreements (including a value transfer to the generics companies) restricted competition by object.
Having sent a statement of objections in July 2012, the Commission is also continuing to investigate agreements between Les Laboratoires Servier and several generic competitors that may have hindered the entry of generic perindopil (see Legal update, Commission sends statement of objections to Servier and several generic pharmaceutical companies). In addition, the Commission is also investigating Cephalon and Teva concerning a settlement agreement that may have hindered the entry of generic Moadafinil (see Cephalon and Teva).
Source: Commission press release IP/13/1233 and SPEECH/13/1053