Dr Assimakis KOMNINOS

(views strictly personal)

Pricing policies for pharmaceuticals in

Europe and their impact upon parallel
importation
The GSK Cases
 Lelos (Art. 102 TFEU)
•2000 – Surging parallel exports from GR → 7 X domestic sales
•2000 – GSK emergency measures (allocation system)
•2000/2001 – Notifications to the Hellenic Competition Committee
(HCC) and Greek Wholesalers’ complaints and civil actions
•2001 – HCC “unlimited supplies” interim measures Decision
•2001 – orders exhaust GSK’s entire stock within 24 hours
•2001 – EOF intervenes (GR + 25%)
•2002/2003 – HCC hearings & preliminary reference to ECJ
•2003 – Civil Courts reject the wholesalers’ actions - appeals
•2004 – AG Jacobs’s Opinion (Syfait)
•2005 – ECJ declines jurisdiction & Commission declines to open
proceedings (Syfait)
•2006 – 11 separate cases at Athens Court of Appeal – new
references to ECJ (Lelos)
•2006 – HCC final Decision – follows AG Jacobs – no Art. 102
TFEU abuse
•2008 – AG Ruiz-Jarabo’s Opinion & Judgment (Lelos)
•2009 – HCC Decision of 2006 annulled – case back to the HCC

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 GSK Spain (Art. 101 TFEU)
Glaxo: state-fixed prices are for medicines that are to be
used and paid for in one country’s healthcare system; if
they are to be exported → open negotiation with
wholesalers

1998 – notification to the European Commission

2001 – Commission prohibition Decision
2001 – GSK Appeal
2006 – GenCt Judgment (partial annulment)
2006 – Appeals to the ECJ
2009 – Spanish authorities decisions (free pricing)
2009 – ECJ Opinion & Judgment

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 Why Is This An Issue?
Public health
– Sensitive matter
– Public service obligations
Prescription Medicines
– Close regulation at almost all stages of research,
development, sale, distribution and supply to
customers
– Advertising to consumers prohibited – patients’
purchases are cost-uninterested
– Sales to consumer without a prescription is
prohibited

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 Why Is This An Issue?
State Intervention
– Some national governments fix prices - different
legitimate government priorities
• allow higher prices thus encouraging research
and development, employment and the
emergence of new medicines?
• fix lower prices and thus reduce the national
health budget?
– E.g. up to 2003 in Greece prices by law had to be the
lowest in the EU (declared unconstitutional by the Greek
Conseil d’État)
– Payers → National health services, sick funds,
patients

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 Why Is This An Issue?
Extra-ordinary differences of price
– e.g. Athens Court of First Instance (Lelos):
“Indicatively, based on the calculations of the
plaintiffs themselves in their actions, their selling
price of Imigran Tabl F/C 2 X 100 mg was 3,229
drachmas (with purchasing price 3,133.7 drachmas)
in Greece and 5,968 drachmas in Europe, the one
of Imigran Tabl F/C 4 X 50 mg was 3,229 drachmas
(with purchasing price 3,133.7 drachmas) in Greece
and 5,776 drachmas in Europe…..”
– e.g. in Bayer/Adalat between 1989 and 1993, the
prices fixed by the Spanish and French health
services were, on average, 40% lower than prices in
the United Kingdom
Shortages in place of export / risks for the supply of the
local market

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 Who Benefits? Who Loses?
Important gains for traders and pharmacists

Minimal benefits for patients and payers

– e.g. “Clawback” savings – less than 10% of the
price difference represents savings for payers

Losses – less money for R & D

Competitiveness of the European pharmaceutical industry

– DG-Enterprise (see e.g. Pricing Working Group
Report of June 2007)

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 Lelos – Main Findings I
– Parallel traders keep most of the price difference but
parallel trade brings benefits to the final consumer
→ “pressure on prices” + an alternative source of
supply to purchasers (¶¶ 53-56)
– price differences → result of different State price
fixing (¶ 59)
– State price-intervention does not entirely remove the
prices of prescription medicines from the forces of
supply and demand (¶¶ 61-63)
– price intra-brand competition → important (¶ 64)
– shortages in export countries → up to the Member
States to deal with (¶ 75)
– It cannot be that the only choice left for a
pharmaceuticals company is not to place its
medicines on the market at all where the prices of
those products are set at a relatively low level (¶ 68)

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 Lelos – Main Findings II
“Thus, although a pharmaceuticals company in a dominant
position, in a Member State where prices are relatively low,
cannot be allowed to cease to honour the ordinary orders
of an existing customer for the sole reason that that
customer, in addition to supplying the market in that
Member State, exports part of the quantities ordered to
other Member States with higher prices, it is none the less
permissible for that company to counter in a reasonable
and proportionate way the threat to its own commercial
interests potentially posed by the activities of wholesalers
which wish to be supplied in one Member State with
significant quantities of products that are essentially
destined for parallel export….
[It] must be in a position to protect its own commercial
interests … if certain wholesalers order from that producer
medicines in quantities which are out of all proportion to
those previously sold by the same wholesalers to meet the
needs of the market in that Member State.” (¶¶ 71, 76)

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 What It Means
Fundamental premise: principle of proportionality &
existing case law on the protection of dominant companies’
legitimate commercial interests (≠ AG Ruiz-Jarabo)
General principle of universal application (≠ AG Jacobs)
– Not qualified by the Greek facts
– Not qualified by the specificities of the pharma
sector - applicable to other sectors
Principle: Tap cannot be turned off but quantities do not
have to be unlimited
“no escape from the prohibition laid down in Article 102
TFEU for the practices of an undertaking in a dominant
position which are aimed at avoiding all parallel exports
from a Member State to other Member States” ((¶ 66)
– ECJ concerned with the elimination of all and not
the limitation of significant parallel exports

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 What It Means
“significant” “ordinary” “out of the ordinary” ?
(a) size of orders in relation to the requirements of the
market in the exporting Member State (¶ 73)
(b) previous business relations between the dominant
company and the wholesalers concerned (¶ 73)
(c) “…orders that are out of the ordinary in terms of
quantity. Such could be the case, in a given Member
State, if certain wholesalers order from that producer
medicines in quantities which are out of all proportion to
those previously sold by the same wholesalers to meet
the needs of the market in that Member State” (¶ 76)
No need to examine GSK’s efficiency defence - “without it
being necessary to examine the argument … that it is
necessary … to limit parallel exports in order to avoid
the risk of a reduction in their investments in the
research and development of medicines” (¶ 70)

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 GenCt in GSK Spain – Main Findings I

GSK Spain - GenCt

 Art. 101(1) TFEU - Not an “object” infringement
– special legal & economic context
– no naked restriction of exports – freedom to export
at the normal price
– Spanish legislation → no intention to be exported
(old Art 100 L. 25/1990 now Art 90 L. 29/2006)
“Spanish state-fixed prices only applicable to
products dispensed and reimbursable by the State
in Spain”
Art. 101(1) TFEU – “Effect”: some benefits

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 GenCt in GSK Spain – Main Findings II

 Art. 101(3) TFEU - Pharmaceutical companies bear

burden of proof BUT Commission must take their
arguments seriously
– Undertaking must employ “convincing arguments
and evidence” → Commission must “adequately
examine those arguments and that evidence”,
conduct a “proper examination”, “validly take into
account all the factual arguments and the evidence
pertinently submitted” by an undertaking, and refute
certain of those arguments, especially if they are
“sufficiently relevant and substantiated to require a
response” or if they are “relevant, reliable and
credible, having regard to their content”.
GSK Spain, ¶¶ 235, 236, 263, 303

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 GenCt in GSK Spain – Main Findings III

GenCt in GSK Spain:

“[P]arallel trade has the effect of reducing [research &
development-destined] income, to an uncertain but real
degree. That practice, which economists know as ‘free
riding’, is characterised by the fact that the intermediary
leaves the role which he traditionally plays in the value
chain and becomes an arbitrageur and thus obtains a
greater part of the profit. The legitimacy of that transfer of
wealth from producer to intermediary is not in itself of
interest to competition law, which is concerned only with its
impact on the welfare of the final consumer. In so far as
the intermediary participates in intra-brand competition,
parallel trade may have a pro-competitive effect. In the
medicines sector, however, that activity is also seen in a
special light, since it does not bring any significant added
value for the final consumer.” (¶ 273)

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 ECJ in GSK Spain – Main Findings I

Art. 101(1) TFEU reversal

•Importance of market integration (¶ 61) - restrictions of parallel
trade constitute restrictions by object – also in the pharmaceutical
sector (¶¶ 59-60).
•Direct harm to end consumers not necessary for object
restrictions ≠ GenCt
•Article 101 aims to protect not only the interests of competitors or
of consumers, but also the structure of the market and, in so
doing, competition as such (¶¶ 62-63)

Art. 101(3) TFEU confirmation

•Commission must take into account the nature and specific
features of the pharmaceutical sector when carrying out its
assessment under Art. 101(3) TFEU (¶ 103)
•Restrictions to parallel trade are not per se violations in that they
are susceptible to be justified under Art. 101(3) TFEU

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 ECJ in GSK Spain – Main Findings II

Art. 101(3) TFEU confirmation

• Improper analysis under Art. 101(3) TFEU: Commission
examined only whether parallel trade gives rise to a loss of
efficiency and failed to consider whether the agreement could
also entail a gain in efficiency (¶¶ 131, 157).
•Likely positive effects is the correct test: whether in the light of
the factual arguments and the evidence provided, it seems more
likely either that the agreement in question must make it possible
to obtain appreciable advantages or that it will not (¶ 94).
•Link with R&D investment: It is not necessary that all of the
additional funds saved by hindering parallel trade must be
invested in R&D (¶ 102) ≠ Commission

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 ECJ in GSK Spain – Main Findings III

Art. 101(3) TFEU confirmation

•GenCt findings on burden & standard of proof fully upheld:
Undertaking must employ “convincing arguments and evidence”
→ Commission must “adequately examine those arguments and
that evidence”, conduct a “proper examination”, “validly take into
account all the factual arguments and the evidence pertinently
submitted” by an undertaking, and refute certain of those
arguments, especially if they are “sufficiently relevant and
substantiated to require a response” or if they are “relevant,
reliable and credible, having regard to their content” (GenCt, ¶¶
235, 236, 263, 303)

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