Commission publishes Aspen commitment decision on excessive pricing

On 15 April 2021, the Commission published its decision accepting commitments offered by Aspen to address concerns set out in the Commission's preliminary assessment that Aspen had been engaging in excessive pricing practices in relation to six drugs. A previous article (that you can find here) analysed Aspen's commitments offer. The Commission's full decision provides more detail as to the indicia that led the Commission to the preliminary conclusion that Aspen's prices were excessive.

Abusive pricing cases are complex as there is no set formula for establishing when prices are too high, or margins too great. Competition authorities, meanwhile, are generally reluctant to act as price regulators; preferring to allow the market to establish a 'fair' price. In its commitment decision, the Commission sheds some light on how it may analyse abusive pricing cases in a pharmaceutical context.

Market definition and dominance

For the purpose of this case, the Commission has continued its recent practice of defining product markets for pharmaceutical products on a narrower basis than simple therapeutic indication - indeed even looking beyond the relevant active pharmaceutical ingredient in some cases (for example defining one market as consisting of medicines containing a particular molecule, which are administered for the treatment of a certain form of leukaemia in older and paediatric patients).

Through this lens, the Commission found that Aspen held consistently high market shares (often between 90% and 100%); being strongly indicative of a dominant position.

The 'excessive pricing' analysis

The Commission's investigation followed a series of significant increases in the prices of certain Aspen drugs during the last decade. The Commission emphasised that a variety of methods may be used to determine whether a price charged by a dominant undertaking is abusive, and a competition authority has a certain margin of manoeuvre in choosing its method. In this case, the Commission followed the two-limb framework established in the ECJ's seminal United Brands Judgment¹. The United Brands test is two-fold and consists of firstly (i) determining whether the difference between the costs incurred in supplying a product/service and the price charged for it is excessive, and if it is,then (ii) analysing the "unfairness" of the price.

I. Limb 1: Determining that the prices were "excessive"

To assess whether Aspen's prices were 'excessive', the Commission considered two measures of profitability: gross margin and EBITDA (with particular emphasis on EBITDA). The Commission conducted a comparison between Aspen's profit levels for the six drugs in question, and the profitability of a sample of other businesses that the Commission considered were similar to Aspen. These other undertakings' products concerned mainly generic or off-patent branded medicines with similar active substances. The Commission found that the median gross margin (54%) and EBITDA (23%) for the comparator companies were lower than those achieved by Aspen (80-90% of both gross margin and EBITDA).

The Commission then applied a cost-plus assessment to Aspen's products, using the comparator median of 23% as a reasonable "plus"; and concluded that Aspen earned up to roughly three times the level of return that would be dictated by that formula. The Commission found Aspen's return - ranging from 40-50% excess to 400-420% above cost-plus - to be excessive. The Commission rejected Aspen's argument that the profitability analysis should account separately for the price Aspen paid to GSK to acquire the rights to the drugs under investigation.

II. Limb 2: Determining that the prices were "unfair"

By the United Brands test, an excessive price can be unfair because either (i) the price is unfair in itself, or (ii) when compared to competing products. The Commission considered that Aspen's prices were unfair in themselves, highlighting the following:

• The Commission found no legitimate reason for Aspen's allegedly high prices - these did not reflect any commercial risk-taking activity, nor innovation, investment, or any material improvement regarding the drugs.  

• The Commission found that Aspen's internal documents revealed a strategy of increasing prices "solely with the aim to use its market power in the absence of effective competition to exploit health systems and patients". The Commission factored into its "fairness" assessment the tactics used by Aspen when applying price increases, which were alleged to include aggressive means of negotiations, including threats of withdrawal, and relying on patients' dependency on the drugs in question to overcome resistance to the price increases.

Thus, the Commission's provisional conclusion was that Aspen had imposed unfair prices for six drugs, infringing Article 102 TFEU (abuse of a dominant position).

Conclusion

This decision concerns a commitment decision (concerning Aspen's commitments, please see our article on the subject) which is unlikely to be subject to appeal. The decision is not so fully reasoned and evidenced (and is potentially bolder) as might be expected for a 'full' infringement decision.

Nevertheless, this decision does provide a number of elements to consider for companies - especially those in the pharmaceutical sector - that want to avoid scrutiny by a competition authority. Indeed, with increasing public debate about drug prices and the resulting pressure on healthcare costs, many national competition authorities are investigating potentially abusive pricing practices in the pharmaceutical sector². The Commission's willingness to define very narrow and precise pharmaceutical markets and to assess dominance on that basis indicates that "dominance" (and therefore "abuse") cases are not limited to the largest life sciences enterprises.

¹ ECJ, 14 February 1978, United Brands v Commission, C-27/76.

² See in that regard :

• ACM investigation regarding excessive and unfair pricing with respect to an orphan drug CDCA-Leadiant in 2020, see https://www.acm.nl/en/publications/acm-extends-its-investigation-orphan-drug-cdca-leadiant;
• Judgment of the Danish Maritime and Commercial Court, confirming the Danish Competition Authority finding excessive pricing for medicine Syntocinon in March 2020, see: https://www.en.kfst.dk/nyheder/kfst/english/judgements/20200302-the-maritime-and-commercial-court-cd-pharma-has-abused-its-dominant-position-by-charging-an-excessive-and-unfair-price-for-the-drugsyntocinon/; 
• The investigation of the CMA regarding excessive and unfair pricing with respect to hydrocortisone tablets: https://www.gov.uk/cma-cases/pharmaceutical-sector-anti-competitive-practices