The European General Court has rejected a legal appeal lodged by Danish pharmaceutical firm Lundbeck against a 2013 fine imposed by the European Commission over allegedly anti-competitive "pay for delay" deals. The judgement maintains a EUR93.7-million (USD105.6 million) financial penalty that was imposed on the Danish manufacturer.
Implications | A European appeals court has supported an assessment by the European Commission that pay-for-delay agreements between Lundbeck and generic rivals restricted competition and denied patient access to lower-cost generic versions of antidepressant drug citalopram. The court maintained the original financial penalties imposed by the European Commission in June 2013. |
Outlook | The ruling could have a significant deterrent effect on patent settlement agreements that involve monetary exchanges. The number of pay-for-delay deals in the European Union (EU) is likely to continue to decline as a result; this may compel pharmaceutical firms to resort to costly and protracted litigation to settle patent cases, and there is likely to be increased caution over EU competition rules when entering future patent settlements that decide on the terms of market access for some generic medicines. |
On 8 September the European General Court (EGC) rejected a landmark legal appeal by Danish pharmaceutical company Lundbeck and five generic drug manufacturers against "pay for delay" deals that hindered the market entry of generic versions of antidepressant drug citalopram. The European appeals court confirmed the imposition of financial penalties amounting to EUR146 million (USD164.55 million) against the companies involved, upholding a EUR93.7-million fine against Lundbeck that had originally been imposed by the European Commission in 2013. Furthermore, the court maintained collective fines amounting to EUR52.2 million against four generic manufacturers, which had entered into pay-for-delay agreements with Lundbeck in 2002. The generics manufacturers affected were Ranbaxy (India, which has since been acquired by compatriot Sun Pharmaceuticals), Arrow Group (UK), Alpharma (US), and Generics UK.
The EGC rejected Lundbeck's appeal to annul or reduce the fines imposed by the European Commission. The court remarked that Lundbeck and the generic manufacturers were "potential competitors" at the time of the 2002 agreements, and furthermore that had the agreements not been signed, "the competitors would have had real concrete possibilities of entering that market". The EGC found that routes to market were blocked by anti-competitive pay-for-delay deals.
The full judgement is available to view here.
Agreements amounted to "buying-off of competition"
The EGC agreed with the European Commission's interpretation that the four generic companies that were offered inducements by Lundbeck were potential competitors, even though the Danish firm had patent protection rights in place. This supports the possibility that the courts will recognise a form of potential competition where there is a possibility of generic entrants entering the market, or in the case of an "at-risk generic launch" (that is, an approved generic medicine that is launched while patent litigation is ongoing).
Lundbeck has not ruled out an appeal to the European Court of Justice (ECJ). However, appeals against EGC verdicts are difficult, and can be lodged only provided that the appeal is based on a point of law (see Europe: 7 September 2016: EU court due to rule on antitrust case involving Lundbeck's citalopram antidepressant). This could limit the options for further appeals, and probably reduces Lundbeck's prospects of overturning the judgment. The deadline to appeal is November 2016; an appeal to the ECJ would likely prove protracted and costly, and potentially require up to three years to complete.
It is also conceivable – but probably unlikely – that certain third-party health services in Europe could pursue Lundbeck for further compensation on the grounds that the pay-for-delay arrangement prevented the full benefit of reductions in prices that follow the introduction of generic competition to the market. National healthcare services may attempt to argue that the mechanism restricted fair competition, and imposed a greater financial burden on the budgets of a number of European Union (EU) member states.
The outcome is being closely monitored by the wider pharmaceutical industry, and raises significant legal questions regarding the point at which patent holders risk violating EU competition law when they negotiate and enter into patent settlements with suppliers of generic medicines. The case additionally signals that European legislators are intent on restricting the ability of pharmaceutical companies to extend periods of market exclusivity through mechanisms such as patent settlements. The judgement marks the first by an EU appeals court to rule that pay-for-delay tactics result in higher drug prices, and amount to a violation of anti-competition legislations or abuses of dominant market positions.
Outlook and implications
The main implications of the case from a legal standpoint are that EU competition authorities will continue to intensify their focus on pay-for-delay provisions in patent settlement agreements. Not all pay-for-delay agreements will be considered anti-competitive; indeed, the majority of patent settlement agreements concluded between originator and generic manufacturers do not involve any payments aimed at delaying or limiting a generic drug's entry to the market. However, arrangements that cause unreasonable delay for generic-drug entries on the market – resulting in unnecessarily high prices for consumers – are likely to be considered anti-competitive.
A key attraction of patent settlements is that such agreements open opportunities for pharmaceutical companies to avoid the potential economic burden of settling patent-related disputes in court. There are concerns that the decision by the EGC to uphold the European Commission's judgment will prolong patent protection litigation in Europe; this would not only add to litigation expenses for pharmaceutical companies, but could weaken the industry's confidence in patent protection systems. Meanwhile, Teva (Israel) and Servier (France) are also engaged in separate European appeals processes against fines imposed by the European Commission in 2014 in similar cases.
The prevailing trend in EU case law appears to be turning decisively against pay-for-delay arrangements. This is a concerning development for the pharmaceutical sector, as it may hinder certain companies' ability to protect monopoly profits from generic competition entering the market. In a small number of cases, companies may also review and possibly rescind pay-for-delay arrangements that are in operation: a 2015 European Commission report on the monitoring of patent settlements in Europe indicated a decrease in the number of pay-for-delay agreements in recent years. The commission reported that just 12% of patent settlement agreements in the EU in 2014 were "potentially problematic"; these figures are set to continue to fall as a result of the stricter approach taken by the EU anti-trust regulator in future cases.
The legal development is positive from the perspective of public healthcare budgets. National payors will support the verdict as a route to reducing potential delays in the launch of new generic products, and thereby passing on savings to healthcare budgets.
Finally, the EGC decision does not pose any threat to Lundbeck's underlying financial position. The Danish company's 2016 financial performance will not be adversely affected, as Lundbeck recognised the original EUR93.7-million financial penalty in its results statement for the third quarter of 2013. The company raised its full-year revenue guidance last quarter, and is forecasting that annual constant exchange-rate revenues will reach DKK14.6–15.0 billion for 2016 as a whole (see Denmark: 24 August 2016: Lundbeck's revenues increase 5% y/y in H1 to USD1.1 bil., driven by strong US sales).