Europe’s high court strikes blow to drug companies in ‘pay-for-delay’ case

The Jan. 30 judgment by the European Court of Justice effectively clarifies the criteria to be applied by the CMA in issuing fines governing whether an agreement between pharmaceutical patent holders and generic drug manufacturers violates EU competition law.

The case at hand pertained to two patents held by GSK—one for the active pharmaceutical ingredient of anti-depressant drug paroxetine and secondary patents protecting certain processes for the manufacture of that ingredient. When GSK’s principal patent expired in 1999, numerous generic drug manufacturers contemplated introducing a generic version of the drug on the U.K. market.

Against that background, GSK brought infringement proceedings against those generic drug manufacturers, with the latter challenging the validity of one of GSK’s secondary patents. GSK ultimately reached settlement agreements concerning the disputes, with the latter choosing to refrain, for an agreed period, from entering the market with their own generic medicines in return for payments made by GSK.

The CMA argued these so-called “pay-for-delay” patent settlements are aimed at delaying the potential entry of these competitors into the U.K. market. It also argued these agreements deferred the competition the threat of independent generic entry could offer and potentially deprived the National Health Service (NHS) of the significant price falls that generally result from generic competition.

In this case, when independent generic entry eventually took place at the end of 2003, average paroxetine prices dropped by over 70 percent in two years, the CMA said. Consequently, the CMA imposed total penalties of £45 million (U.S. $58.5 million) on the parties directly involved in the infringements (and, where relevant, on their parent companies or successors to these companies).

GSK and other drug companies involved—including Generics U.K., Xellia Pharmaceuticals, Actavis UK, and Merck—appealed. In its ruling, the court said these deals don’t breach competition rules, per se, unless they have “a negative and appreciable effect on competition within the internal market,” the court said.

In assessing the potential harm to competition caused by such deals, the court said, “it is necessary to determine how the market will probably operate and be structured in the absence of the concerted practice.” The court also stated that, with respect to generic drug manufacturers that have not yet entered the market at the conclusion of such agreements, they must demonstrate there is “real and concrete possibilities of access to the market.”

To that end, the court held it is necessary to assess whether the generic drug manufacturer “has a firm intention and an inherent ability to enter the market, having regard to the preparatory steps it has taken, and that there are no insurmountable barriers to entry. Any patent rights do not constitute, in themselves, such barriers, according to the court, since their validity can be contested.”

In a statement, the CMA said it welcomed the ruling. “This case shows our ongoing determination to take action against illegal behavior by drug companies designed to stifle competition at the expense of the NHS,” said CMA Chief Executive Andrea Coscelli.

The case now goes back to the Competition Appeal Tribunal for a final judgment.

Wider compliance implications

Compliance and legal professionals will want to stay on top of these cases, as more may be on the way. The CMA, for example, said it currently has other, unrelated investigations open in relation to seven other pharmaceutical drugs.

On a broader enforcement level, enforcement of pay-for-delay cases have long been a bane of antitrust regulators in both the United States and the European Union. In 2014, French pharmaceutical firm Servier was fined a record €427 million (U.S. $471 million) in a pay-for-delay case brought by the European Commission. Additionally, the Commission in December 2013 fined Johnson & Johnson and Novartis a total of €16 million (U.S. $17.7 million) for delaying market entry of generic painkiller fentanyl.

In the United States, pay-for-delay agreements remain one of the Federal Trade Commission’s enforcement priorities. Currently, the FTC has brought cases against Impax Laboratories; Allergan, Watson, and Endo; and Cephalon.

And in October 2019, California became the first state in the nation to pass a law tackling pay-for-delay agreements. The bill prohibits these agreements between brand name and generic drug manufacturers by making them presumptively anticompetitive.

All of this should serve as a warning to compliance and legal professionals in the pharmaceutical industry that both enforcement authorities and regulators are ramping up their efforts to challenge pay-for-delay patent agreements moving forward.