Vestager: The competition authorities still focus on high drug prices

4.11.2017

European Commissioner Margrethe Vestager visited the US in late March 2017 where she met with the chairman of the US Federal Trade Commission ("FTC") to discuss their mutual concerns about competition in the drug industry, including excessive prices and pay-for-delay agreements.
By economist Thomas Andersen

During recent years, the EU and US competition authorities have expressed an increasing interest in the drug industry, which has been subject to investigations in cases of excessive prices and the so-called pay-for-delay agreements.

Excessive prices

The FTC has previously investigated drug companies that have purchased rights to sell drugs against rare diseases (so-called "orphan drugs") in order to subsequently increase the prices of the products. The European Union has recently made decisions in cases concerning excessive prices in the drug industry, see e.g. Aspen (2016) and Pfizer and Flynn Pharma (2016).

In the Aspen case it was tested whether Aspen had abused its dominant position to set excessive prices by examining:
  • whether there was an excessive discrepancy between the manufacturing costs of, and the prices charged for, the products and, since this was deemed to be the case,
  • whether the prices were excessive and unfair, e.g. by examining price development over time, the lack of economic justification for the price changes, particular circumstances relating to the product, and the adverse effects of the high prices.

Vestager said about excessive drug prices that it is a question about finding a balance where prices are sufficiently high to secure investments in the development of drugs even if the drugs are not necessarily directed at a large market, but simultaneously the drug companies must not be allowed to charge excessive prices.

"Pay-for-delay" agreements

A pay-for-delay agreement is an agreement between a drug manufacturer and a generic manufacturer in which the generic manufacturer is paid for delaying or abstaining from introduction of a less expensive product in the market. This will protect the original manufacturer from competition after expiry of the patent rights and will enable the manufacturer to set a higher price for the product than in the case of effective competition.

Since 2008, the European Commission has been preparing an annual sector investigation of the patent settlement agreements in the drug industry and made decisions in several cases concerning pay-for-delay agreements, see for example the cases Lundbeck, Fentanyl and Perindopril (Servier)

Vestager expressed enthusiasm for the fact that the Commission has seen a reduction in the number of drug company agreements that are designed to keep less expensive drugs out of the market.