Excessive pricing in the pharmaceutical sector in the Netherlands – ACM/Leadiant

On 19 July 2019, the Dutch Competition Authority (ACM) fined Leadiant for an abuse of dominance through excessive pricing, a practice that has become increasingly of interest to European government competition enforcement agencies. Specifically, the ACM found that the prices Leadiant charged for its prescription drug CDCA-Leadiant were excessive, and the ACM imposed a fine on Leadiant of 19,569,500 euros.

Background

CDCA-Leadiant is a drug that helps treat the rare metabolic disease CTX (a so-called orphan disease). CDCA was first marketed under the name Chenofalk and was acquired by Leadiant in 2008. At that time, the maximum price in the Netherlands was 46 euros for a package of 100 capsules. In 2009, Leadiant changed the trade name of the drug to Xenbilox and raised the price for 100 capsules to 885 euros. After application for an orphan designation and marketing authorization, Leadiant again raised the price from 885 euros to 3,103 euros. Orphan designating status was granted in 2014. Following the market authorization in 2017 when Leadiant was granted the exclusive right for ten years to supply a CDCA-based drug for the treatment of CTX to the European market, Leadiant introduced CDCA-Leadiant on the Dutch market, and the company stopped selling Xenbilox. Leadiant subsequently increased the selling price to 14,000 euros-- over 15 times as high as the price of Xenbilox before Leadiant launched its project in 2014 to obtain the orphan drug designation. As a result, as of 2017 the drug costs approximately 153,000 euros per patient per year.

Dominant position

ACM established that Leadiant enjoyed a dominant position on the Dutch market for CDCA-based drugs for the treatment of CTX, with a 100% market share. CTX patients are highly dependent on CDCA, and there are no alternative drugs. Furthermore, the pharmacy of the Amsterdam University Medical Center (UMC) in 2018 manufactured CDCA for a few months for the treatment of CTX. However, following a complaint from Leadiant, Amsterdam UMC had to discontinue this production, and it was not until January 2020 that it managed to relaunch the manufacturing of CDCA.

Leadiant denied having abused any alleged dominant position. In this respect, Leadiant argued that it had always been its intention to agree on a much lower price than the 14,000 euros it was charging, and that it was the health insurers and the Dutch Ministry of Health, Welfare and Sport (VWS) that deliberately frustrated the negotiations. This reasoning was firmly rejected by the ACM.

According to the ACM, Leadiant merely issued a few general calls for negotiations, and for over 2.5 years it hardly tried to contact health insurers to launch actual negotiations. As an undertaking with a dominant position, the ACM determined that Leadiant had a special responsibility to negotiate effectively and seriously, and not to charge and collect an excessive price. Active engagement was required on the part of Leadiant.

Excessive pricing

The ACM concluded that Leadiant not only had a dominant position in the applicable market, it abused that position through excessive pricing. In that respect, ACM assesses both required criteria: (i) the price charged was exorbitantly high (excessive); and, (ii) the price was unfair. ACM stressed that this test clearly applies to a price charged for an orphan drug in a situation of market exclusivity. It is not simply the market exclusivity that was being considered, but also the manner in which Leadiant used its exclusivity. The ACM declared that a higher price could be justified if the manufacturer sought to recoup high costs, or if the product offers many benefits or is innovative. However, the ACM’s investigation revealed that neither was the case with respect to CDCA-Leadiant.

A. Price was exorbitantly high

To determine whether the price was exorbitantly high, the ACM assessed the costs and revenues that could be attributed to Leadiant’s efforts to obtain orphan drug designation and marketing authorization for CDCA-Leadiant.

On the cost side ACM considered: (i) the investments Leadiant made since the start of this project in 2014; (ii) the costs that Leadiant incurred to manufacture and distribute the drug; and, iii) the risk that the project could fail. Regarding the revenues, ACM used the revenues of Xenbilox’s price increase in 2014 as well as all revenues from sales of CDCA-Leadiant from the moment Leadiant brought the drug to market.

The ACM stressed that Leadiant’s CDCA project was characterized by low costs in comparison with the revenues, low risks, and very high return involved. The ACM concluded that the price Leadiant charged was exorbitantly high. According to the ACM, Leadiant would already have achieved a significant profit if it had charged less than one-third of the price it in fact collected. Leadiant’s internal rate of return for the sales it made was extremely high, even based on conservative assumptions.[1]

B. Price was unfair

According to the ACM, the price Leadinant charged for the drug was not only exorbitantly high, but also unfair. In its assessment, the ACM took into account the context of the orphan drug designation and the marketing authorization that Leadiant obtained. The ACM concluded that Leadiant obtained the orphan drug designation because of the very limited number of CTX patients. But Leadiant did not introduce any innovation, and CDCA-Leadiant did not have any therapeutic added value compared with the previous CDCA-based drugs.

The ACM pointed out that although in general the requirements for registered drugs help ensure the safety and efficacy of the drugs, in the case of CDCA-Leadiant this benefit was very limited because CDCA had been prescribed to CTX patients safely and effectively for decades. Moreover, the unfairness of the price followed from the fact that the price that Leadiant charged was far higher than the prices for Chenofalk and Xenbilox a few years earlier, and that CDCA-Leadiant’s price was also considerably higher than the price of CDCA that had been compounded by Amsterdam UMC.

Conclusion

In conclusion, the ACM decided that the price of 14,000 euros that Leadiant charged and collected from June 2017 through December 2019 was excessive. The ACM did not find any indications that Leadiant was willing to agree on a non-excessive price, and given that even the lower price that Leadiant considered as a possibility (according to its own financial records), was exorbitantly high and unfair.

Leadiant already has indicated that it will challenge the ACM decision. Leadiant claims, inter alia, that the ACM incorrectly assumed that Leadiant had a 100% market share even during the period April 2018 - August 2018, when Leadiant's product was removed from the market and an unauthorized pharmacy compounded product was reimbursed instead.

Context and perspectives

The ACM decision fits in a trend of increased EU competition law scrutiny of the pharmaceutical industry.

There, of course, also is the example of Aspen Pharmaceuticals, where following an investigation of the European Commission against Aspen’s pricing practices for cancer medicines, Aspen proposed commitments to address the Commission’s competition concerns.[2] These commitments included a price reduction by an average of 73% in the European Union and the EEA.[3]

But also, more recently, in the UK the CMA recently imposed fines of over £260 million on pharmaceutical firms Auden McKenzie and Actavis UK (now known as Accord-UK), AMCo (now Advanz Pharma), and Waymade for abusing their dominant positions by charging unfair and excessive prices that increased the price of hydrocortisone tablets by over 10,000% in a ten-year period from 2008 to 2018.[4]

These are just some examples of increased competition law activity in the pharmaceutical industry.  The indications are that this activity will remain or even increase. In this respect it should be noted that Leadiant was not only under investigation in the Netherlands but there are also investigations and/or enforcements requests pending in other EU member States, including Italy, Belgium, and Spain.

Hopefully, the increased competition scrutiny will also have some preventive effects in the sense that pharmaceutical companies will more carefully assess the price that should still be deemed reasonable in view of the costs and risks involved. Although good medicines are unmistakably invaluable, that does not necessarily justify prices which are not legitimately related to a pharmaceutical company’s investment. In other words, there are boundaries.

Footnotes

[1] The ACM used a required rate of return of 15% (reasonable return for investors).

[2] In accordance with Article 9(1) of the Council Regulation (EC) No 1/2003.

[3] Decision of 10 February 2021, Case AT.40394 – Aspen, C(2021) 724.

[4] The decisions can be found here: https://www.gov.uk/government/news/cma-finds-drug-companies-overcharged-nhs. See also https://www.hausfeld.com/nl-nl/what-we-think/perspectives-blogs/egregious-competition-law-breach-costs-nhs-millions-in-artificially-inflated-drugs-costs/.

*Rogier Meijer is a Partner in the Amsterdam office.