Aspen: The Italian Competition Authority fines a generic manufacturer of drugs for excessive pricing

By the decision made on 29 September 2016 in Aspen[i], the Italian Competition Authority (ICA) has imposed a fine of more than EUR 5 million on the Aspen group (Aspen), a South African manufacturer of generic drugs. Aspen violated Article 102 TFEU by imposing excessive prices for the supply of the so-called ‘Cosmos drugs’. These drugs included Leukeran, Alkeran, Purinethol and Tioguanine, which included the active principles of chlorambucil, melphalan, mercaptopurine and tioguanine, respectively. All these drugs were used to treat cancer pathologies and included in a wider package of pharmaceutical products, whose marketing rights had been purchased by Aspen from the originator GlaxoSmithKline (GSK) in 2009.

Aspen had a dominant position in the relevant product markets for the commercialization of anti-cancer drugs manufactured using the active principles of alkeran, leukeran, purinethol and tioguanine. It had the only one market authorization for the sale of drugs and potential competitors were unlikely to enter the market as they had also a little financial incentive to do so due to the small dimension of the relevant markets. Aspen abused its dominant position by taking rather an aggressive stance in negotiating the new selling prices of the Cosmos drugs with AIFA, imposing on the latter excessive prices in breach of Article 102 TFEU.  In particular, during the negotiations Aspen exerted an undue pressure on AIFA in the three following ways:

i)                 Asking repeatedly for a re-classification of the Cosmos drags from the ‘A’ and ‘H’ class, whose purchase price was full reimbursed by the Italian national health system, to the ‘C’ class, whose full purchase costs had to be met by patients. Aspen was aware that this re-classification was impossible due to the fact the Cosmos drugs could not be replaced with other drugs available in the market;

ii)               Credible and continuous threat of discontinuing the supply of Cosmos drugs in case of the AIFA’s refusal to grant the requested price increases. Had Aspen stopped selling the Cosmos drugs in Italy, it would have been necessary to import them from overseas with the obvious higher costs for health authorities and patients.

iii)             Improper use of the stock allocation mechanism to strategically exploit the scarcity of the drugs in the Italian market. Evidence collected by the ICA indicated that the quantities of Cosmos drugs marketed in Italy by Aspen pending the negotiations with AIFA were insufficient to meet the whole demand for the drugs. 

Acting in this way, Aspen succeeded in obtaining a really substantial price increase, the new prices being between 300%- 1,500% higher than the original ones. To assess whether the Aspen’s prices were excessive, the ICA employed a two-limb test developed by the Court of Justice in United Brands[ii]. The first step of the United Brands test implies a price-cost analysis, focusing on the difference between the costs incurred and the prices charged, while the purpose of the second limb of the test is to assess whether the above cost prices are also unfair. Under the first limb of the test, the ICA applied two different approaches, the ‘cost plus’ methodology and a methodology based on the contribution from the sale of each of the Cosmos drug to the net operating profit of Aspen. The two methodologies had similar results, the sales revenue being  100%-400% of the costs.

As for the second limb of the United Brand test, the ICA drew the conclusion that the Aspen prices were unfair for manifold reasons. Indeed, the ICA pointed out that since the Cosmos drugs were sold for several decades, all the expenses for the research & development and promotion expenses had been already sustained by the originator GSK. The prices asked for by Aspen were unconnected to its production costs and investments in research & development activities and did not result in the improvement of the quality of products. As a justification for the price increase, Aspen submitted that the new prices were needed to align its pricing policies in Italy with the prices charged in the other EU Member States to prevent parallel imports and to comply with pharmacovigilance obligations. However, these defensive arguments were rejected by the ICA as groundless.

What the ICA said in Aspen is a business model, consisting of buying drugs that, though off-patent, still enjoyed a strong market position, with the view to extract a rent by applying excessively high prices, might breach Article 102 TFEU. As the ICA ruled that the new prices would lead to greater public and private expenses, patients and health authorities are then likely to commence follow-on actions for damages

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[i] Italian Competition Authority (Autorità Garante del Mercato e della Concorrenza, decision  of 29 September 2016, Case A-480, Incremento Prezzo Farmaci Aspen (Aspen), http://www.agcm.it/component/joomdoc/allegati-news/A480_chiusura.pdf/download.html.

[ii] Case 22/76, United Brands v Commission, [1978] ECR 207.