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Australia – Briefing Note For The Pharmaceutical Industry.

22 April, 2014

 

Legal News & Analysis – Asia Pacific – Australia  Competition & Antitrust

 

ACCC v Pfizer Australia [2014]


What You Need To Know

 

  • On 13 January 2014, the Australian Competition and Consumer Commission (ACCC) brought proceedings against Pfizer Australia Pty Ltd (Pfizer) in the Federal Court of Australia in relation to Pfizer’s conduct in the period leading up to, and shortly after, the expiry of its atorvastatin patent for “blockbuster” pharmaceutical Lipitor, which the ACCC says was to prevent or deter generic versions of atorvastatin from entering the market in Australia.
  • The ACCC considers Pfizer’s conduct was anti-competitive and in particular, that Pfizer misused its market power and sought to substantially lessen competition in breach of the Competition and Consumer Act 2010 (Cth).
  • This case represents the first attempt by the ACCC to discipline the conduct of originator pharmaceutical companies attempting to protect market share following the loss of patent exclusivity.

ACCC Launches Proceedings


On 13 January 2014, the Australian Competition and Consumer Commission (ACCC) brought proceedings against Pfizer Australia Pty Ltd (Pfizer) in the Federal Court.
The ACCC’s case is that in the period leading up to, and shortly after, the expiry of its atorvastatin patent for blockbuster pharmaceutical Lipitor, Pfizer engaged in conduct to prevent or deter generic versions of atorvastatin from entering the market in Australia. The ACCC considers that Pfizer’s conduct was anticompetitive and in particular, that Pfizer misused its market power and sought to substantially lessen competition in breach of the Competition and Consumer Act 2010 (Cth) (CCA).


What Did Pfizer Do?


Pfizer’s Australian patent for the atorvastatin molecule used in Lipitor was set to expire on 18 May 2012, and Pfizer (correctly) predicted that a number of generic versions of atorvastatin would enter the market shortly after that. In addition, as part of a 2008 patent settlement, Pfizer had agreed to let Ranbaxy launch a generic atorvastatin product from 18 February 2012 (ie 3 months before patent expiry and other generic products).


In anticipation of the upcoming loss of exclusivity Pfizer took the following steps.


1. Direct Sales. In December 2010, Pfizer announced that it would cease supplying Lipitor and other prescription pharmaceuticals to community pharmacies through wholesalers, and would instead supply pharmacies directly through “Pfizer Direct”.


2. Accrual Fund Scheme. In January 2011, Pfizer established an “Accrual Fund” for each community pharmacy to whom that it sold products. Pfizer began to credit each Accrual Fund with a notional sum equivalent to 5% of the pharmacy’s purchases of Lipitor each month (the Lipitor Rebate). Similar rebates were also applied in relation to other Pfizer products (Aricept, Caduet, Celebrex, Effexor, Viagra, Xalacom and Xalatan).
Each pharmacy received a monthly statement showing the credits in its Accrual Fund, but Pfizer did not advise the pharmacies how to access or redeem those credits. As at 5 April 2012, Pfizer held Accrual Funds for more than 5,000 community pharmacies. The total value of the Lipitor Rebates was approximately AUD 35.6 million.


3. Branded Generic. Pfizer developed its own generic version of atorvastatin (Pfizer Atorvastatin), and started supplying it in Australia in January 2012. Pfizer Atorvastatin was the same size, shape and colour as Lipitor, and had Pfizer’s name on its packaging.

 

4. Pfizer Atorvastatin Offer. When Pfizer started supplying Pfizer Atorvastatin in January 2012, it made the following Pfizer Atorvastatin Offer to virtually all community pharmacies in Australia:


a) Pfizer offered a range of “stepped” discounts (“Platinum”, “Gold” or “Silver”), with the pharmacy receiving increasing proportions of Lipitor Rebates from the Accrual Fund and discounts on the purchase of both Lipitor and Pfizer Atorvastatin, depending on:

 

  • the proportion of Lipitor sales it anticipated would be converted to sales of generic atorvastatin, once generic versions were available on the market (the Nominated Conversion Rate). The Nominated Conversion Rate determined the size of the discount that the pharmacy would receive on both Lipitor and Pfizer Atorvastatin purchases.
  • the pharmacy agreeing to purchase 75% of its anticipated generic atorvastatin requirements from Pfizer in the form of Pfizer Atorvastatin for 6, 9 or 12 months. The longer the minimum supply arrangement, the greater the amount of Lipitor Rebates that the pharmacy could access.

b) Pfizer also made an “Alternate” offer, which provided for smaller discounts on Lipitor and Pfizer Atorvastatin purchases, but no access to the Lipitor Rebates.


The table below is adapted from the ACCC’s Statement of Claim.

 

 Offer Type Proportion Of The Accrual Fund Released To The Pharmacy Required Upfront Purchase Volume Of Atorvastatin Pfizer Nominated Conversion Rate Atorvastatin Pfizer Discount Lipitor Discount
Platinum 100% 75% of 12 months’ total generic atorvastatin volume <60% 60% 20%
60-75% 70% 10%
>75% 75% 5%
Gold 75% 75% of 9 months’ total generic atorvastatin volume <60% 60% 15%
60-75% 65% 10%
>75% 70% 5%
Silver 50 % 75% of 6 months’ total generic atorvastatin volume <60% 55% 10%
60-75% 60% 8%
>75% 65% 5%
Alternate 0% No Minimum Volume Requirement n/a 40% 5% until 1 June 2012, then 1.5%

 

In order to have the Lipitor Rebate amount released as a credit on its end of month statement for April 2012, a pharmacy was required to accept a Platinum, Gold or Silver Offer by 24 February 2012, and to accept the entire nominated volume of Pfizer Atorvastatin in a single shipment before 30 April 2012.


By 24 February 2012 (when Ranbaxy was able to enter the market), approximately 2346 pharmacies had accepted one of the three offers (with more than 2100 pharmacies accepting the Platinum Offer with the 12 month supply period). By 18 May 2012 (when all other generics were able to enter the market), more than 3300 pharmacies had accepted a Platinum, Gold or Silver Offer.


Why Is The Conduct Allegedly Anti-Competitive?


The ACCC alleges that Pfizer’s conduct was a misuse of market power (section 46, CCA) and amounted to exclusive dealing with a purpose of substantially lessening competition (section 47, CCA).


Each of those provisions carries a maximum penalty (per contravention) of the greater of AUD 10 million, or 3 times the financial gain from the conduct (if quantifiable), or 10% of group turnover. If the ACCC is successful in proving its allegations, it is likely to request the Court impose substantial financial penalties.

 

Misuse Of Market Power Claim


The ACCC alleges that Pfizer had substantial market power in a market in Australia for the supply of atorvastatin. This is because until 18 February 2012, Pfizer was the only company that could legally supply atorvastatin in Australia and until 1 June 2012 only Pfizer Atorvastatin and Ranbaxy’s Trovas could be supplied to the public through the PBS.


The ACCC says Pfizer used its market power to make the Pfizer Atorvastatin Offer (an offer it could not make without its privileged market position), and that it did so to prevent or deter suppliers of generic atorvastatin from competing in the atorvastatin market.


In particular, the ACCC alleges that the Pfizer Atorvastatin Offer incentivised pharmacies to purchase large stockpiles of Pfizer Atorvastatin before Lipitor lost exclusivity, thereby limiting the subsequent demand (and shelf space) for generic atorvastatin products and sought to secure Pfizer’s market share by entrenching Pfizer Atorvastatin before Lipitor lost exclusivity.


The ACCC relies heavily on Pfizer’s internal documents to make out its allegations as to what Pfizer intended would be the result of its conduct.


Exclusive Dealing Claim


The ACCC further alleges that the Pfizer Atorvastatin Offer amounted to anti-competitive exclusive dealing because Pfizer was supplying the Lipitor Rebates and the discounts on Lipitor and Pfizer Atorvastatin on condition that the pharmacies acquire not more than 25% of their anticipated generic atorvastatin requirements from other suppliers for the nominated period of time.


In this limb of its case, the ACCC says Pfizer, by providing discounts and rebates that were dependent on purchasing substantial volumes of generic atorvastatin from Pfizer, had the purpose of substantially lessening competition in the market for atorvastatin by seeking to prevent or deter other suppliers from engaging in competitive conduct in the market.


Next Steps


This case is particularly interesting because:

 

  • it represents the first attempt by the ACCC to discipline the conduct of originator pharmaceutical companies attempting to protect market share following the loss of patent exclusivity. Such attempts – which can take a number of forms, including the introduction of “follow-on” patented products and aggressive information campaigns against generic products – are often called “evergreening”, and have been the subject of recent investigation and successful prosecution by competition regulators in overseas jurisdictions;
  • it is the ACCC’s first allegation of misuse of market power in the health/pharmaceutical sector for many years, ie. since its prosecution of Baxter Healthcare for exclusive product bundling; and
  • it comes at a time when the Government is preparing for a comprehensive “root and branch” review of competition law in Australia. That review is likely to include detailed consideration of the misuse of market power provisions, which are an area where the ACCC has traditionally had difficulty in proving contraventions.

 

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For further information, please contact:

 

Ross Zaurrini, Partner, Ashurst
[email protected]

 

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