EU Law and Life Sciences

Peter BOGAERT Damien GERADIN Editors

Robin BLANEY

Jennifer BOUDET

Miranda COLE

Michael CLANCY

Sarah FOREST

Laurie-Anne GRELIER

Christos MALAMATARIS

John RUPP

Jennifer SAPERSTEIN

Henriette (Jetty) TIELEMANS

Nicoleta TUOMINEN

Kristof VAN QUATHEM

John WILEUR

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Editors Peter Bogaert Damien Geradin

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EU Law and LifE SciEncES All rights reserved. No photocopying: copyright licenses do not apply. situation. Legal advice should always be sought before taking any legal action based on the information provided. The publisher accepts no responsibility for any acts or omissions contained herein. Enquiries concerning reproduction should be sent to the Institute of Competition Law, at the address below.

Printed in the United States of America

First Printing, 2014 ISBN 978-1-939007-421

Publisher’s Cataloging-in-Publication (Provided by Quality Books, Inc.)

EU law and life sciences / editors, Peter Bogaert, Damien Geradin. pages cm Includes bibliographical references and index. LCCN 2013956306 ISBN 9781939007421 ISBN 9781939007445

1. Life sciences--Law and legislation--European Economic Community countries. I. Bogaert, Peter. II. Geradin, Damien.

KJE6172.E9 2014 349.24 QBI13-600305

Cover and book design by Yves Buliard, www.ybgraphic.fr

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Everyone with an interest in the life sciences sector must have at least a basic knowledge of the European Union legal and regulatory system. The EU is the single largest market for medicines and authorities in the member states still play a major role in regulating pharmaceuticals and medical devices, many of the most important issues are now decided at the EU level, by the European Medi- cines Agency, the European Commission, Parliament and Council, the courts of the European Union and other EU institutions.

This book provides a detailed description of the principles of EU law, regulation and policy that most directly affect the pharmaceutical and medical device sectors. It describes systems for control of market entry; periods of regulatory and patent protection; regulation of advertising and promotion; - tion, parallel trade, life cycle management and pricing and merger control; protection of personal data; which combines experts in all relevant areas of law and regulation in major jurisdictions around the world.

suggestions for additional topics that might be covered in future editions.

Richard Kingham Covington & Burling LLP

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III INSTITUTE OF COMPETITION LAW PUBLICATIONS

WILLIAM E. KOVACIC: AN ANTITRUST TRIBUTE LIBER AMICORUM (Vol. I) Nicolas Charbit - Elisa Ramundo - Anna Chehtova - Abigail Slater (Eds.) January 2013 431 pages (Hardcover and e-Book)

WILLIAM E. KOVACIC: AN ANTITRUST TRIBUTE LIBER AMICORUM (Vol. II) Nicolas Charbit - Elisa Ramundo (Eds.) Anna M. Pavlik - Jessica Rebarber (Asst. Eds.) March 2014 (Hardcover and e-Book)

2013 COMPETITION DIGEST A SYNTHESIS OF EU AND NATIONAL LEADING CASES Foreword by Frédéric Jenny Nicolas Charbit - Elisa Ramundo - Maly Op-Courtaigne (Eds.) January 2013 672 pages (Paperback and e-Book)

2014 COMPETITION DIGEST A SYNTHESIS OF EU AND NATIONAL LEADING CASES Foreword by Frédéric Jenny Nicolas Charbit - Elisa Ramundo - Maly Op-Courtaigne (Eds.) September 2014 (Paperback and e-Book)

COMPETITION LAW ON THE GLOBAL STAGE: DAVID GERBER’S GLOBAL COMPETITION LAW IN PERSPECTIVE Nicolas Charbit - Elisa Ramundo (Eds.) January 2014 173 pages (Hardcover and e-Book)

EU LAW AND LIFE SCIENCES Peter Bogaert - Damien Geradin (Eds.) January 2014 274 pages (Hardcover and e-Book)

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IV EU Law and LifE SciEncES CONTRIBUTORS

Robin Blaney

Jennifer Boudet

Miranda Cole

Michael Clancy

Sarah Forest

Laurie-Anne Grelier

Christos Malamataris

John Rupp

Jennifer Saperstein

Henriette (Jetty) Tielemans

Nicoleta Tuominen

Kristof Van Quathem

John Wileur

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EU Law and LifE SciEncES EU Law and LifE SciEncES V TABLE OF CONTENTS

1 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS 5 A. INTRODUCTION ...... 5 B. HISTORICAL OVERVIEW ...... 6 C. KEY ASPECTS OF THE MAIN EU REGULATORY REGIMES...... 10 D. PRODUCTS FOR ANIMAL USE ...... 20 E. BORDERLINE DETERMINATIONS ...... 21 F. GEOGRAPHICAL SCOPE OF THE EU RULES ...... 22

2 THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES 25 A. INTRODUCTION ...... 26 B. MARKETING AUTHORISATION PROCEDURES ...... 26 C. TYPES OF MARKETING AUTHORISATION APPLICATIONS ...... 34 D. OTHER AUTHORISATION PROCEDURES AND EXEMPTIONS ...... 39 E. OBLIGATIONS OF THE MARKETING AUTHORISATION HOLDER ...... 42

3 THE PROTECTION OF MEDICINAL PRODUCTS 47 A. PATENT PROTECTION ...... 47 B. REGULATORY EXCLUSIVITY ...... 51

4 ADVERTISING AND INFORMATION – EU RULES GOVERNING MEDICINAL PRODUCTS AND MEDICAL DEVICES 63 A. INTRODUCTION ...... 64 B. MEDICINAL PRODUCTS ...... 65 C. MEDICAL DEVICES ...... 82 D. TRANSPARENCY RULES ...... 83

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EU Law and LifE SciEncES 1 5 PHARMACOVIGILANCE 85 A. INTRODUCTION ...... 85 B. KEY REGULATORY AUTHORITIES ...... 87 C. PHARMACOVIGILANCE QUALITY SYSTEM ...... 88 D. EXPEDITED REPORTING REQUIREMENTS ...... 90 E. PERIODIC REPORTING REQUIREMENTS ...... 95 F. RISK MANAGEMENT PLAN ...... 97 G. POST-AUTHORISATION SAFETY STUDIES ...... 98 H. OTHER SOURCES OF REPORTING OBLIGATIONS ...... 99 I. OTHER CONSIDERATIONS...... 101 J. ENFORCEMENT AND PENALTIES ...... 103

6 MARKET DEFINITIONS IN THE LIFE SCIENCES SECTOR 107 A. INTRODUCTION: BASIC CONCEPTS ...... 107 B. HUMAN PHARMACEUTICALS ...... 109 C. OTHER PRODUCT GROUPS ...... 115 D. CONCLUSION ...... 119

7 PARALLEL TRADE OF LIFE SCIENCE PRODUCTS 121 A. INTRODUCTION ...... 121 B. KEY STAKEHOLDERS ...... 122 C. APPLICABLE LAWS AND CASES ...... 124 D. APPLICATION OF THE LAWS AND CASES TO SPECIFIC STRATEGIES ...... 136

8 LIFE-CYCLE MANAGEMENT STRATEGIES AND EU COMPETITION LAW 139 A. INTRODUCTION ...... 139 B. PHARMACEUTICAL SECTOR INQUIRY ...... 140 C. REGULATORY ABUSE ...... 142 D. PATENT SETTLEMENTS BETWEEN ORIGINATORS AND GENERIC COMPANIES ...... 156 E. CONCLUSION ...... 159

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2 EU Law and LifE SciEncES 9 PRICING OF PHARMACEUTICAL PRODUCTS AND COMPETITION LAW 161 A. ABUSIVE PRICING PRACTICES ...... 162 B. EXCLUSIONARY PRICING PRACTICES ...... 162 C. EXPLOITATIVE PRICING PRACTICES ...... 184 D. DISCRIMINATORY PRICING PRACTICES ...... 188 E. CONCLUSION ...... 192

10 EU MERGER CONTROL IN THE LIFE SCIENCES SECTOR 193 A. INTRODUCTION ...... 193 B. PROCEDURAL RULES ...... 194 ...... 198 ...... 206 E. REMEDIES ...... 209 F. CONCLUSION ...... 213

11 DATA PROTECTION IN THE LIFE SCIENCES INDUSTRY 215 A. EU DATA PROTECTION LAW ...... 215 B. DATA PROTECTION IN THE PHARMACEUTICAL SECTOR ...... 222 C. DATA PROTECTION LAW IN THE PHARMACEUTICAL SECTOR IN PRACTICE ...... 226

12 BRIBERY RELATED RISK AND MITIGATION MEASURES FOR LIFE SCIENCES COMPANIES 235 A. OVERVIEW OF BRIBERY ACT ...... 237 B. OVERVIEW OF THE FCPA ...... 240 C. RECENT EUROPEAN LIFE SCIENCES ANTI-CORRUPTION ENFORCEMENT ACTIONS ...... 245 D. RISK AREAS AND ANTI-CORRUPTION CONTROLS ...... 252 E. CONCLUSION ...... 258

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EU Law and LifE SciEncES EU Law and LifE SciEncES 3 1 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

A. INTRODUCTION 1.0 c) Marketing authorisation 1.31 B. HISTORICAL OVERVIEW 1.03 e) Pharmaceutical operators 1.41 1. Gradual development 2. Medical devices 1.49 over several decades 1.06 3. Cosmetic products 1.52 2. Importance of national rules and procedures 1.12 4. Foodstuffs 1.55 5. Biocidal products 1.58 C. KEY ASPECTS OF THE MAIN EU REGULATORY REGIMES 1.18 D. PRODUCTS FOR ANIMAL USE 1.60

1. Medicinal products 1.21 E. BORDERLINE DETERMINATIONS 1.64 a) Regulatory authorities 1.26 F. GEOGRAPHICAL SCOPE OF THE EU RULES 1.69

A. INTRODUCTION

1.01 The European Union (‘EU’) has gradually developed regulatory regimes for most life sciences products. The different regimes constitute a fairly comprehensive set of rules that captures the bulk of health and consumer products used in (or on) the body. This chapter provides an overview of the most important categories of products, in particular those for - tion B) and describes the key aspects of the main regimes (Section C). It then provides an outline of the EU rules1 on products intended for animal use (Section D), but these products are not further discussed in this book.2 It also discusses the main principles of borderline determinations (Section E). Finally, this chapter describes the geographical scope of the EU rules, in particular under the European Economic Area (‘EEA’) agreement and other bilateral cooperation agreements (Section F).

1 This chapter generally refers to ‘European Union’, ‘EU’ or ‘Union’ rules. This is done for reasons of simplicity and clarity. The relevant rules were technically adopted as rules of the European Economic Community (‘EEC’) until November 1993, and then as European Community (‘EC’) rules until December 2009. Occasionally, they were also adopted as Euratom rules. otherwise.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 5 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1.02 - ry requirements for placing the product on the market (for instance, pre-market approval for medicines, CE-marking for medical devices,3 or self-assessment for cosmetics), it may instance, health claims for foods, as opposed to medical devices), and it has important implications for regulatory exclusivity rights (in particular the data and marketing protection for medicines).4 in areas that are not (or not fully) regulated by EU law, such as restrictions on advertising (especially for medical devices) or VAT rates.

B. HISTORICAL OVERVIEW

1.03 EU life sciences product rules have been developed gradually, starting in the early 1960s, and have over time developed into an almost comprehensive regime. These rules also evolved from a mere harmonisation of national rules to a full set of rules and procedures taken at the EU level.

1.04 To a great extent, the rules are based on the powers of the EU to regulate products to guarantee their free movement between Member States (in particular, the so-called ‘single market legislation’). That legislation has, however, always included the protection of public health as a key objective. As a general rule, the protection of health is recognised as being more 5 Since December 2009, the EU has express public health powers to regulate the quality and safety of medicinal products and medical devices.6 More and more, the EU rules also take the form of Regulations, which are directly applicable throughout the EU, as opposed to Directives, which need implementation or ‘transposition’ in national law to become binding on companies and private persons.

1.05 Notwithstanding the expanding scope and increasingly detailed nature of the EU rules related to life sciences products, important areas remain subject to national provisions. Many regulatory issues are also subject to a combination of EU and national rules or procedures.

3 The CE-marking indicates that the medical device has been subject to a conformity assessment and meets device prior to its placing on the market. 4 See Chapter 3 on the protection of medicinal products. 5 The Court of First Instance, for instance, held in the Anorectics case that there is a “general principle, iden- considerations”. See joined Cases T-74/00, T-76/00, T-83/00 to T-85/00, T-132/00, T-137/00 and T-141/00 Artegodan GmbH and Others v Commission [2002] ECR II-04945, para 173. 6 Article 168(4) TFEU. Prior to 2009, the EU already had powers to regulate the quality and safety of blood and other human materials such as organs, and to adopt veterinary and phytosanitary measures.

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6 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1. Gradual development over several decades

1.06 7 life sciences rules were adopted in the 1960s. They initially only imposed broad requirements for certain products, such as the need for a marketing authorisation for medicines (mainly in response to the thalidomide scandal8 such as the list of permitted colorants for use in foods.9

1.07 Over the years, various other product categories became subject to EU rules. As of 1976, Directive 76/768 on cosmetic products10 and other tobacco products was also adopted in 1989.11 Between 1990 and 1998, three Di- rectives on medical devices were adopted to regulate active implantable medical devices,12 general medical devices13 and in vitro diagnostic medical devices.14 Another 1998 Directive introduced regulation of biocidal products.15

1.08 At the same time, the legislation relating to certain types of products became much more detailed and gradually provided a more complete regime. For instance, the EU rules on medicines initially excluded non-branded generic medicines, radiopharmaceuticals, immu- rules were adopted for these products. The rules on marketing authorisations and regulatory controls for medicines became much more detailed and aspects such as advertising, whole-

7 As stated in the introduction, for the sake of simplicity, reference is made to EU rules even if the rules were historically EEC or EC rules. 8 Thalidomide was used in the late 1950s and early 1960s in Germany against nausea and morning sickness in pregnant women. It led to the birth of thousands of children with limbs malformation. The thalidomide scandal led to the development of the regulatory regime for the approval and monitoring of medicinal products. 9 Council Directive of 23 October 1962 on the approximation of the rules of the Member States concerning the colouring matters authorised for use in foodstuffs intended for human consumption, OJ 1962 P115, pp. 2645-2654. This was followed by rules on preservatives. 10 Council Directive 76/768/EEC of 27 July 1976 on the approximation of the laws of the Member States relating to cosmetic products, OJ 1976 L262, pp. 169-200. The Directive has been replaced by Regulation (EC) No 1223/2009 (see below). 11 Council Directive 89/622/EEC of 13 November 1989 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the labelling of tobacco products, OJ 1989 L359, pp. 1-4. This Directive was replaced by Directive 2001/37/EC of the European Parliament and of the Council of 5 June 2001 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco products, OJ 2001 L194, pp. 26-35. 12 Council Directive 90/385/EEC of 20 June 1990 on the approximation of the laws of the Member States relating to active implantable medical devices, OJ 1990 L189, pp. 17-36. 13 Council Directive 93/42/EEC of 14 June 1993 concerning medical devices, OJ 1993 L169, pp. 1-43. 14 Directive 98/79/EC of the European Parliament and of the Council of 27 October 1998 on in vitro diagnostic medical devices, OJ 1998 L331, pp. 1-37. 15 Directive 98/8/EC of the European Parliament and of the Council of 16 February 1998 concerning the placing of biocidal products on the market, OJ 1998 L123, pp. 1-63. This Directive has been replaced by Regulation (EU) No 528/2012 (see below).

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EU Law and LifE SciEncES EU Law and LifE SciEncES 7 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

EU marketing authorisation procedures were applicable from 1995 under the coordination of the European Medicines Agency (‘EMA’), and led to European Commission decisions. Regulations on clinical trials,16 orphan medicines,17 paediatric requirements and rewards,18 and advanced therapies,19 such as gene and cell therapies and tissue engineered products, supplement the general regime. Since 1992, the rules also provide for an extension of the 20,21

1.09 - ings, labelling, advertising principles, contaminants, and general principles for good manu- organisms (‘GMO’) or GMO-derived foods, novel foods, dietary products, food supplements and nutrition and health claims. The General Food Law Regulation (EC) 178/2002 also lays down general EU food law principles and establishes the European Food Safety Authority (‘EFSA’).22

1.10 The Cosmetics Directive provided a comprehensive regime for the composition and label- regulated only at a later stage, such as the use of hormones or lidocaine as ingredients. In 2003, the EU adopted strict restrictions on animal testing. The Directive has been replaced

16 Directive 2001/20/EC of the European Parliament and of the Council of 4 April 2001 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the implementation of good clinical practice in the conduct of clinical trials on medicinal products for human use. OJ 2001 L121, pp. 34-44. In July 2012, the European Commission proposed a new Clinical Trials Regulation, replacing the existing Directive. 17 Regulation (EC) No 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan medicinal products, OJ 2000 L18, pp. 1-5. 18 Regulation (EC) No 1901/2006 of the European Parliament and of the Council of 12 December 2006 on medicinal products for paediatric use and amending Regulation (EEC) No 1768/92, Directive 2001/20/EC, Directive 2001/83/EC and Regulation (EC) No 726/2004, OJ 2006 L378, pp. 1-19. 19 Regulation (EC) No 1394/2007 of the European Parliament and of the Council of 13 November 2007 on advanced therapy medicinal products and amending Directive 2001/83/EC and Regulation (EC) No 726/2004, OJ 2007 L324, pp. 121-137. 20 Council Regulation (EEC) No 1768/92 of 18 June 1992 concerning the creation of a supplementary protec- (EC) No 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the supplemen- 21 For an overview of the early history of the EU rules on medicines, see P. Deboyser, “Le marché unique des produits pharmaceutiques” (1991) Revue du Marché Unique Européen, p. 101. 22 Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety, OJ 2002 L31, p. 1, as amended. For an overview of the early history of EU rules on foods, see Lister C, Regulation of Food Products by the European Com- munity (Butterworth, 1992) Chapter 2, p. 7. For a more recent history see Costato, l. and Albisinni, F., European Food Law (CEDAM, 2012) Chapter II and Defares, K. and Hazeveld, N., “Chronicle European Food Law 2010-2012”, EFFL, 2013, pp. 168-175. For a more general historical overview, see 50 Years of Food Safety in the European Union, European Commission 2007, available at http://ec.europa.eu/food/food/ docs/50years_foodsafety_en.pdf.

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8 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

by a Regulation,23 which also envisages further implementation rules, such as good manufacturing practices (‘GMP’) standards and common rules for product claims.

1.11 24 replaces the 1998 Biocides Directive. In September 2012, the European Commission published proposals for two new Regulations overhauling the medical devices rules and replacing the three Directives. And in December 2012, the Commission proposed a new Tobacco Direc- tive aimed at a more detailed and stricter EU regime.

2. Importance of national rules and procedures

1.12 Notwithstanding the widely expanded scope and detail of the EU rules on life sciences products, the national (and sometimes regional) rules of the Member States remain very important for different reasons.

1.13 . For medicines, for instance, pricing and reimbursement are subject to national rules and also to regional principles or procedures in certain Member States. This is in line with the principle under Article 168 of the Treaty on the Functioning of the EU that the management of health systems remains a national responsibility.25 Only limited EU principles apply under the basic provisions on free movement of goods and the so-called Transparency Directive.26 Rules on retail distribution and, in particular, pharmacy monopoly provisions also remain almost exclusively national.

1.14 The same limitations on the scope of the EU rules apply to medical devices. Furthermore, advertising, manufacturing, wholesale distribution and prescription status of medical devices currently remain mainly subject to national rules.

1.15 Second, most EU regulatory rules are enforced by the Member States in accordance with their own systems and traditions. This is particularly important in the area of advertising and marketing practices, where the role of administrative enforcement, litigation and self-regulatory enforcement mechanisms differs widely among Member States.

23 Regulation (EC) No 1223/2009 of the European Parliament and of the Council of 30 November 2009 on cosmetic products, OJ 2009 L342, pp. 59-209. 24 Regulation (EU) No 528/2012 of the European Parliament and of the Council of 22 May 2012 concerning the making available on the market and use of biocidal products, OJ 2012 L167, pp. 1-123. 25 In particular Article 168(7), which states: “Union action shall respect the responsibilities of the Member medical care. The responsibilities of the Member States shall include the management of health services and medical care and the allocation of the resources assigned to them”. 26 Council Directive 89/105/EEC of 21 December 1988 relating to the transparency of measures regulating the pricing of medicinal products for human use and their inclusion in the scope of national health insurance systems, OJ 1989 L40, p. 8. In March 2012, the European Commission published a proposal for a new Directive, intended to strengthen the existing Directive and to update it in light of current procedures and techniques, such as health technology assessment and demand control measures. It is unclear whether this proposal will result in a new Directive.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 9 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1.16 Third, all private litigation and litigation against national authorities fall within the jurisdiction of the national courts and are subject to national rules of procedure- cant differences in terms of legal standing and duration of litigation among Member States. Certain Member States, such as Germany, also restrict the types of arguments that can be invoked to challenge decisions of the authorities,27 even though this arguably infringes EU law principles, such as the need for effective enforcement of the EU legislation.28

1.17 Finally, certain product categories remain subject to national rules. In particular, this applies to general consumer products that are not covered by one of the EU product categories.29 Examples include standard female hygiene products, baby diapers, aesthetic devices such as wigs and non-corrective eye lenses,30 veterinary medical devices, and animal cosmetics. also frequently subject to national rules. Examples include electronic cigarettes, herbal cigarettes31 and so-called ‘party poppers’.32

C. KEY ASPECTS OF THE MAIN EU REGULATORY REGIMES

1.18 The various EU regulatory regimes for life sciences products are based on different principles, ranging from pre-market approval (for medicines, biocides and certain foods), essential requirements combined with harmonised standards and conformity assessment procedures (for medical devices) and detailed rules on composition (for cosmetics and food additives).

1.19 In addition, general EU legislation can directly apply to the products in question or have

27 In Germany, a plaintiff in judicial review proceedings can only invoke subjective public rights (subjektive öffentliche Rechte 28 The Court of Justice is expected to rule on the question of the standing of an innovative company to challenge the marketing authorisation of a generic product, and possibly also on what arguments the plaintiff can invoke in such litigation. See Case C-104/13 , pending. 29 As a rule, the products are still subject to the EU General Product Safety Directive (Directive 2001/95/EC of the European Parliament and of the Council of 3 December 2001 on general product safety, OJ 2002 L11, p. 4, as amended) which imposes basic safety requirements, post-marketing surveillance obligations and certain safety procedures. The Directive allows for the adoption of standards for certain categories of products. players. 30 The Commission proposal for a new Medical Devices Regulation envisages regulating non-corrective lenses and certain other aesthetic devices under the medical devices rules. 31 The Commission proposal for a new Tobacco Products Directive, published in December 2012, brings electronic cigarettes with a certain nicotine concentrations under the medicines rules and imposes health warnings and claims restrictions for herbal cigarettes. 32 ‘Party poppers’ are recreational chemical preparations. See, for instance, AJ Davies and others, ‘Adverse ophthalmic reaction in poppers users: case series of ‘poppers maculopathy’’(2012) Eye, pp. 1-8.

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10 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

laid down in the REACH Regulation 1907/2006.33 The Regulation applies to chemicals in from the widest exemption but REACH still has an impact on the pharmaceutical industry.

1.20 The following sections provide an overview of the main product categories in the life sciences area.

1. Medicinal products

1.21 The pillars of the EU pharmaceutical regime are Directive 2001/83/EC on medicines for human use (often also referred to as the ‘Human Use Directive’) and Regulation (EC) No 726/2004.

1.22 Directive 2001/8334 lays down basic principles that apply to all medicines for human use.35 - ing authorisation requirement and describes the data needed and the procedure to be fol- - procedures to review approved products and, where needed, to vary, suspend or withdraw - tent authorities and the possibility to impose sanctions in case of infringement of regulatory obligations.

1.23 Regulation 726/200436 replaces Regulation 2309/93 and regulates the European Medicines Agency (‘EMA’) and the procedure for granting marketing authorisations for biotechnology products (such as recombinant proteins), orphan medicines, and certain other important medicines. The procedure is called the ‘centralised procedure’ because it results in one decision on the marketing authorisation adopted by the European Commission and based on the

33 Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (‘REACH’), establishing a European Chemicals Agency, amending Directive 1999/45/EC and repealing Council Regulation (EEC) No 793/93 and Commission Regulation (EC) No 1488/94 as well as Council Directive 76/769/EEC and Com- mission Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/21/EC, OJ 2006 L396, pp. 1-853. 34 Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use, OJ 2001 L311, p. 67, as amended. The Directive was 35 Directive 2001/82/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to veterinary medicinal products, OJ 2001 L311, pp. 1-66, lays down general principles for vet- to the veterinary sector, such as maximum residue limits (‘MRLs’) for medicines used in food producing animals. 36 Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency, OJ 2004 L136, pp. 1-33.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 11 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

States and is also implemented in national decisions in the three additional EEA countries (Liechtenstein, Norway and Iceland).37

1.24 Several other Directives and Regulations supplement these basic provisions. In addition, many detailed rules are laid down in the Notice to Applicants issued by the European Com- by the EMA, in particular the Committee for Medicinal Products for Human Use (‘CHMP’).

1.25 The following sections provide a summary of the key elements of the EU regulatory regime for pharmaceuticals. Chapters 2, 3, 4 and 5 provide further details on the marketing authorisation procedures and related exclusivity rights, information and advertising, and pharmacovigilance.

a) Regulatory authorities

1.26 the EU pharmaceutical rules (and their implementation in national law) and the supervision of the market and business operators.

1.27 At the EU level, the EMA38 and the European Commission are the principal authorities. The EMA is an EU agency with its own legal personality, based in London. It comprises a per- manent administration (with about 700 staff members)39 that consist of members appointed by the 28 EU Member States and the three additional EEA countries, and sometimes representatives of patient organisations and other members. The committees are: 1. Committee for Medicinal Products for Human Use (‘CHMP’) 2. Pharmacovigilance Risk Assessment Committee (‘PRAC’) 3. Committee for Medicinal Products for Veterinary Use (‘CVMP’) 4. Committee for Orphan Medicinal Products (‘COMP’) 5. Committee on Herbal Medicinal Products (‘HMPC’) 6. Paediatric Committee (‘PDCO’) 7. Committee for Advanced Therapies (‘CAT’).

1.28 The European Commission is the executive body of the EU. It is responsible for making legislative proposals, supervises the correct implementation of EU law, issues guidance such as the Notice to Applicants, takes decisions on marketing authorisations under the centralised procedure and under EU referral procedures, and generally supervises the op- infringement of certain regulatory obligations by marketing authorisation holders.

37 See also below, Section F. 38 Until 2004, the Agency was called the European Agency for the Evaluation of Medicinal Products. The acro- nym ‘EMEA’ was used until 2009. 39 Including contract agents and national experts. See the annual report of the EMA for 2012.

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12 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1.29 a) Any substance or combination of substances presented as having properties for treat- b) Any substance or combination of substances which may be used in or administered to human beings either with a view to restoring, correcting or modifying physiological functions by exerting a pharmacological, immunological or metabolic action, or to making a medical diagnosis. 1.30 It was amended once, in 2004, to clarify the scope and to facilitate borderline determinations (see below, Section E). It contains two parts: a presentation criterion, based on the claims administration criterion, based on the function and impact of the product when used on or in the body.

c) Marketing authorisation

1.31 The cornerstone of the EU pharmaceutical regime is the need to obtain a marketing authorisation before the product can be placed on the market. The marketing authorisation decision characteristics (‘SmPC’) for the medicine. The SmPC provides key information for prescrib- ers, including the approved indication, instructions for use, contra-indications, warnings, and core pharmacokinetic and pharmacodynamic information. The terms of the SmPC are also relevant for the claims and information that can be included in promotional materials.

1.32 clinical trials, named patient sales and compassionate use programs, but the exceptions must normally be interpreted strictly.40

1.33 A more detailed discussion of the marketing authorisation procedure is provided in Chapter 2.

1.34

1.35 abridged applications following the expiration of the regulatory exclusivity of the reference product.41

40 See, for instance, the CJEU in C-185/10 Commission v Poland [2012], nyr, para 31-32. 41 See Chapters 2 and 3 on the marketing authorisation procedures and the protection of medicinal products.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 13 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1.36 42 rules with regard to the quality information needed to obtain a marketing authorisation. - cines or biosimilars) that require more data than normally necessary for generic medicines.43

1.37 44 – can only obtain a marketing authorisation under the centralised procedure. All biotechnology products are also biological medicines.

1.38 Traditional herbal medicines – as described in Article 16(a) of Directive 2001/83 – can - - and combinations thereof for use in traditional herbal medicinal products, based on EMA recommendations.

1.39 45 – that meet cer- - authorisation rules for other homeopathic products in accordance with the principles and characteristics of homeopathy as practised in their country.

42 Annex I, Part I, 3.2.1.1 states: “A biological medicinal product is a product, the active substance of which is a biological substance. A biological substance is a substance that is produced by or extracted from a biological source and that needs for its characterisation and the determination of its quality a combination of physi- co-chemical-biological testing, together with the production process and its control”. 43 See Chapter 2 on the marketing authorisation procedures. 44 “Medicinal products developed by means of one of the following biotechnological processes: - Recombinant DNA technology, - Controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells, - Hybridoma and monoclonal antibody methods”. See also the Commission communication on the Community marketing authorisation procedures for medicinal products, OJ 1998 C229/4. 45 “Any medicinal product prepared from substances called homeopathic stocks in accordance with a homeopathic manufacturing procedure described by the European Pharmacopoeia or, in the absence thereof, by contain a number of principles”.

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14 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1.40 46 – are typically medicines intended for serious rare diseases. Designation as an orphan medicine must be applied for by the company developing the product, and is granted by the European Commission on the basis of an opinion by the Committee for Orphan Medicinal Products under the centralised procedure. The most important incentive is a market exclusivity of ten years that prevents the acceptance of a marketing authorisation application and the grant of such authorisation for a similar medicinal product for the same indication.47

e) Pharmaceutical operators

1.41 Under the EU pharmaceutical rules, undertakings operating in the pharmaceutical sector fall into distinct categories.

1.42 The marketing authorisation holder is the natural or legal person assuming the main regulatory obligations for the medicine. He must be established in the EU or the EEA and - rangements). Obligations include updating the marketing authorisation whenever needed, submitting relevant information to the regulators, compliance with the pharmacovigilance turnover of the marketing authorisation.

1.43 The manufacturer of a medicine is the person who is engaged in “total and partial manufacture”, including “the various processes of dividing up, packaging or presentation”.48 He must be authorised by the competent authorities of the country of manufacture, have batch releasing. Manufacturers must comply with the detailed good manufacturing principles.

1.44 A person importing medicines from outside the EU or EEA must also have a manufacturing authorisation.49 With some of these countries, the EU has entered into a mutual recognition agreement that, for instance, does not require a new batch release for the products. This does not, however, waive the need for a manufacturing authorisation.

46 Regulation (EC) No 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan “intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition it is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the Community and that without incentives it is unlikely that the marketing of the provided “that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorised in the Community or, if such method exists, that the medicinal product will 47 See Chapter 3 on the protection of medicinal products. 48 Article 40(2) of Directive 2001/83/EC. 49 Article 40(3) of Directive 2001/83/EC.

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1.45 A wholesale distributor50 must also be authorised51 by the national competent authorities and must have adequate facilities and staff. He must comply with good distribution practices. A manufacturing or import authorisation includes the right to engage in wholesale activities. Brokers52 of medicines must be registered with the national authorities.

1.46 Directive 2001/83 imposes various obligations on manufacturers, importers, wholesale distributors and brokers to ensure the quality and traceability of medicines, and to some extent, the availability of the products on the national market.

1.47 Parallel importers (importing medicines from one Member State into another) require a manufacturing authorisation when they change the labelling or the packaging of the product, which is often needed to comply with national language labelling requirements or practical needs for certain pack sizes. In the exceptional case that no changes are made to the packaging and labelling, the parallel importer will only need a wholesale distributor authorisation.

1.48 Retail pharmacists and other persons entitled to dispense medicines are regulated by national law. Many Member States operate a strict pharmacy monopoly for dispensing but others allow certain medicines to be distributed via other channels.

2. Medical devices

1.49 Medical devices are subject to a much simpler regime. Directive 90/385 regulates active implantable medical devices,53- tive 98/79 regulates in vitro 54 and Directive 93/42 regulates all other medical devices.55 The three Directives are based on a system of conformity assessment and CE-marking of devices that are placed on the market. All devices must meet essential requirements that are laid down in an Annex to each Directive and that are further implemented in harmonised standards published by the European Commission. Observance of these standards provides evidence of compliance with the corresponding essential requirements, but the standards are not binding and manufacturers can demonstrate compliance through other means as well. For IVDs, the Commission can also issue binding

50 - ing, supplying or exporting medicinal products, apart from supplying medicinal products to the public. Such activities are carried out with manufacturers or their depositories, importers, other wholesale distributors or with pharmacists and persons authorised or entitled to supply medicinal products to the public in the Member State concerned”. 51 Article 77 of Directive 2001/83/EC. 52 - dicinal products, except for wholesale distribution, that do not include physical handling and that consist of negotiating independently and on behalf of another legal or natural person”. 53 Council Directive 90/385/EEC of 20 June 1990 on the approximation of the laws of the Member States relating to active implantable medical devices, OJ 1990 L189, pp. 17-36. 54 Directive 98/79/EC of the European Parliament and of the Council of 27 October 1998 on in vitro diagnostic medical devices, OJ 1998 L331, pp. 1-37. 55 Council Directive 93/42/EEC of 14 June 1993 concerning medical devices, OJ 1993 L169, pp. 1-43.

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16 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1.50 For certain devices, the manufacturer can conduct the conformity assessment on his own, through self-assessment. This is the case for non-sterile low risk medical devices without measuring functions. It is also the case for many IVDs, including technically sophisticated and sensitive tests.56 For other devices, the manufacturer must rely on an independent no- the device.

1.51 In September 2012, the European Commission proposed two new Regulations, one on IVDs and one on all other medical devices. The proposed new Regulations are still based on the essential aspects of the conformity assessment procedures, but envisage stricter and more detailed rules. The proposals also include a so-called scrutiny procedure for higher risk devices, allowing a Medical Device Coordination Group of experts of the national authorities is considering a more formal marketing authorisation procedure for high risk devices.

3. Cosmetic products

1.52 Cosmetic products are in principle subject to fully harmonised rules, laid down in Regu- lation 1223/2009,57 which fully applies since 11 July 2013. The Regulation is a recast of the earlier Cosmetics Directive 76/768, but adds new responsibilities for manufacturers, , for instance with regard to market surveillance. It further envisages the adoption of common criteria for the use of claims related to cosmetic products.

1.53 The primary requirement under the Regulation is that all cosmetic products must be safe when used under normal or reasonably foreseeable conditions of use. The person responsible for the product must ensure that a product safety assessment contains more detailed provisions on these requirements than the previous Directive.

1.54 With regard to ingredients, the Regulation contains a list of banned ingredients (Annex II), Annex III), and closed positive lists of colorants (other than hair dyes – Annex IV), preser- (which was initially adopted in 2003 and became fully applicable in March 2013)58 and the labelling of allergens contained in cosmetic ingredients are regulatory issues of particular concern.

56 This is a consequence of the lack of updating of the IVD Directive 98/77. The proposed new IVD Regulation seeks to impose stricter requirements. 57 Regulation (EC) No 1223/2009 of the European Parliament and of the Council of 30 November 2009 on cosmetic products, OJ 2009 L342, pp. 59-209. 58 See the Commission Communication of 11 March 2013 on the animal testing and marketing ban and on the

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4. Foodstuffs

1.55 Regulation 178/2002 lays down the general principles and requirements of food and feed law and establishes the European Food Safety Authority (‘EFSA’).59 It includes a safety requirement, traceability obligations and withdrawal and recall procedures (linked to an hygiene (including procedures based on hazard analysis and critical control point or HAC- 606162- 6364

59 Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety, OJ 2002 L31, pp. 1-24. 60 Regulation (EC) No 852/2004 of the European Parliament and of the Council of 29 April 2004 on the hygiene human consumption, OJ 2004 L139, pp. 206-320. 61 Regulation (EC) No 396/2005 of the European Parliament and of the Council of 23 February 2005 on maximum residue levels of pesticides in or on food and feed of plant and animal origin and amending Council Directive 91/414/EEC, OJ 2005 L70, pp. 1-16. 62 Council Directive 90/496/EEC of 24 September 1990 on nutrition labelling for foodstuffs, OJ 1990 L276, pp. 40-44 and Directive 2000/13/EC of the European Parliament and of the Council of 20 March 2000 on the approximation of the laws of the Member States relating to the labelling, presentation and advertising of foodstuffs, OJ 2000 L109, pp. 29-42. As of 13 December 2014, these Directives will be replaced by a new Regulation: Regulation (EU) No 1169/2011 of the European Parliament and of the Council of 25 October 2011 on the provision of food information to consumers, amending Regulations (EC) No 1924/2006 and (EC) No 1925/2006 of the European Parliament and of the Council, and repealing Commission Directive 87/250/ EEC, Council Directive 90/496/EEC, Commission Directive 1999/10/EC, Directive 2000/13/EC of the Eu- ropean Parliament and of the Council, Commission Directives 2002/67/EC and 2008/5/EC and Commission Regulation (EC) No 608/2004, OJ 2011 L304, pp. 18-63. 63 Regulation (EC) No 1332/2008 of the European Parliament and of the Council of 16 December 2008 on food enzymes and amending Council Directive 83/417/EEC, Council Regulation (EC) No 1493/1999, Directive Regulation (EC) No 1333/2008 of the European Parliament and of the Council of 16 December 2008 on food use in and on foods and amending Council Regulation (EEC) No 1601/91, Regulations (EC) No 2232/96 and (EC) No 110/2008 and Directive 2000/13/EC, OJ 2008 L354, pp. 34-50. 64 Regulation (EC) No 1925/2006 of the European Parliament and of the Council of 20 December 2006 on the addition of vitamins and minerals and of certain other substances to foods, OJ 2006 L404, pp. 26-38.

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65 food intended for infants and young children, food for special medical 66 and food contact materials.67

1.56 are derived from GMOs68 and for novel foods (i.e., most foods or food ingredients that were 69

1.57 The Nutrition and Health Claims Regulation 1924/200670 establishes conditions for the use of nutrition and health claims for foods. Only nutrition claims that are included in an Annex to the Regulation are permissible and all health claims must be approved either as part of a list of general health claims or on the basis of individual applications. The establishment for certain types of foods, especially those containing herbal ingredients. The validity of 71

5. Biocidal products

1.58 As from September 2013, biocidal products are governed by Regulation 528/2012.72 They are products that (i) are intended to destroy, deter, render harmless, prevent the action of, or otherwise exert a controlling effect on, any harmful organism by any means other than mere physical or mechanical action and (ii) are not medicinal products, medical devices, food or feed additives, pesticides, etc. and are also not regulated by food hygiene provisions. Bio- cidal products must contain active ingredients that are approved at the EU level and each - anism seeks to ensure harmonisation of national approvals throughout the EU and EEA,

65 Directive 2002/46/EC of the European Parliament and of the Council of 10 June 2002 on the approximation of the laws of the Member States relating to food supplements, OJ 2002 L183, pp. 51-57. 66 Regulation (EU) No 609/2013 of the European Parliament and of the Council of 12 June 2013 on food intended for infants and young children, food for special medical purposes, and total diet replacement for weight control and repealing Council Directive 92/52/EEC, Commission Directives 96/8/EC, 1999/21/EC, 2006/125/EC and 2006/141/EC, Directive 2009/39/EC of the European Parliament and of the Council and Commission Regulations (EC) No 41/2009 and (EC) No 953/2009, OJ 2013 L181, pp. 35-56. The Regula- tion replaces Directive 2009/39 on foods for particular nutritional use (‘parnuts’ or dietary foods), which had a broader scope and also covered sports foods, foods for diabetics, etc. It will enter into full effect in 2016. 67 Regulation (EC) No 1935/2004 of the European Parliament and of the Council of 27 October 2004 on materials and articles intended to come into contact with food and repealing Directives 80/590/EEC and 89/109/ EEC, OJ 2004 L338, pp. 4-17. 68 Regulation (EC) No 1829/2003 of the European Parliament and of the Council of 22 September 2003 on 69 Regulation (EC) No 258/97 of the European Parliament and of the Council of 27 January 1997 concerning novel foods and novel food ingredients, OJ 1997 L43, pp. 1-6. 70 Regulation (EC) No 1924/2006 of the European Parliament and of the Council of 20 December 2006 on nutrition and health claims made on foods, OJ 2006 L404, pp. 9-25. 71 See mainly Case T-296/12 pending, and Case T-334/12 Plantavis and NEM v Commission and EFSA, pending. 72 Regulation (EU) No 528/2012 of the European Parliament and of the Council of 22 May 2012 concerning the making available on the market and use of biocidal products, OJ 2012 L167, pp. 1-123.

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based on mutual recognition of assessments. The Regulation requires data sharing among companies so as to reduce the number of animal tests and sets the conditions for determining when no new data are required (data waiving). The evaluations are coordinated by the European Chemicals Agency (‘ECHA’).

1.59 , i.e., any substance, mixture or article which has been treated with, or intentionally incorporates, one or more biocidal products. Treated articles may only contain biocidal substances that are approved by the EU and may also be subject to labelling and other disclosure requirements. This also applies to articles imported from third countries.

D. PRODUCTS FOR ANIMAL USE

1.60 Products for animal use are less regulated at the EU level. Detailed provisions apply to veterinary medicines (mainly Directive 2001/82 and Regulation 726/2004) and the level of harmonisation is very similar to that for human medicines. The rules also take into account more detail is provided as to which medicines can be used when there is no approved product for the indication in question, and a prolonged data exclusivity exists for veterinary limits for medicines used in food producing animals.73

1.61 Similarly, the EU rules on feedingstuffs- ture of the sector. Regulation 767/2009 on the placing on the market and use of feed74 characteristics of the EU feed regime includes, for instance, a much broader concept of substances that are used to improve the food production or the characteristics of the food produced by or derived from the animal, and also include certain antibiotics (coccidiostats and histomonostats). The rules on feeds for particular nutritional (parnut) uses are also quite detailed (Commission Directive 2008/3875). To some extent, they follow the structure of the foods (for cats and dogs) and their special needs (e.g., weight reduction), but several apply e.g., reduction of the risk of ketosis), pigs (e.g., reduction of stress reactions), poultry (e.g., compensation for malabsorption) and horses (e.g., compensation

1.62 The rules on biocides are the same for products for human, animal or other use.

73 Regulation (EC) No 470/2009 of the European Parliament and of the Council of 6 May 2009 laying down Community procedures for the establishment of residue limits of pharmacologically active substances in foodstuffs of animal origin, OJ 2009 L152, pp. 11-22. 74 Regulation (EC) No 767/2009 of the European Parliament and of the Council of 13 July 2009 on the placing on the market and use of feed, OJ 2009 L229, pp. 1-28. 75 Commission Directive 2008/38/EC of 5 March 2008 establishing a list of intended uses of animal feeding stuffs for particular nutritional purposes, OJ 2008 L62, pp. 9-22.

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20 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

1.63 There is no EU regime for veterinary cosmetics nor for veterinary medical devices.76 How- ever, under the general EU rules on product safety, the principles of the EU Cosmetics Reg- ulation or the medical devices Directives can sometimes be applied by analogy.

E. BORDERLINE DETERMINATIONS

1.64 This section addresses borderline determinations for the above mentioned categories in- under EU law and when harmonisation of the rules was also less detailed.77 Traditionally, borderline determinations were made mainly at the national level. This often happened in the context of litigation, such as criminal proceedings brought by pharmacy associations to defend the pharmacy monopoly on retail distribution of medicines in France or competitive litigation under the UWG in Germany. Gradually, national authorities also started making borderline decisions.

1.65 There is now a clear trend towards a more harmonised and EU-wide approach to borderline First, the case law of the Court of Justice of the EU (‘CJEU’) on borderline issues has other product categories,78- macological, metabolic or immunological means under the administration criterion of the

76 There was a Directive 84/539/EEC on electro-medical equipment used in veterinary medicine but it was repealed in 2008 because it was considered obsolete. On the other hand, there have been suggestions for some basic EU rules for veterinary medical devices especially in light of the technical developments (see the CVMP analysis of the functioning of current veterinary legislation and proposals for its evolution and comments on the Commission consultation on Better regulation for Veterinary Pharmaceuticals, 15 July 2010, EMA/CVMP/463298/2010). 77 See also the Court of Justice in Case C-290/90 Commission v. Germany [1992] ECR I-03317, para. 16 (“At time being and, doubtless, so long as harmonisation of the measures necessary to ensure the protection of 78 Article 2(2) of Directive 2001/83 provides: “In cases of doubt, where, taking into account all its characteris- covered by other Community legislation the provisions of this Directive shall apply”. This principle was already expressed by the Court of Justice in the context of borderline determinations between medicines and cosmetics in Case C-112/89 Upjohn v Farzoo [1991] ECR I-01703 as well as foodstuffs in Case C-219/91 Ter Voort, [1992] ECR I-05485. In Case C-88/07 Commission v Spain [2009] ECR I-01353, the Court held

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EU Law and LifE SciEncES EU Law and LifE SciEncES 21 OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

79 It has also provided guidance on the need for a medical purpose of a medical device8081

1.66 Second, the European Commission and national authorities have developed guidance on concrete cases.82

1.67 - munological or metabolic properties to the extent they can be established in the present 83 The Court then also same or very similar products.84

1.68 Further harmonisation is envisaged by providing the European Commission with the power to make borderline decisions. This is already possible under the Biocides Regulation. The 2012 proposal for a new Medical Devices Regulation contains the same power for medical devices and cosmetics (the latter through an amendment of the Cosmetics Regulation). There are, however, concerns about the detailed assessment required for high quality borderline determinations and the availability of effective legal remedies in case of disagreement.

F. GEOGRAPHICAL SCOPE OF THE EU RULES

1.69 The EU currently comprises 28 Member States. The European Economic Community (‘EEC’) initially started in 1957 with six founding Member States. Over the years, other countries joined the European Economic Community, later the European Community and

79 See in particular Case C-27/08 BIOS Naturprodukte GmbH v Saarland [2009] ECR I-03785, Case C-140/07 Hecht-Pharma GmbH v Vertreterin des Bundesinteresses beim Bundesverwaltungsgericht [2009] ECR I-00041, Case C-88/07 Commission v Spain [2009] I-01353, Case C-319/05 Commission v Germany [2007] ECR I-09811, joint Cases C-211/03 and C-299, 316-318/03 HLH Warenbetrieb Orthica v Germany [2005] ECR I-05141, and Case C-308/11 Chemische Fabrik Kreussler & Co. GmbH v Sunstar Deutschland GmbH, nyp. 80 See Case C-219/11 - , nyp. 81 See Case C-420/10 Söll GmbH v Tetra GmbH, nyp. 82 Medical Devices, which is regularly updated. 83 See Case C-308/11 Chemische Fabrik Kreussler & Co. GmbH v Sunstar Deutschland GmbH, nyp, para 34 and Case C-27/08 BIOS Naturprodukte v Saarland [2009] ECR I-03785, para 18. 84 For instance in Case C-88/07 Commission v Spain [2009] I-01353, para 60 and the references quoted in the context of foods v. medicines. See also the opinion of the Advocate General in Case C-109/12 Laboratoires Lyocentre, nyp, on the distinction between medical devices and medicines.

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22 EU Law and LifE SciEncES OVERVIEW OF THE REGULATORY CATEGORIES AND REGIMES FOR LIFE SCIENCES PRODUCTS

now the European Union. Croatia is the most recent Member State, and joined the EU on 1 July 2013.

1.70 85 All legislation is and each linguistic version has equal legal value. This can

1.71 In 1994 the agreement on the European Economic Area (‘EEA’) became effective.86 Under this arrangement, three additional countries (Iceland, Liechtenstein and Norway)87 also follow EU legislation in the areas covered by the agreement, which include most legislation that is directly relevant to the life sciences industry. Annexes to the agreement can provide countries. For instance, Commission decisions granting marketing authorisations under the centralised procedure are not directly valid in these countries but are implemented through national decisions. The inclusion in the annexes to the EEA agreement can also result in delays, such as for obtaining additional patent extensions under the paediatrics regime.88

1.72 - mon regulatory approach (for instance, on GMP and batch release for medicines, and conformity assessment for medical devices). This is in particular the case with Switzerland and Australia.

1.73 In addition, a Customs Union Agreement between the EU and Turkey also envisages the application of some EU legislation in Turkey.

85 German, Greek, Hungarian, Irish, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slo- vak, Slovene, Spanish and Swedish. 86 Agreement on the European Economic Area, OJ 1994 L1, p. 3. 87 Initially, Switzerland was a member as well but this was not supported in a referendum. The fact that Swit- zerland is not a member of the EEA can create regulatory problems for corporate structures that include Swiss companies also for operations within the EU and EEA. 88 See Chapter 3 on the protection of medicinal products.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 23 2 THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES

A. INTRODUCTION 2.0 9. Applications under exceptional circumstances 2.50 B. MARKETING AUTHORISATION 10.Conditional marketing authorisations 2.52 PROCEDURES 2.04 1. Centralised procedure 2.04 D. OTHER AUTHORISATION a) Mandatory and optional scope PROCEDURES AND EXEMPTIONS 2.55 of the centralised procedure 2.05 1. Registration procedure for homeopathic b) Approval process under medicinal products 2.56 the centralised procedure 2.11 2. Registration procedure for traditional 2. Mutual recognition herbal medicinal products 2.58 and decentralised procedure 2.19 3. Exceptional marketing authorisation a) Scope of the decentralised and mutual under Article 126(a) of Directive 2001/83 2.61 recognition procedures 2.20 b) Approval process under the decentralised 4. Temporary marketing authorisation and mutual recognition procedures 2.23 under Article 5(2) of Directive 2001/83 2.62 3. National procedure 2.31 5. Compassionate use programmes 2.63 6. Named patient use 2.65 C. TYPES OF MARKETING 7. Hospital compounding 2.66 AUTHORISATION APPLICATIONS 2.32 1. Full application 2.36 E. OBLIGATIONS OF THE MARKETING 2. Generic or abridged application 2.38 AUTHORISATION HOLDER 2.67 3. Hybrid application 2.42 1. Manufacturing and batch release 2.69 4. Biosimilar application 2.44 2. Pharmacovigilance 2.70 5. Bibliographical application for well-established medicinal use 2.45 4. Distributor issues 2.75 6. Fixed combinations applications 2.47 5. Other obligations 2.78 7. Informed consent applications 2.48 6. Penalties 2.80 8. Mixed application - Annex I 2.49

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EU Law and LifE SciEncES EU Law and LifE SciEncES 25 THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES

A. INTRODUCTION

2.01 As a general rule, medicinal products can only be placed on the EU market following the granting of a valid marketing authorisation by the competent authorities of a Member State or the EU.1 There are three routes for approval of a new medicinal product on the market in the EU: 1. The centralised procedure, handled at the EU level and leading to the granting of a 2 2. The mutual recognition and decentralised procedures, handled nationally with the in- volvement of several Member States, and leading to the granting of national marketing 3. The national procedure, handled by the competent authority of one Member State and leading to the granting of a marketing authorisation in that Member State only.

2.02 Whichever marketing authorisation procedure is used, the company seeking the authorisation will need to submit an application to the competent authority. There are different types of application and the supporting data required varies. Aside from these traditional routes needs or the particular nature of certain products.

2.03 This chapter describes the different marketing authorisation procedures and types of marketing authorisation application. It also discusses non-standard authorisation procedures, including the ability to place products on the market without a marketing authorisation in certain circumstances. Finally, this chapter summarises the key post-marketing obligations applicable to marketing authorisation holders in the EU.

B. MARKETING AUTHORISATION PROCEDURES

1. Centralised procedure

2.04 The centralised procedure is primarily regulated by Regulation 726/2004.3 Extensive guidance on this procedure can also be found under Chapter 4 of Volume 2A of the European Commission’s Notice to Applicants.

1 Article 6 of Directive 2001/83 OJ 2001 L311/67, and Article 3 of Regulation 726/2004 OJ 2004 L136/1. 2 By virtue of the European Economic Area Agreement, European Economic Area (‘EEA’) Member States, Norway, Iceland and Liechtenstein, have implemented the EU’s pharmaceutical regime and references to the EU in this chapter can therefore often be read to encompass the entire EEA. In particular, Norway, Iceland and Liechtenstein are involved in the centralised procedure and marketing authorisations granted by the European Commission are also valid in these countries (either directly or through the adoption of a national marketing authorisation). 3 Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency, OJ 2004 L136/1.

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26 EU Law and LifE SciEncES THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES

2.05 Certain products may only be approved at the EU level through the centralised procedure.4 This is the so-called ‘mandatory’ scope of the centralised procedure. It includes certain 5 6 7 new active substances for the treatment of AIDS, cancer, neurodegenerative disorder, diabetes, - cines primarily intended as growth or yields’ enhancers.8

2.06 Other types of medicines may be approved either through the centralised procedure or at the Member State level, at the choice of the applicant. This is the so-called ‘optional scope’ of the centralised procedure, which covers:9 1. Medicines containing a ‘new active substance’ which was not authorised as a medicinal 10 and 2. for which the granting of marketing authorisation through the centralised procedure is in the interests of patients or animal health at the EU level.

4 Guidance on the mandatory scope of the centralised procedure is provided on the EMA website, Chapter 4 (Centralised Procedure) of Volume 2A of the Notice to Applicants and the EMA Guideline of 13 December (ref. EMEA/CHMP/121944/2007). hybridoma and monoclonal antibody methods. of 13 November 2007 on advanced therapy medicinal products, OJ 2007 L324/121. 7 As designated under Regulation (EC) No 141/2000 of the European Parliament of the Council of 16 Decem- ber 1999 on orphan medicinal products, OJ 2000 L18/1. 8 Article 3(1) and Annex of Regulation 726/2004. 9 Article 3(2) of Regulation 726/2004. 10 On the notion of ‘new active substance’ generally, see also Chapter 3 on the protection of medicinal products.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 27 THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES

2.07 combines a temporal criterion – the threshold date being the entry into force of Regulation 726/2004, i.e., 20 November 2005 – and a ‘novelty’ requirement for the active substance. In particular, the following are considered new active substances:11 1. A chemical, biological or radiopharmaceutical substance not previously authorised as 2. An isomer, mixture of isomers, a complex or derivative or salt of a chemical substance previously authorised as a medicinal product in the European Union but differing in prop- - 3. A biological substance previously authorised as a medicinal product in the European 4. A radiopharmaceutical substance which is a radionuclide, or a ligand not previously authorised as a medicinal product in the European Union, or the coupling mechanism to link the molecule and the radionuclide has not been authorised previously the Euro- pean Union.

2.08 The second category of products eligible for the optional scope of the centralised procedure includes medicines that provide a completely new alternative to treat, prevent or diagnose a disease (e.g., e.g., development using application thereof – or on new technology (e.g., new delivery system) – or the application - ests at the EU level, i.e.,e.g., products related to a pandemic disease or an emergency situation), allow access to medicines, or provide another type of contribution to patient care in the EU. Access to the centralised the use of this single procedure.12 This also opens the way to the centralised approval for non-prescription medicines or generic versions of nationally approved medicines.13

2.09 In order to maintain coherence and unity of the EU Single Market, where the marketing authorisation holder of a product approved under the optional scope of the centralised procedure wishes to market another product with the same active substance, the centralised procedure should be used. Similarly, duplicate, informed consent and generic14 applications of any substance approved through the centralised procedure have automatic access to the

11 Annex I to Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants. 12 Recital 9 to Regulation 726/2004. 13 Chapter 4 (Centralised procedure) of Volume 2A of the Notice to Applicants, April 2006, Section 1.4. 14 Article 3(3) of Regulation 726/2004.

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28 EU Law and LifE SciEncES THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES

centralised procedure.15 Applications for certain medicinal products for paediatric use are also eligible for the centralised procedure under the Paediatric Regulation.16

2.10 Products that do not fall under the mandatory scope of the centralised procedure may (if they qualify for the optional scope) or must (if they do not qualify at all for the centralised procedure) be approved at the Member State level, through the national, decentralised or mutual recognition procedures.

b) Approval process under the centralised procedure

2.11 The approval process under the centralised procedure is primarily handled by the European Medicines Agency (‘EMA’) and its committees, and the pharmaceutical units of the Euro- pean Commission. The EMA comprises seven committees, the most important of which for approval purposes is the Committee for Medicinal Products for Human Use (‘CHMP’). The centralised procedure leads to the granting of a single marketing authorisation by the European Commission that is valid in the entire EU.

2.12 - pects of the development of their medicine.17 While not binding, compliance or deviation with the advice provided must be discussed by the applicant in its application, and by the CHMP in its opinion. Applicants may also discuss any procedural or regulatory issues with the services of the EMA during so-called ‘pre-submission’ meetings. These are conducted following the submission of a ‘Pre-submission Meeting Request form’ at least seven months before submission, and including the details regarding the intended marketing authorisation application (e.g.,

2.13 Applicants must notify the EMA of their intention to submit an application (between 18 and 7 months prior to submission) and justify why the product should qualify for the eligibility for the centralised procedure, citing the relevant provisions of Regulation 726/2004. whether the relevant product is eligible or not for the centralised procedure. If eligible, a rapporteur and, as appropriate, a co-rapporteur are designated amongst the members of the CHMP. They are primarily responsible for the evaluation of the dossier and the preparation of an assessment report. A ‘product team’, headed by the ‘product team leader’, is also set up within the EMA for each application and is responsible for the procedural aspects of the application.

15 Chapter 4 (Centralised procedure) of Volume 2A of the Notice to Applicants, April 2006, Section 1.4. 16 Regulation (EC) No 1901/2006 of the European Parliament and of the Council of 12 December 2006 on medicinal products for paediatric use and amending Regulation (EEC) No 1768/92, Directive 2001/20/EC, Directive 2001/83 and Regulation (EC) No 726/2004, OJ 2006 L378/1. See in particular Articles 28, 29 and 31. 17 Article 57(1)(n) of Regulation 726/2004.

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2.14 The marketing authorisation application dossier must be submitted to the EMA for review, format,18 in which quality and manufacturing, pre-clinical and clinical trial sections are accompanied by associated summary reports. Detailed guidance is provided in Volume 2B of the Notice to Applicants relating to the ‘Presentation and format of the dossier - Common Technical Document’. The type and scope of data to be provided by the applicant depend on the type of marketing authorisation submitted (e.g., full, abridged, mixed applications etc.).19

2.15 complete and complies with the EU-CTD format – and payment of the required fees by the applicant,20 the application is assessed by the CHMP. The evaluation process normally questions by the CHMP.21 The (co-)rapporteurs are primarily responsible for considering - ulation 726/2004 for granting a marketing authorisation. Additional information can be requested from the applicant during the procedure, and oral (or written) explanations can take place before the CHMP. At the end of the procedure, the CHMP adopts a formal opinion – by consensus or, if not possible, by absolute majority22 the product in the therapeutic indication sought, on the product information (i.e., summary attached to the authorisation.

2.16 If the opinion is negative, the applicant is immediately informed by the CHMP and may, within 15 days, submit a request for ‘re-examination’ of the CHMP opinion.23 New (co-) rapporteurs are nominated and the dossier is re-assessed by the CHMP. The initial assessment report of the CHMP is amended according to the re-examination outcome.

2.17 If the opinion is positive, a number of documents are attached to the opinion (including a draft summary of the product characteristics (‘SmPC’), conditions or restrictions regarding 24 and the opinion is forwarded to the European Commission. The Commission must prepare a draft marketing authorisation decision within 15 days and submit it to the Standing Committee on Medicinal Products for Human Use – a body composed of Member States’ representatives – which may deliver an opinion on the draft marketing authorisation.25 In

18 This is based on the Common Technical Document (M4) agreed on by the International Conference on Har- monisation of Technical Requirements for Registration of Pharmaceuticals for Human Use. 19 See Section C below for further details on this point. 20 See in particular Council Regulation (EC) No 297/95 of 10 February 1995 on fees payable to the European Agency for the Evaluation of Medicinal Products, OJ 1995 L35/1, as amended. 21 Article 6(3) of Regulation 726/2004. 22 The Norwegian and Icelandic CHMP members take part to the vote but their vote does not count for the calculation of the majority. 23 Articles 9(2) and 9(3) of Regulation 726/2004. 24 Article 9(4) of Regulation 726/2004. 25 Article 10 of Regulation 726/2004.

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30 EU Law and LifE SciEncES THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES

in each EU language to the EMA for a linguistic review by the Member States. Aside from the language, these documents should be identical in all respects, except that any national - ed to the Standing Committee to consider as part of its review of the draft decision. The and there have been occasions when the Standing Committee has rejected a CHMP recommendation to approve a product, typically on legal grounds. Following this procedure, the European Commission adopts a decision granting (or rejecting) the marketing authorisation, - information, together with the product information. This reference document is called the European Public Assessment Report (‘EPAR’).26

2.18 The Commission decision granting the marketing authorisation is valid throughout the EU27 for a period of 5 years,28 after which it may be renewed on the basis of a re-evaluation of the 29

2. Mutual recognition and decentralised procedure

2.19 The mutual recognition and decentralised procedures are primarily governed by Chapter 4 of Directive 2001/83/EC.30 Extensive guidance on these procedures can also be found in Chapter 2 of Volume 2A of the Notice to Applicants.

a) Scope of the decentralised and mutual recognition procedures

2.20 The mutual recognition and decentralised procedures are intended for products to be marketed in more than one Member State and lead to the granting of national marketing authorisations by the competent authorities of each Member State concerned. The procedures are based on the assessment of the product by the competent authorities of one Member State, and the recognition by the other Member States of this assessment.

2.21 The decentralised and mutual recognition procedures cannot be used for products falling under the compulsory scope of the centralised procedure, products for which applications

26 Article 13(3) of Regulation 726/2004. 27 Through the European Economic Area (‘EEA’) Agreement, Norway, Iceland and Liechtenstein are parties to the centralised procedure. However, Commission decisions granting marketing authorisations need to be transposed into legally binding acts in Norway and Iceland, which grant national marketing authorisations within 30 days of the Commission decision. Commission decisions are directly applicable in Liechtenstein. 28 Except in cases of conditional marketing authorisations, authorisations under exceptional circumstances, or authorisations which are not followed by the actual marketing of the product within three years. See Article 14(4), (5), (6) of Regulation 726/2004. 29 Article 14 of Regulation 726/2004. 30 Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use, OJ 2001 L311/67.

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withdrawn or rejected and new data have been submitted), homeopathic products, certain traditional herbal medicinal products and products falling under the transitional arrangements for newly acceding countries.

2.22 The decentralised procedure is to be used when the product has not yet received a marketing authorisation in any Member State. The mutual recognition procedure is based on the subsequent recognition in other Member States of a marketing authorisation granted by a Mem- ber State. Both procedures are governed by Articles 28 through 39 of Directive 2001/83.

b) Approval process under the decentralised and mutual recognition procedures

2.23 The decentralised and mutual recognition procedures are primarily handled by the national competent authorities. One Member State takes the lead for the assessment of the marketing authorisation application and is known as the ‘Reference Member State’ (‘RMS’). The other Member States involved in the procedure and where a marketing authorisation is sought are referred to as the ‘Concerned Member States’ (‘CMS’). They must normally endorse the assessment performed by the RMS. In the Synthon case, the Court of Justice of the EU highlighted that the discretion of the CMS is very limited and that they must rely on the assessment by the RMS, unless there is risk to public health.31 In case of disagreement relating to potential serious risk to public health, the questions are referred to the ‘Coordination group for mutual recognition and decentralised procedure for human medicinal products’ (CMD(h)),32 which is a body composed of representatives of the Member States and for which the EMA provides the secretariat. Ultimately, any disagreement remaining between the Member States is settled at the European level, through the referral procedures handled by the EMA and the European Commission.

2.24 harmonised through the decentralised and mutual recognition procedures – must be presented in a so-called ‘blue box’.33

i) Mutual recognition procedure 2.25 The mutual recognition procedure must be used to obtain marketing authorisations in several Member States when the particular medicinal product has already been authorised in a Member State. The Member State which granted the original authorisation for the product acts as the RMS.

2.26 The marketing authorisation holder of a product may request one or several Member States (the CMS) to recognise the marketing authorisation that has previously been granted by the RMS. To that end, it must request the RMS to prepare or update the assessment report and 34

31 Case C-452/06 Synthon BV v Licensing Authority of the Department of Health [2008] ECR I-07681, para 41. 32 Article 27 of Directive 2001/83. Information about matters referred to the CMDh is available at http://www. hma.eu/26.html. 33 For more information on this point, please refer to the CMDh guideline on ‘Blue-Box requirements’ of July 2013 (doc. ref. CMDh/258/2012/Rev.2). 34 Article 28(2) of Directive 2001/83.

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The dossier submitted in all the relevant Member States must be identical.35 Upon receipt of the product documentation from the RMS, each CMS has 90 days to inform the RMS of its agreement with the content of those documents.36 If a CMS disagrees for reasons related to potential serious risks to public health and the disagreement could not be settled between the Member States during the 90-day period, the disagreement is referred to the CMDh.37 If the CMDh fails to resolve the disagreement within 60 days, the issue is referred to the EMA under the so-called ‘referral procedures’.38 Once agreement has been reached, the RMS records the agreement, closes the procedure and informs the applicant, after which each CMS must adopt a marketing authorisation decision in accordance with the approved assessment 39

2.27 The mutual recognition procedure can also be triggered by a Member State when it receives a marketing authorisation application for a product that has already been approved in another Member State, with the same applicant or marketing authorisation holder.40 Products are considered to be the same for that purpose if they are identical or their differences have no therapeutic implication.41 Marketing authorisation holders and applicants are considered to be the same if they belong to the same group of companies or to related companies (e.g., through a licensing agreement).42

ii) Decentralised procedure 2.28 The decentralised procedure is used to obtain marketing authorisations in several Member States when the medicinal product at stake has not yet been approved in any Member State. The procedure is very similar to the mutual procedure and can also be trigged by an applicant or by a Member State.

2.29 The procedure is triggered by an applicant through the submission of an application based on an identical dossier in all the relevant Member States, with designation of a RMS.43 The RMS has 120 days from the application to prepare a draft assessment report, SmPC, label-

35 Article 28(1) of Directive 2001/83. 36 Article 28(4) of Directive 2001/83. 37 Article 29(3) of Directive 2001/83. 38 Articles 32 to 34 of Directive 2001/83. For further details, please refer to Chapter 3 (Community Referral Procedures) of Volume 2A of the Notices to Applicants. 39 Article 28(4) and (5) of Directive 2001/83. 40 According to Article 18 of Directive 2001/83, a Member State must reject an application related to a product authorised in another Member State, unless it has been submitted in accordance with the mutual recognition procedure. 41 In particular, a medicinal product is the same if it has the same qualitative and quantitative composition in active substance and the same pharmaceutical form, and that they have no difference in terms of safety and to Applicants. 42 See Section 2.8 of Chapter 1 (Marketing Authorisation) and Section 3.2.1 of Chapter 2 (Mutual Recognition) of Volume 2A of the Notice to Applicants. See also Commission Communication 98/C 229/03 on the Com- munity marketing authorisation procedures for medicinal products. 43 Article 28(1) of Directive 2001/83.

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44 after which these documents are formally communicated to the CMS which have 90 days to approve them.45 In the meantime, the CMS communicate their comments on the draft product documentation and assessment report and try to reach an agreement with the RMS. In case a disagreement related to potential serious risk to public health cannot be settled between the Member States directly, the disagreement is referred to the CMDh, and, if the matter still cannot be resolved, to the EMA through the ‘referral procedures’.46 The competent authorities of the relevant Member States must adopt a national decision granting the marketing authorisation within 30 days from the acknowledgement of the agreement to the assessment report and product documentation.

2.30 The decentralised procedure can also be triggered by a Member State when it is informed that another marketing authorisation application has been submitted for the same product and by the same marketing authorisation holder in another Member State.47 In such case, the Member State must remind the applicant that the decentralised procedure applies.

3. National procedure

2.31 limited to medicines that are not intended to be approved in more than one Member State and that do not fall under the compulsory scope of the centralised procedure. The procedure is dealt with by the competent authority of the Member State concerned and leads to the granting of a marketing authorisation in that Member State only. There is however a possibility of harmonisation of the SmPC of products approved at the national level through the referral procedure instituted by Article 30(2) of Directive 2001/83.

C. TYPES OF MARKETING AUTHORISATION APPLICATIONS

2.32 to demonstrate the quality, safety and effectiveness of the product. The format for the marketing authorisation application form and the underlying dossier generally is consistent for all medicinal products. Dossiers - mon Technical Document (‘CTD’) format, in which quality and manufacturing, pre-clinical

44 Article 28(3) of Directive 2001/83. 45 Article 28(4) of Directive 2001/83. 46 Article 29 of Directive 2001/83. See also Chapter 3 (Community Referral Procedures) of Volume 2A of the Notices to Applicants. These referral procedures ultimately result in a binding decision from the European Commission. 47 Article 17(2) of Directive 2001/83. For the assessment whether the medicinal product and the marketing authorisation holder are the same, the principles explained above under sub-section a (mutual recognition procedure) apply.

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and clinical trial sections are accompanied by associated summary reports.48 Detailed guidance is provided in Volume 2B of the Notice to Applicants relating to the ‘Presentation and format of the dossier - Common Technical Document’. A marketing authorisation applica- : 1. 2. 3. Module 3 containing the documentation relating to the quality aspects, in particular the chemical, 4. 5. Module 5 containing the clinical study reports.

2.33

2.34 The type of application determines the extent of data that must be submitted for approval, but may also have indirect consequences, for instance on data exclusivity.49

2.35 - cations and the required data.

1. Full application

2.36 ‘Full’ or ‘stand-alone’ applications are based on Article 8(3) of Directive 2001/83 and require the submission of a complete independent dossier. In particular, the dossier must contain full results of: 1. 2. 3. Clinical trials.

2.37 Applications can always be submitted through this route, except during the period of market exclusivity of similar orphan medicinal products approved in the same indication.50

2. Generic or abridged application

2.38 ‘Generic’ or ‘abridged’ applications are based on Article 10 of Directive 2001/83. They may omit the results of pre-clinical tests and clinical trials and refer instead to the data of a ‘reference product’. Data showing bioequivalence to the reference product are therefore required.

48 This is based on the Common Technical Document (M4) agreed on by the International Conference on Har- monisation of Technical Requirements for Registration of Pharmaceuticals for Human Use. 49 Please refer to Chapter 3 on the protection of medicinal products. 50 For further details, please refer to Chapter 3 on the protection of medicinal products.

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2.39 Only products that have been authorised in accordance with the provisions of Article 8 of Directive 2001/83/EC may be used as reference products.51 This means that products consent application may be used as reference products, since they all contain, or are deemed to contain, the pre-clinical and clinical data required under Article 8(3)(i). Reference can- product authorised on the basis of a bibliographic application (in which the pre-clinical and been referred to the CJEU for a preliminary ruling.52 To qualify as a reference product, the marketing authorisation must have been granted in accordance with the applicable EU legislation.53 It is however irrelevant whether the marketing authorisation has been withdrawn or not.54 It is also irrelevant if the reference product was authorised in a different Member 55

2.40 Abridged applications are only possible provided that (i) the regulatory data exclusivity protection has expired for the reference product,56 and that (ii) the product for which an ap- i.e., “a medicinal product which has the same qualitative and quantitative composition in active substances and the same pharmaceutical form as the reference medicinal product, and whose bioequivalence with the reference medicinal product has been demonstrated by appropriate bioavailability studies”.57

2.41 - it expires. This is because no formal determination is made by the competent authorities on data exclusivity of new medicines, and because of the concept of ‘global marketing authorisation’. According to this principle, any subsequent development of a medicine – i.e., additional strengths, pharmaceutical forms, administration routes, presentations, variations and extensions – is deemed to be part of the same marketing authorisation for data exclusivity purposes.58 On the second condition, issues arise in determining whether a product is to be considered the same as the reference medicinal product. This is because the legislation presumes that certain chemical forms – i.e., different salts, esters, ethers, isomers, mixtures of isomers, complexes or derivatives of an active substance – are to be considered the same

51 Section 5.3.1.1 of Chapter 1 of Volume 2A of the Notice to Applicants. 52 See Case C-104/13 , pending. 53 See the case of the EU Court of Justice in the galantamine case (C-527/07 Generics (UK) [2009] ECR I-05259). 54 Article 10(1) of Directive 2001/83 indeed only requires that the “reference medicinal product is or has been authorised…”. This is in line with the ruling of the EU Court of Justice in case C-223/01 GEA Farmaceutisk Fabrik [2003] ECR I-11809. 55 This is the concept of ‘European reference product’. See Article 10(1), 3d subparagraph of Directive 2001/83. 56 On this point, please refer to Chapter 3 on protection of medicinal products. 57 Article 10(2)(b) of Directive 2001/83. See also Section 5.3. of Chapter 1 (Marketing Authorisation) of Vol- ume 2A of the Notice to Applicants. 58 Article 6 of Directive 2001/83.

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- plex’ or a ‘derivative’ of an active substance. However, guidelines have been published to clarify this notion of ‘new active substance’59 and the EMA has undertaken to expressly mention whether active substances are to be considered ‘new’.

3. Hybrid application

2.42 ‘Hybrid’ applications are based on Article 10(3) of Directive 2001/83 and are somewhere between full and abridged applications. This type of application can be used by ‘generic’ - uct, i.e., where there are differences in active substances, therapeutic indications, strength, pharmaceutical form or route of administration, in relation to the reference medicinal product, or where bioequivalence cannot be demonstrated through standard bioavailability studies.

2.43 In this case, applicants must submit ‘bridging data’, i.e., additional pre-clinical or clinical data demonstrating that the differences with the reference product do not affect the product’s relative safety and effectiveness inappropriately.60 Hybrid applications thus rely in part on the pre-clinical and clinical data of the reference product, and in part on new data.

4. Biosimilar application

2.44 Biosimilar applications are based on Article 10(4) of Directive 2001/83. Biosimilars are biological medicines similar to already approved biological substances, but that do not meet - ing process. In such cases, adequate pre-clinical and clinical data must be submitted. The rules on biosimilars take into consideration the particular sensitivity of biological substances to changes – in particular in the raw material and manufacturing – and focus therefore less on the characterisation of substances themselves from a chemical perspective and more on control of the manufacturing and quality control processes to produce substances or mixtures of comparable quality, safety and effectiveness.

5. Bibliographical application for well-established medicinal use

2.45 Bibliographical applications are based on Article 10(a) Directive 2001/83. These appli- literature if the product has been in ‘well-established medicinal use’ in the EU with an ac-

2.46 It is not always clear what constitutes a ‘well established’ use under Article 10(a) of the

59 See in particular Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants and the EMA (enantiomer), a complex, a derivative, or a different salt or ester as new active substance in relation to the relevant reference active substance (ref. EMA/651649/2010). 60 Guidance on the additional studies required under the hybrid application is provided in Annex II to Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants.

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Directive. It must be systematic and documented but not necessarily based on an authorised medicinal product. However, clinical trials, compassionate use or named-patient sales are typically not enough to document such use.61 Well-established use must also be demonstrated in the therapeutic indication sought, so that this route cannot be used to approve a medicine in a new indication. Use in a new Member State prior to its accession to the EU can be taken into consideration.

6. Fixed combinations applications

2.47 - rective 2001/83. These products consist of substances – within a single pharmaceutical form – that have previously been approved in the composition of authorised medicinal products. According to the provision, the applicant does not need to submit full preclinical and clinical data for each individual active substance but only for the overall combination.62

7. Informed consent applications

2.48 Under Article 10(c) of Directive 2001/83, marketing authorisation holders may consent to for the original product. The applicant is therefore exempted from submitting such data, but consent must have been obtained for all three modules containing the pharmaceutical, preclinical and clinical data. The applicant may not refer to the pre-clinical and clinical data of the original product and submit its own pharmaceutical quality data. Informed consent applications are typically used for co-marketing reasons.

8. Mixed application - Annex I

2.49 for which non-clinical and clinical data are in part based on bibliographic references, and in part on the applicant’s own studies. These applications are considered ‘full’ applications

9. Applications under exceptional circumstances

2.50 Article 22 of Directive 2001/83 provides competent authorities with the possibility to autho- legal basis can be used by applicants that are unable (and never expect to be able) to provide

61 The prevalence of the disease should however be taken into consideration when demonstrating ‘well-established use’. See the recent Orphacol cases (T-12/12 and T-301/12 Laboratoires CTRS v Commission, nyr) on this issue. 62 substances composing it. This point is however being challenged by Teva before the General Court in a case relating to the medicinal product Abacavir/Lamivudine (case T-547/12, pending).

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1. The intended indications are so rare that comprehensive evidence cannot reasonably be 2. - 3. Medical ethics prevents collecting such information.

2.51

10. Conditional marketing authorisations

2.52 - ed that the product: 1. 2. 3. Is a designated orphan medicine.

2.53 To obtain conditional approval, 63 the applicant must demonstrate that: 1. 2. 3. Full clinical data can likely be provided in the future.

2.54 - ligations, including in terms of clinical trials, pharmacovigilance and labelling, and to an annual reassessment and renewal. Conditional marketing authorisations are valid only for one year, but are renewable provided that the product continues to meet the criteria for conditional marketing authorisations. The authorisation is not intended to remain conditional grant a traditional marketing authorisation for the medicine.

D. OTHER AUTHORISATION PROCEDURES AND EXEMPTIONS

2.55 Aside from the above ‘traditional’ routes of access to the pharmaceutical market, the phar- - ing authorisations or even derogations from the requirement to have a marketing authori-

63 Article 14(7) of Regulation 726/2004 and Commission Regulation 507/2006 OJ 2006 L92/6.

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procedure is foreseen based on limited data while for others, medicines under development are made available.

1. Registration procedure for homeopathic medicinal products

2.56 Homeopathic medicinal products are ‘prepared from substances called homeopathic stocks in accordance with a homeopathic manufacturing procedure’ described by the European or national Pharmacopoeias. They may contain a number of principles.64

2.57 Homeopathic medicines that are administered orally or externally, that do not claim any therapeutic indication (the descriptions of diseases or conditions for which the medicine is - - sier demonstrating, in particular, pharmaceutical quality and batch-to-batch homogeneity.65 Other types of homeopathic medicines must be approved in accordance with the regular marketing authorisation procedures described above. The referral procedures however do not apply for homeopathic medicines.66

2. Registration procedure for traditional herbal medicinal products

2.58 A herbal product is only considered ‘traditional’ if the applicant can produce bibliographical or expert evidence that the medicinal product in question, or a corresponding product, has been in medicinal use throughout a period of at least 30 years, 15 of which must normally - teria, including in terms of indication, mode of administration – oral, external or inhalation – and available data.67 Herbal medicines that do not meet these conditions must be approved through the ordinary approval procedures described above.

2.59 trials, provided that there is documented evidence of the medicinal use during the required in terms of manufacturing and quality of ‘ordinary’ medicinal products also apply to traditional herbal medicines.

2.60 A Committee on Herbal Medicinal Products (‘HMPC’) has been set up within the EMA, which is competent for a number of tasks related to traditional herbal medicines, including

64 Article 1(5) of Directive 2001/83. 65 Articles 13 to 16 of Directive 2001/83. 66 Article 39 of Directive 2001/83. 67 Article 16(a) of Directive 2001/83.

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the establishment of a list of herbal substances used in traditional herbal medicines and Union herbal monographs.68

3. Exceptional marketing authorisation under Article 126(a) of Directive 2001/83

2.61 States to authorise, for public health reasons, the marketing of a medicine that is approved in another Member State in their own jurisdiction. The procedure is intended to increase availability of medicines in smaller markets. It is quite exceptional in the sense that the initiative to approve the medicine originates from a Member State and not from a pharmaceutical company. A list of medicines approved under this procedure is available on the European Commission’s Community register. So far, this procedure has been used mainly by Cyprus.

4. Temporary marketing authorisation under Article 5(2) of Directive 2001/83

2.62 Member States are also allowed to temporarily authorise the distribution of unauthorised toxins, chemical agents or nuclear radiation that could cause harm.69 This provision is intended to enable Member States to react promptly to pandemic or bioterrorist situations.

5. Compassionate use programmes

2.63 Compassionate use programmes are intended to make available new medicines under development to groups of patients, when they suffer from chronic, seriously debilitating or life-threatening diseases, and they cannot be treated satisfactorily with authorised medicines.70 Access to compassionate use can be granted for medicines eligible for the centralised procedure (under the mandatory or the optional scope) but is within the competence of the Member States.

2.64 Member States must notify their intention to make a medicine available for compassionate use to the EMA. The CHMP is then entitled to adopt an opinion on the conditions for compassionate use, including the conditions for distribution, use and the patients targeted. These opinions are not binding. The list of CHMP opinions on compassionate use is available on the EMA website.

68 Article 16(h) of Directive 2001/83. These lists and monographs are available on the website of the European Medicines Agency. 69 Article 5(2) of Directive 2001/83. 70 Article 83 of Regulation 726/2004. See also EMA ‘Guideline on compassionate use of medicinal products, pursuant to Article 83 of Regulation (EC) No 726/2004’ of 19 July 2007 (ref. EMEA/27170/2006).

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6. Named patient use

2.65 In order to answer to patients’ unmet needs, Member States are permitted to make available medicinal products that are not authorised according to the pharmaceutical legislation in un- professional and for use by an individual patient under his direct personal responsibility.71 This is different from compassionate use programmes which are intended to make a medicine available to a group of patients suffering from a very serious disease. Recent case law and is not applicable if another medicinal product containing the same active substance in the same dosage and same form is already authorised and available on the national market.72

7. Pharmacy and hospital compounding

2.66 Medicinal product prepared in a pharmacy in accordance with a medical prescription for an individual patient are excluded from the scope of the pharmaceutical legislation.73 They may therefore be supplied without going through the formal marketing authorisation procedure.

E. OBLIGATIONS OF THE MARKETING AUTHORISATION HOLDER

2.67 The marketing authorisation holder (‘MAH’) is the key actor in the marketing of medicinal products in Europe. The MAH must be established in the EU.74 The MAH is ultimately several obligations by virtue of its status. While the associated legal responsibility and liability cannot be delegated, the MAH can delegate the performance of related tasks to third parties, provided that this delegation is appropriately documented in writing.75

2.68

71 Article 5(1) of Directive 2001/83. 72 Case C-185/10, Commission v Poland, nyr. 73 Article 3(1) of Directive 2001/83. 74 Article 8(2) of Directive 2001/83. 75 As a general rule, European regulators accept delegation to an EU representative provided that appropriate to communicate on behalf of the applicant or MAH. A substantial European presence is not required.

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1. Manufacturing and batch release

2.69 All manufacturing arrangements related to medicines must be subject to a ‘technical agreement.’76 This is meant to guarantee that manufacturing or import operations comply with - tions set out in the marketing authorisation. These contracts must cover ‘any technical responsibilities of each party, in particular the observance of good manufacturing practice (‘GMP’) by the manufacturer, the scope of the manufacturing and analytical operations, undertakes his responsibilities.

2. Pharmacovigilance

2.70 In addition to imposing safety recording and reporting obligations, the EU pharmaceutical person for pharmacovigilance (‘QPPV’), who is responsible for the establishment and maintenance of a pharmacovigilance system and for the submission of reports to the relevant authorities.77

2.71 For further details regarding the pharmacovigilance framework, please refer to Chapter 5.

2.72 The MAH remains responsible for all advertising and promotion of its product throughout the relevant jurisdictions. Since other companies will advertise or promote on the MAH’s behalf, it must put in place agreements to ensure they comply with local advertising rules and that the MAH is able to exert an appropriate level of oversight and control over their activities.

2.73 - ical information on its medicinal products, predominantly to healthcare professionals, but also to regulators and patients.78 role in advertising, or at least in the development of the company’s materials.

2.74 please refer to Chapter 4.

76 See Volume 4 of the Notice to Applicants related to the Good Manufacturing Practice Guidelines, and, in particular, Chapter 7 relating to Contract Manufacture and Analysis. 77 The pharmacovigilance requirements are extensively described under Title IX of Directive 2001/83 and in the EMA Good Pharmacovigilance practice (‘GVP’) guidelines. 78 Article 98(1) of Directive 2001/83.

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4. Distributor issues

2.75 To the extent that local distributors perform local safety reporting tasks on behalf of the MAH under the pharmacovigilance framework, this needs to be documented through detailed agreements.

2.76 MAH, these tasks should be formally delegated by contract, which should allow the MAH to exercise an appropriate level of oversight and control over the distributors.

2.77 In the absence of such obligations, distributors need to maintain batch and distribution records only to the extent required under national wholesale distribution rules79 and good distribution practices (‘GDP’),80 or under the terms of their wholesale distributor’s authorisations.81

5. Other obligations

2.78 Other obligations that a MAH or applicant may delegate include: 1. designate a person to communicate on its behalf during the application procedure. Simi- 2. Maintenance of the marketing authorisation, including record-keeping, compliance with the authorisation’s terms and conditions, submission of renewal applications and pay- 3. - 4. Informing the competent authorities of any action to suspend or withdraw a medicinal 5. Informing authorities of any prohibition or restriction on use imposed by the authorities of another Member State where the medicinal product has been marketed.

2.79 Depending on the circumstances, it is conceivable that one or more third parties or distributors may provide such regulatory support services. If this occurs, the MAH should document the delegation appropriately.

6. Penalties

2.80 Article 111(8) of Directive 2001/83/EC and Article 84(1) of Regulation (EC) No 726/2004 require Member States to subject MAHs, who fail to discharge their obligations, to “effec-

80 See the Commission Guidelines on Good Distribution Practice of Medicinal Products for Human Use (ref. 94/C 63/03). 81 Article 77(1) of Directive 2001/83.

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44 EU Law and LifE SciEncES THE MARKETING AUTHORISATION FOR MEDICINAL PRODUCTS AND THE REGULATORY OBLIGATIONS OF COMPANIES

tive, proportionate and dissuasive penalties”. The precise nature and extent of these penalties varies from country to country.

2.81 Additionally, for centrally approved products, the European Commission can take action - implications, where it has an EU dimension dimension by taking place or having its effects in more than one member state, or where interests of the EU are involved obligations.82 preceding business year. If the infringement is on-going, the European Commission may preceding business year, until the infringement ceases. Non-cooperation with the European holder’s EU turnover in the preceding business year.

82 - ment of certain obligations in connection with marketing authorisations granted under Regulation (EC) No 726/2004 of the European Parliament and of the Council, OJ 2007 L155/10.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 45 3 THE PROTECTION OF MEDICINAL PRODUCTS

A. PATENT PROTECTION 3.03 2. ‘New’ regime - Marketing 1. EU patent regime authorisation applications a) General considerations 3.04 after October/November 2005 3.21 b) Scope of the patent 3.06 a) Global marketing authorisation c) Absence of patent linkage and new active substance 3.21 and exhaustion of patent rights 3.10 b) Regulatory exclusivity periods 3.34 2. 3.12 3. Exceptional regimes of exclusivity 3.37 B. REGULATORY EXCLUSIVITY 3.16 a) New indication of well-established substances 3.38 1. ‘Old’ regime - Marketing authorisation applications prior to October/November 2005 3.18 c) Orphan market exclusivity 3.45 d) Paediatric rewards 3.55

3.01 offered by patents, which guarantee a monopoly limited in time to the patent holders in also been established to compensate the inability, for pharmaceutical companies, to exploit their patents commercially during the approval period of new medicines (Section A). The - of time (Section B). In both cases, exclusivity is provided to pharmaceutical companies to reward innovation, and in exchange for the disclosure of the data relating to the new medicinal product.

3.02 Following the expiration of patent protection and regulatory exclusivity, the principal (and in many cases only) differentiation between two medicinal products with the same active ingredient is the brand and associated trademarks. Most EU countries mandate, encourage or allow generic prescription and/or generic substitution, so patients’ brand loyalty will have

A. PATENT PROTECTION

3.03 Intellectual property law protects different types of rights, including patent, trademarks, copyrights, trade secrets, and designs, all of which may be relevant to the pharmaceutical sector. We will however focus on the patent protection regime in Europe, which rewards

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innovation and confers a period of exclusivity on a novel product, process or medical use, in exchange for the public disclosure of the invention. The patent regime for medicines is complex and this section is only intended to provide a high-level overview of the key aspects and issues.1

1. EU patent regime

a) General considerations

3.04 Patents are rights granted to inventors in exchange for the disclosure of their inventions. - turing, distributing or using medicinal products in certain indications protected by the patent. It is irrelevant for that purpose whether a third party could develop the same technology 2

3.05 While Europe is slowly moving towards a EU-wide patent regime, many aspects remain currently national. A EU Regulation has recently been adopted in view of the creation of a unitary patent protection,3 under the provision of the European Patent Convention, with effect in the participating Member States.4 The date of application of this new regime is still unknown.5 In the meantime, patents may be granted at the national level, or under the European Patent Convention,6 which leads to the granting of multiple independent national patents through a single harmonised procedure.

b) Scope of the patent

3.06 As a general rule, any invention which is new (i.e., not part of the ‘state of the art’ or not already disclosed publicly), involves an inventive step (i.e., not obvious to a person skilled in the art) and is susceptible of industrial application is patentable.7 restrictions exist in the pharmaceutical sector, which have been implemented by the EU

1 For further details, see, e.g., D. Bucknell, , Oxford Pharmaceuticals biotechnology and the law Medical Patent Law – The challenges of Medical treatment, Edward Elgar Publishing, 2011. 2 This differs from the data and marketing exclusivity regime under the pharmaceutical legislation, which only prevents the reference to the originator’s data during a certain period of time. 3 Regulation (EU) No 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection, OJ 2012 L361/1. 4 Italy and Spain are not part of the enhanced cooperation in the area of the creation of unitary patent protection. 5 As per Article 18(2) of Regulation 1257/2012 on the creation of unitary patent protection, the new regime - 6 The European Patent Convention includes 38 parties, including all EU Member States. The European Patent Convention (or Convention on the Grant of European Patents) was signed on 5 October 1973 and regularly amended since then. The most recent version is the 14th edition of 2010. 7 Article 52 to 57 of the European Patent Convention.

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48 EU Law and LifE SciEncES THE PROTECTION OF MEDICINAL PRODUCTS

Directive on biotechnological inventions.8 using biological material or microbiological processes that are patentable.

3.07 There are four main categories of patent claims in the pharmaceutical sector: 1. Product claims, which provide protection over physical entities themselves (e.g., an 2. Process claims, which provide protection over activities or actions (e.g., manufacturing 3. Product-by-process claims, which protect physical entities by the way they are manufac- tured (e.g.,9 4. Medical use claims, which protect previously unknown medical uses of known substances (e.g.,

3.08 Patents entitle their holders to prevent any third party from making, using, selling, offering for sale or importing the patented invention. There are however a number of exceptions, among which are experimental use, including the so-called ‘Bolar’ exemption (enabling a generic marketing authorisation applicant to run the necessary trials for approval),10 private and non-commercial use, etc. Patent holders may also exploit their patent, by, for instance, selling, licensing or assigning them.

3.09 application.11 An extension of up to 5 years can be granted for medicinal products under the patents typically requires the payment of renewal fees.

c) Absence of patent linkage and exhaustion of patent rights

3.10 There is in principle no more ‘patent linkage’ in the EU, i.e., no link between the regulatory approval of a medicine and existing patent protection. The EU pharmaceutical framework allows for the development, application and registration of medicines irrespective of any patent status.12 The European Commission has taken actions against Member States with

8 Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions, OJ 1998 L213/13, as amended. See also Article 53 of the European Patent Convention. its structure or full composition is unknown. 10 Article 10(6) of Directive 2001/83 of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use, OJ 2001 L311/67 (‘Directive 2001/83’). 11 Article 63(1) of the European Patent Convention. 12 See Article 10(6) of Directive 2001/83, which enables a generic marketing authorisation applicant to run the necessary trials for approval irrespective of any patent protection. See also Article 126 of Directive 2001/83 and Article 81 of Regulation 726/2004, which both provide that marketing authorisations may only be refused on the grounds set respectively in the Directive and the Regulation (on this principle, see the interpretation of the EU Court of Justice in case C-83/92 Pierrel SpA and Ministero della Sanita [1993] ECR I-06419). The existence of patent rights is no such ground, so that it cannot be relied on to refuse the granting of a marketing authorisation.

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patent linkage, in particular as it delays the entry of generic medicines on the market.13

3.11 Patent rights are also exhausted once a patented product is placed on the market in the EU on the market by the patent holder or with his consent.14

3.12 Aside from the ordinary 20-year term of patents, an additional period of patent protection can be granted to medicinal products,15 (‘SPC’). It is intended to compensate for the loss of ‘effective’ patent protection resulting the early stage of development of new molecules, and therefore several years prior to the authorisation of the resulting medicine, only after which the company may commercially exploit its invention. SPCs are intended to bridge that gap by offering up to an additional 5 years (and possibly 6 months) of patent protection for the product.16

3.13 1. 17 2. 3. 4. 18

13 In January 2012, for instance, the European Commission has issued a formal request to Italy to comply with the European legislation concerning the authorisation procedures of generic medicinal products. At stake was an Italian law preventing generic applicant to submit a marketing authorisation prior to the penultimate year of the patent period of the reference product. See the press release of the European Commission of 26 January 2012: ‘Pharmaceuticals: Commission calls on Italy to comply with EU rules on marketing authorisation of generic drugs’. 14 See in particular case C-187/80 [1981] ECR Merck & Co v Europharm of Worthing [1996] ECR I-06285. For more details on parallel import, refer to Chapter 7. 15 Additional patent protection can also be granted to plant protection products under Regulation (EC) No 1610/96 of the European Parliament and of the Council of 23 July 1996 concerning the creation of a supple- 16 Regulation (EC) No 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the paediatric medicines, see also Regulation (EC) No 1901/2006 of the European Parliament and of the Council of 12 December 2006 on medicinal products for paediatric use and amending Regulation (EEC) No 1768/92, Directive 2001/20/EC, Directive 2001/83/EC and Regulation (EC) No 726/2004, OJ 2006 L 378/1 (‘Regula- tion 1901/2006 on Paediatric Medicines’). 17 application of a product, and which is designated by its holder for the purpose of the procedure for grant of a 18 Article 3 of the SPC Regulation.

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In practice, many issues arise in the interpretation of each of these conditions (in particular, 19

3.14 The SPC is limited to the scope of the patent combined with that of the marketing authorisation. The SPC thus confers to the patent holder the same rights (and obligations) as the initial patent, but only to the extent that the product is covered by a marketing authorisation and for the authorised therapeutic indications.20

3.15 21 The SPC then takes effect at 22 The maximum duration of the SPC is usually limited to 5 years. In addition, the SPC may qualify for another 6 months extension if studies have been performed in the paediatric population.23 The maximum period of SPC protection is thus 5 years and 6 months (in addition to the initial 20 years of patent protection).

B. REGULATORY EXCLUSIVITY

3.16 of innovative companies in developing new medicinal products and in generating the extensive body of data required to obtain a marketing authorisation (in particular, pre-clinical and clinical data). Unlike for patents, regulatory exclusivity does not prevent competitors from manufacturing or approving the same medicine or molecule, but only protects against independent from the product’s patent position, i.e., there is no so-called ‘patent linkage’.

19 See, e.g. on the concept of ‘product’: case C-392/97 Farmitalia Carlo Erba Srl [1999] ECR I-05553, case C-258/99 BASF AG v Bureau voor de Industriële Eigendom [2001] ECR I-03643, case C-431/04 Massa- chusetts Institute of Technology [2006] ECR I-04089, case C-202/05 Yissum Research and Development Hässle AB v Ratiopharm GmbH [2003] ECR I-14781, case C-31/03 C-252/03 Novartis & Millennium case C-110/95 Marks [1997] ECR I-03251. See also case C-181/95 Biogen Inc. v Smithkline Beecham Biologicals SA [1997] ECR I-00357. 20 Articles 4 and 5 of the SPC Regulation. 21 Article 7 of the SPC Regulation. 22 therefore not qualify for a SPC. 23 See the requirements under Article 36 of Regulation 1901/2006 on Paediatric Medicines. The reward is also granted if the paediatric studies do not lead to an authorisation in the paediatric indication.

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3.17 - ing the old regime and periods of protection (Section B.1), which are relevant to marketing will examine situations where a special period or type of exclusivity is granted (Section B.3). This mainly concerns orphan medicines and medicines developed in the paediatric population or in a new indication.

1. ‘Old’ regime - marketing authorisation applications prior to October/November 2005

3.18 The ‘old’ regime of data exclusivity applies to medicinal products for which a marketing authorisation application was submitted in the EU24 prior to 20 November 2005 (for centralised approvals)25 or to 30 October 2005 (for approvals under the national, decentralised or mutual recognition procedures).26

3.19 Under the ‘old’ regime, the periods of data exclusivity are respectively of: 1. 10 years for medicinal products approved under the centralised procedure (or the for- 27 2. 10 years for national authorisations granted by Belgium, Germany, France, Italy, the 3. 6 years for national authorisations granted by Austria, Denmark, Finland, Ireland, Por- tugal, Spain, Greece, Poland, Czech Republic, Hungary, Lithuania, Latvia, Slovenia, Slovakia, Malta, Estonia, Cyprus, Bulgaria, Romania, Norway, Liechtenstein and Ice- land.28

3.20 These periods are periods of ‘data exclusivity’. This means that no abridged application29

24 By virtue of the European Economic Area Agreement, European Economic Area (‘EEA’) Member States, Norway, Iceland and Liechtenstein, have implemented the EU’s pharmaceutical regime and references to the EU in this chapter can therefore often be read to encompass the entire EEA. 25 Article 89 of Regulation 726/2004. 26 Article 2 of Directive 2004/27 of the European Parliament and of the Council of 31 March 2004 amending Directive 2001/83/EC on the Community code relating to medicinal products for human use, OJ 2004 L13/34. 27 The ‘concertation’ procedure is a predecessor of the ‘centralised’ procedure. It required an opinion from the ‘CPMP’ (former CHMP) for the approval of high-technology medicinal products (see Article 2(5) of Direc- tive 87/22/EEC of 22 December 1986 on the approximation of national measures relating to the placing on the market of high-technology medicinal products, particularly those derived from biotechnology, OJ 1987 L15/38). 28 Some of these countries with a six-year period of data exclusivity further limited the data exclusivity period by providing that it would not extend beyond the duration of any applicable patent protection. 29 On the notion of ‘abridged’ application, see Chapter 2 on the marketing authorisation procedures.

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exclusivity.30 Because of the different periods of protection, generics could enter the market Unlike in the new regime, some degree of patent linkage was accepted, because Member States that adopted a 6-year period of exclusivity could provide that the exclusivity prote- tion would not apply beyond the expiry of the patents protecting the product. There was also no provision enabling generic applicants to run the necessary trials for approval during the patent protection period of medicines (the ‘Bolar’ provision).

2. ‘New’ regime - marketing authorisation applications after October/November 2005

a) Global marketing authorisation and new active substance

3.21 The 2004 overhaul of the pharmaceutical legislation31 was the opportunity to review in depth the regulatory exclusivity regime, in particular by implementing part of the case law, - ify the regime.

3.22 Among those concepts that are key to the existence of regulatory exclusivity are those of ‘global marketing authorisation’ and ‘ new active substance’.

Global marketing authorisation 3.23 - ducing the necessary data (in particular, pre-clinical and clinical data) for the approval of innovative products. Therefore, it primarily applies to medicines that have been approved through a full application.32 period of exclusivity, in particular when they are considered to be a ‘development’ or a ‘variant’ of an existing medicine.

3.24 According to Article 6 of Directive 2001/83 on the Community code relating to medicinal products for human use (‘Directive 2001/83’), “any additional strengths, pharmaceutical forms, administration routes, presentations, as well as any variations and extensions” of an

30 This is, however, undermined by the recent ruling of the Higher Administrative Court of Münster of 4 July 2013 in the Clopidogrel case (OVG Münster, Urteil vom 04.07.2013 - 13 A 2801/10, BeckRS 2013, 53818). during the period of exclusivity, provided that the approval is granted after the expiry of this period. The Court based its view on the decision of the EU Court of Justice of 20 December 2010 in case C-385/08 Com- mission v Poland [2010] ECR I-00178. While this ruling is based on the ‘old’ regime, it is suggested that it would also apply under the new rules. 31 Council of 31 March 2004, OJ 2004 L136/34. 32 Or through an application assimilated to a full application, such as a mixed application (see Chapter 2 above about marketing authorisation procedures).

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initial marketing authorisation must be considered as part of the “same global marketing authorisation” as the initial authorisation for data and marketing exclusivity purposes.33

3.25 This means that the developments listed above do not give rise to a new self-standing period of exclusivity but rather follow the data and marketing exclusivity status of the initial approval. This principle applies whenever the new product belongs to the same applicant or marketing authorisation holder as the previously approved product,34 i.e., to a company belonging to the same company group or with which it has concluded tacit or explicit agreements concerning the marketing of the products (e.g., through licences).35 It does not matter, however, that the development was authorised through a separate procedure and under a different name.36 The concept of ‘global marketing authorisation’ is applied by the competent authorities also to substances that have been approved prior to its introduction in the pharmaceutical legislation in 2004.

New active substance 3.26 The concept of a ‘new active substance’ is also key to determining whether a product ben- product is protected by data and marketing exclusivity, and if so, from which date. Regula- tory protection arises by law, provided that the legal requirements are met. Since mid-2011, however, the European Medicines Agency (‘EMA’) has undertaken to provide some clarity for products reviewed under the centralised procedure by assessing if they contain ‘a new active substance’ (‘NAS’).37 substance and belonging to the same marketing authorisation holder.38 Since mid-2011 the CHMP normally includes a statement on the NAS status in its formal opinion on the marketing authorisation application, at least when the NAS status is claimed by the applicant.

33 This provision is intended to implement the case-law of the EU Court of Justice on the data exclusivity status of substances that constitute a ‘development’ or a ‘variant’ of a previously approved substances. See in particular the case C-368/96 Generics UK [1998] ECR I-07967, case C-223/01 - iddelstyrelsen [2003] ECR I-11809, case C-106/01 Novartis [2004] ECR I-04403, case C-36/03 Approved Prescription Services [2004] ECR I-11583 and C-74/03 SmithKline Beecham [2005] ECR I-00595. 34 Section 2.3 of Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants. For instance, with ICN concerning ribavirin (which had been approved nationally in 1988 under the name Virazole). 35 See Section 2.8. of Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants and the Commission communication on the Community marketing authorisation procedures for medicinal products (98/C 229/03). 36 See the ruling of the EU Court of Justice in case C-106/01 Novartis Pharmaceuticals [2004] ECR I-04403. This is however being challenged in two cases concerning a marketing authorisation granted for a new indication (cases T-472/12 and T-67/13 pending). 37 This followed the Sepracor cases (T-275/09 [2011] ECR II-00213 and C-477/11, nyr), concerning the withdrawal by Sepracor of its marketing authorisation application for eszopiclone after that the EMA (CHMP) and the European Commission refused to regard eszopiclone as a NAS. 38 Section 2.3. Chapter 1 (Marketing Authorisation) of Volume 2a of the Notice to Applicants.

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the Commission decision granting the marketing authorisation.39

3.27 it does not, it will not be protected, except, in principle, (i) when there is no link between the marketing authorisation holder of the new substance and the holder of the previous approval(s) for the same or similar active substance and (ii) the marketing authorisation for this new product is obtained on the basis of a full dossier.40 If a product does not contain a NAS and belongs to the same marketing authorisation holder as the previously approved marketing exclusivity period of the newly approved product is therefore identical to that

3.28 Under Directive 2001/83, new molecules qualify as NAS unless they are caught by the pre- sumption contained in Article 10(2)(b):

The different salts, esters, ethers, isomers, mixtures of isomers, complexes or derivatives of an active substance shall be considered to be the same active substance,

3.29 This provision contains two parts:

1. existing active substance. If it does not, the new substance is a NAS.

2. If it does, it must be assessed whether the existing and the new active substances differ i) If they do, the new substance is a NAS. ii) If they do not, the new substance is not a NAS. If the existing and the new substance belong to the same or related companies, the new substance will normally fall under the global marketing authorisation of the existing substance, which will impact on its regulatory exclusivity status.

3.30 2012.41 is through head-to-head comparison between the ‘reference active substance’ and its variant (

39 When NAS status is denied, experience shows that the Commission decision remains silent on this point. In three cases where the NAS status was denied (Vepacel, Hexyon, Hexacima), the CHMP conclusion was not 40 This is however uncertain, in particular in light of Article 10(5) of Directive 2001/83 which provides only for a non-cumulative period of one year of data exclusivity for well-established substance developed in a new indication. 41 complex, a derivative, or a different salt or ester as new active substance in relation to the relevant reference active substance of 18 October 2012 (EMA/651649/2010).

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- mines whether a substance is to be considered a NAS. Filing a full application is therefore 42

3.31 The above scheme can be summarised as follows:

Table - New active substance and data exclusivity:

3.32 distinguish the nature of the substances at stake, i.e., chemical, biological, or radiopharmaceutical substances:43

A new chemical, biological or radiopharmaceutical active substance includes:

- A chemical, biological or radiopharmaceutical substance not previously authorised

- An isomer, mixture of isomers, a complex or derivative or salt of a chemical substance previously authorised as a medicinal product in the European Union but

- A biological substance previously authorised as a medicinal product in the Euro- pean Union, but differing in molecular structure, nature of the source material or

- A radiopharmaceutical substance which is a radionuclide, or a ligand not previously authorised as a medicinal product in the European Union, or the coupling mech-

42 Novartis (case C-106/01 Novartis Pharmaceuticals [2004] ECR I-04403, para 62 of the judgement, paras 58-59 of the AG Opinion). 43 Annex I of Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants.

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anism to link the molecule and the radionuclide has not been authorised previously in the European Union.

3.33 molecules that need to be compared (i.e., differences’ to be demonstrated (in particular, when comparing substances intended for dif- the same etc.

b) Regulatory exclusivity periods

3.34 The new regulatory exclusivity periods apply to medicinal products for which an application was submitted after 20 November 2005 (for centralised approvals)44 or 30 October 2005 (for national approvals).45 Substances which – based on the considerations under Section followed by 2 years of ‘marketing exclusivity’, possible followed by an additional year of ‘marketing exclusivity’ in case of new therapeutic indication (the ‘8+2+1’ rule). The periods of regulatory exclusivity are now harmonised throughout the EU, and are irrespective of the application procedure used.

3.35 generic or biosimilar products may not be placed on the market for another 2 years. This is the period of ‘marketing exclusivity’ or ‘market protection’. If, during the initial 8 years of data exclusivity, the marketing authorisation holder obtains an authorisation for a new protection is extended by one additional year. 46 up to 11 years of market protection against generic and biosimilar competition.47

3.36 The period of regulatory exclusivity is independent from the patent life of the product. There is no ‘patent linkage’.48 The pharmaceutical legislation expressly provides that the

44 Article 89 of Regulation 726/2004. 45 Article 2 of Directive 2004/27 of the European Parliament and of the Council of 31 March 2004 amending Directive 2001/83/EC on the Community code relating to medicinal products for human use, OJ 2004 L136/34. 46 marketing authorisation holder obtains an authorisation for one or more new therapeutic indications which, comparison with existing therapies” of November 2007. 47 Article 10(a) of Directive 2001/83 and 14(11) of Regulation 726/2004. 48 See above under Section A.1(c).

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conduct of studies and trials in view of a marketing authorisation application does not infringe patent rights.49

3. Exceptional regimes of exclusivity

3.37 Aside from the general regime of regulatory exclusivity, additional periods or different types of exclusivity may be granted to reward new developments of existing products, or developments that are particularly costly. This is the case for the additional year of exclusivity granted in case of new studies leading to the approval of a new indication or to a orphan and paediatric indications.

a) New indication of well-established substances

3.38 According to Article 10(5) of Directive 2001/83, a non-cumulative period of one year of data exclusivity is granted for new indications of well-established substances, provided that

3.39 - ies” can be found in the European Commission “Guidance on a new therapeutic indication for a well-established substance” of November 2007.50 A new indication includes, for instance, a new target disease, a different stage of severity, a new target population, a new - to the new indication, rather than the quantity, that is primordial.

3.40 - latory exclusivity regime, i.e., after 20 November 2005 (for centralised approvals) or 30 October 2005 (for national approvals).51 This year is ‘non-cumulative’ with other periods of protection, and the Notice to Applicants explains that this means that the protection refers solely to the data relating to the new indication. In practice, the protection offered by this additional year of exclusivity in the new indication is weak. Since the exclusivity is limited to the data supporting the new applicants could then seek authorisation in the new indication by submitting bridging data (e.g., through a hybrid application) or the product could be prescribed off-label in the new indication.

3.41 This regime under Article 10(5) differs from the additional year of exclusivity for a new - cause the additional year of exclusivity under the general exclusivity regime applies to all data in the marketing authorisation dossier, not just the data for the new indication. How-

49 Article 10(6) of Directive 2001/83. 50 See also Section 6.3. of Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants. 51 See above, Section B.2(b).

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authorisation.

3.42 It is logical that the provision of Article 10(5) covers only marketing authorisation holders applying for a new indication of their own well-established medicinal product and that if an unrelated applicant should submit a full dossier in accordance with Article 8(3), the full 8+2 years of exclusivity should apply.

3.43 medicine (i.e., prescription only to non-prescription or OTC) is authorised on the basis of one year of data exclusivity regarding the data supporting this change. This period of one period, which can be granted at any time after expiry of the initial protection period and (e.g., additional year for new indication of well-established product).

3.44 - product for human use” of January 2006.52 this case is irrespective of the interpretation of this notion under Article 10(5) of Directive 2001/83 (exclusivity for new indication of well-established medicines). Trials are con- strength or posology, a new route of administration, a new pharmaceutical form, a new indication (in particular one not previously authorised for an OTC medicine) or subpopulation.

c) Orphan market exclusivity

3.45 to compensate the special development efforts of innovative companies in smaller medicinal markets. Two Regulations cover the different aspects of the orphan medicines’ legal regime, i.e., Regulation 141/2000 on orphan medicinal products and Commission Regula- of ‘similar medicinal product’ and ‘clinical superiority’.53

3.46 An orphan medicinal product is a product intended for the diagnosis, prevention or treat- necessary investment without incentives. An orphan designation can be granted only if

52 See also Section 6.4. of Chapter 1 (Marketing Authorisation) of Volume 2A of the Notice to Applicants. 53 Regulation (EC) no 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan medicinal products, OJ 2000 L18/1 (‘Regulation 141/200 on Orphan Medicines’) and Regulation 847/200 of 27 April 2000 laying down the provisions for implementation of the criteria for designation of a medicinal - ical superiority’, OJ 2000 L103/5 (‘Regulation 847/2000 on Orphan Medicines’).

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there is no satisfactory method of diagnosis, prevention or treatment of the condition autho- 54

3.47 10 years of ‘market exclusivity’ during which regulators cannot accept applications for, nor approve, similar medicinal products in the same indication. The protection is thus broader than this offered under the general regime, as the orphan exclusivity prevents any application for a similar medicine during a period of 10 years, including applications from competitors who can generate their own data in support of the protected indication.

3.48 A ‘similar medicinal product’ is a product:55 1. 2. Containing a similar active substance, i.e., an identical active substance or an active substance with the same principal molecular structural features, and which acts via the same mechanism of action. Substances share the same mechanism of action when they have the same pharmacological target (e.g., a receptor, enzyme, carrier etc.) and the same pharmacodynamic effect (i.e., the action of the active substance on the body). The mode of administration, pharmacokinetic properties, potency and tissue distribution of the target are however irrelevant.

3.49 In practice, it may prove very challenging to anticipate whether medicinal products will be considered the same under the orphan regime. The same issues as for the ‘new active substance’ determination may arise.

3.50 There are two exceptions, and one possible extension to the 10-year period of market exclusivity for orphan medicines:

• in case paediatric studies have been conducted in accordance with a paediatric investigation plan. The maximum period of market exclusivity is thus of 12 years.56

• Second, the 10-year period may be reduced to 6 years if it appears, at the end of the 5th year of market exclusivity, that the conditions to be considered as an orphan medicine are no longer met.57

• Third, a marketing authorisation can also be granted to a similar medicinal product in the same indication, at any time during the 10-year market exclusivity period, if one of the following conditions is met:58

54 Article 3 of Regulation 141/200 on Orphan Medicines and Article 2 of Regulation 847/200 on Orphan Med- icines. See also the EMA Recommendation on elements required to support the medical plausibility and the Final). 55 Articles 3(2) and 3(3) of Commission Regulation (EC) No 847/2000 on Orphan Medicines. 56 Article 37 of Regulation 1901/2006 on Paediatric Medicines. 57 Article 8(2) of Regulation 141/2000 on Orphan Medicines. 58 Article 8(3) of Regulation (EC) No 141/2000 on Orphan Medicines.

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1. The marketing authorisation holder of the initial orphan medicine consents to the ap- 2. The marketing authorisation holder of the initial orphan medicine is unable to supply 3. The new product is safer, more effective or otherwise clinically superior to the initial orphan medicine.

3.51 Further guidance on the key notions pertaining to orphan market exclusivity, and, in particular, the notion of ‘similarity’ of and of ‘clinical superiority’ can be found in the two Euro- pean Commission Communications on the application of Regulation 141/2000 on Orphan Medicine.59

d) Paediatric rewards

3.52 development of products in the paediatric population.60 If a product is approved on the basis of a dossier that includes paediatric clinical trial data generated in accordance with an exclusivity: 1. orphan market exclusivity (i.e., a total of 12 years of exclusivity).61 2. If the product is not an orphan medicine and is eligible for a supplementary protection 62 the patent term will be extended by six months. This additional period of patent protection is called a ‘SPC extension’ and applies irrespective of whether the paediatric studies lead to the authorisation in the paediatric indication. The reward is however only granted if the product is authorised in all the Member States. It cannot 63 Similarly, the SPC extension does not apply if the appli- - 2001/83.64 3. from a full period of data and marketing exclusivity (i.e., 8+2+1 year possibly)65 on its marketing authorisation relating to the paediatric indication (known as a ‘paediatric

59 Communication from the Commission on Regulation (EC) No 141/2000 of the European Parliament and of the Council on orphan medicinal products, 29 July 2003 (ref. 2003/C 178/02). Guideline on aspects of the application of Article 8(1) and (3) of Regulation (EC) No 141/2000: Assessing - 60 Regulation (EC) No 1901/2006 of the European Parliament and of the Council of 12 December 2006 on medicinal products for paediatric use and amending Regulation (EEC) No 1768/92, Directive 2001/20/EC, Directive 2001/83/EC and Regulation (EC) No 726/2004, OJ 2006 L378/1. 61 Article 37 of Regulation 1901/2006 on Paediatric Medicines. 62 See above, Section A.2. 63 Article 36 of Regulation 1901/2006 on Paediatric Medicines. 64 See above, Section B.2(b). 65 See above, Section B.2(b).

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use marketing authorisation’ or ‘PUMA’).66 In practice, the value of such regulatory product in the non-paediatric indication, provided that its period of exclusivity has expired, and the generic or biosimilar product could then be prescribed off-label in the paediatric indication.

66 Article 30(3) of Regulation 1901/2006 on Paediatric Medicines.

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62 EU Law and LifE SciEncES 4 ADVERTISING AND INFORMATION – EU RULES GOVERNING MEDICINAL PRODUCTS AND MEDICAL DEVICES

A. INTRODUCTION 4.03 5. Advertising to the public 4.57 a) Printed advertisements (Article 89) 4.58 B. MEDICINAL PRODUCTS 4.08 b) Legal prohibitions (Article 90) 4.60 1. Applicable EU rules 4.08 6. Advertising to HCPs 4.62 a) Articles 86 to 100 of Directive 2001/83 4.08 a) Printed advertisements (Article 91 and 92) 4.64 b) Codes of conduct 4.10 b) Sales representatives (Article 93) 4.67 2. Toward greater harmonisation 4.15 c) Incentives (Article 94 and 95) 4.71 a) Role of National Law 4.15 d) Samples (Article 96) 4.81 b) Principles of free movement of goods 4.17 7. Websites 4.83 c) Gintec 4.22 8. Responsibilities and sanctions 4.87 3. Advertising and information 4.25 a) Advertising and information 4.26 b) Co-promotion (Article 98(3)) 4.91 4. General rules 4.46 c) Controls and sanctions (Article 97) 4.92 a) Authorised medicinal products (Article 87(1)) 4.46 C. MEDICAL DEVICES 4.102 b) Basic requirements (Article 87(2) and (3)) 4.48 c) Impact of prescription status (Article 88) 4.51 D. TRANSPARENCY RULES 4.106 d) Media 4.54 1. Sunshine rules at EU level 4.107 2. Sunshine rules at national level 4.109 3. Patient associations 4.111

4.01 This chapter provides an overview of the EU rules on advertising and promotion as they - late activities in these two sectors. General EU rules on business practices are not discussed here except for a brief overview of the principles governing comparative claims.

4.02 National laws and practices also play a major role in this context, but they fall outside the scope of this book. Some examples are, however, provided.

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A. INTRODUCTION

4.03 Advertising of medicines has been regulated at the EU level since the adoption of Directive 92/28/EEC.1 The goal of this Directive was to reduce the differences between the laws of

4.04 The operative provisions of Directive 92/28/EEC are now incorporated in Directive 2001/83, and the rules were amended in 2004. The rules regulate advertising of medicines in general, as well as advertising to the general public and to HCPs. A key issue is how to distinguish between advertising and information, and whether the latter should also be regulated. Di- rective 2001/83 contains some principles on how to distinguish between the two activities and, following the 2004 revision, called for further review and possible legislation. On that unlikely to be successful (see below).

4.05 Although regulated at the EU level, for a long time advertising of medicinal products was de facto primarily governed by national law. The EU rules are quite general, and Mem- ber States assume considerable freedom to transpose them in domestic law, and to rely on self-regulatory systems. More recently, however, decisions by the Court of Justice of the EU (‘CJEU’) indicate that the EU rules require complete harmonisation on many issues except where Directive 2001/83 expressly allows Member States to adopt diverging or additional rules.

4.06 only very discrete points are regulated by the EU medical devices rules. National rules and devices. The interactions between the industry and HCPs are, however, often based on the same general principles.

4.07 We conclude the chapter with a short overview of the transparency rules for pharmaceutical companies. Such rules typically require companies to disclose certain information about - posed by law, but are often provided in industry codes of conduct. For the moment there is

1 Council Directive 92/28/EEC of 31 March 1992 on the advertising of medicinal products for human use OJ 1992 L113/13.

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64 EU Law and LifE SciEncES ADVERTISING AND INFORMATION – EU RULES GOVERNING MEDICINAL PRODUCTS AND MEDICAL DEVICES

B. MEDICINAL PRODUCTS

1. Applicable EU rules

a) Articles 86 to 100 of Directive 2001/83

4.08 Advertising of medicinal products is currently governed by Titles VIII (Article 86 to 88) and VIIIa (Article 88bis to 100) of Directive 2001/83. These provisions apply to medicinal products authorised at the national or the EU level.

4.09 The rules do not regulate advertising of pharmaceutical companies in general or their commercial activities. Such advertisements are allowed, subject to national provisions. The medicinal products.

b) Codes of conduct

4.10 Several codes of conduct have been adopted by professional associations, both at the international and at the EU level. Article 97(5) of Directive 2001/83 encourages self-regulation, provided that it is carried out in parallel, and not in lieu of, controls and sanctions by public authorities. Codes of conduct can be an effective means to impose balanced and regularly updated rules for all players.

4.11 At the international level, the International Federation of Pharmaceutical Manufacturers and Associations (‘IFPMA’) has adopted a Code of Practice designed to ensure the ethical promotion of medicines globally. This code establishes a system of enforcement and is mandatory for companies which are IFPMA members.

4.12 In the EU, the European Federation of Pharmaceutical Industries and Associations (‘EF- PIA’) has adopted the Code on the Promotion of Prescription-only Medicines to, and Inter- actions with, Healthcare Professionals (the ‘EFPIA Code’) (last revised in June 2011). The EFPIA Code only concerns the innovative pharmaceutical industry. In November 2012, the European Generic Medicines Association adopted its own list of Guiding Principles Promoting Good Governance in the Pharmaceutical Sector (the ‘EGA Principles’), which include guidance on advertising of generic medicinal products, but these are much less detailed than the EFPIA Code.

4.13 The EFPIA Code is very important because the 33 national industry associations that are members of EFPIA are expected to implement it into the national codes of conduct, and, in addition, the 40 member pharmaceutical companies are directly bound by its rules. 2 The EFPIA Code applies not only to the companies that are members of EFPIA, but also to their subsidiaries and any natural or legal person acting on their behalf (consultants, advertising agencies, etc.).

2 The national industry associations that are members of EFPIA cover not only EU or EEA member states, but also other European jurisdictions, such as Switzerland and Turkey.

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4.14 EFPIA has also adopted a Code of Practice on relationships between the pharmaceutical industry and patient organisations (the ‘EFPIA Patient Organizations Code’) (last revised in June 2011). This code is meant to ensure that the contacts between these groups take place in an ethical, independent and transparent manner. It regulates the funding of patient organisations, events and hospitality, as well as agreements and services, among other things.

2. Toward greater harmonisation

a) Role of national law

4.15 Articles 86 to 100 of Directive 2001/83 have been transposed into national law by Member is permissible and what is not are of major importance. The EU rules are rather general and their implementation has led to differing national laws, codes and practices. This results in an imperfectly harmonised regime. It also makes the question of what national rules apply to activities that have links with more than one Member State very important.

4.16 There is, however, growing harmonisation through the case law of the Court of Justice of the EU based, to a very small degree, on the general principle of free movement of goods, and mainly on the provisions of Directive 2001/83. The challenge is that these principles lack the sophistication and detail required to provide a robust and effective, but also balanced and ‘up to date’ regulatory regime.

b) Principles of free movement of goods

4.17 The principle of free movement of goods is enshrined in Article 34 of the Treaty on the Functioning of the European Union (‘TFEU’)3, which prohibits quantitative restrictions and by the protection of certain interests, such as public health, provided that such measures do not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

4.18 The case law of the CJEU on free movement of goods is largely devoted to the interpretation of Articles 34 and 36 TFEU. Barriers to trade resulting from differences between national laws are acceptable only to the extent that they: (i) are not discriminatory, in law or in fact, and (iii) are proportionate to the objective pursued, which cannot be achieved by less restrictive measures.

4.19 In the Keck-Mithouard case4, the CJEU nuanced its previous decisions by distinguishing between “rules that lay down requirements to be met by such goods” and “provisions restricting or prohibiting certain selling arrangements”. The Court considered that the second category of the measures falls outside the scope of Article 34 TFEU if they apply without distinction to all operators actively involved on the national territory, and if they affect in the same manner, in law and in fact, the marketing of domestic products and imported

3 The old Articles 28 and 30 of the EC Treaty. 4 Joined cases C-267/91 and C-268/91, Keck and Mithouard [1993] ECR I-06097.

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products. By contrast, previous case law (Dassonville5, De Peijper6 and Cassis de Dijon7) weight, composition, presentation, labelling, packaging and any other characteristic of the product. The selling arrangements cover the sale prices, the restrictions on advertising, as well as the time and place of sales (when, where, by whom and at what price may the products be sold?). The impact of the principle of free movement of goods on advertising rules is thus very limited.

4.20 There are, however, some instances where the principle can apply to medicines advertising rules. For instance, German law allows pharmacists to import medicines that are not approved in Germany in limited quantities and under individual control, but prohibits the advertising of those medicinal products. 8 In Ortscheit9, the CJEU noted that this regulation applied only to imported products and thus was discriminatory, but considered that i.e., to preserve the uniqueness of the individual orders of unauthorised medicinal products in Germany. Many years later, in Ludwigs-Apotheke10 that the rules of Directive 2001/83 (including the ban on advertising non-authorised medicines) cannot apply, because named patient sales are excluded for the scope of the Directive 2001/83.11 The Court then held that a prohibition on distributing price lists to pharmacists was not proportionate as the lists did not contain any substantial information on the characteristics and effects of the medicinal products. A prohibition on outright advertising of the products in question would, on the other hand, be valid.

4.21 In Doc Morris12, the CJEU ruled on the prohibition of mail order medicinal products sold exclusively in pharmacies, and the ban of advertising of medicine sales by mail. In this case, the orders had been placed online from Germany to the Dutch Doc Morris Internet pharmacy. The CJEU distinguished between products that are not approved in the importing country and those that are approved. The importation of unapproved medicinal products may be prohibited but only if necessary to effectively protect human health. In this regard, to prevent incorrect use of medicines or the risks of labelling in another language. In other words, over-the-counter medicines that are authorised in a Member State may be purchased through the Internet from a pharmacy in another Member State, and imported. Doc Morris also related to advertising: the CJEU ruled that Member States may prohibit the advertising of mail order of medicines through pharmacies but only for prescription products.

5 Case C-8/74, Procureur du Roi v Benoît and Gustave Dassonville [1974] ECR 00837. 6 Case C-104/75, De Peijper [1976] ECR 00613. 7 Case C-120/78, Rewe v Bundesmonopolverwaltung für Branntwein [1979] ECR 00649. 8 For more information, refer to Section D.6 of Chapter 2. 9 Case C-320/93, Lucien Ortscheit GmbH v Eurim-Pharm Arzneimittel GmbH, [1994] ECR I-05243. 10 Case C-143/06, [2007] ECR I-09623. 11 See Article 5(1) of Directive 2001/83 of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use OJ 2001 L311/67. 12 Case C-322/01, [2003] ECR I-14887.

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c) Gintec

4.22 The CJEU’s decision in Gintec13 is a milestone in the harmonisation of the advertising rules for medicinal products.14 This case concerned a dispute between a German association opposing unfair competition and Gintec – a distributor of non-prescription medicines. Ac- cording to the association, Gintec was infringing the German Act on Advertising of Medical Products (Heilmittelwerbegesetz - HWG), which prohibited certain forms of advertising, i.e., through consumer surveys or prize draws – prohibitions not imposed at the EU level. The CJEU ruled that Directive 2001/83 effects a full harmonisation of the rules on advertising, except where the Directive expressly allows Member States to adopt diverging or additional rules. Member States must thus not adopt prohibitions or restrictions other than those provided by the Directive, except where expressly allowed by Directive 2001/83.

4.23 Directive 2001/83 expressly allows Member States to derogate from or supplement the EU rules in the following cases: prohibiting advertising for reimbursable medicinal products adding the sale price and conditions for reimbursement by social security in advertising to 96(2)). It should be noted that Article 87(3) lists vague general criteria that all advertise- de facto latitude to interpret these criteria, at least until the CJEU provides clear guidance on how the rules must be applied.

4.24 The Gintec ruling should in principle lead to legislative changes in most if not all Member States, as national laws differ, sometimes to a very large extent, from Directive 2001/83. For example, in France, Article R.5122-4-12 of the Public Health Code (Code de la Santé Publique) prohibits the use of claims of recovery. This absolute and unconditional prohibition seems to contradict Article 90(j) of Directive 2001/83. In Germany, prohibitions and restrictions imposed by the HWG exceed those established by Directive 2001/83. In addition, the German courts often apply a strict interpretation, assimilating, for example, refer- with the Directive. The real harmonisation will, however, remain a very long term process.

3. Advertising and information

4.25 Advertising of medicinal products is strictly regulated, while information on those products is permitted. In this context, the distinction between the two is essential.

13 Case C-374/05,. [2007] ECR I-09517. 14 The full harmonisation principle is vested in Article 114 of the Treaty on the Functioning of the EU, which provides that the European Parliament and the Council shall “adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market”.

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a) Advertising and information 4.26 - mation, canvassing activity or inducement designed to promote the prescription, supply, sale or consumption of medicinal products”. sensu stricto undertaken, organised or sponsored by or on behalf of a pharmaceutical company in order to promote the prescription, supply, sale, administration, recommendation or use of a medicinal product. This chapter mainly uses the term ‘advertising’ in a broader sense to also cover all product-related promotional activities.

4.27 to the advertising of medicines, it constitutes a special rule as regards Directive 84/450 concerning misleading advertising15 (replaced in 2007 by Directive 2006/114),16 over which it prevails ().17 It follows that in the pharmaceutical sector an autonomous concept of advertising applies and, for instance, a communication that does not take place in a commercial or industrial setting can nevertheless be considered an advertisement.

4.28 The term ‘designed to’ (in French ‘qui vise à’, in German ‘zur- vertising indicates that the intent of the author is crucial to determine the nature of the com- on the positive characteristics of a medicinal product usually implies a promotional intent.

ii) The author of the Communication 4.29 The author of the communication is usually connected to the marketing authorisation holder or a company that manufactures or distributes the medicinal product, but he can also be independent. Does this independence lead to an exemption from the advertising rules? The CJEU answered negatively in the Damgaard case.18 The CJEU ruled that (i) the dissemination by a third party of information on a medicinal product, including its therapeutic or prophylactic properties, may be regarded as advertising even if the third party acted on his own initiative and is completely independent, de jure and de facto, from the manufacturer or seller of the product, and (ii) it is for the national court to determine whether that dissemination constitutes advertising. In this regard, the status of the communication’s author and, in particular, his relationship with the company that produces or distributes the product, are factors that must be assessed together with other circumstances, such as the nature of the activity and the content of the message. The Court also noted that it is up to national authorities to ensure the right balance between (i) the objectives of protecting public health and the rational use of medicinal products and (ii) the right to freedom of expression (protected

15 Council Directive 84/450/EEC of 10 September 1984 relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning misleading advertising OJ 1984 L250/17. 16 Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising OJ 2006 L376/21. 17 See Case C-374/05, [2007] ECR I-09517, para 31. 18 Case C-421/07, Damgaard [2009] ECR I-02629.

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protection reserved for journalists.

4.30 In the ABPI case19- aging doctors to favour the prescription of certain medicines, infringed Directive 2001/83. In this context, the Court referred to the Damgaard case acknowledging that dissemination by an independent third party may also be regarded as advertising. However, it made it clear that this cannot apply to public health authorities responsible for ensuring the application of 20 Since - ing or commercial aim, they cannot be regarded as commercial promotion of medicines. Unlike dissemination of information by an independent third party, they pose no risk of harming public health. The Court did, however, apply the principle of Directive 89/105 on transparency of measures regulating the prices of medicinal products for human use and their inclusion in the scope of national health insurance systems (pricing and reimbursement rules).21 It stressed that pharmaceutical companies must still be able to verify that criteria, and that there is no discrimination between national medicines and those from other Member States.

iii) Information is not advertising 4.31 Directive 2001/83 sets out certain examples of what constitutes advertising (e.g., delivering samples, medical visits, etc.). On the other hand, Article 86(2) expressly excludes certain activities from the scope of the advertising rules, namely: (i) the labelling and package - formative announcements and reference material, for example relating to pack changes, adverse-reaction warnings as part of general drug precautions, trade catalogues, and price lists, or human diseases, provided that there is no reference, even indirect, to medicinal products.

4.32 The EFPIA Code adds to this list general, non-promotional information on pharmaceutical - latory developments affecting the company and its products). It also includes the addresses (URLs) of websites funded by pharmaceutical companies which are indicated on the packaging of medicinal products, subject to certain restrictions.

4.33 unclear. For the moment, national rules, case law and practices are decisive.

19 Case C-62/09, Association of the British Pharmaceutical Industry v Medicines and Healthcare Products Regulatory Agency [2010] ECR I-03603. 20 Case C-62/09, Association of the British Pharmaceutical Industry v Medicines and Healthcare Products Regulatory Agency [2010] ECR I-03603, paras 31-34. 21 Council Directive 89/105/EEC of 21 December 1988 relating to the transparency of measures regulating the prices of medicinal products for human use and their inclusion in the scope of national health insurance systems OJ 1989 L40/8.

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4.34 ‘Advertising’ is broadly interpreted by Member States, leaving little room for the dissemination of information by pharmaceutical companies. Certain countries, however, such as the Netherlands, apply more nuanced self-regulatory guidelines. In practice, information supplied to patients by pharmaceutical companies occurs mainly through the summary of - ulated by Directive 2001/83, and through disease awareness campaigns, which must be informative and non-promotional.

4.35 Attempts were made to change the above-mentioned situation, especially in light of the of the legislation added Article 88(a) to Directive 2001/83, calling for the Commission to present a report to the European Parliament on current practice with regard to information provision, particularly on the Internet, and to put forward “proposals setting out an information strategy to ensure good-quality, objective, reliable and non-promotional information on medicinal products and other treatments and shall address the question of the information source’s liability”.

iv) The Initiative ‘Information to Patients’ and the legislative proposals 4.36 On 20 December 2007, the Commission submitted to the Parliament and the Council the report envisioned by Article 88(a) of Directive 2001/83. The report focused on the mechanisms and information technologies, on the needs of patients and the role of different stakeholders in the EU and the Member States. It concluded that there is a divergence in the national rules on information to patients regarding prescription-only medicinal products, which creates an inequality in access to information. The report noted the need for more information and the increasing role of the Internet as a source of information, while emphasizing the variability in the quality of information provided by the media in particular.

4.37 Following the report, the Commission moved to propose legislative changes to ensure high quality information, to identify communication channels, and to provide acceptable control measures and adequate enforcement. In December 2008, the Commission presented two legislative proposals to the Parliament and the Council as part of its so-called Pharmaceu- tical Package: a proposal amending Directive 2001/83 and a proposal to amend Regulation 726/2004 (collectively, the Proposal on ‘Information to Patients’). The proposals were intended to remove the disparities between national provisions and ensure the proper functioning of the internal market while safeguarding a high level of protection of public health.

4.38 The proposals concerned information on prescription-only medicines provided by marketing authorisation holders to the general public. Marketing authorisation holders would be allowed to disseminate such information directly to the general public, as long as the applicable requirements and conditions are respected. Information – and thus not advertising i.e., prices, and factual, informative announcements, as well as medicine-related information on of the condition to be prevented or treated.

4.39 The proposals also envisaged harmonised conditions on the content of information that information would have to be objective and unbiased, take into account the general needs

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and expectations of patients, and be up-to-date and based on evidence. It would also have to be reliable, factually correct and not misleading, as well as understandable, clearly state its - tent, the information would have to include, among other things, a statement that the medicine is available on prescription only, and that the information is only intended to support, not replace, the relationship between the patient and the healthcare professional. It would also have to make it clear that it is disseminated by the marketing authorisation holder, and provide his contact details. The information would not be allowed to include comparisons or elements forbidden in advertising.

4.40 - mation in order to exclude unsolicited means of communication. These authorised channels would be health-related publications, internet websites on medicines, and written answers to requests for information. Dissemination via radio or television would be explicitly prohibited.

4.41 The proposals also introduced an obligation for Member States to establish a monitoring system to ensure compliance with the applicable provisions, and enforcement in case of non-compliance. Such a system would have to be based on control of information prior to dissemination, unless the content had already been approved by competent authorities, or unless an equivalent level of adequate monitoring is ensured.

4.42 through the Internet (see below, Section 7).

4.43 Following the input of the European Parliament, on 11 October 2011 the Commission adopted amended versions of the proposals, which included a revision of the pharmacovigilance rules. The proposals were then amended again, following Commissioner Dalli’s announcement of the split of the amended proposals into two parts (i.e., separating the part on pharmacovigilance). The latest amended proposals on information to patients were adopted by the Commission on 10 February 2012.

4.44 2001/83 covers not only direct activities of the marketing authorisation holder, but also activities performed “indirectly through a third party acting on behalf of the marketing authorisation holder”.22 Moreover, the amended proposals make a distinction between information that must be made available by the marketing authorisation holder, and the information that may be made available by him. The former includes the SmPC, the labelling and use, among other things. The authorised channels for making information available are also amended in that distribution through health-related publications, newspapers and magazines is not allowed, except upon request by a patient or via an HCP. The amended proposals also modify the requirements regarding quality criteria and statements.

4.45 The fact that the latest proposal has not progressed in the past 18 months strongly suggests that the Commission and Parliament remain at an impasse and that there is no prospect of adoption of the proposal in the near future.

22 Article 1 of the Amended Proposal to amend Directive 2001/83.

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4. General rules

a) Authorised medicinal products (Article 87(1))

4.46 Advertising an unauthorised medicinal product is prohibited, regardless of the status of the product and irrespective of the prescription and whether the advertising is aimed at the general public or at HCPs. Similarly, pharmaceutical companies may not advertise a medicine outside the authorised therapeutic indications (so-called ‘off-label promotion’), even

4.47 The EFPIA Code authorises off-label advertising at international events or advertising of a medicinal product that is not yet approved in the country where the event takes place if such advertising is accompanied by (i) a statement indicating the countries in which the product is authorised and stating that it is not in the country where the event takes place and (ii) if applicable, a statement explaining that the authorisation conditions vary from country to country. In the same vein, the Austrian law allows advertising to HCPs of medicines not foreign.

b) Basic requirements (Article 87(2) and (3))

4.48 Advertisements of medicinal products must meet certain general criteria: they must comply -

4.49 Based on the Gintec23 ruling of the CJEU, Member States may only impose additional requirements beyond those laid down in Directive 2001/83 if expressly allowed in the Direc- (subject of course, ultimately, to review by the CJEU).

4.50 Several Member States (e.g., the UK) have imposed an additional general requirement that advertising or promotional activities sponsored by a pharmaceutical company must clearly indicate that they are so sponsored.

c) Impact of prescription status (Article 88)

4.51 As a general rule, advertising of prescription-only medicinal products may be directed only to HCPs, whereas advertising of over-the-counter medicinal products may be intended for both HCPs and the general public.

4.52 Advertising to the general public is prohibited for prescription-only medicinal products and medicinal products containing psychotropic or narcotic substances, except in cases of vaccination campaigns approved by the competent authority. The Proposal on Information to Pa- tients planned to extend this exception to other campaigns conducted in the public interest. Notwithstanding the clear prohibition currently in Article 88 of Directive 2001/83, some Member States allow certain advertisements to the general public for prescription-only me-

23 See Section A.3 above.

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dicinal products. In France, for example, promotion to the public of both prescription drugs and reimbursed non-prescription drugs intended to reduce tobacco addiction is allowed.

4.53 Member States may also prohibit the advertising of medicines that are reimbursed through the social security system, whether or not those medicines are prescription-only, but that option is not always used.

d) Media

4.54 Directive 2001/83 does not address the means that pharmaceutical companies may use to promote their medicinal products. However, the use of certain media is prohibited or restricted by other directives. For example, the EU data privacy Directive 95/46 states that e-mail advertising is permissible only when the recipient has previously agreed to receive such communications, possibly on the basis of an ‘opt-out’ arrangement.24 Directive 2010/13 prohibits the advertising of prescription-only medicinal products on television.25 It also prohibits the sponsorship of audiovisual media services or programs by pharmaceutical companies for promoting their activities.

4.55 - stance, it is generally forbidden to advertise medicinal products in aircrafts or boats through signs, telephone, text messages, fax, software, etc. In France, the Medicines Agency (Agence nationale de sécurité du médicament et des produits de santé - ‘ANSM’) published and updated a recommendation on media allowed to advertise to the public. Greeting cards, CDs, cups, bookmarks or mats, for example, are not deemed appropriate.

4.56 Also, the EFPIA Code regulates the means by which advertisements are made. Subject to contrary national provisions, the use of faxes, e-mails, automated calling systems, text messages or other electronic communications is prohibited unless prior consent of the recipient is obtained.

5. Advertising to the public

4.57 As noted above (under Section 4(c)), the general rule is that non-prescription medicines may be advertised to the general public whereas prescription-only medicines may not.

a) Printed advertisements (Article 89)

4.58 Article 89 of Directive 2001/83 sets out what information must be included in advertisements to the general public. Any advertisement to the general public must (i) be designed so -

24 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data OJ 1995 L281/31. 25 Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services OJ 2010 L95/1.

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national non-proprietary name if the medicinal product contains only one active substance), the information necessary for the correct use of the medicinal product, and an express, leg-

4.59 Member States may allow the mere mention of the name, the international non-proprietary name or brand of the medicinal product in advertisements, when such communications are intended solely as a reminder.

b) Legal prohibitions (Article 90)

4.60 Article 90 of Directive 2001/83 lists the elements that are expressly prohibited in advertisements to the general public. Such advertising must not contain any material which: 1. Gives the impression that a medical consultation or surgical operation is unnecessary, 2. Suggests that the effects of the medicine are guaranteed, without side effects, greater 3. Suggests that the health of the subject can be enhanced by the use of the medicinal 4. Suggests that the health of the subject could be affected in the event of non-use of the 5. 6. Refers to a recommendation by scientists, health professionals or other persons who 7. 8. 9. Could, by a description or detailed representation of a case history, lead to erroneous 10. 11. Uses – in improper, alarming or misleading terms – pictorial representations of changes in the human body caused by disease or injury or the action of a medicinal product in the human body or parts of it.

4.61 In Gintec, the CJEU noted that the term ‘claims of recovery’ (Article 90(j)) covers any claim that use of the medicinal product will lead to “the restoration to health of the person suffering from an illness or from particular health problems”. However, it does not cover “references to the reinforcement of a person’s well-being” where there is no reference to illness”.26 The Court also linked this to Article 90(c), stressing that claims suggesting that the health or general well-being of the subject can be enhanced by the use of the medicinal product are prohibited.

26 Case C-374/05, . [2007] ECR I-09517, paras 43-44.

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6. Advertising to HCPs

4.62 Directive 2001/83 expressly authorises several types of advertising to HCPs: printed advertisements, visits by sales representatives, gifts, hospitality and free samples.

4.63 ”. It is left to national law to determine which professionals are deemed HCPs. Doctors, dentists and pharmacists are obviously included, but what about, for example, nurses (covered in France, Germany or the Netherlands) or medical students? Under the EFPIA Code, doctors, dentists, pharmacists, nurses and anyone who may prescribe, purchase, supply or administer medicinal products in the context of their professional activities is considered a ‘healthcare professional’.

a) Printed advertisements (Article 91 and 92)

4.64 Any advertisement of a medicinal product to HCPs must contain the essential information This minimum information must be included in any document relating to a medicinal product, which must also specify the date on which it was established or revised. Member States may also require that the advertisement indicates the sale price of the various presentations and the conditions of reimbursement through the social security system.

4.65 to enable the recipient to determine the therapeutic value of the medicinal product. Quo-

4.66 The EFPIA Code contains additional restrictions. It prohibits the use of the term ‘safety’ without further precision, limits the use of the word ‘new’ to a period of one year, and prohibits the claim that the product does not have side effects, toxicity or risks of addiction or dependency. However, it expressly permits comparisons between medicines, provided that they are based on relevant and comparable aspects of products and they are not misleading or disparaging.

b) Sales representatives (Article 93)

4.67 - edge to provide accurate and complete information about the medicines they are presenting. Directive 2001/83 does not contain greater detail about the training required from sales

4.68 Documents submitted by sales representatives to HCPs must comply with the restrictions imposed by Article 87 (general rules) and Articles 91 and 92 (rules for printed advertisements) of Directive 2001/83. During each visit, sales representatives are required to have at hand or provide the healthcare professional with the SmPC and, if applicable, the information about prices and reimbursement conditions for each medicinal product they present.

4.69 The EFPIA Code also requires that sales representatives ensure that the frequency, timing and duration of visits do not cause inconveniences to the visited HCPs. The same restrictions are contained in the French Charter of medical visits (‘Charte de la visite médicale’).

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4.70 The prohibition on advertising of an unauthorised medicinal product means that a sales representative must not refer to ongoing research for a new medicinal product or a new on on-going developments asked by an HCP, provided that his answer does not constitute advertising under Article 86(2).

c) Incentives (Article 94 and 95)

4.71 In general, HCPs must not solicit or accept from pharmaceutical companies – and the latter the cases strictly regulated in Directive 2001/83. This ban, meant to eliminate incentives to prescribe or dispense a particular pharmaceutical company’s medicinal products, does not cover national trade practices relating to prices, margins and discounts.

(Article 94(1)) 4.72 unless of negligible value and related to the practice of medicine or pharmacy. What constitutes ‘negligible value’ varies from Member State to Member State and can range from a few euros to 50 euros. Some Member States do not set limits for certain types of gifts (usually educational objects), the nature of which varies.

ii) Hospitality (Article 94(2) and 95) 4.73 EU law allows pharmaceutical companies to provide hospitality to HCPs who are attending be strictly limited to the main purpose of the event and must not be extended to persons other than HCPs. These conditions are generally interpreted as requiring pharmaceutical companies to cover only the transportation, hotel, and meals and the registration fees. They must not bear other costs (e.g., cultural or sports activities), even if they occur within or in connection with the event.

4.74 The EFPIA Code states that hospitality must be reasonable, i.e., it must not exceed the amount that the HCPs would normally be willing to pay for themselves. First class tickets or meals in well-known restaurants are generally not acceptable.

4.75 Some Member States have introduced a system of prior approval or control to ensure that semi-public (Belgium) or private (France) body. National rules can also restrict hospitality

iii) Other incentives 4.76 Interactions between pharmaceutical companies on the one hand, and HCPs and the general public, on the other, are not limited to those envisaged by Directive 2001/83. They also arise in activities such as the sponsorship of an association of HCPs, the training of HCPs, and funding of clinical trials conducted by hospitals. The most common interaction is probably the payment for services provided by the HCP.

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4.77 Directive 2001/83 does not expressly regulate the payment of services provided by HCPs i.e., gifts. A gift to a doctor or pharmacist can encourage the prescription or supply of medicinal products originating from the donor rather than those of its competitors.

4.78 The same cannot be said about a fair remuneration for services actually rendered by a physi- that are provided as part of a research contract (e.g., a clinical trial) or a service contract (e.g., at a conference, training of other professionals, etc.). The compensation must be reasonable Furthermore, the provision of services must be documented by a written contract that may

4.79 compensation considered reasonable and proportionate. This criterion is generally interpreted as referring to the ‘fair market value’ given the factual circumstances (time spent by the healthcare professional, nature of services, specialisation, etc.). Sometimes reference is also made to standard tariffs for physicians. For certain national control mechanisms see Section B.8(c) below.

4.80 As for hospitality, some Member States have introduced a system of prior approval or con-

d) Samples (Article 96)

4.81 samples of medicinal products containing psychotropic or narcotics, the provision of which is generally prohibited. EU law does not allow the provision of samples to persons who are authorised to supply medicinal products (pharmacists) and a fortiori to patients. Article 88(6) expressly prohibits the direct distribution of medicines to the general public for promotional purposes.

4.82 Delivery of samples to physicians is subject to strict conditions: (i) the number of samples - be accompanied by a copy of the SmPC. Member States may impose additional restrictions on the distribution of medicinal product samples.

7. Websites

4.83 rules on websites at the EU level. Apart from the general advertising rules, websites must also comply with EU rules on the protection of personal data, electronic commerce and unfair business practices. Moreover, an annex to the EFPIA Code contains Guidelines for Internet Websites Available to HCPs, Patients and the Public. These Guidelines impose an

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obligation of transparency, requiring each site to clearly indicate certain information such as the identity and address of the site or its sources of information.

4.84 In theory, disease awareness sites – i.e., sites dedicated to a particular disease – are not considered advertising, as Article 86(2) of Directive 2001/83 expressly excludes information on human health or diseases from the scope of advertising, provided that it does not contain as companies may seek to disseminate promotional information via disease awareness sites. The EFPIA Guidelines list the information that can be posted on such sites, namely: general information about the pharmaceutical company and information on the characteristics of diseases, methods of prevention and screening, treatments and other information to promote public health. Medicinal products may be mentioned if the discussion is balanced and accurate.

4.85 Another interesting issue related to the use of the Internet is regulating sites reserved for HCPs only. As with all advertising, promotional materials on prescription medicines may not be made accessible to the public. Member States have different approaches here. In e.g., Sweden), but in general this mea- or encouraged. Many pharmaceutical companies restrict public access by technical means physicians by the pharmaceutical company (Portugal, Finland, Denmark) or an independent

4.86 The proposals on Information to Patients27- able of information via the Internet. Websites on medicinal products are recognised as a legitimate channel for provision of information by the marketing authorisation holder. Such of the Member States where the medicines are authorised. The websites would also have to marketing authorisation holders would have to register their websites with the competent national authorities before the websites are available to the general public. The Member State of registration would be responsible for monitoring the contents of the website. It would not be permissible for websites to identify the members of the general public that have visited them, nor trigger active distribution of unsolicited materials. Finally, the websites would have to contain a link to the European medicines web portal.28

8. Responsibilities and sanctions

4.87 Generally speaking, responsibility for the advertising of a medicinal product rests with the

27 See Section B.3(a)(iv). 28 Article 26 of Regulation 726/2004 requires the EMA to set up and maintain a European medicines web-portal for the dissemination of information on medicinal products authorised in the EU, but this portal is not yet operational.

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marketing authorisation holder. In some Member States, where the rules are worded in a more general way, this responsibility extends to the advertisements made by third parties who are independent from the marketing authorisation holder.

4.88 - trol by the authorities a copy of any advertisement made by the company, together with a representatives are adequately trained and meet their obligations.

4.89 may be adopted at the national level. In Italy, for example, the national code of conduct medical practitioner or, where appropriate, a pharmacist.

4.90 The liability of the marketing authorisation holder for the advertising of its medicinal products makes it particularly important - and necessary - to implement supervision and control measures in case of delegation of advertising and promotional activities to a third party (e.g., a local distributor).

b) Co-promotion (Article 98(3))

4.91 Member States must not prohibit the co-promotion of a medicinal product by the marketing authorisation holder and one or more other companies. This rule, after the legislative reform of March 2004, softened the prohibitions and restrictions in some Member States (e.g., Italy and Greece).

c) Controls and sanctions (Article 97)

4.92 Public authorities monitor companies’ compliance with the rules relating to advertising.

i) Controls

4.93 Directive 2001/83 does not determine the control measures to be implemented by Member States. It merely states that if monitoring is based on a system of prior control, it must also allow the interested persons to bring a legal action.

4.94 A mechanism of prior control is established in some Member States. In France, advertising is subject to a priori approval of the ANSM, and payments or gifts to HCPs are subject to prior control of the competent ethics board (such as the national physicians board or CNOM). In Italy, all advertising, including ‘Health Sites,’ as well as payments and gifts to - ments to the general public are subject to control by a self-regulatory body, the Foundation Code Medicines Advertising ( (CGR)). In Sweden, the trade association for the Pharmaceutical Industry (LIF) makes a prior review of the advertising over the Internet. In the UK, the Medicines and healthcare products Regulatory Agency (‘MHRA’) may require a prior control of advertisements in some cases and, since November 2005, it systematically reviews the advertisements for new active substances.

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4.95 Germany, the Common Position on the Criminal Assessment of the Cooperation between the Industry, Hospitals and their Employees (Gemeinsamer Standpunkt), requires companies to obtain a written declaration from the targeted HCP that they want to cooperate with, that he provided ample information on the arrangement to his employer and obtained their consent. Similarly, the French Anti-Gift Act (), requires companies to submit a dossier to, and seek the prior opinion of, the French Order of Physicians (CNOM or 29 In Belgium, hospitality involving at least one overnight stay requires the prior approval of the Ethical Healthplatform (Mdeon).

4.96 Monitoring is also carried out by the pharmaceutical companies themselves, and to a lesser extent, by professional associations through codes of conduct.

ii) Sanctions

4.97 - alties for violations of certain provisions of the Regulation. This provision has led to the 30 During the preparation of this Regulation, the Commission attempted to extend its power to sanction vi- 726/2004, and Article 84(3) does not cover it. As a consequence, Regulation 658/2007 does not explicitly cover advertising. Rather, it covers “the placing on the market in accordance in the authorisation for placing on the market”. If this is applied to advertising though, it most likely lacks legal basis.

4.98 Sanctions for violations of the rules on advertising are therefore determined entirely at the - ber States should empower national courts to order the cessation of activities or to prevent illegal distribution, even in the absence of evidence of actual harm or fault of the advertiser (Article 97). Member States can also empower the courts to order the publication of a corrective statement. Moreover, Article 118(a) of Directive 2001/83 requires Member States to lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to the Directive and ensure that those penalties are implemented. Such penalties must not be inferior to penalties applicable to infringements of national law, and must be effective, proportionate and dissuasive.

4.99 The penalties provided for by Member States under pharmaceutical law are very diverse, States are more imaginative. France, for example, ties the violation of advertising rules to the reimbursement status of a product. In addition to these penalties, certain anti-corruption

29 30 - ment of certain obligations in connection with marketing authorisations granted under Regulation (EC) No 726/2004 of the European Parliament and of the Council OJ 2007 L155/10.

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4.100 The EFPIA Code requires national industry associations to establish procedures and appro- of the decision, but leaves it to the national associations to determine the most effective sanctions.

4.101 In practice, self-regulation is the preferred method of resolving disputes regarding advertising in many Member States. If the pharmaceutical company refuses to submit to a code of conduct or a decision of the self-regulation organ, a professional association or another pharmaceutical company usually reverts to a public authority.

C. MEDICAL DEVICES

4.102 Advertising and promotion of medical devices is not regulated at the EU level, and Mem- ber State legislators can set out standards in this area if they wish. 31 Directive 93/42/EEC concerning medical devices32 only provides that national legislators must not create any obstacles to displaying devices that are not conform with the requirements of the Directive at trade fairs, exhibitions, demonstrations or the like, provided that a visible sign clearly indicates that such devices may not be marketed or put into service before they conform with the relevant requirements.

4.103 The European medical technology industry association (Eucomed) established some guidelines in its Code of Ethical Business Practice of 11 September 2008 (‘Eucomed Code’). This code sets out rules on interactions of its member companies with HCPs, both individuals and entities. It has been implemented by national industry associations in codes containing similar requirements, which vary to some extent in accordance with the national rules and nationally chosen approach. The rules set out in the Eucomed Code apply when there are no stricter national provisions in place.

4.104 The Eucomed Code is based on four key principles: 1. The principle of separation provides that interactions between the industry and HCPs must not be misused and that HCPs must retain their independence in making purchasing and prescribing decisions. 2. The principle of transparency requires that these interactions be transparent and com- pliant with applicable laws. 3. According to the principle of equivalence, remuneration of legitimate services performed by HCPs must represent a fair market value and be commensurate with the services provided. 4. Based on the principle of documentation, appropriate documentation, such as written contracts, receipts, invoices, must be kept as a record of the interactions.

4.105 between HCPs and the industry:

31 For a very succinct overview of the EU medical device rules, see Chapter 1, Section C.2. 32 Council Directive 93/42/EEC of 14 June 1993 concerning medical devices OJ 1993 L169/1.

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1. Meetings. Sponsored product trainings or promotional meetings may only be conducted in appropriate venues, the hospitality and travel arrangements must be reason- information being shared at the meeting. Educational conferences organised by third parties may also be sponsored by the industry under various forms, such as sponsoring the attendance of HCPs, purchasing advertisements or booth space, general conference support, organisation of satellite symposia or provision of grants to institutions – all in 2. Agreements. Consulting agreements with HCPs are allowed , so long as they serve a - pensated based on fair market value, and the agreements are in written form, among other things. 3. Gifts, Donations and Grants. Companies may occasionally provide HCPs with in- expensive gifts that are modest in value and not in cash form. Donations to charitable way to past, present or future use of the companies’ products or services. Similar rules apply to educational grants such as scholarships or research grants. Such support may not be a reward to favoured customers nor an inducement to recommend, purchase or prescribe products.

D. TRANSPARENCY RULES

4.106 Interactions between the pharmaceutical industry and HCPs are often necessary and desired. -

1. Sunshine rules at EU level

4.107 In June 2013, EFPIA published a Code on Disclosure of Transfers of Value from Pharma- ceutical Companies to Healthcare Professionals and Healthcare Organisations (the ‘EFPIA Disclosure Code’). The EFPIA Disclosure Code envisages that member companies document and disclose direct and indirect payments and transfers of value that they make to healthcare organisations or HCPs. Covered payments include donations, grants, sponsor-

4.108 The EFPIA Disclosure Code requires disclosure on an annual basis and within 6 months after the reporting period. Disclosure must be made on a publicly available website or on a central platform hosted by, for instance, a regulatory authority or a national EFPIA member association. For certain types of payment the EFPIA Disclosure Code requires an aggregate disclosure, i.e., of all transfers of value of that type to HCPs or healthcare organisations, and for others, of all payments made to an individual recipient.

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2. Sunshine rules at national level

4.109 Few Member States currently impose legal transparency obligations, but the EFPIA Disclo- sure Code must be implemented into national codes by 31 December 2013, so changes are on the way.

4.110 or more (in kind or in cash) provided to various actors in the healthcare sector, and of agreements concluded with those persons. The Dutch industry association CGR adopted a Code of Conduct for the Disclosure of Financial Relations requiring annual reporting of payments to HCPs or healthcare institutions, published on the CGR website. Similarly, the UK ABPI Code of Practice for the Pharmaceutical Industry requires reporting and public disclosure on the company website of certain payments to HCPs and healthcare associations. The Code of Conduct from the German industry association FSA obliges members to disclose payments to healthcare institutions higher than 10.000 EUR per recipient on the company website. In some countries, such as Italy and Spain, disclosure duties result indirectly from the obligation to report promotional expenses for tax purposes.

3. Patient associations

4.111 The EFPIA Patient Organisations Code requires companies to publish a list of patient or- support. This list must include the monetary value or a description of the non-monetary can be found in national industry codes on interactions with patient organisations.

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84 EU Law and LifE SciEncES 5 PHARMACOVIGILANCE

A. INTRODUCTION 5.0 F. RISK MANAGEMENT PLAN 5.45 1. Format and contents of RMP 5.45 B. KEY REGULATORY AUTHORITIES 2. Submission of RMP and updates 5.49 1. EU level 5.06 2. National level 5.09 G. POST-AUTHORISATION SAFETY STUDIES 5.51 C. PHARMACOVIGILANCE QUALITY SYSTEM 5.10 H. OTHER SOURCES OF REPORTING OBLIGATIONS 5.56 1. Conditions of the marketing authorisation 5.57 3. Pharmacovigilance audits 5.19 2. Obligations in risk management plans 5.59 3. Requests for information 5.60 D. EXPEDITED REPORTING REQUIREMENTS 5.20 1. Overview of legal obligations 5.20 I. OTHER CONSIDERATIONS 2. Causality assessment 5.24 1. Data protection 5.62 3. Electronic reporting 5.27 2. Contractual issues and safety 4. Follow-up obligations 5.29 data exchange agreements 5.65 5. Additional reporting requirements 5.32 J. ENFORCEMENT AND PENALTIES E. PERIODIC REPORTING REQUIREMENTS 1. Pharmacovigilance inspections 5.68 1. Content and format of PSURs 5.37 2. PRAC procedures 5.70 2. Submission schedules 5.40 3. Article 31 referral 5.74 3. Assessment of PSURs 5.4 4. Urgent safety restrictions 5.76 5. Article 116 procedure 5.78 6. Penalties 5.79

A. INTRODUCTION

5.01 The EU has been an active participant in various initiatives intended to harmonise global drug safety requirements and has helped shape the recommendations on the pharmacovigi- on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Hu-

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man Use (‘ICH’)1 and by the World Health Organisation (‘WHO’) Council for International Organisations of Medical Sciences (‘CIOMS’).2 Recently, however, the EU has adopted a more holistic approach, focusing more on global pharmacovigilance systems and overarch- ing principles of risk managementrather than formal reporting requirements. At the heart of this approach is an expectation that companies will engage in a continuous assessment of

5.02 Prior to July 2012, the key pharmacovigilance obligations in the EU3 were described in for Regulation (EC) No 726/20044 for centrally approved products and Directive 2001/83/EC5 for other medicinal products. This legislation was supplemented by guidance from the Eu- ropean Commission, published as Volume 9A of the Rules Governing Medicinal Products in the European Union on December 5, 2001. Although purportedly only guidance, Volume 9A had some legal force, because Directive 2001/83/EC and Regulation (EC) No 726/2004

5.03 The EU adopted new pharmacovigilance legislation in December 2010, which introduced amended Directive 2001/83/EC,6 while Regulation (EU) No 1235/2010 amended Regula- tion (EC) No 726/2004.7 Further amendments relating to pharmacovigilance were adopted in 2012 and came into effect in October 2013.8

5.04 Directive 2001/83/EC now sets out the basic reporting requirements for marketing authorisation holders (‘MAHs’) for all medicinal products and it is accompanied by Commission

1 ICH was created to develop tripartite harmonisation initiatives relating to the authorisation of pharmaceutical products in the EU, Japan, and the United States, with input from both regulatory and industry representatives. The six ICH sponsors are the European Commission, the European Federation of Pharmaceutical Industries and Associations, the Japanese Ministry of Health and Welfare, the Japanese Pharmaceutical Man- ufacturers Association, the FDA, and the Pharmaceutical Research and Manufacturers of America. 2 http://www.cioms.ch. 3 By virtue of the European Economic Area Agreement, European Economic Area (‘EEA’) Member States, Norway, Iceland and Liechtenstein, have implemented the EU’s pharmaceutical regime, including the rules relating to pharmacovigilance, and references to the EU in this chapter can therefore often be read to encompass the entire EEA. 4 Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency, OJ 2004 L136/1. 5 Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use, OJ 2001 L311/67. 6 Directive 2010/84/EU of the European Parliament and of the Council of 15 December 2010 amending, as regards pharmacovigilance, Directive 2001/83/EC on the Community code relating to medicinal products for human use, OJ 2010 L348/74. 7 Regulation (EU) No 1235/2010 of the European Parliament and of the Council of 15 December 2010 amending, as regards pharmacovigilance of medicinal products for human use, Regulation (EC) No 726/2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency, and Regulation (EC) No 1394/2007 on advanced therapy medicinal products, OJ 2010 L348/1. 8 Directive 2012/26/EU of the European Parliament and of the Council of 25 October 2012 amending Directive 2001/83/EC as regards pharmacovigilance, OJ 2012 L299/1.

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86 EU Law and LifE SciEncES PHARMACOVIGILANCE

Implementing Regulation (EU) No 520/2012,9 which provides details on operational aspects of the new legislation. To supplement the legislation the European Medicines Agency (‘EMA’) has adopted a guideline on good pharmacovigilance practice in a series of modules

5.05 This chapter describes the pharmacovigilance obligations on MAHs under the new pharmacovigilance legislation and highlights key differences with the old system. Where relevant, it describes transitional measures, many of which are expected to remain in place for several years. The focus is on post-marketing pharmacovigilance obligations and so this chapter does not discuss the safety reporting obligations applicable to sponsors of clinical trials, which are imposed by Directive 2001/20/EC10 and associated guidance from the European Commission, published within Volume 10 of the Rules governing medicinal products in the European Union.

B. KEY REGULATORY AUTHORITIES

operate at two levels: the EU level and the national level.

1. EU level

5.06 At the EU level, the European Commission is responsible for proposing and promulgating relevant Community legislation and establishes pharmacovigilance policy. It is the body responsible for the granting of centralised marketing authorisations and for the adoption of binding decisions following referrals on safety-related matters.

5.07 The European Medicines Agency- sources in Member States for the evaluation, supervision and pharmacovigilance of medicinal products. It is responsible for the review of centralised marketing authorisation applications and for the resolution of matters referred to it from the EU Member States. It key Committee for Medicinal Products for Human Use (‘CHMP’). The CHMP comprises representatives of all EEA Member States, who use the resources of their respective national competent authorities to review applications for marketing authorisation and to resolve issues referred to them during the decentralised and mutual recognition process or otherwise through the various referral procedures. The CHMP adopts opinions based on these assessments and these opinions form the basis of binding European Commission decisions.

9 Commission Implementing Regulation (EU) No 520/2012 of 19 June 2012 on the performance of pharmacovigilance activities provided for in Regulation (EC) No 726/2004 of the European Parliament and of the Council and Directive 2001/83/EC of the European Parliament and of the Council, OJ 2012 L159/5. 10 Directive 2001/20/EC of the European Parliament and of the Council of 4 April 2001 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the implementation of good clinical practice in the conduct of clinical trials on medicinal products for human use, OJ 2001 L121/34.

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5.08 The CHMP is assisted by various working parties, which included the Pharmacovigilance Working Party (‘PhVWP’). The PhVWP was strictly speaking an advisory body, with no by the Pharmacovigilance Risk Assessment Committee (‘PRAC’), whose powers and procedures have been formally prescribed in the new legislation. Its main responsibility is to prepare recommendations on any questions relating to pharmacovigilance activities and on risk-management systems. The PRAC is also responsible for reviewing periodic safety update reports (‘PSURs’) and oversight of post-authorisation safety studies (‘PASS’). The - ed by the Commission, a healthcare professional representative and a patient organisation representative.

2. National level

5.09 The national competent authorities in the Member States have the primary responsibility for monitoring the safety of medicinal products approved either nationally, via the mutual recognition procedure or via the decentralised procedure. The EU reference member state is responsible for coordinating safety-related actions among other Member States. The national competent authorities also conduct pharmacovigilance inspections, either themselves or on behalf of the EMA.

C. PHARMACOVIGILANCE QUALITY SYSTEM

5.10 The MAH is legally responsible for the safety of products that it places on the market under its authorisations and for reporting all adverse event information that is required. Article

1. for pharmacovigilance

5.11 A key component of that pharmacovigilance system is that MAHs must have an appropri- their disposal.11 The QPPV must reside and operate in the EEA (so, for example, the QPPV may not live or work in Switzerland). The GVP Guidelines provide that each pharmacovigilance system can have only one QPPV.12 A QPPV may be engaged by more than one MAH, for a shared or for separate pharmacovigilance systems, and so it is common for smaller companies to engage the services of a QPPV through a pharmacovigilance service provider, rather than employ their own QPPV on a full-time basis. Back-up procedures should be in place in the case of absence of the QPPV. In practice, this means that MAHs need to appoint

11 Directive 2001/83/EC, Article 104(3). 12 GVP Guidelines, Module I, Section I.C.1.1.

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a deputy QPPV, who should be accessible through the QPPV’s contact details whenever the QPPV is absent.

5.12 Individual member states may also require the designation of a pharmacovigilance contact QPPV in Spain.

5.13 The QPPV is personally responsible for the establishment and maintenance of the MAH’s pharmacovigilance system and so the GVP Guidelines require MAHs to ensure that struc- - ular, the MAH should ensure that there is full documentation covering all procedures and activities of the QPPV and that mechanisms are in place to ensure that the QPPV receives or can obtain all relevant information. These mechanisms should ensure that the QPPV is informed of emerging safety concerns and any other information relating to the evaluation - ed clinical trials and other studies the MAH is aware of and which may be relevant to the contractual arrangements.

5.14 - ty system and the MAH’s pharmacovigilance activities.13 The QPPV should therefore be - tabase, with the authority to implement changes. The QPPV should also be allowed to provide input into risk management plans and proposed regulatory actions in response to emerging safety concerns.

5.15 trained individuals. This may include, for example, delegation to an individual of the duty to act as a safety expert for a certain product. Any delegation of this sort should be docu- - ucts.

5.16 Under the old pharmacovigilance rules, each marketing authorisation application had to contain a detailed description of the pharmacovigilance system (‘DDPS’) that the applicant would introduce for the product. Since it was part of the marketing authorisation dossier, any change to the DDPS required a formal variation to the marketing authorisation. This created a huge compliance burden for both MAHs and regulatory authorities, particularly when a change to the pharmacovigilance system at a large pharmaceutical company could trigger the need to vary hundreds of marketing authorisations.

5.17 The new legislation replaced the DDPS with the concept of a pharmacovigilance system as the DDPS, although it is supplemented by various annexes, such as lists of standard oper-

13 Commission Implementing Regulation, Article 10(2).

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ating procedures, tasks delegated by the QPPV, and contractual agreements covering delegated activities.14 Rather than submit this as part of the marketing authorisation application, - tory authorities on request. The PSMF should be located in the EEA either with the QPPV or at the site where the MAH performs its main pharmacovigilance activities.15 With respect to pharmacovigilance, the marketing authorisation application now only needs to contain a summary of the pharmacovigilance system, which includes the details of the QPPV and the location of the PSMF. Changes to the content of the PSMF therefore no longer require the submission of variation applications.

5.18 Since July 2012, all new marketing authorisation applications and any renewal applications have been required to include a summary of the PSMF, rather than the DDPS. For all other existing marketing authorisations, the MAH must vary the marketing authorisation by July 2015 to replace the DDPS with the summary of the PSMF, but must do voluntarily do so sooner than that.

3. Pharmacovigilance audits

5.19 Article 104(2) of Directive 2001/83/EC expressly requires MAHs to conduct regular audits of their pharmacovigilance quality systems. Such audits should include audits of organisations or person’s to whom the MAH has delegated pharmacovigilance tasks. Details of the included within the PSMF.

D. EXPEDITED REPORTING REQUIREMENTS

1. Overview of legal obligations

5.20 Article 107 of Directive 2001/83/EC requires MAHs to record all suspected adverse reactions (‘ARs’) occurring in the EU or in any other country which are brought to their attention, whether they were reported spontaneously by patients or healthcare professionals, or they occurred in the context of a post-authorisation study. The MAH must ensure that there reports are “accessible at a single point within the Union”. This does not mean that the global safety database must be located in the EU. It appears both common and acceptable for the MAH and QPPV to rely on access to a global safety database outside the EU, e.g., in the United States.

5.21 The MAH is required to report all suspected serious adverse reactions (‘SARs’ ) occurring within the EU or in another country within 15 days following the day on which the MAH gained knowledge of the event.16 An AR will be serious (an SAR) if it “results in death, is

14 GVP Guidelines, Module II. 15 Commission Implementing Regulation, Article 7(1). 16 Directive 2001/83/EC, Article 107(3).

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life-threatening, requires inpatient hospitalisation or prolongation of existing hospitalisa- birth defect”.17 The new legislation also requires MAHs to report suspected non-serious adverse reactions that occur within the EU within 90 days following the day on which the MAH gained knowledge of the event.18

5.22 Prior to July 2012, MAHs were only required to report ARs brought to their attention by attention by a healthcare professional. There was no obligation to report ARs arising from There was the obligation, however, to maintain these in a database. The reporting obligations now apply to all ARs received by the MAH, including ARs received from patients or other consumers.

5.23 The legal reporting obligation is triggered when the MAH itself has received all the compo- - tive 2001/83/EC indicates that Day 0 is when the MAH itself gains the requisite knowledge of the event, but the GVP Guidelines provide that for these purposes the personnel of the MAH include medical representatives and contractors.19 Further, the GVP Guidelines impose an obligation on MAHs to ensure that companies outside the EU belonging to the same group as the MAH or with whom they have concluded a commercial agreement for one of the MAH’s products bring any information on ARs to the MAH’s attention. The clock for when those companies subsequently forward the information to the MAH.20

2. Causality assessment

5.24 It is important to note that EU law requires the reporting of ARs, rather than adverse events (‘AEs’).21- tions as “A response to a medicinal product which is noxious and unintended and which occurs at doses normally used in man for the prophylaxis, diagnosis or therapy of disease or ”. Since July 2012, noxious and unintended”.22 This includes ARs arising from use of the product outside the terms of the marketing authorisation, including overdose, off-label use, misuse, abuse and medication errors.

17 Directive 2001/83/EC, Article 1(12). 18 Directive 2001/83/EC, Article 107(3). 19 GVP Guidelines, Module VI, Section VI.B.7. 20 GVP Guidelines, Module VI, Section VI.C.2.2. 21 - ical-trial subject administered a medicinal product and which does not necessarily have to have a causal relationship with this treatment… An adverse event can therefore be any unfavourable and unintended sign (e.g., product, whether or not considered related to the medicinal product”. 22 Directive 2001/83/EC, Article 1(11).

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5.25 The reporting obligation therefore only arises if either the MAH or the reporting individual considers that there is at least a reasonable possibility of a causal relationship between an AE and a drug.23 In other words, it requires the reporting physician or manufacturer to assess not only if an event meets the basic criteria for an adverse event, but also whether there is at least a possibility that it might be “a response to” a drug, i.e., it entails a causality assessment.

5.26 in the regulations, the GVP Guidelines are clear that MAHs should assume that any adverse event reported to them spontaneously by a healthcare professional, patient or consumer is possibly causally related to the drug in question, unless the reporter explicitly states that it is not related.24 Where the report is derived from an organised data collection system, such as a non-interventional study, patient registry, market research programme, or patient support programme, the MAH should exercise due diligence to obtain the opinion of the primary source on the causal relationship between the medicinal product and the adverse event. If that opinion cannot be obtained, the MAH must use its own judgment to determine the causality.25 However, the MAH does not need to report any ARs arising from non-interventional studies that are based on secondary use of data, such as medical chart reviews or meta-analyses.26

3. Electronic reporting

5.27 Irrespective of the authorisation procedure of the relevant product and the source and destination of these reports, they must now be submitted electronically.27 The Commission Implementing Regulation requires that all electronic reports comply with ICH guidance.28 Reports are submitted to Eudravigilance, the European pharmacovigilance database and data-processing network. All competent authorities in the EEA have access to these reports through Eudravigilance.

5.28 Eudravigilance is not yet capable of receiving reports of non-serious ARs. As a result, the obligation on MAHs to submit reports of non-serious ARs occurring within the EU to Eudravigilance will not apply until Eudravigilance has been updated and validated. In the meantime, some EU member states have imposed transitional reporting obligations requiring non-serious ARs to be submitted direct to the national competent authorities in certain circumstances, such as if the non-serious AR occurred in that country, that country acts as

23 This contrasts with the reporting requirements in the U.S., such as those in 21 CFR 314.80 which focus on humans, whether or not considered drug related…” 24 GVP Guidelines, Module VI, Section VI.A.2.1.2. 25 GVP Guidelines, Module VI, Section VI.C.2.2.3. 26 GVP Guidelines, Module VI, Section VI.C.1.2.1. 27 Directive 20021/83/EC, Article 107(3). 28 Commission Implementing Regulation, Articles 25 and 26.

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the RMS for the product concerned, or simply the product concerned is authorised in that country.29

4. Follow-up obligations

5.29 MAHs have a legal obligation to “collect follow-up information” on reports of suspected ARs and to submit updates to Eudravigilance.30 The GVP Guidelines have expanded on this concept, so that if an initial report lacks the minimum infomration necessary to constitute a valid report, MAHs “are expected to exercise due diligence in following up the case to collect the missing data elements”.31 Thereafter, reports should be followed up “as neces- the cases”.32 If the report was initially received directly from a consumer, the MAH should seek the consent of the consumer to contact a nominated healthcare professional to obtain the follow-up information required.

5.30 - tion’ includes “new suspected adverse reaction(s), a change in the causality assessment and any new or updated information on the case that impacts on its medical interpretation”.33 It is important to note that changes in seriousness criteria and/or the causality assessment are reportable even if they are downgrades. MAHs must also expedite reports of additional, material administrative information, e.g., may allow the company and/or regulators to manage potential duplicate reports. They do - uation of the case.

5.31 The reporting time frame for follow-up information is generally the same as for the initial report and the clock starts upon the MAH’s receipt of the follow-up information. If a case initially reported as serious becomes non-serious as a result of follow-up information, the downgrade should still be reported within the 15 day period allowed for reporting SARs, but any subsequent follow-up information received would be subject to the reporting timeframes for non-serious ARs.34

5. Additional reporting requirements

5.32 The GVP Guidelines impose a number of additional vigilance and reporting obligations. MAHs must, for example, conduct at least weekly literature reviews of widely used databases containing worldwide, peer-reviewed medical literature, e.g., Medline, Excerpta Medica

29 Reporting requirements of Individual Case Safety Reports (‘ICSRs’ ) applicable to marketing authorisation holders during the interim period, 25 July 2013, EMA/321386/2012 Rev. 7. 30 Directive 2001/83/EC, Article 107(4). 31 GVP Guidelines, Module VI, Section VI.B.2. 32 GVP Guidelines, Module VI, Section VI.B.3. 33 GVP Guidelines, Module VI, Section VI.C.6.2.2.7. 34 GVP Guidelines, Module VI, Section VI.B.7.1.

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or Embase.35 publications in local journals in countries where the product has a marketing authorisation. frame as spontaneous reports (i.e., 15 days for SARs and 90 days for non-SARs occurring within the EU).

5.33 A similar obligation arises in respect of ARs appearing on Internet websites or digital media that are under the MAH’s management or responsibility. 36 For these purposes, websites and digital media are considered to be company sponsored if they are “owned, paid for and/ or controlled by” the MAH, although a donation to an organisation or site does not bring content of the site.

5.34 MAHs are expected to follow up any reports from healthcare professionals relating to pregnancy where the foetus may have been exposed to one of its products either through mater- nal exposure or via semen from a father who has been exposed to a product. The MAH must report abnormal issues during pregnancy or issues with the foetus or child once it is born. This would include reports of congenital anomalies, foetal death, spontaneous abortion and other SARs in neonates. Similar rules apply when infants experience adverse reactions when they have breastfed from a mother exposed to a medicine.

5.35 MAHs must also collect and report instances of overdose, abuse, off-label use and misuse of medicines, medication errors, or occupational exposure to medicines, in each case associated with an AR. Instances with no associated AR should not be reported, but should be considered in PSURs (see below). MAHs are not normally required to report lack of included in PSURs. In certain circumstances, however, individual case reports concerning - the treatment of a life-threatening disease, or with vaccines or contraceptives. MAHs are expected to use their judgment when deciding whether to report such issues.

5.36 In addition to identifying these additional types of reportable issues, the GVP Guidelines provide guidance on reporting in particular circumstances. For example, applicants for mar- balance of any product to all authorities conducting the regulatory review. MAHs are also encouraged to continue to report adverse reactions after a marketing authorisation has been suspended or withdrawn for safety or commercial reasons. The MAH should discuss this with relevant regulators on a case-by-case basis. In some cases, the regulators may agree that it is appropriate simply to submit PSURs.

35 GVP Guidelines, Module VI, Section VI.B.1.1.2. 36 GVP Guidelines, Module VI, Section VI.B.1.1.4.

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E. PERIODIC REPORTING REQUIREMENTS

1. Content and format of PSURs

5.37 Article 107(b) of Directive 2001/83/EC requires MAHs to submit periodic safety update - able, volume of prescriptions.

5.38 The format of the PSUR should follow the detailed requirements in Annex II of the Com- - cacy, effectiveness and safety data from various sources, including: 1. Non-clinical studies 2. Spontaneous reports 3. Product usage data and drug utilisation information 4. Clinical trials, including research in unauthorised indications or populations 5. Observational studies, including registries 6. Patient support programs 7. MAH-sponsored websites 8. Worldwide literature 9. Reports from regulatory authorities worldwide 10. Reports exchanged in the framework of contractual arrangements, such as licensing or co-marketing agreements

5.39 change in the MAH’s knowledge of the medicinal product’s safety, and to indicate whether changes should be made to the product’s Summary of Product Characteristics (‘SmPC’), prepare suitable reference information for the purposes of this comparison in the form of a Company Core Data Sheet (‘CCDS’),37 which includes material relating to safety, indications, dosing, pharmacology and other information concerning the product. The safety information in the CCDS is often referred to as Company Core Safety Information (‘CCSI’). For a PSUR, the CCSI is the basis for a determination whether an AR is already listed or is unlisted, or whether there may be a change in frequency of an AR, which suggests a change

2. Submission schedules

5.40 For products granted a marketing authorisation on or after 2 July 2012 (centrally approved products) or 21 July 2012 (nationally approved products), the frequency of PSUR submis-

37 CIOMS III/V working group.

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authorisation before those dates, the frequency of submission may be laid down as a condition of the marketing authorisation, but if it has not and an EU reference date has not been assigned for that active substance (see below), then the standard submission schedule shall apply. This requires PSURs to be submitted at 6 month intervals once the product has been authorised until 2 years after the initial placing of the product in the market in the EU, then once a year for the following 2 years and thereafter at 3 yearly intervals.38

5.41 Under Article 107(c) of Directive 2001/83/EC, where different products containing the same active substance are granted marketing authorisations, the submission schedule for PSURs for those products may be amended and harmonised to allow a single assessment of the PSURs and to set an EU reference date from which the submission dates will be calculated. The EU reference date and PSUR submission schedule may be determined by the CHMP, if at least one of the products is centrally approved, or otherwise by the Coordi- nation Group for Mutual Recognition and Decentralised Procedures - Human (‘CMDh’), in each case following consultation with the PRAC. The EMA will then publish the dates and submission schedules on its website.

5.42 In addition PSURs must be submitted immediately upon request by a competent authority.

3. Assessment of PSURs

5.43 Once the EMA receives PSURs from MAHs, it will make them available to the national competent authorities, the PRAC, the CHMP, the CMDh and the European Commission. If the product is only authorised in one Member State and no EU reference date has been assigned, then the competent authority in that member state is responsible for assessing the PSUR. If the product is centrally approved and no EU reference date has been assigned, then a rapporteur appointed by the Pharmacovigilance Risk Assessment Committee (‘PRAC’) will produce a draft assessment report and submit it to the MAH and the PRAC. assessment report, together with a recommendation on whether the marketing authorisation should be maintained, varied, suspended or revoked.

5.44 If the product is authorised in more than one Member State and/or an EU reference date has been assigned to the relevant active substance, then there will be a single EU assessment of the PSURs. Either a rapporteur appointed by the PRAC, if at least one of the products is centrally approved, or otherwise a member state appointed by the CMDh will conduct the initial assessment and prepare a draft assessment report. This report will be sent to the MAH(s), the member states concerned and the PRAC for comment. Ultimately the PRAC - keting authorisations should be maintained, varied, suspended or revoked. If the CHMP and/or the member states disagree with the PRAC’s position, then EU referral procedures may be triggered.

38 GVP Guidelines, Module VII, Section VII.C.2.

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F. RISK MANAGEMENT PLAN

1. Format and contents of RMP

5.45 Article 8(3)(iaa) of Directive 2001/83/EC requires marketing authorisation applicants to include a risk management plan (‘RMP’) describing the risk management system which the applicant will introduce, together with a summary of the plan. The RMP should follow the detailed requirements in Annex I of the Commission Implementing Regulation and Module

5.46 - tential risks and important missing information. It should address populations potentially at risk and outstanding safety questions which merit further investigation. The non-clinical been adequately addressed by clinical data, including toxicity, general pharmacology, and - ments, including limitations on the safety database, populations not studied in the pre-au- also address the potential for overdose, transmission of infectious agents, misuse for illegal purposes, off-label use and off-label paediatric use.

5.47 The pharmacovigilance plan should propose actions to address each of the safety concerns monitoring, without the need for additional actions. For medicinal products with important - - macovigilance plan. These activities generally constitute a PASS and could include studies in a sample of sentinel sites, an intensive monitoring scheme, prescription event monitoring, or patient registries.

5.48 risk minimisation activities for each safety concern. Some safety concerns may be adequately addressed by the actions proposed in the pharmacovigilance plan. Routine risk minimisation activities include the provision of suitable warnings in the product information and careful use of labelling and packaging. Additional risk minimisation activities should only be suggested when essential for the safe and effective use of the medicinal product and

2. Submission of RMP and updates

5.49 An RMP has been required for all new marketing authorisation applications since July 2012, although only an abbreviated version of the RMP is required for generic products. Unless otherwise agreed with the relevant competent authority, a new or updated RMP must be such as a new dosage form, new route of administration, new manufacturing process of

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change in indication. A new or updated RMP must also be submitted whenever requested by a competent authority, at the time of renewal of the marketing authorisation (if the product product.39

5.50 The RMP should also be updated on a routine basis. The time schedule for such routine updates will normally be included as a condition of the marketing authorisation or otherwise authorisation and every three years thereafter.40

G. POST-AUTHORISATION SAFETY STUDIES

5.51 This chapter does not discuss the obligations under EU law to report adverse reactions iden- relevant authorities and ethics committees in accordance with the requirements of Directive 2001/20/EC, which applies to interventional clinical trials.41 There is no overlap between the clinical trial and post-marketing safety reporting obligations. If adverse reactions are - dance with the relevant clinical trial safety reporting rules, irrespective of whether the drug under investigation is approved or not. Reporting of adverse reactions relating to approved medicines outside the clinical trial context is in accordance with the requirements of Direc- tive 2001/83/EC and the GVP Guidelines.

5.52 However, post-authorisation, non-interventional clinical trials are also subject to special as “Any study relating to an authorised medicinal product conducted with the aim of identifying, characterising or measuring the effectiveness of risk management measures”. any study investigating the safety of the product, including off-label studies.

5.53 If a PASS is an interventional clinical trial, reporting is in accordance with the Clinical Trials Directive mentioned above. If a PASS is non-interventional and has been initiated, -

39 GVP Guidelines, Module V, Section V.C.3. 40 GVP Guidelines, Module V, Section V.C.5. 41 medicinal product(s) is (are) prescribed in the usual manner in accordance with the terms of the marketing authorisation. The assignment of the patient to a particular therapeutic strategy is not decided in advance by a trial protocol but falls within current practice and the prescription of the medicine is clearly separated from the decision to include the patient in the study. No additional diagnostic or monitoring procedures shall be applied to the patients and epidemiological methods shall be used for the analysis of collected data”. There- fore Directive 2001/20/EC applies to any clinical trial which is not a non-interventional trial, i.e., which is an interventional clinical trial.

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the competent authorities in which the study was conducted within 12 months of the end of data collection.42 The competent authorities in the Member States in which the study is conducted may also require the submission of the study protocol and progress reports. The GVP Guidelines also require MAHs to make study information about PASS (including for studies conducted outside the EU) available in an EU electronic register of post-authorisation studies (EU PAS Register) maintained by the EMA.43 The study protocol should be entered in the register before the start of data collection. Thereafter, updates of the study study report should also be entered in the register. In most circumstances, entering this information in the register will satisfy the MAH’s legal obligations to submit the protocol,

5.54 Additional procedures apply whenever an MAH conducts a PASS pursuant to an obligation imposed by a competent authority. In this case, the MAH must submit a draft protocol to the PRAC for review and comment, and the MAH may only commence the study once it has received a letter of endorsement from the PRAC.44 During the course of the study, any substantial amendments to the protocol must also be submitted to the PAC for review and study report and an abstract of the results to the PRAC, who may make recommendations concerning the maintenance, variation, suspension or revocation of the marketing authorisation based on the results of the study.

5.55 The PASS requirements in Directive 2001/83/EC and the GVP Guidelines do not alter during the PASS.

H. OTHER SOURCES OF REPORTING OBLIGATIONS

5.56 Additional reporting and other pharmacovigilance obligations can be imposed on MAHs as a condition of the marketing authorisation. The MAH may commit to additional reporting obligations in the RMP. MAHs can be required to report additional pharmacovigilance information in response to a request from a competent authority. Finally, MAHS are also

1. Conditions of the marketing authorisation

5.57 Prior to July 2012, a conditional marketing authorisation or an authorisation granted in conditions (see Chapter 2). The European Commission and the national competent author-

42 Directive 2001/83/EC, Article 107(m)(6). 43 GVP Guidelines, Module VIII, Section VIII.B.4. 44 If the PASS is conducted pursuant to an obligation imposed by a national competent authority after the grant of the marketing authorisation and the study is performed only in that same Member State, then that national competent authority is responsible for the review and approval of the study, rather than the PRAC.

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ities would often also include such conditions, such as obligations to conduct a PASS, in other marketing authorisations, even though there was no clear legal basis for the imposition of such condition. However, since July 2012 Article 21(a) of Directive 2001/83/EC has allowed any marketing authorisation to be granted subject to one or more of the following conditions: 1. To take certain measures for ensuring the safe use of the medicinal product to be in- 2. 3. To comply with obligations on the recording or reporting of suspected ARs which are 4. Any other conditions or restrictions with regard to the safe and effective use of the 5. 6. medicinal product has been marketed.

5.58 In addition, Article 22(a) now allows national competent authorities to impose, at any time after the grant of the marketing authorisation, an obligation to conduct a PASS if there are -

2. Obligations in risk management plans

5.59 Marketing authorisation applicants or holders may commit to a PASS or enhanced reporting obligations in the RMPs that they submit. Article 104(3) of Directive 2001/83/EC expressly requires MAHs to operate a risk management system for each product and to monitor the outcome of risk minimisation measures which are contained in the RMP, but it does not expressly require MAHs to perform the activities described in the RMP. However, pursuant to Article 21(a), the competent authorities may impose an obligation on the MAH to perform the measures described in the RMP. Further, the RMP is included in the marketing authorisation application under Article 8(3) and Article 23 of Directive 2001/83/EC requires MAHs to supply competent authorities at once with any new information which might entail Article 8(3). Arguably, if the MAH fails to comply with the commitments it had made in the RMP, it should notify the competent authorities of this fact and amend the plan accordingly. However, this provision only requires the MAH to keep theRMP up to date, rather than actually perform the activities in the plan.

3. Requests for information

5.60 The reporting obligations under EU law are not limited to adverse reactions. There may be and European regulators generally wish to be informed of such issues. For example, Article 23 of Directive 2001/83/EC and Article 16 of Regulation (EC) No 726/2004 expressly per-

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for a product remains favourable, while Article 23(a) of Directive 2001/83/EC and Article 13(4) of Regulation (EC) No 726/2004 require MAHs to provide competent authorities with all data relating to sales and prescriptions volumes if requested.

5.61 There is also an obligation in both Directive 2001/83/EC and Regulation (EC) No 726/2004 - quency of a non-serious adverse event. Article 23 of Directive 2001/83/EC and Article 16 of Regulation (EC) No 726/2004 expressly state that the information “shall include both positive and negative results of clinical trials or other studies in all indications and populations, whether or not included in the marketing authorisation, as well as data on the use of the medicinal product where such use is outside the terms of the marketing authorisation”. An obvious question is when does a safety concern become one that the MAH or a compe- may be necessary.

I. OTHER CONSIDERATIONS

1. Data protection

5.62 The extent to which the EU data protection rules, contained primarily in Directive 95/46/ EC,45 overlap with and restrict a MAH’s safety reporting obligations has been a matter of some debate for a number of years. The debate has focused on whether the legal obligation - tion and processing of patient data and data on the reporting healthcare professional. It is the collection and reporting of patient data and data on the reporting healthcare professional within the EU. It is less clear whether the obligation to report to a regulator outside the Directive 95/46/EC does not legitimise the international transfer in order to comply with a foreign legal obligation. Thus, the obligation to report adverse experiences to the U.S. Food and Drug Administration (‘FDA’) does not legitimise the transfer of information relating to European reporters and patients to the U.S.

5.63 This issue has yet to be considered or addressed by most regulators and MAHs, since the importance of an effective global pharmacovigilance system and the potentially catastroph- ic public health implications of a breakdown justify global safety reporting. However, some

45 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, OJ 1995 L281/31.

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are beginning to consider whether it is possible to conduct pharmacovigilance while re- specting the privacy of reporters and patients and complying with applicable data protection rules.46

5.64 Some companies therefore limit the patient information that they include in their global they do not include patient initials and dates of birth, preferring to include information such as sex and/or some other indicator of age. The GVP Guidelines recognise this dilemma, - tion should be transmitted in accordance with local data privacy laws.47 Similarly, when transmitting information to Eudravigilance, MAHs are expressly permitted to replace “iden- ”.48 Most regulators appear to be sympathetic to the need of MAHs to comply with their national data protection or privacy rules and are willing to accept more limited information in the reports report.

2. Contractual issues and safety data exchange agreements

5.65 As indicated above, the MAH must ensure that companies belonging to the same group as the MAH or with whom they have concluded a commercial agreement for one of the MAH’s products bring any information on ARs to the MAH’s attention and that the QPPV of which the MAH may reasonably be expected to have knowledge. The GVP Guidelines expand further on these principles:

Where the marketing authorisation holder has set up contractual arrangements with a person or an organisation, explicit procedures and detailed agreements should exist between the marketing authorisation holder and the person/organisation to ensure that the marketing authorisation holder can comply with the reporting obligations. These procedures should in particular specify the processes for exchange of safety information, including timelines and regulatory reporting responsibilities and should avoid duplicate reporting to the competent authorities.49

5.66 a pharmaceutical company enters into a contractual arrangement with an entity but only the MAH or the pharmaceutical company has a reporting obligation. An example would be an agreement with a distributor where the distributor simply handles and/or markets a product in a territory. The agreement in such cases must simply ensure that the distributor supplies

46 See, for example, the Guidelines for Data Processing within the Framework of Clinical Drug Trials, published in December 2007 by the Italian Data Protection Authority, which can be found at http://www.garan- teprivacy.it/web/guest/home/docweb/-/docweb-display/docweb/1519230. 47 GVP Guidelines, Module VI, Section VI.B.4. 48 GVP Guidelines, Module VI, Section VI.C.6.2.2.8. 49 GVP Guidelines, Module VI, Section VI.B.7.

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within a suitable timeframe. Typically, these agreements will oblige the third party to report information to the MAH within a short period (e.g., two working days) and require the distributor to collect follow-up information where necessary and on the MAH’s request.

5.67 The second, more complex type of arrangement arises where a contract exists between two entities, both of which have safety reporting obligations. Here, the agreement must obligations within the appropriate timeframes. However, these agreements do not just deal with this exchange of data. Since the two companies have freestanding safety reporting obligations, they will usually also be obliged to maintain their own global safety databases, submit PSURs, etc. It will usually make little sense for both parties to establish mirror pharmacovigilance systems and infrastructures and to duplicate all the workload that this entails. These agreements therefore typically allocate mutual responsibilities, including maintaining a single global safety database, generating PSURs, and maintaining the CCSI to one of the entities. The agreement then ensures that the other entity is able to access information in the

J. ENFORCEMENT AND PENALTIES

1. Pharmacovigilance inspections

5.68 Article 111 of Directive 2001/83/EC requires competent authorities to conduct repeated and, if necessary, unannounced inspections to ensure that MAHs are complying with their legal obligations, including those relating to pharmacovigilance. The inspectors are empowered to examine any documents relating to the object of the inspection and to inspect the pharmacovigilance activities. After each such inspection, the competent authority must provide the MAH with a report describing the MAH’s compliance or non-compliance with its pharmacovigilance obligations. For centrally approved products, national competent authorities conduct pharmacovigilance inspections on behalf of the EMA.

5.69 While national competent authorities have historically been the only regulators able to bring direct enforcement action and/or prosecutions relating to breaches of the pharmacovigilance penalties Regulation (EC) No 658/2007,50 which empowered the European Commission below).

50 - ment of certain obligations in connection with marketing authorisations granted under Regulation (EC) No 726/2004 of the European Parliament and of the Council, OJ 2007 L155/10.

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2. Pharmacovigilance Risk Assessment Committee (‘PRAC’) procedures

5.70 If a competent authority, as a result of a pharmacovigilance inspection or otherwise, or an MAH has concerns about the safety of a product, there are various EU Referral procedures that can be triggered to address the concern. Most notably, Articles 107(i) to 107(k) of Directive 2001/83/EC establish a new EU procedure for when urgent action is considered - cedure should be initiated by a Member State or the European Commission if it considers suspending, revoking or refusing to renew a marketing authorisation, prohibiting the supply of the product, or imposing a new contraindication, a reduction in the recommended dose or a restriction to the indications. The procedure may apply to individual or multiple products, including an entire therapeutic class. If a Member State considers that urgent action is necessary to protect public health, it may suspend the marketing authorisation and prohibit use of the product pending completion of the procedure.

5.71 The EMA must announce the initiation of any such procedure publicly via its website. The announcement will contain information on the right of MAHs and the public to submit information relating to the procedure, but there is no other requirement for the EMA to notify the MAHs concerned. The PRAC will then assess the matter in question and the MAH may submit written comments. The PRAC may also choose to hold a public hearing and again details of the hearing and how to participate will be published on the EMA’s website. If submission of those data, but the PRAC is not obliged to accept that request.

5.72 Within 60 days of receipt of the relevant information, the PRAC must issue a recommendation, which may include recommendations for further evaluation of data, a PASS, risk minimisation measures, or the revocation, suspension, variation or non-renewal of a marketing authorisation. The PRAC may also agree to a shorter deadline in urgent cases.

5.73 For non-centrally approved product, the CMDh must consider the recommendations within 30 days. If the CMDh opinion is adopted by consensus, the MAH will be informed and the Member States must adopt the measures necessary to implement that opinion. If the CMDh cannot reach a consensus, the matter will be referred to the European Commission. For centrally approved products, the CHMP shall adopt an opinion within 30 days and this opinion shall then be submitted to the European Commission for a binding decision.

3. Article 31 referral

5.74 Where the ‘interests of the Union’ are involved, Member States, the European Commission or the MAH can refer a matter to the CHMP under Article 31 of Directive 2001/83/EC before any decision is reached to suspend, revoke or vary a marketing authorisation. The Union interest requirement has been interpreted broadly and includes situations where public health may be affected by a product on the Community market.51 Where the referral results from the evaluation of data relating to pharmacovigilance of an authorised product, the matter shall instead be referred to the PRAC and the procedures described above shall apply.

51 Notice to Applicants Volume 2A, Chapter 3 Community Referrals Procedure, European Commission, ENTR/ F2/SM D(2007), September 2007.

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104 EU Law and LifE SciEncES PHARMACOVIGILANCE

5.75 The CHMP must render its opinion within 60 days of the date that the matter was referred, time period may be extended by a further 90 days or, in an emergency and upon a proposal from the Chairman of the CHMP, the CHMP may agree to a shorter deadline. The MAH has the right to appeal an unfavourable opinion. If it does, the CHMP must re-examine the - mission for a binding decision.

4. Urgent safety restrictions

5.76 Regulation (EC) No 1234/200852 establishes the procedure to vary marketing authorisations. Article 22 allows the MAH to take urgent safety restrictions in the event of risk to public health. In effect, an urgent safety restriction enables an MAH to implement important safety-related changes in the labelling of its products rapidly, provided that the changes are subsequently formalised by a Type II variation of the marketing authorisation.

5.77 The MAH must provide the competent authorities with advance notice of its intention to implement the restriction. Competent authorities have 24 hours to raise any objections, after which the MAH may proceed with the changes. Although the legislation suggests prepared in close collaboration with the Rapporteur (for centrally approved products) or the Reference Member State (for other products). The Commission and the national competent authorities may also impose urgent safety restrictions on MAHs.

5. Article 116 procedure

5.78 Article 116 of Directive 2001/83/EC allows Member States to suspend, withdraw or vary a marketing authorisation if “the view is taken that the product is harmful under normal condi- ”. If the Member State were to act unilaterally, this would inevitably trigger an EU referral. However, there is no guidance on what standard

6. Penalties

5.79 Articles 102(f) and 111(8) of Directive 2001/83/EC and Article 84(1) of Regulation (EC) No 726/2004 require Member States to subject MAHs, who fail to discharge their pharmacovigilance obligations, to “effective, proportionate and dissuasive penalties”. The precise nature and extent of these penalties varies from country to country.

5.80 Additionally, for centrally approved products, the European Commission can take action - - cations, where it takes place or has its effects in more than one member state, or where interests of the EU are involved (see Chapter 2, Section D.6)

52 Commission Regulation (EC) No 1234/2008 of 24 November 2008 concerning the examination of variations to the terms of marketing authorisations for medicinal products for human use and veterinary medicinal products, OJ 2008 L334/7.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 105 6 MARKET DEFINITIONS IN THE LIFE SCIENCES SECTOR

A. INTRODUCTION: BASIC CONCEPTS 6.01 2. Relevant geographic markets 6.38 C. OTHER PRODUCT GROUPS 6.39 1. Medical devices (IVD equipment) 6.40 B. HUMAN PHARMACEUTICALS 6.11 a) Relevant product markets 6.42 1. Relevant product markets 6.12 b) Relevant geographic markets 6.48 2. Animal health products 6.50 b) Product characteristics 6.17 a) Relevant product markets 6.51 c) Originator v generic products 6.33 b) Relevant geographic markets 6.55 d) Prescription v OTC products 6.35 D. CONCLUSION 6.57 e) Pharmacies v hospitals 6.36

A. INTRODUCTION: BASIC CONCEPTS

6.01 - mission’s investigations under Articles 101 and 102 of the Treaty on the Functioning of the European Union (‘TFEU’) and in merger control cases: 1. In investigations brought under Articles 101 and 102 TFEU, the Commission needs to determine whether the relevant undertaking holds a dominant position (a pre-condition for the application of Article 102 TFEU) or whether the parties hold high market shares 2. In merger control cases, the Commission calculates the parties’ combined market - pede effective competition.

6.02

6.03 - ucts and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products’ characteristics, their prices and their intended use’.1

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6.04 Demand-side substitutability2- ucts are deemed to belong to the same market if they are interchangeable in the eyes of the consumers. Demand-side substitutability can be measured based on both quantitative and qualitative evidence.

6.05 alternative products belong to the same relevant market.3

6.06 However, in the life sciences sector, quantitative techniques such as the SSNIP test play a generally both highly regulated and not paid directly by the patient or the doctor, but rather by national or private insurance funds. Further, merger cases relating to the life sciences industry often involve a very large number of relevant products,4 making it virtually impossible for the parties and the Commission to conduct the SSNIP test or any other sophisticated econometric analysis for each product.

6.07 Instead, in the majority of cases involving the life sciences industry, the Commission re- pharmaceutical cases the Commission uses the Anatomical Therapeutical Chemical (‘ATC’) - cal Marketing Association) as a starting point for its analysis of relevant markets. The Com- the product characteristics and its intended use. It also considers evidence of substitution in the recent past, doctor and patient preferences, and various other qualitative factors.5

6.08 which the undertakings concerned are involved in the supply and demand of products or

markets in those situations in which its effects are equivalent to those of demand substitution in terms of effectiveness and immediacy. This means that suppliers are able to switch production to the relevant products - 4 See, e.g.,- sion decision of 5 August 2013, , Case COMP/M.5253, Commission decision of 4 February 2009. 5 Ibid., para 17.

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108 EU Law and LifE SciEncES MARKET DEFINITIONS IN THE LIFE SCIENCES SECTOR

can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas’.6

6.09 - formity of competitive conditions in a given area. In the life sciences sector, this approach 7 For example, as explained below, there are substantial variations between Member States with regard to pricing, reimbursement markets as national in scope.

6.10 main life sciences product categories. We start with human pharmaceuticals as the Com- mission’s case law is particularly well-established in this area. We also discuss medical devices and animal health products. The purpose of this chapter is not to provide a com- Commission’s analytical approach and to identify the key patterns that prevail in this area.

B. HUMAN PHARMACEUTICALS

6.11 The term ‘life sciences’ describes various sciences dealing with the structure and behaviour of living organisms. From the standpoint of EU competition law, human pharmaceuticals constitute the most important component of life sciences. Indeed, the Commission’s case law relating to this area is particularly well-established due to a large number of pharmaceutical mergers that took place over the last twenty years. In this section, we summarise the of human pharmaceuticals.

1. Relevant product markets

6.12 - However, the Commission can depart from this assumption if other factors (e.g., product

6.13 according to their therapeutic indications. As discussed above, the Commission uses the has been developed and is maintained by the European Pharmaceutical Market Research Association (‘EphMRA’).

6 Ibid., paras 36-43. industry. See Invitrogen/Applied Biosystems, Case COMP/M.5264, Commission decision of 11 November 2008, paras 67-68.

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6.14 In the ATC system, products are divided into different groups according to anatomical site of action, indications, therapeutic use, composition, and mode of action.8 Products are clas- 1. 2. 3. 4. CoA reductase inhibitors).

6.15 At the third ATC level (‘ATC3’) pharmaceuticals are grouped in terms of their therapeutic indications, i.e., their intended use. The Commission uses this level as the starting point for 9

6.16 However, on a number of occasions the Commission has departed from the ATC3 level. In markets based on the ATC4 level and went so far as to state that ‘the ATC3 level rarely appeared to be the correct range of products for analysing competition’.10 With regard to originator drugs, the Commission continues to assume that the ATC3 level corresponds to described below.

b) Product characteristics

6.17 - - tration. In light of these parameters, the Commission may decide to depart from the ATC3

Mode of action 6.18 The term ‘mode of action’ describes the manner in which the drug produces its therapeutic effect. Products that have the same therapeutic indications but different modes of action may belong to distinct product markets.

6.19 For example, in the Commission considered that the products that belonged to the ATC3 category S1G (drops to treat eye allergies) could be further segmented based, inter alia, on their modes of action. The Commission distinguished between anti-histamines (that inhibit the action of histamines and relieve eye itching), mast cell stabilisers (that target the source of histamine to prevent its release), decongestants (that constrict the blood vessels of the conjunctiva), and ocular antiseptics (used to clean the eye). The Commission

available at http://www. 9 See, e.g., , Case COMP/M.5253, Commission decision of 4 February 2009, paras 12-15. 10 See , Case COMP/M.5865, Commission decision of 3 August 2010, para 13.

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noted that these products belonged to different ATC4 categories and concluded that each product formed a separate market.11

6.20 - cumstances, the Commission may hold that the products fall into separate markets.

6.21 For example, in the Commission found that two products which belonged to ATC3 category H3B (anti-thyroid preparations) did not compete with each other because cases fatal, have been reported in patients treated with one of the products (propylthioura- cil) and, therefore, this product was reserved for patients who could not tolerate the other product (thiamizole).12

Action time 6.22 The term ‘action time’ refers to the timing of the pharmacological effect. Certain medicines act for only a short period of time for the relief of temporary symptoms, while other medicines act over a long period of time for prophylactic or long-term management of an illness. The action time may depend on the mode of action of the active ingredient, or it may be due to the form of administration (e.g., a long-term effect may be implemented through slow-release capsules or intramuscular injections).

6.23 Medicines with different action times may fall within separate markets if they are, in practice, prescribed in different contexts. For example, in , the Commission distinguished between short-acting treatments of asthma (‘relievers’) and treatments for prophylactic or long-term management of the illness (‘preventers’).13 Further, in , the Commission considered that short-acting and fast-acting lithium (used as an anti-depres- sant) fell into different markets. It noted that short-acting lithium was used for new patients where treatment had not yet stabilised and the doctors needed to closely monitor the lithium dosage by taking frequent blood tests.14

6.24 However, where the action time of a product is relevant primarily to patient convenience rather than to particular medical needs, the Commission is less likely to rely on action time as a basis for subdividing the market. Thus, a once-daily version of a drug would typically fall into the same relevant market as a twice-daily drug.15

11 See , Case COMP/M.5778, Commission decision of 9 August 2010, paras 114-125. 12 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 171-176. 13 See , Case COMP/ M.1403, Commission decision of 26 February 1999, paras 40-41. Cf. Case , Case COMP/M.3928, Commission decision of 24 November 2005, paras 29-31. 14 See , Case COMP/M.5865, Commission decision of 3 August 2010, para 311. 15 See , Case COMP/M.1846, Commission decision of 8 May 2000, para 27.

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Galenic form 6.25 The term ‘Galenic form’ describes the product’s dosage, pharmaceutical form and route of market, as products may not be substitutable even if the active ingredient is identical.

6.26 The Commission discussed this issue at length in the decision. It noted that different routes of administration of a medicine are, in general, designed to serve the needs of different patient groups, and are therefore not interchangeable. For example, syrups and suppositories may be principally for paediatric medicines, while pills are principally for adult patients.16 Further, certain modes of administration may only be recommended if another mode is not feasible: for example, high-dose ibuprofen suppositories are not recommended when the oral form may be used.17 However, some variations in modes of administration (e.g., orally dissolving tablets, effervescent forms, nasal sprays), may be pri- 18

6.27 A competition authority may also segment the market based upon the dosage of the products common example is between adult and paediatric medicines, with paediatric medicines often merely being the low-dose equivalent of the adult medicines. While, in theory, patients could purchase the adult version of the medicines and adjust the dosage accordingly, in order to adjust the dosage for children.19

Pricing 6.28 market. In particular, it employs the SSNIP test in order to measure the likelihood of switch- alternative products belong to the same relevant market.20

6.29 plays a less prominent role in pharmaceutical cases. This is due to the unique features of these markets: 1. First, purchasing decisions are generally taken by the prescribing doctor rather than by the end-user (the patient). 2. 3. Finally, patients do not generally bear the cost for prescription medicines. These costs are normally reimbursed by the public health system.

16 See, Case COMP/M.5865, Commission decision of 3 August 2010, paras 17, 184, 338. 17 Ibid., para 253. 18 Ibid., paras 17, 349-354. 19 See, e.g., , Case COMP/M.4314, Commission decision of 11 December 2006, para 25. 20

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6.30 As a result, in choosing between different medicines, prescribing doctors are not primarily guided by the price.21 demonstrated that doctors were generally unable to rank branded drugs in order of price.22 Differences in prices may also be misleading in genericised markets because generic producers often charge prices that are lower than those of originators.23

6.31 While the Commission does not systematically conduct a SSNIP test in pharmaceutical occasionally considers the impact of a hypothetical price increase. For example, in Ratiopharm the Netherlands in the Rx segment of Pyridoxine (a Vitamin B6 compound). However, the Commission noted that the parties’ products differed in prices and Galenic form. Ra- tiopharm sold tablets at a unit price of €0.02 while Teva sold injectable products at a unit price of €1.38. The Commission stated that ‘[d]ue to the different routes of administration of these products and the large difference in price, the substitutability of these two forms can be excluded’.24

6.32 The Commission’s approach to pricing analysis is further illustrated by the case. With regard to anti-glaucoma products (ATC3 category S1E) the Commission noted - long to a distinct product market.25 several other product markets.26 However, with regard to certain products, the Commission downplayed the relevance of price differences and stated that ‘in practice doctors are not primarily led by price considerations’.27

c) Originator v generic products

6.33 The Commission generally considers that originator and generic drugs are substitutable from the demand-side perspective and belong to the same relevant market.28 Generic prod-

21 See , Case COMP/37.507, Commission decision of 15 June 2005, paras 362-363. 22 See The Pharmaceutical Price Regulation Scheme, February 2007, page 23, available at http://www.oft.gov.uk/OFTwork/markets-work/pprs. 23 See, e.g., , Case COMP/M.3354, Commission decision of 26 April 2004, para 299 24 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 116-119. Cf. ATC3 category M1A). 25 See , Case COMP/M.5778, Commission decision of 9 August 2010, para 88. 26 Ibid., paras 120-122, 138, 160 (ocular anti-allergics, decongestants and antiseptics, ATC3 category S1G), para 240 (lens care preparation, ATC3 category S1L). 27 agents, ATC3 class S1T). 28 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 25-27.

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- use of generics.

6.34 The loss of exclusivity for a pharmaceutical product and the corresponding launch of ge- In several recent cases involving generic manufacturers (e.g., and Sa- ‘molecule level’ rather than at the ATC3 level. The Commission noted that the molecule level was particularly relevant in those cases where:

(i) Doctors may, or are even required to, prescribe medicines using the international non-proprietary name (‘INN’) of the molecule rather than by brand name (ii) reimbursement is based on the price of a generic version of the originator medicine and (iii) pharmacies may, or are required to, offer the patient the opportunity to substitute an originator medicine with a generic equivalent.29

d) Prescription v OTC products

6.35 The Commission generally considers that prescription drugs do not fall into the same product market as similar non-prescription or over-the-counter (‘OTC’) drugs. Prescription pharmaceuticals are prescribed by a doctor and the purchase price is generally reimbursed by the public health care system. Conversely, doctors do not directly play a role in the selection of OTC pharmaceuticals and in most cases consumers bear the cost. Moreover, the Commission found that ‘medical indications (including possible side-effects), legal framework, marketing and distribution all tend to differ between the two categories of medicines, even when the active ingredients are identical’.30 However, certain products available OTC can be reimbursed if bought on prescription. In such cases, the frontier between OTC and prescription drugs is less clear-cut and both products may belong to the same relevant market.31

e) Pharmacies v hospitals

6.36 The Commission normally considers that the supply of the same product to pharmacies and to hospitals belongs to the same relevant market. However, in certain instances it takes into the Commission found that in the Czech Republic and Slovakia heparins (injectable anticoagulants, ATC3 category B1B) were marketed to hospitals through a separate channel and that certain subcategories of heparins were used only in hospitals. The Commission concluded that with respect to heparins hospitals constituted a separate market segment.32

29 See , Case COMP/M.5253, Commission decision of 4 February 2009, para 18. 30 See , Case COMP/M.5865, Commission decision of 3 August 2010, para 22. 31 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 23-24. 32 See , Case COMP/M.5253, Commission decision of 4 February 2009, paras 78-80.

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6.37 Similarly, in the case, the Commission found that the relevant market (proton pump inhibitors used for treatment of peptic ulcer) did not include sales to hospitals. The Commission noted that with regard to this drug, ‘[t]he pharmacy and hospital sectors are different in terms of the operation of the distribution chain, the type of patients seen and the nature of the therapy’.33

3. Relevant geographic markets

6.38 The Commission has consistently considered the geographic market for pharmaceutical products to be national in scope because of differences between EU Member States in price setting, conditions of reimbursement and channels of distribution.34 In the case the Commission stated that the national dimension of pharmaceutical markets was due to ‘different price and reimbursement rules […], as well as different brand and packing strategies, different distribution and different prescribing habits of physicians’.35 The Commis- sion added that the EU harmonisation efforts have not yet created EU-wide markets because these efforts were limited to rules relating to the authorisation of medicinal products.36

C. OTHER PRODUCT GROUPS

6.39 In this section, we summarise the Commission’s approach to two other life sciences product groups: medical devices and animal health products. As explained above, our goal is not to provide a complete catalogue of relevant markets in these areas but rather to highlight the key features of the Commission’s approach.

1. Medical devices (IVD equipment)

6.40 The Commission has reviewed a number of markets for medical devices. Below we focus on one segment of this product group, i.e., in vitro diagnostics (‘IVD’), an area in which the Commission’s case law is particularly well-established.

6.41 The term ‘IVD’ is used to describe tests conducted outside the human body. The Commis- sion has reviewed a number of transactions involving manufacturers of IVD testing equip-

33 See , Case COMP/37.507, Commission decision of 15 June 2005, para 68. 34 See, e.g., , Case COMP/M.6278, Reckitt , , Case COMP/M.5661, Commission decision of 11 February 2010, para 13. 35 See , Case COMP/37.507, Commission decision of 15 June 2005, para 503. 36 Ibid.

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a) Relevant product markets

6.42 IVD equipment includes reagents and analysers. Reagents are compounds and liquids used to perform tests. Analysers are the machines which analyse the reagents and determine test results. In recent decisions, the Commission found that the purchasing decisions of laboratories generally concern a package, which includes reagents, analysers and after-sales services. Moreover, the large majority of systems are proprietary: the reagents provided by one supplier are used on the analysers of the same supplier. Therefore, IVD markets normally include reagents, analysers and after-sales services.37

6.43 - agents established by the European Diagnostics Manufacturers Association (‘EDMA’). The with regard to pharmaceuticals: it is the starting point of the Commission’s analysis.

6.44 - nochemistry, haematology, microbiology culture, infectious immunology, and genetic testing. For most of these categories, the Commission has provided indications on possible market segmentations.

6.45 For example, the Commission has reviewed immunochemistry reagents (also called ‘immu- noassays’) in several decisions. This category includes tests that use antibodies to identify and quantify the level of hormones, drugs and other substances found in relatively small these assays into several thematic panels (e.g., cardiac, cancer, drug abuse, etc.). The Com- mission initially suggested that the competitive assessment could be conducted not only assays.38 However, in a more recent decision it concluded that purchasing decisions were driven by a demand for a complete immunochemistry system and that further segmentation 39

6.46 The category ‘clinical chemistry’ describes diagnostics used to test for glucose, cholesterol, sodium and other substances found in large concentrations in the blood stream. The Com- mission acknowledged that all clinical chemistry reagents and analysers belong to the same product market because (a) customers generally buy almost all of their requirements for such tests from one source and (b) all major suppliers offer the same range of instruments and reagents. However, the Commission distinguishes between clinical chemistry tests performed in laboratories and ‘rapid tests’ performed at the point-of-care (e.g., pregnancy tests, drug monitoring).40

6.47 In the case, the Commission found that the frontiers between different EDMA categories are becoming blurred. In particular, it recognised a trend towards

37 See , Case COMP/M.4321, Commission decision of 31 October 2006, para 19. 38 See , Case COMP/M.4321, Commission decision of 31 October 2006, para 23. 39 See , Case COMP/M.4865, Commission decision of 25 October 2007, para 24. 40 Ibid., paras 26-29.

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integration between clinical chemistry and immunochemistry due to the spread of integrated analysers (which perform both types of tests). It also noted the closeness between immunochemistry and infectious immunology diagnostics.41 While in that case the Commission -

b) Relevant geographic markets

6.48 based on two considerations. First, customers require rapid and reliable service to ensure organise their distribution networks at a national level. Second, the Commission found con- policies, social security rules and technologies used by laboratories.42

6.49 However, the Commission recognised that IVD markets were increasingly EEA-wide in scope. All major suppliers of IVD systems are active worldwide and supply the same equipment and reagents throughout the EEA. IVD products used in Europe have been harmonised following the implementation of Directive 98/79 on in vitro diagnostic medical devices.43 Customers increasingly purchase IVD devices by way of pan-European tenders.44 If these trends lead to the alignment of prices for IVD products throughout the EU, we would

2. Animal health products

6.50 The Commission has reviewed animal health markets in several cases, including two cases in which it imposed extensive remedies ( and Wyeth). It has developed a complex matrix for the analysis of animal health products.

a) Relevant product markets

6.51 The Commission divides animal health products into three main categories: vaccines (also called biologicals), pharmaceuticals, and medicinal feed additives. Each category is further subdivided based on several factors.45

41 Ibid., paras 9-18. 42 , Case COMP/M.4569, Commission decision of 24 April 2007, para 21. 43 See Directive 98/79/EC of the European Parliament and of the Council of 27 October 1998 on in vitro diagnostic medical devices, OJ 1998 L331/1. 44 See , Case COMP/M.4569, Commission decision of 24 April 2007, paras 21-22. 45 See Scher- , Case COMP/M.4691, Commission decision of 11 October 2007, paras 21-41.

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6.52 - mission takes into account the following factors: 1. Animal species: vaccines for different species are usually not substitutable even when 2. 3. Single or multiple pathogens: monovalent vaccines contain one or multiple strains of a 4. Live or inactivated vaccines: live vaccines are made from natural organisms while inactivated vaccines are made from killed organisms or from inactivated parts of those 5. Marker or non-marker vaccines: marker vaccines allow distinguishing between animals that are immunised as a result of vaccination or as a result of a natural exposure to the virus.

6.53 Similarly, animal health pharmaceuticals can be segmented based on several factors including animal species, pathology targeted by the pharmaceutical, active substance, mode of

6.54 Given the large number of factors taken into account by the Commission, animal health cas- the Commission imposed remedies with regard to multivalent feline vaccination programmes, cattle pasteurella vaccines, oral penicillin for companion animals, and several other narrow-

b) Relevant geographic markets

6.55 The Commission considers that relevant geographic markets in the animal health sector are national in scope.46 This is due primarily to the fact that animal health products are subject to national registration systems. These products are sold according to the indications and uses prescribed by national registration and approval requirements. As a result, the competitive situation varies between different Member States in terms of market penetration, market shares, prices, organisation of distribution systems, and local veterinarian preferences.

6.56 In recent cases, the parties argued that the introduction of pan-European registration procedures for some products and the presence of large multinational suppliers could lead to the emergence of a pan-European market. So far the Commission has not been persuaded by these arguments.

46 See Scher- , Case COMP/M.4691, Commission decision of 11 October 2007, paras 42-45.

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D. CONCLUSION

6.57 example, in merger cases involving pharmaceutical companies it generally reviews the - maceutical subgroups) or at an even more granular molecule level. The Commission may further segment pharmaceutical markets based, e.g., on product characteristics, pricing, and other factors. It adopts a similar approach with regard to animal health products.

6.58 - pharmaceutical and animal health sectors, the parties can also successfully advocate broader between relevant products.

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A. INTRODUCTION 7.01 a) Greek GSK case 7.31 b) Belgian Bofar case 7.44 B. KEY STAKEHOLDERS c) French medicine distribution case 7.46 1. Pharmaceutical suppliers 7.06 4. The restriction arises from national 2. Parallel traders 7.07 legislation 7.50 3. National health authorities 5. The restriction is necessary to protect and health care funds 7.08 the supplier’s intellectual property 7.55 4. European Commission 7.12 a) Exhaustion 7.56 5. National competition authorities 7.13 b) The Special Mechanism 7.58 6. EU Courts 7.15 c) Repackaging 7.59 C. APPLICABLE LAWS AND CASES 7.16 D. APPLICATION OF THE LAWS AND CASES 1. The restriction is not an agreement TO SPECIFIC STRATEGIES subject to Article 101 TFEU 7.18 1. Supply quotas 7.73 2. The restriction does not violate Article 101 TFEU 7.22 2. Dual pricing systems 7.79 3. Direct-to-pharmacy systems 7.85

A. INTRODUCTION

7.01 Parallel trade is the sale of products by resellers (‘parallel traders’) from one country to another. Such trade typically occurs if a producer charges different prices for its products in each country, as parallel traders can purchase the products in lower-price countries and

7.02 Logically, producers wish to limit the parallel trade of their products, as it undercuts their parallel trade are generally prohibited as they are contrary to the goal of establishing a single EU market.

7.03 In the pharmaceutical sector, the legality of restrictions on parallel trade has been a key subject of dispute between pharmaceutical suppliers and the European Commission for more than twenty years. On the one side, the pharmaceutical suppliers argue that parallel traders are exploiting the different price levels set by the different EU Member States, and depriv- On the other side, the Commission argues that the regulatory price controls do not justify the segmentation of the single market. However, after more than twenty years, there remains no clear resolution concerning what behaviour is and is not legal. Instead, there are only

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with EU competition law.

7.04 The reason for this uncertainty and the ongoing debate over parallel trade in the pharmaceuticals sector lies with the complex market conditions and the multiple stakeholders, each - and determine what behaviour is appropriate and what behaviour crosses the line and violates EU competition law.

7.05 Thereafter, we discuss the existing decisions and case law applicable to parallel trade in the pharmaceutical sector. Finally, we discuss the practical application of these decisions and case law and the strategies available to legally address parallel trade.

B. KEY STAKEHOLDERS

1. Pharmaceutical suppliers

7.06 Pharmaceutical suppliers are private companies operating with the principal goal of maxi- the parallel traders receiving the price difference instead of the suppliers. Thus, the goal of pharmaceutical suppliers is logically to restrict parallel trade to the maximum extent allowable by law, and they have developed several strategies to deal with this issue, including supply quotas, dual pricing systems and direct-to-pharmacy distribution systems. Each of these strategies is discussed in greater detail in Section D.

2. Parallel traders

7.07 Parallel traders include both independent parties that exclusively engage in parallel trade, as well as pharmacies and wholesalers that resell part or all of their available product supply other countries for higher prices. Parallel traders are particularly interested in products for

3. National health authorities and health care funds

7.08 The national health authorities and the corresponding health care funds are key stakeholders in the pharmaceutical market, as they are the parties actually funding the purchases of pharmaceutical products. As part of this role, the national health authorities generally set the maximum price or maximum reimbursement rate for each product.

7.09 With respect to parallel trade, the interests of national health authorities are not aligned, and instead will differ depending upon whether the country is a low-price or high-price country.

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In high-price countries, health authorities may be interested in encouraging parallel trade, as it represents an alternate source of supply of medicines at a lower price. The health authorities in some Member States have implemented rules allowing the health fund to recoup the savings from parallel trade.

7.10 On the other hand, health care funds in low-price countries may wish to discourage parallel trade, as they may be able to negotiate lower prices from pharmaceutical suppliers if the suppliers know the price will be limited to the local market and will not undercut the authorities in low-price countries will also be concerned about the availability of medicines to patients in their country, as a risk exists that patients will not be able to obtain medicines

7.11 For example, in the United Kingdom, following the devaluation of the British Pound, many pharmaceutical products sold into the UK were exported to higher-priced EU markets. In response, the UK Department of Health issued guidance emphasizing the ethical and legal obligations on pharmaceutical suppliers, wholesalers and pharmacies, among others, to ensure the continued supply of products to the UK market.1

4. European Commission

7.12 Historically, the European Commission has been the champion of the single European market, aggressively prosecuting restrictions on parallel trade in order to eliminate the segmentation of the market, especially on a national basis.2 While the Commission has, in recent years, shifted its focus in the pharmaceuticals market to restrictions on generic entry, in 2012, the Commission started an informal investigation into the dual-pricing legislation applicable to pharmaceuticals in Spain.

5. National Competition Authorities

7.13 The national competition authorities of the individual EU Member States all have parallel competence to apply EU competition law while also applying national competition law. While the national authorities generally follow the lead of the European Commission, on the issue of parallel trade there has been some divergence. For example, in Spain, typically a low-price country, the competition authority has largely ignored the position of the Com- mission, as well as the EU courts, and has found that dual pricing systems implemented by pharmaceutical suppliers do not constitute a violation of Article 101(1) TFEU.

7.14 On the other hand, the competition authority in Germany, typically a high-price country, - tion from pharmacies concerning parallel-traded products and allegedly reselling this information to pharmaceutical companies to allow them to restrict parallel trade. While the

1 See, e.g., UK Department of Health, Trading Medicines for Human Use: Shortages and Supply Chain Obli- gations, 15 December 2010. 2 See, e.g., Case A.36,957, , para 146.

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information on this investigation is limited,3 it indicates that national competition authorities in high-priced countries may take a more aggressive position against restrictions on parallel trade.

6. EU Courts

7.15 As the arbiters of EU law, the EU Courts have been forced to balance the competing interests of the relevant stakeholders. Thus far, the Courts have demonstrated a willingness to compromise, rather than merely upholding an abstract legal principle or solely supporting one side of the debate. Thus, while the Courts have held that suppliers are not allowed to prevent all parallel trade between Member States, they have also recognised that pharmaceuticals suppliers must be allowed to defend their legitimate commercial interests.

C. APPLICABLE LAWS AND CASES

7.16 While the Courts have demonstrated a willingness to compromise, this has not resulted in a clear legal standard to determine whether a restriction of parallel trade is allowable. Instead, the patchwork of case law has resulted in numerous legal theories upon which a supplier may be able to defend a restriction of parallel trade, including: 1. The restriction is not subject to Article 101 TFEU 2. The restriction does not violate Article 101 TFEU 3. 4. The restriction arises from national legislation 5. The restriction is necessary to protect the supplier’s intellectual property

7.17 In the following sections, we discuss the case law supporting each of these potential defences.

1. The restriction is not an agreement subject to Article 101 TFEU

7.18 EU competition law does not apply to unilateral conduct by non-dominant companies, as Article 101 TFEU only applies to agreements or concerted practices among two or more undertakings, and Article 102 TFEU only applies if a company holds a dominant market position. Thus, a unilateral restriction of parallel trade by a non-dominant company should not be subject to EU competition law.

7.19 or concerted practice to catch any restriction of parallel trade, even those that would appear unilateral. This position was initially supported by the EU Courts. However, in its

3 See, e.g., Washington Post, ‘German entrepreneur makes millions in E.U. through parallel pharmaceutical trade’, 24 March 2002.

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landmark judgment in the Adalat case,4 behaviour constitutes an ‘agreement’ subject to EU competition law. In particular, the Court of Justice stated that “the mere fact that a measure adopted by a manufacturer, which has the object or effect of restricting competition, falls within the context of continuous business such an agreement exists” (paragraph 141).

7.20 Despite the Court’s holding in the Adalat case, the European Commission continues to take an aggressive approach to the question of whether a supplier and its wholesalers have entered into an agreement. The Commission recently articulated its position on this issue in the revised Guidelines on Vertical Restraints.5 According to the Guidelines, an agreement may be in any form so long as “the parties have expressed their joint intention to conduct ”.6 Further, an agreement may be formed where the unilateral policy of one party requires and receives the acquiescence of the other party. The Commission provides the following example:

if after a supplier’s announcement of a unilateral reduction of supplies in order to prevent parallel trade, distributors reduce immediately their orders and stop engaging in parallel trade, then those distributors tacitly acquiesce to the supplier’s unilateral policy. This can however not be concluded if the distributors continue to engage 7

7.21 While the Guidelines are not legally binding, they indicate that the European Commission laws apply. For this reason, even unilateral measures by non-dominant companies to restrict parallel trade could potentially be prosecuted as a violation of EU competition law.

2. The restriction does not violate Article 101 TFEU

7.22 An agreement or concerted practice will only violate Article 101 TFEU if (i) it has the object or effect of preventing, restricting or distorting competition within the internal market found to form part of an agreement or concerted practice subject to Article 101, the next questions are whether the restriction has the object or effect of harming competition and, if

7.23 The EU Courts addressed these questions in the Spanish GSK case. In this case, the Com- mission investigated the sales conditions implemented by GSK in Spain, whereby GSK charged a lower price to wholesalers reselling its products to Spanish pharmacies or hos-

4 Case C-2/01 P Bundesverband der Arzneimittel-Importeure eV and Commission v Bayer AG [2004] ECR I-00023. 5 Guidelines on Vertical Restraints, para 25, available at http://ec.europa.eu/competition/antitrust/legislation/vertical.html. 6 Ibid. 7 Ibid.

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pitals for (reimbursable) end-use in Spain, and a higher price to wholesalers exporting the products. In its decision, the Commission held that: 1. 2. 3. 8

7.24 GSK appealed the decision to the EU General Court (previously the Court of First Instance). On 27 September 2006, the Court partially annulled the Commission’s decision on the following grounds:9 1. Object of restricting competition. The General Court rejected the Commission’s argument that the dual pricing system had the object of restricting competition. While the system had the aim of reducing parallel trade, the Court held that it could not simply be assumed that this would result in higher prices for consumers, particularly due to the price controls effective in most Member States. 2. Effect of restricting competition. that the dual pricing system had an anticompetitive effect, as the dual pricing system hampered the ability of parallel traders to compete with wholesalers in other EU mem- parallel trade, namely reduced costs for products. 3. As the Court held that GSK’s dual pricing system had an anticompetitive effect, it next considered whether the Commission was correct in concluding that the system was not eligible for exemption under Article 101(3) TFEU. In order to justify an exemption, GSK bore the burden of putting forward ‘convincing’ arguments and evidence showing that the dual pricing system is likely to result in ‘appreciable objective advantages’ that outweigh any anticompetitive effect. In its judgment, the General Court described the evidence presented by GSK as “relevant, reliable and credible” and noted that it was corroborated in many respects by documents originating with the Commission. Further, the General Court criticised the Commission’s examination of this evidence as too cursory to support its conclusion that the system was not eligible for an exemption. Accordingly, the General Court annulled the part of the Commission’s decision denying GSK an Article 101(3) TFEU exemption and referred the matter back to the Commission to conduct a more thorough assessment of GSK’s evidence.

7.25 Both the Commission and GSK, among others, appealed the General Court’s judgment to the Court of Justice. In June 2009, Advocate General Trstenjak issued her opinion on the case, which was broadly followed by the Court of Justice. The Court ruled as follows:10 1. Object of restricting competition. The Court of Justice held that the dual pricing system had the object of restricting competition and rejected the General Court’s position that as follows (para 63):

8 Case A.36,957, 9 Case T-168/01, [2006] ECR II-2969. 10 Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P, Commission and Others [2009] ECR I-9291.

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First of all, there is nothing in [Article 101(1)] to indicate that only those agreements which deprive consumers of certain advantages may have an anticompetitive object. Secondly, it must be borne in mind that the Court has held that, like other competition rules laid down in the Treaty, Article 101 TFEU aims to protect not only the interests of competitors or of consumers, but also the structure of the be deprived of the advantages of effective competition in terms of supply or price. 2. Effect of restricting competition. As the Court of Justice held that the dual pricing system had the object of restricting competition under Article 101(1) TFEU, it was not necessary for the Court of Justice to consider whether the system had the effect of restricting competition. 3. On this point, the Court of Justice upheld the General Court’s ruling that the Commission’s examination of GSK’s evidence was too cursory to support its conclusion that the system was not eligible for an exemption. eligibility of the dual pricing system for exemption under Article 101(3) TFEU, more likely than not that the agreement will make it possible to obtain appreciable advantages that will outweigh any restrictive effects. The Court of Justice emphasised that the Commission’s examination of the evidence put forward to justify an for the outcome of the analysis”. (see para 103). Translated into the context of the case, the Court of Justice essentially agreed with the General Court that the Commission should have undertaken a more rigorous examination of the evidence put forward by GSK concerning the effect of parallel that it is not necessary for a pharmaceutical company to show that all of the savings exemption under Article 101(3) TFEU.

7.26 object of restricting competition under Article 101(1) TFEU. In holding that such a system importance it attaches to the development and protection of a single EU market and its deep-seated suspicion of any measure that restricts parallel trade among Member States. The Court of Justice’s discussion of Article 101(1) TFEU is also interesting in that, by holding that the competition rules are aimed at protecting competitors as well as the structure of the market, in addition to consumers, the Court of Justice signaled that it remains wedded to a more formalistic application of the competition rules as opposed to one based on concepts of consumer welfare.

7.27 While the Court held that dual pricing constitutes a restriction by object, it also left open the door to the possibility of an exemption under Article 101(3) TFEU, as it upheld the prior holding of the General Court that the Commission must give serious consideration to the relevant evidence presented by the pharmaceutical supplier. Prior to the General Court’s judgment, the Commission and EU courts had essentially treated dual pricing systems as per

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se for exemption under Article 101(3) TFEU.

7.28 Thus, following the Spanish GSK case, it remains possible for a pharmaceutical company to a theoretical possibility, as there has not been a case yet where an authority or court has - pear to have a reasonable chance of success, particularly in light of statements made by the Regulation Scheme: “To sum up, on a global (EU) level, parallel trade in pharmaceuticals discrimination and incentives for innovation are reduced”.11

7.29 As discussed in the preceding section, an agreement restricting parallel trade will typically constitute a restriction of competition by object under Article 101 TFEU. Further, where a company is dominant, such a restriction will also typically constitute an abuse under Article 102 TFEU. Nevertheless, such a restriction may not constitute a violation if the supplier is

7.30 As described below, in the Greek GSK case the Court of Justice established the standard for determining when a restriction of parallel trade in the pharmaceutical industry is objec- principle should also apply to Article 101 TFEU cases involving restrictions of competition by object.12

a) Greek GSK case

7.31 The Greek GSK case involved a typical supply quota system, whereby GSK limited the volumes supplied to its wholesalers so that their orders – including large orders placed by wholesalers engaged in export activities – were not supplied in full. The purpose of this strategy was to cut down on parallel trade by these wholesalers, who were buying the products at the low prices prevailing in the Greek market and exporting them to Member States with higher prices.

7.32 Several wholesalers complained about GSK’s strategy to the Greek Competition Commis- sion, which then sought guidance from the Court of Justice on whether a dominant pharmaceutical company may limit supplies to its wholesalers in order to limit parallel trade in its products. In an opinion that was highly favourable to the pharmaceutical industry, Advocate General Jacobs concluded that such a limitation did not constitute an abuse of a dominant

11 The Pharmaceutical Price Regulation Scheme, 2007, Annex L, para 3.152. 12 See Case C-439/09, Pierre Fabre Dermo-Cosmétique v Président de l’Autorité de la concurrence [2011] ECR I-09419, para 47 (operative language, where the Court of Justice held that a restriction only “amounts objective of that contractual clause and the legal and economic context of which it forms a part, it is apparent ”.)

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position.13 The opinion was particularly noteworthy in that it supported one of the industry’s fundamental arguments, namely that, while market integration is a critical goal of the European Union in general and EU competition policy in particular, the burden of market integration should not be borne by the pharmaceutical industry alone as the parallel trade was caused by national pricing and reimbursement schemes.

7.33 Thereafter, in May 2005, the Court of Justice dismissed the case on procedural grounds, ruling that the case was inadmissible because the Greek Competition Commission is not a court or tribunal, and therefore did not have the power to refer a case to the Court of Jus- tice.14 However, the Court of Justice did not have to wait long to have a second bite at the apple. While the case was pending before the Court of Justice, the complaining wholesalers had brought parallel actions in the Greek courts. At the time of the 2005 Court of Justice judgment, the parties were already in front of the Athens Court of Appeals, following an earlier decision of a lower court in favour of GSK. The Court of Appeals, facing the same facts as the Greek Competition Commission, referred the same questions back to the Court of Justice.

7.34 In an opinion that was almost diametrically opposed to AG Jacobs’s earlier opinion, AG Ruiz-Jarabo recommended an approach under which a dominant pharmaceutical company could only limit supplies in a narrow set of circumstances.15 In particular, a company could limit supplies if the market regulation left it no choice, if its sole motivation was to protect - vocate general opinions in the same case, but with two opinions that diverged dramatically.

7.35 In its Judgment, the Court of Justice crafted a compromise.16 It ruled that dominant pharmaceutical companies may not cut off supplies to parallel traders altogether, but they may refuse to supply orders from parallel traders that are out of the ordinary.

7.36 In reaching this ruling, the Court of Justice rejected GSK’s argument that the special features of the pharmaceutical sector justify a departure from the general rule that a dominant company’s refusal to supply constitutes an abuse under Article 102 TFEU. First, the Court stating: “even in the Member States where the prices of medicines are subject to State regulation, parallel trade is liable to exert pressure on prices and, consequently, to create concerned, for whom the proportion of the price of medicines for which they are responsible will be lower”..17

13 Opinion of Advocate General Jacobs, Case C-53/03 - Kline AEVE [2005] ECR I-4609. 14 Case C-53/03 Syfait and Others [2005] ECR I-4609. 15 Opinion of Advocate General Ruiz-Jarabo, Joined Cases C-468/06 to C-478/06, Sot. Lelos kai Sia and Others [2008] ECR I-7139. 16 Joined Cases C-468/06 to C-478/06, Sot. Lelos kai Sia and Others [2008] ECR I-07139. 17 Ibid., para 56.

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7.37 Second, the Court of Justice rejected the argument that price differences between Member States are the result of national price controls over which pharmaceutical companies have no control. The Court of Justice noted that, even in Member States where the national authorities set the price of pharmaceutical products, pharmaceutical manufacturers take part in the negotiations leading up to the decision on pricing and reimbursement.

7.38 While the Court of Justice rejected the argument that pharmaceutical companies could refuse supplies to wholesalers engaged in parallel trade due to the regulation of prices in the sector, it was unwilling to stop pharmaceutical companies from being able to impose any limits whatsoever on supplies to these wholesalers. It noted that national regulation was one of the factors creating opportunities for parallel trade, in contrast to the normal situation where parallel trade was solely a result of a company’s own decision to price its products differently in different Member States.

7.39 Since pharmaceutical companies were confronted with a problem that was not entirely of their own making, the Court of Justice seemed more willing to allow them to take steps to at least limit the amount of parallel trade. Moreover, the Court of Justice seemed concerned that, unless a dominant pharmaceutical company could impose some limits on parallel trade, it might have to resort to the extreme alternative of not placing its product on the market at all in low-price Member States.

7.40 The Court of Justice concluded that, although the degree of regulation of pharmaceutical prices did not mean that a dominant pharmaceutical company could refuse to supply parallel traders without running afoul of Article 102 TFEU, the company could take steps that were “reasonable and in proportion to the need to protect its own commercial interests”. Applying this principle to the case and citing language from its prior judgment in United Brands,18 the Court of Justice held that the dominant company could refuse to supply orders that were “out of the ordinary”.

7.41 The Court of Justice set out two factors that must be taken into account in determining whether an order is ‘ordinary’: 1. The size of the order in relation to the requirements of the market in the Member 2. The previous business relations between the pharmaceutical company and the wholesaler concerned.

7.42 wholesalers that are “out of all proportion to those previously sold by the same wholesalers to meet the needs of the market in that member state”. However, the Court made it clear that a supplier may not prevent all parallel trade, which suggests that it would be imprudent for dominant pharmaceutical companies to set their quotas too tightly, leaving no product available for export.

7.43 While the Court’s judgment provides useful guidance, litigation in the national courts will undoubtedly continue between suppliers and their wholesalers over the meaning of ‘ordinary’. This litigation will likely concern questions such as: When is an increase ‘out of all proportion’ to previous orders? May a wholesaler’s supplies be reduced if the wholesaler is

18 Case 27/76, United Brands and United Brands Continentaal v Commission [1978] ECR 207.

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exporting most of its product? Does a pharmaceutical company have an obligation to supply new wholesalers?

b) Belgian Bofar case

7.44 The issue addressed in the Greek GSK case also arose in Belgium in the context of the Bofar case.19 Bofar, an exporting wholesaler, complained to the Belgian competition authority that the refusal of various pharmaceutical companies to supply it with products constituted an abuse and requested that the authority adopt interim measures requiring the pharmaceutical companies to supply products to Bofar. In addressing Bofar’s request for interim measures, the Belgian Competition Prosecutor General ruled that Bofar had failed to establish a prima facie by the Court of Justice in the Greek GSK case, the President found that the pharmaceutical company did not need to supply an exporting wholesaler because the exporting wholesaler did not have an obligation to supply the local market.

7.45 While the President’s ruling in the Bofar case cannot be accorded undue weight, because it only dealt with an application for interim measures, it is nevertheless noteworthy because it suggests how the test articulated by the Court of Justice in the Greek GSK case should be applied in the case of exporting wholesalers who do not have public service obligations. Further, the President emphasised that exports remained possible through other channels, despite the refusal to supply exporting wholesalers, mirroring the position of the Court of Justice that pharmaceutical suppliers should not be able to cut off parallel trade completely.

c) French medicine distribution case

7.46 In July 2007, prior to the judgment of the Court of Justice in the Greek GSK case, the French competition authority issued a decision addressing the legality of supply quota systems.20 The case involved complaints brought against a number of pharmaceutical companies who had instituted supply quotas, thereby limiting the supply to wholesalers.

7.47 In its ruling, the French competition authority recognised that pharmaceutical companies are entitled to implement supply quotas to rationalise production and ensure optimal distribution of their products. However, the restrictions should not go beyond what is strictly necessary to ensure the reliable and economically-viable supply of product to the French market. These restrictions should also allow for competition among wholesalers, including by allowing new wholesalers to enter the market.

7.48 To accommodate these concerns, the pharmaceutical companies agreed to introduce certain changes to their systems. While the details differ, the basic features of these commitments were as follows: 1.

19 , MEDE-V/M-07/0038 (26 March 2008). 20 available at http://www. appealed on procedural grounds.

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market shares of wholesalers would not be frozen. 2. Each company agreed to make its system more transparent so that wholesalers would know the quantity of a given product to which they were entitled under the system. 3. their wholesaling activities.

7.49 While this decision pre-dates the holding of the Court of Justice in the Greek GSK case, it provides useful guidance concerning the implementation of supply quotas. As quotas are - example, a supplier may not be able to distinguish between wholesalers that demand more products because they are operating well and facing increasing local market demand, and wholesalers that demand more products for exports. As a result, suppliers may choose to - ers are unable to obtain more products for supply to the local market. The decision of the French competition authority addresses this issue by requiring pharmaceutical suppliers to able to compete for local business.

4. The restriction arises from national legislation

7.50 In addition to the defenses discussed above, a restriction on parallel trade may also be jus- Member States.

7.51 For example, in Spain dual pricing legislation is in place, whereby the government-imposed prices only apply to those products dispensed within Spain and funded by the national health service. Relying on this legislation, many pharmaceutical suppliers have established dual-pricing systems in Spain, whereby products sold for patients in Spain covered by the national health service are priced at a lower level than products sold for other patients (i.e., those in other countries).

7.52 Some of the suppliers’ dual pricing systems were investigated by the Spanish competition authority, which held that they were not subject to EU competition law, as they did not constitute an agreement subject to Article 101 TFEU. Instead, the authority considered that the supplier was charging a single price, but this price was replaced by the state controlled price for products dispensed within Spain and funded by the national health service.

7.53 These decisions were appealed to the Spanish courts. In 2011, the Spanish National Court applied the judgment of the EU Court of Justice’s in the Spanish GSK case (discussed above), and held that the Spanish competition authority had been wrong to dismiss a whole- 21 the Spanish GSK

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7.54 launched an investigation into whether the Spanish laws relied upon by pharmaceuticals suppliers comply with the applicable EU laws. This investigation is ongoing.

5. The restriction is necessary to protect the supplier’s intellectual property

7.55 Restrictions on parallel trade may also be permitted where the restrictions are used to protect a pharmaceutical company’s intellectual property rights. For example, it is generally allowable for a pharmaceutical supplier to prevent the resale of products from outside of the European Economic Area (‘EEA’)22 into the EEA, as such a resale would violate the supplier’s trademark and patent rights.23 However, a pharmaceutical supplier will only be able to prevent the resale of its products from one EEA country to another in limited circumstances, where its IP rights have not been ‘exhausted’.

a) Exhaustion

7.56 Within the EEA, when a supplier places a product on the market, or allows a third party to product are exhausted. This means that the supplier is no longer able to use its intellectual 24

7.57 As an example, assume that a pharmaceutical supplier sells its patented medicine into the - plier’s intellectual property rights throughout the EEA. Thus, the supplier cannot use any of its German patents to prevent the wholesalers from reselling the medicine into Germany. However, as this exhaustion only applies to the products sold, or consented to be sold, by the supplier, the supplier could still use its patents in the UK and Germany to prevent the sale of generic versions of the products supplied by third parties.

b) The Special Mechanism

7.58 One exception to the exhaustion rule applies with respect to the new Member States that joined the European Union as of 1 May 2004 and 1 January 2007 (excluding Cyprus and Malta).25 This exception is referred to as the Special Mechanism. The Special Mechanism product that is protected in an old Member State is put on the market in a new Member State in which equivalent protection could not be obtained. In such circumstances, the Special Mechanism entitles the right holder to rely on the patent or SPC to prevent parallel trade

22 The EEA consists of the countries of the European Union plus Norway, Iceland and Liechtenstein. 23 See Case T-198/98, Micro Leader Business v Commission, [1999] ECR II-03989. 24 Case C-15/74 Centrafarm BV and Others v Sterling Drug [1974] ECR 1147. 25 List pursuant to Article 22 of the Accession Act, 2. Corporations Law, OJ 2003 L236/33, Annex IV.

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from the new Member States into those Member States where patent or SPC protection exists. In order to ensure compliance with the Special Mechanism, wholesalers must provide intended parallel import takes place.

c) Repackaging

7.59 Another exception to the rules on exhaustion applies where the products in question are repackaged by the parallel trader for the purposes of sale in another EEA country. Such repackaging falls into two groups: reboxing and overstickering:

7.60 A reboxed product is a product that is imported from another Member State in its original internal packaging but with a new exterior carton printed in the language of the Member State of importation. The parallel importer applies either his own logo or a house-style or get-up used for a number of different products to the new exterior carton (‘co-branding’), or - ing’) or with a new trademark or label (‘re-branding’).26

7.61 An overstickered product is marketed in its original internal and external packaging to which the parallel importer has applied an additional external label printed in the language of the Member State of importation (‘re-labelling’). Overstickering may also imply that the product is co-branded or rebranded.

7.62 Pursuant to Article 7 of the Trademark Directive,27 exhaustion occurs “in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent” unless “there exist legitimate reasons for the proprietor to oppose further commercialisation of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market”.

7.63 and parallel traders concerning when a supplier has a legitimate reason to oppose repackaging.

Bristol-Myers Squibb 7.64 The Court of Justice judgment in Bristol-Myers Squibb and Others is today the main precedent for determining when it is permissible for parallel traders to repackage products.28 In that judgment, the Commission set out the following conditions: 1. The repackaging is necessary to permit importation (for example, because of national rules specifying package sizes). 2. The repackaging or re-labelling does not affect the original condition of the product inside the package.

26 Re-branding is only permissible where the original trademark may not be used in the Member State into Pharmacia & Upjohn [1999] ECR I-6927, paras 43-44. 27 Directive 2008/95/EC of the European Parliament and of the Council of 22 October 2008 to approximate the laws of the Member States relating to trade marks, OJ 2008 L299/25. 28 Case C-427/93 Bristol-Myers Squibb and Others v Paranova [1996] ECR I-3457.

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3. The packaging clearly states who repackaged the product and the name of the manufacturer. 4. The presentation of the repackaged product is not such as to be liable to damage the reputation of the trade mark and its owner (for example, the packaging must not be defective, of poor quality, or untidy). 5. The importer gives prior notice to the trade mark owner and, on demand, supplies a specimen of that product.

7.65 not. The judgment implies that the packaging itself is not part of the product, but repackaging not complying with the above criteria can still violate the rights of the owner of the

Boehringer Ingelheim II 7.66 The Court of Justice’s ruling on 26 April 2007 in Boehringer Ingelheim and Others v Swing- ward Ltd and Others to parallel importers who repackage or re-label products bearing the manufacturer’s trade mark.29

7.67 The case involved changes to the packaging of the products of various pharmaceutical companies by parallel importers for the purpose of selling the products in the UK. These changes included both ‘overstickering’ and ‘reboxing’. The English High Court referred several questions to the Court of Justice in connection with a case brought by the pharmaceutical companies against the parallel importers for trade mark infringement.

7.68 After referring to Bristol-Myers Squibb conditions laid out in that judgement apply to overstickering, therefore rejecting the parallel traders’ argument that overstickering does not affect the trademark. The Court of Justice the parallel trader can show that repackaging is needed to obtain authorisation to market the product in the Member State where it has been imported or if the parallel trader can show that consumers do not accept overstickered products.30

7.69 the repackaged product is not such as to be liable to damage the reputation of the trade mark and its owner, should be interpreted broadly and “is not limited only to cases where the repackaging is defective, of poor quality, or untidy”. Instead, this condition may apply where the repackaging or label are such as to affect the value of the trade mark by “detracting capable of inspiring in the public concerned”.31 methods of repackaging were liable to damage the trade mark owner’s reputation, including de-branding, co-branding, additional labels obscuring the original trade mark, failing to

29 Case C-348/04, [2007] ECR. I-3391. 30 Case C-243/00 Boehringer Ingelheim v Swingard I [2002] ECR. I-3759, para 52. 31 Eurim-PharmMPA Pharma [1996] ECR. I-3687, para 35.

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state on additional labels to whom the original trade mark belongs and printing the name of the parallel trader in capital letters.

7.70 condition (not affecting the original condition of the product) and fourth condition (not damaging the reputation of the trade mark), the Court of Justice went on to state that it is suf- importer, the Court of Justice has strengthened the ability of the pharmaceutical companies to bring and win cases against parallel importers not complying with the Bristol-Myers Squibb conditions.

Subsequent judgments 7.71 The line of challenges by pharmaceutical manufacturers to the repackaging and relabelling of their products by parallel traders has continued. In Wellcome v Paranova, the Court of - packaging chosen by the parallel trader is necessary.32 In line with Boehringer Ingelheim II, the Court of Justice ruled that this is not the case.

7.72 In Orifarm, a case concerning the third requirement of Bristol-Myers Squibb, the Court of Justice held that the trademark owner cannot oppose the marketing of repackaged pharmaceuticals under Article 7(2) of the Trademark Directive because the new packaging only bears the mark of the undertaking ordering and taking responsibility for the repackaging, but not the name of the undertaking that actually repackaged the product.33

D. APPLICATION OF THE LAWS AND CASES TO SPECIFIC STRATEGIES

1. Supply quotas

7.73 In supply quota systems, the pharmaceuticals supplier unilaterally establishes a supply cap or quota for each customer (wholesalers, pharmacies, etc.), and will only supply products to such customers up to this quota. The quotas are based upon past sales levels as well as the level of demand in the relevant local market.

7.74 In the pharmaceuticals industry, such quotas indirectly limit the levels of parallel trade, as wholesalers and pharmacies may be subject to legal obligations to ensure the supply of ad-

32 Case C-276/05 The Wellcome Foundation Ltd v Paranova Pharmazeutika Handels GmbH [2008] ECR. I-10479. 33 Joined Cases C-400/09 and C-207/10 Sharp & Dohme BV and Merck Sharp & Dohme [2011] ECR I-07063.

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equate products to meet the needs of the local market.34 Thus, wholesalers and pharmacies supply the needs of the local market.

7.75 In the event a supply quota is challenged as violating EU competition law, a supplier has three principal defences.

7.76 First, if the supplier is not dominant, it can argue that EU competition law does not apply, as these systems are typically implemented unilaterally, and not pursuant to an agreement with the customers. In this respect, suppliers are typically very careful to ensure that any - ment between the parties to prohibit parallel trade.

7.77 Second, even if a restrictive agreement under Article 101 TFEU was found to exist, such an agreement could be eligible for exemption under Article 101(3) TFEU on the basis of a rationale similar to that put forward by the General Court in its ruling in the Spanish GSK case (discussed above). In order to qualify, the supply quotas must be likely to contribute to improving the production or distribution of goods or to promoting technical or economic progress.

7.78 As discussed above, in the Greek GSK case, the Court of Justice indicated that pharmaceutical suppliers do not have an obligation to supply orders that are out of the ordinary. Further, the Court set out two factors that must be taken into account in determining whether an order is ‘ordinary’: (1) the size of the order in relation to the requirements of the market - maceutical company and the wholesaler concerned. Finally, the Court of Justice made it clear that a pharmaceutical supplier may not prevent all parallel trade. This suggests that it would be imprudent for pharmaceutical companies to limit supplies to local requirements, leaving no product available for export. That being said, wholesalers cannot force suppliers to increase supplies simply because they are using the existing supplies for re-export instead of covering domestic demand.

2. Dual pricing systems

7.79 Dual-pricing systems are intended to limit the price set for one Member State to that partic- supply. Instead, the manufacturer charges different prices to the wholesalers depending on

7.80 In the event a dual-pricing system is challenged as violating EU competition law, a supplier has three principal defenses.

7.81 First, as discussed above, the introduction of dual-pricing systems may be mandated by Member State legislation, in particular legislation providing for reimbursement of medicinal products through national health insurance. However, in light of the recent judgment

34 See, e.g., Directive 2001/83/EC, Article 1 No. 18.

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by the Spanish National Court rejecting this argument, it is unclear whether this argument would be successful.35

7.82 - cussed above, in the Spanish GSK case, the EU Court of Justice annulled the Commission’s decision on the basis that the Commission failed to properly consider the evidence presented - yse the merits of GSK’s claims, and it therefore remains in dispute whether this argument would qualify for an exemption.

7.83 legal standard established in the Greek GSK case, as such a system indirectly limits the level of supply to the needs of the local market. However, a risk exists that such a position could be challenged as a dual pricing system typically eliminates all parallel trade.

7.84 As can be seen, all three of the above arguments have been or could be challenged. For this reason, dual pricing systems, which have historically been perceived as the least risky strategy, may presently face the highest risk of challenge.

3. Direct-to-pharmacy systems

7.85 While the applicable EU competition laws generally prohibit a supplier from imposing restrictions aimed at preventing such parallel trade from independent resellers, suppliers have or via an agent. For example, while a supplier may not generally instruct a wholesaler that it may not supply parallel traders, the supplier may, itself or through an agent, generally refuse to supply such parties.

7.86 Due, inter alia, to this difference in the application of the EU competition laws, many pharmaceutical suppliers stopped supplying the market through wholesalers in a number of countries, and instead sell directly using ‘logistical service providers’ as their agents to coordinate orders and deliveries. In this way, the suppliers achieved much greater control over their supply chains. However, in order for a logistical service provider to qualify as

7.87 Following the implementation of direct-to-pharmacy systems and other wholesaler rational- Trading launched a market study to determine the effect of such plans on the UK market. In particular, the OFT considered the impact of the wholesaler reductions on competition, and found that the concerns arising from the reduction in the number of wholesalers by the phar- 36

35 Spanish National Court (Audiencia Nacional), 13 June 2011, Case n 450/2009, Spain Pharma S.A., Cofares 36

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A. INTRODUCTION 8.01 a) Overview of cases 8.47

B. PHARMACEUTICAL b) Assessment criteria 8.56 SECTOR INQUIRY 8.06 D. PATENT SETTLEMENTS BETWEEN ORIGINATORS AND GENERIC C. REGULATORY ABUSE 8.08 COMPANIES 8.66 1. Supply of misleading information 8.12 2. in patent settlements? 8.70 a) Supply of misleading information to a regulatory authority - 8.15 3. Relevant criteria to distinguish pro- from anticompetitive patent settlements 8.73 b) Denigration 8.24 2. Manipulation of regulatory procedures 8.45 E. CONCLUSION 8.79

A. INTRODUCTION

8.01 In the pharmaceutical sector, patents and data exclusivity provide originator companies protection from generic competition as a reward designed to encourage the development of new and improved medicines. Logically, originator companies, who successfully launch new medicines wish to maximise the value of this reward and have teams of specialists developing strategies to use these regulatory measures to be protected against competition from generic companies for the longest term possible.

8.02 Over the past decade, the competition authorities have begun to question some of these strategies to exclude generic competitors. Beginning with the decision against AstraZeneca in 2005, the Commission established the principle that a strategy which is allowable under the applicable regulatory regime is not necessarily allowable under the EU competition - nator companies aimed at delaying generic entry that, in the view of the Commission, could potentially violate EU competition law. Finally, in the past few years, the Commission and - tices violate EU competition law.

8.03 The principal question at issue in these cases is what constitutes legitimate ‘competition on the merits’ and what constitutes anticompetitive manipulation of the regulatory regime. To date, competition authorities in the EU have found the following activities to violate EU competition law:

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1. Withdrawing a marketing authorisation for the purpose of delaying generic entry to the market () 2. to issue prescriptions of generic products with prescribing software (Reckitt Benckiser) 3. Providing misleading information to a regulatory authority in an application for a SPC () 4. Denigrating the products of generic competitors () 5. Paying a generic competitor to not challenge a patent and to stay off the market (Lund- beck)

8.04 - low), which was overturned on appeal, distinguishing between the activities that constitute competition on the merits and the activities that constitute anticompetitive manipulation is - latory activities constitute legitimate competition on the merits and which activities violate EU competition law.

8.05 - ropean Commission in its sector inquiry that could potentially raise issues under EU competition law. Thereafter, we discuss the cases brought to date by the competition authorities in the EU and guidance that can be gleaned from these cases to distinguish between allowable activities and those which violate EU competition law.

B. PHARMACEUTICAL SECTOR INQUIRY

8.06 In 2009, following an 18-month investigation, the European Commission published its Pharmaceutical Sector Inquiry Report (‘the Report’).1- gies used by originators to prevent or disrupt generic entry and indicates that some of these strategies might violate EU competition law: 1. . Originators may create legal uncertainty for generic competitors by e.g., before the European the original application or the protection period, the Commission noted that they can extend the examination period (as the examination continues even if the parent application is withdrawn or revoked). Such a situation may create legal uncertainty for generic companies and thus discourage or delay generic entry.2 2. Patent litigation. Originators may impede generic entry through patent litigation. While it is legitimate for originators to enforce their patent rights, the Commission suggested that, in certain instances, originators pursue unmeritorious litigation for the

1 See Commission Communication of 8 July 2009, Executive Summary of the Pharmaceutical Sector Inquiry Report, and Commission Staff Working Document (Technical annex to the Commission Communication), available on DG Competition’s website at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/ index.html. 2 See Commission Communication of 8 July 2009, Executive Summary of the Pharmaceutical Sector Inquiry Report, pages 10-11.

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primary purpose of delaying generic entrants.3 3. Patent settlements. - nator companies and generic companies, in which generic suppliers received a payment in exchange for their commitment to stay off of the market.4 4. Interventions in administrative proceedings. When generic manufacturers apply for marketing authorisation/pricing reimbursement status, originators sometimes intervene in the proceedings to claim that the generic products are less safe or less effective than the originator’s drug. According to the Commission, this type of intervention is rarely successful, but it delays generic entry, thus leading to extra revenue for the originator.5 5. Switching patients to a second generation product. While the Commission acknowledged the importance of incremental research, the Report noted that the launch of second generation products is often accompanied by intensive marketing aimed at switching patients to the new drug prior to generic entry. According to the Commis- of the market.6 6. Marketing strategies targeted at the generic product. Some originator companies after the product has been approved for sale by the relevant administrative authority. wholesalers as they prepare for the supply of generic products.7 7. Pricing strategies. The Commission observed that large originators commonly engage in price competition with incoming generics and that this could involve selective discounts/rebates, or the originator relying on its economies of scale to drive generic companies out of the market.8 8. Launch of an own generic or licensing to a third party. As patent expiry approaches, some originator companies may decide to launch generic versions of their own products or license the product to a third party, thereby making entry by other generic companies less attractive.9 This strategy might be accompanied by marketing aimed 9. Switch to OTC. Towards the end of the product’s life-cycle, originator companies might consider changing the medicine from prescription-only to an over-the-counter (‘OTC’) product. According to the Commission, switching to OTC prior to patent give the originator an opportunity to create brand loyalty for the product.10

3 Ibid., page 11. 4 Ibid., pages 12-13. 5 Ibid., page 20. 6 Ibid., pages 14-15. 7 Ibid., page 14. 8 Technical annex to the Commission Communication, Part 2, page 553. 9 Ibid. 10 Ibid.

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8.07 generic entry, it did not clarify whether these strategies would violate EU competition law. Instead of providing guidance the Commission indicated that enforcement actions facts.11 The cases completed to date are discussed in the following sections.

C. REGULATORY ABUSE

8.08 It is a well-established principle under EU competition law that a company in a dominant market position has a ‘special responsibility’ not to impair genuine, undistorted competition on the internal market.12

8.09 In the judgment, the EU courts extended this principle to actions taken by dominant companies before regulatory authorities, holding: [A]n undertaking which holds a dominant position…cannot…use regulatory pro- on the market, in the absence of grounds relating to the defence of the legitimate interests of an undertaking engaged in competition on the merits or in the absence of .13

8.10 This holding means that an action by a dominant company before a regulatory authority that deters the entry of competitors may constitute an abuse unless the action constitutes ‘com- of the undertaking is otherwise legal under the EU or national regulatory framework. This holding has important implications for life-cycle-management strategies, which by their nature aim to deter the entry of generic competitors onto the market for as long as possible.

8.11 In the following sections, we will discuss the application of this holding to the facts at issues in the cases brought by the EU and national competition authorities following the sector inquiry.

1. Supply of misleading information

8.12 Competition authorities consider that the supply of misleading information to exclude or gain a competitive advantage over competitors or potential competitors does not amount to competition on the merits, and could thus constitute an abuse of dominance contrary to Article 102 TFEU.

8.13 to be abusive in two sets of circumstances: (i) the supply of misleading information to patent

11 Ibid., page 20. 12 See Case C-202/07 P France Telecom v Commission [2009] ECR I-2369, para 105 and case-law cited. 13 Case C-457/10P , Judgment of 6 December 2012, nyr, para 134 (emphasis added).

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company of misleading information about generic drugs (denigration).

8.14 The common thread in these cases is that dominant pharmaceutical companies are under a duty to act transparently and to avoid communicating inaccurate or incomplete information which would be liable to mislead regulatory authorities, customers, or intermediaries. - haviour from abusive conduct.

a) Supply of misleading information to a regulatory authority -

8.15 - sition in the supply of treatments for gastric ulcers. The Commission found, inter alia, that 14

8.16 - - tion to place their medicine on the market.15 The duration of the SPC depends on the date of applications for omeprazole, the exact meaning of that concept was ambiguous.16 A usual interpretation was that it referred to the date when a national authority actually granted the was the later point in time when the marketing authorisation became effective (‘effective marketing’ authorisation i.e., when a national authority approved the price of the drug).17 When it applied for SPCs, AstraZeneca did not mention the interpretation it retained.

8.17 The Commission found this conduct to be misleading and in violation of Article 102 TFEU, date in its SPC applications referred to the date of grant and not to the alternate ‘effective marketing’ date. According to the Commission, this misleading conduct allowed Astra- Zeneca to obtain SPCs it was no longer entitled to (or was entitled to for a shorter period only).1819 How- certain elements with respect to AstraZeneca’s allegedly abusive product withdrawals (see

14 See , Case COMP/M.1403, Commission decision of 26 February 1999 (‘ decision’). 15 Council Regulation (EEC) No 1768/92 of 18 June 1992 concerning the creation of a supplementary protec- later repealed and replaced by Regulation (EC) No 469/2009 of 6 May 2009 concerning the supplementary decision, paras 147- 149. 16 Hässle [2003] ECR I-14781. 17 See, e.g., decision, paras 228, 235. 18 See, e.g., decision, para 630. 19 Case T-321/05 , Judgment of 1 July 2010, nyr, (hereinafter the ‘ judgment’).

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the General Court’s reasoning and holding.20

i) Assessment criteria

Misleading conduct 8.18 In the General Court found that the company’s conduct was misleading because it did not disclose the alternative interpretation it took of an ambiguous but critical legal provision to its SPC applications.21 According to the Court, absent such express dis- that the company relied on the more common interpretation of that unclear provision.22 In wished to accept.23

8.19 Assuming that AstraZeneca became aware of the confusion concerning the relevant date only once it had been granted extra patent protection, the Court considered that AstraZeneca 24 The Court found that internal evidence showed that the company was aware of the mistaken information based on which the SPCs were granted, and pointed out that one of AstraZeneca’s patent attorneys had suggested to rectify the SPCs.25

8.20 The Court also held that the misleading nature of companies’ representations to patent of- 26 and it is not necessary to demonstrate that a company acted deliberately and in bad faith.27 However, intent can still be relevant as it may be taken into account to support the determination that the company abused its dominance.28 In , the General Court found that AstraZeneca deliberately 29

8.21 Moreover, the General Court indicated that the objectively misleading nature of the repre- case.30 In other words, dominant pharmaceutical companies do not have to be ‘infallible’

20 Case C-457/10P , Judgment of 6 December 2012, nyr, (hereinafter the ‘CJEU judgment’). 21 judgment, para 93. 22 judgment, para 493. 23 CJEU judgment, para 95. 24 judgment, paras 532, 594. 25 Ibid. 26 27 judgment, para 356. 28 judgment, para 359. 29 judgment, para 599. 30 judgment, paras 357, 361. Ibid, para 99.

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in their interaction with regulatory authorities and each objectively wrong representation would not necessarily result in an abuse.31 The benchmark is whether, taking into account exclusive rights to which the dominant company was not entitled, or otherwise wrongly erect regulatory obstacles to competition.32 dominant companies would not be considered to have engaged in abusive conduct simply because a patent application was struck down when challenged.33

Capability of restricting competition 8.22 For the allegedly misleading conduct to infringe Article 102 TFEU, it is enough that, in view of the economic and regulatory context in which they occurred, the dominant company’s representations were capable of restricting competition.34 It is not necessary that a dominant company actually enforced the IP rights granted on the basis of its alleged misrepresenta- tions.35

8.23 Similarly, it does not matter whether the alleged misleading representations actually led to the issuance of exclusive rights granting protection beyond the life of the original patent. grant of such exclusive rights, and that, if those rights had been granted, they would have 36 In , the General Court also pointed out that the company’s alleged misleading representations served solely to prevent generic entry by obtaining SPCs in a manner contrary to the regulatory framework.37

b) Denigration

8.24 Aside from the submission of misleading information to regulatory authorities, the communication of misleading information that denigrates competing products may also violate Article 102 TFEU or the equivalent national competition laws. The French competition discrediting a product or service.38 According to the Authority, denigration can be distin-

31 CJEU judgment, para 99. 32 judgment, para 357. The General Court stressed that the limited discretion of public authorities or the absence of obligation for them to verify the accuracy of the information provided may be relevant factors to take into account to determine whether the practices at issue is susceptible to raise regulatory obstacles to competition (para 357). See also CJEU judgment, para 105-106. 33 CJEU judgment, para 99. 34 judgment, para 376. 35 judgment, para 362. 36 judgment, paras 602, 605. See also CJEU judgment, paras 108-112. 37 judgment, para 608. 38 Aut. conc. Déc. no. 13-D-11 du 14 mai 2013 relative à des pratiques mises en oeuvre dans le secteur pharma- the Paris Court of Appeal.

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guished from criticism in that it originates from an economic operator seeking to obtain a competitive advantage by discrediting its competitor or the products of the latter.39

8.25 The FCA has found that denigration could result from the communication of information to the public that is not objective, incomplete, not nuanced enough, or untrue.40 In particular, a dominant undertaking may be viewed as denigrating competing products or services if: 1. For example, in several cases in which the dominant undertaking alleged that the generic drugs were ineffective and/or potentially dangerous, the FCA considered that the market authorisation granted to the generics demonstrated their bio-equivalence and their effectiveness.41 2. The allegations are not based on facts. For instance, in Arrow Génériques, the Au- thority criticised the fact that the allegedly harmful effects of the generic drug had not been observed in practice, and that its alleged ineffectiveness had not been established.42 3. The company distorts the statement of a public entity. For instance, the Authority found in that the dominant undertaking had distorted a warning of the director of the French Agency for the Safety of Health Products. The Authority held that the warning had been reproduced by the dominant undertaking in an ambiguous and truncated manner.43

8.26 The fact that the allegations made by the dominant undertaking do not fall in any of the the case where the FCA found that the dominant undertaking’s allegations were abusive while the company was only pointing out to the objective differences of competing generic drugs (i.e., the type of clopidogrel salt used in the drugs was different). The Authority decided that:

a product, highlighting not only the qualities but also the differences which in the context of the communication and the conditions under which it is heard, can only be understood as substantial differences, such as to create an objective doubt with regard to the quality of the competing generic product, may indicate a willingness to mislead the health practitioner and amount to an abuse of dominance.44

39 Ibid. 40 Cons. conc., Déc. n° 07-D-33 du 15 octobre 2007 relative à des pratiques mises en oeuvres par la société France Télécom dans le secteur de l’accès à internet à haut débit (hereinafter ‘France Télécom . 41 Cons. conc., Déc. n° 07-MC-06 du 11 décembre 2007 relative à une demande de mesures conservatoires présentée par la société Arrow Génériques (hereinafter ‘Arrow Génériques n° 09-D-28 du 31 juillet 2009 relative à des pratiques de Janssen-Cilad France dans le secteur pharmaceu- tique (hereinafter ‘’), para 131. 42 Arrow Génériques 43 decision, paras 132-135. 44 decision, para 373.

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8.27 The decisional practice of the FCA is controversial, as the distinction between pro-competitive criticism and abusive denigration appears to be very subjective. Further, comparing - additional information which competitors and customers obtain about the products which are being compared or criticised. The competitors whose products are being compared or criticised can use the information which they obtain to compete more effectively on about the different products available on a given market, the easier it is for them to make neo-classical economic theory as being the model under which social welfare is maximised 45 In order to maximise social welfare, it is thus important to allow companies to publicly compare their products to those of competitors.

8.28 This section provides a brief description of the cases before the FCA in which the denigration of generics was found to be abusive and seeks to identify relevant criteria to distinguish pro-competitive criticism from abusive denigration.

i) Overview of cases

8.29 The FCA has held that the denigration of generic products by originator pharmaceutical 46- nance.47 While the Authority accepted that competition requires a certain degree of rivalry, it nevertheless held that this struggle for the conquest of customers does not allow a dominant company to denigrate competing products.48

8.30 Arrow Génériques. that Schering Plough organised a campaign aimed at convincing doctors and pharmacists of the ineffectiveness and the potential danger of generics in order to delay their entry in the market.49 In an interim measures decision, the FCA found that Schering Plough’s allegations were not based on facts, as the marketing authorisation granted to Arrow’s generic demonstrated its bioequivalence and its effectiveness.50 In other words, the FCA considered that the fact that a generic has been granted a marketing authorisation necessarily means that this generic can be safely substituted for the original branded drug. Correspondingly, the FCA found that Schering Plough’s campaign was misleading and likely to constitute an abuse of dominance.51

45 Richard Wish, Competition Law, Oxford University Press, Sixth edition, 2009, pages 4, 7. 46 In certain cases, the French Competition Authority was deciding on a request for interim measures. 47 See Arrow Génériques ‘)’). 48 France TélécomArrow Génériques decision, para 100. 49 Arrow Génériques decision, paras 14-17. 50 Ibid., paras 102 and 104. 51 Arrow Génériques decision, para 107.

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8.31 Janssen Cilag. - sen-Cilag organised a denigration campaign against Ratiopharm’s generic product via press articles, emails, letters and telephone calls, with the aim of convincing doctors and pharmacists of the risks associated with the use of Ratiopharm’s generic drug and the absence of bioequivalence between this drug and the original branded drug.52 Similar to the Arrow Génériques case, in an interim measures decision the FCA held that Ratiopharm’s marketing authorisation showed that its generic drug was bioequivalent.53 The FCA also insisted on the fact that Janssen-Cilag had distorted a warning of the director of the French Agency for the Safety of Health Products.54 The Authority thus found that Janssen Cilag’s conduct was likely to amount to an abuse of dominance.55

8.32 - generics apart from its own enjoyed the same composition as the original branded drug.56 - fessionals from selling or prescribing any generic other than its own.57 argued that it was merely making an objective comparison between the characteristics of its products and those of competitors.58 pointing out to differences between its drug and that of competitors that were irrelevant because they did not have any impact on the bioequivalence or substitutability of the products.59 many health professionals on the possibility to substitute the original branded drug by competing generics.60

ii) Assessment criteria

8.33 In these cases, the FCA has found that denigration amounts to an abuse of dominance only if (1) there is a link between the undertaking’s dominant position and the act of denigrating, (2) the denigration is liable to foreclose competition, and (3) the act is not objectively justi-

The required link between denigration and dominance 8.34 The FCA has made clear that denigration is not abusive per se. Denigration is only abusive

52 decision, paras 26-31, 32-56, 117, 130, and 145. 53 Ibid., para 131. 54 Ibid., para 132-135. 55 Ibid., para 148. 56 decision, para 5. 57 Ibid., para 7. 58 Ibid., para 439. 59 Ibid., paras 450 and 452. 60 Ibid., para 456.

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if there is a link between the undertaking’s dominant position and the act of denigrating.61 In its decisional practice, the FCA has found that there was a direct link between dominance and denigration when “it is the dominant position, including the notoriety and the trust that derive from it, that had allowed the undertaking to render fully effective its strategy of den- market”.62

8.35 General Court clearly held in that:

[a]s far as concerns practices intended to exclude or reduce competition, in order to to result from, or be made possible by, the economic strength of the undertaking, since no causal link is required between the dominant position and the abuse of that position.63

Capability of restricting competition 8.36 The decisional practice of the Authority shows that denigration is only likely to lead to market foreclosure in particular circumstances. An overview of these circumstances is provided below.

8.37 The characteristics of the markets in which denigration takes place. Denigration has only been found abusive in markets which were in the process of opening to competition or which had only recently opened to competition. Denigration has, for instance, been found abusive in network industries following liberalisation, such as the telecommunications,64 postal,65 and energy industries.66 In these markets, the incumbent, as the former monopolist, was considered to have a particularly strong impact on the choice of consumers.67 Similarly, the FCA found that denigration was abusive in markets that saw the arrival of competing generic drugs.

61 Cons. conc., Déc. n° 07-D-33 du 15 octobre 2007 relative à des pratiques mises en oeuvres par la société France Télécom dans le secteur de l’accès à internet à haut débit (hereinafter ‘France Télécom Aut. conc., Déc. n° 09-D-14 du 25 mars 2009 relative à des pratiques mises en oeuvre dans le secteur de la fourniture d’électricité (hereinafter ‘Gaz Électricité de Grenoble decision, para 366. 62 decision, para 578. See also Gaz Électricité de Grenoble decision, para 59. 63 CJEU judgment, para 267. See also Case 6/72 Europemballage Corporation and Continental Can Company Inc. v Commission [1973] ECR 00215, para 27, and Case 85/76 Hoffmann-La Roche v Com- mission [1979] ECR 00461, para 91. 64 See, e.g., France Télécom decision. 65 See, e.g., Autorità Garante della Concorrenza del Mercato, 14 December 2011, A413, Decision n.23065, TNT Post Italia/Poste Italiane, in Boll. 48/2011 (hereinafter ‘Poste Italiane’). 66 See, e.g., Gaz Électricité de Grenoble decision. 67 See, e.g., France TélécomArrow Génériquesdeci- sion, para 574.

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8.38 The characteristics of the denigrated products or services. The denigration of new products is more likely to have a foreclosure effect because customers and intermediaries trust these products less than older products that have already been available on the market for some time. For instance, an original branded drug that has demonstrated its effectiveness a priori assumption.68 By contrast, new generic drugs have not yet been able to prove their effectiveness. Therefore, the denigration of new generics is likely to have a strong impact on the choice of customers and intermediaries such as doctors and pharmacists.

8.39 The denigration of certain types of products such as health-related products is also more likely to affect competition because health is important and customers and intermediaries will be more receptive to allegations that certain products are ineffective or potentially dangerous.69

8.40 - termediaries to evaluate the merits of the allegations made by the dominant undertaking. This would be the case for instance when the denigration concerns the technical aspects of a product,70 or when the merits of the allegations can only be evaluated over a long period of time.71

8.41 The way in which denigration takes place. In several cases, the FCA insisted on the existence of a real communication strategy aimed at denigrating competing products or services.72 dominant undertaking has designed a strategy which it deploys on a large scale by publishing articles in the specialised press, sending numerous letters, making frequent phone calls, organising seminars, using its sales force and its network of wholesalers, etc. This was the case for instance in where the dominant undertaking had --in the FCA’s 73

8.42 The moment at which denigration takes place. The FCA also highlighted in several cases the importance of the moment at which denigration takes place. In the cases involving generic products, the FCA held that the fact that the denigration took place before the commercialisation of the generics was particularly harmful for two reasons. First, the FCA explained that in such case the company launching the generic drug is unable to respond to the denigration because it has not yet launched its commercial action with pharmacists. Second, it held that the rumours cannot be based on defects that have been observed given that the generic drug has not yet been used.74

68 ) decision, para 102. 69 decision, para 344. 70 France Télécom decision, para 351. 71 For instance, patients, doctors and pharmacists can only evaluate the merits of the allegation that a given generic drug is dangerous or less effective after a long period of use. 72 See, e.g., decision, para 444. 73 decision, para 146. 74 Arrow Génériques decision, para 147.

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8.43 The general state of mind of customers or intermediaries. Another very important aspect to determine whether denigration is liable to have a foreclosure effect is the general state of mind of customers or intermediaries. If the customers or intermediaries on a given market already have certain doubts about the quality of the products which are being denigrated, the impact of the denigration is likely to be strong. The FCA insisted on this element in several cases related to generics. This was one of the main reasons why, in the and competing generic drugs was abusive. The FCA pointed out that the impact of this comparison had to be assessed in the light of the fact that a certain number of health professionals who already had doubts about the possibility to substitute original branded drugs by generics.75 fact that health practitioners were increasingly concerned by the risk of being held liable for prescribing an inappropriate drug.76

8.44 As for all other abuses of dominance, the undertaking that is accused of denigrating com- 77 In the - sen Cilag that it is not for a dominant undertaking to substitute itself to a health authority.78 In doing so, the FCA relied on the case-law of the EU Courts which provides that “[i]t is not the task of a dominant undertaking to take steps on its own initiative to exclude products which it regards, rightly or wrongly, as dangerous or at least as inferior in quality to its own products”.79

2. Manipulation of regulatory procedures

8.45 In addition to cases concerning the submission of misleading information, the European Commission and national competition authorities have also held that the manipulation of regulatory procedures to exclude or gain a competitive advantage over competitors or potential competitors does not amount to competition on the merits, and thus constitute an abuse of dominance contrary to Article 102 TFEU.

8.46 found to be abusive in two sets of circumstances: (i) the withdrawal or deregistration of a

75 decision, para 489. 76 decision, para 358. In , the Authority criticised the fact that the dominant undertaking had explicitly referred to the risk of liability for doctors and pharmacists if they were to prescribe or deliver the generic drugs (decision, para 29). 77 Guidance on the Commission’s enforcement priorities in applying Article [102 TFEU] to abusive exclusion- e.g., Case 311/84 Centre Belge d’Études de Marché Télémarketing v CLT and IPB [1985] ECR 03261, [1986] 2 CMLR 558, para 26. 78 decision, para 145. 79 Case T-30/89 Hilti v Commission enforcement priorities in applying Article [102 TFEU] to abusive exclusionary conduct by dominant undertakings, OJ 2009 C45/7, para 29.

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product for the purpose of delaying or hindering generic entry, and (ii) the use of a divisional patent procedure to remedy an earlier mistake and obtain additional SPC protection.

a) Overview of cases

8.47 The common thread in these cases is that dominant pharmaceutical companies are perceived to not be protecting legitimate interests but rather exploiting loopholes in the regulatory procedures in order to harm competitors. These cases are controversial, as the actions are not legal behaviour from abusive conduct.

8.48 On 15 June 2005, the Commission imposed a €60 - and (ii) the deregistration of its marketing authorisations for Losec capsules in Denmark, Norway and Sweden.

8.49 The latter infringement concerned AstraZeneca’s decision to withdraw and deregister its capsule formulation of Losec, its patented anti-ulcer medicine in Denmark, Norway and Sweden, and replace it with a tablet formulation (called Losec MUPS). As a result of the deregistration, generic companies could no longer use an abridged procedure to obtain their own marketing authorisations, thereby delaying entry of generic competition.80 The Euro- pean Commission held that this strategy constituted an abuse.

8.50 81 - sion failed to establish the legal standard applicable to certain impediments to parallel trade. the General Court’s reasoning and holding.82

8.51 When Reckitt Benckiser’s patent for Gaviscon Original Liquid (a treat- by generic suppliers. First, it attempted to delay the publication of a generic designation for Gaviscon Original Liquid by the UK authorities. Second, before the publication of a generic designation, Reckitt Benckiser withdrew and delisted Gaviscon Original Liquid from the NHS prescription channel. Instead, Reckitt Benckiser marketed Gaviscon Advance, a product that had been sold in the UK since 1997 and was patent protected until 2016. As a result, practitioners’ prescribing software would identify Gaviscon Advance when they entered the name ‘Gaviscon’, and would not identify any generics. Practitioners would not be able to issue generic prescriptions relevant to Gaviscon Original but only branded prescriptions

80 The abridged procedure would have enabled generic companies to rely on the technical data submitted by AstraZeneca in relation to the Losec capsules. However, that was no longer the case when the marketing patent protection on Losec’s original drug had expired. 81 Case T-321/05 , Judgment of the General Court of 1 July 2010, [2010] ECR II- 02805 (hereinafter the ‘ judgment’). 82 Case C-457/10P , nyr, (hereinafter the ‘CJEU judgment’).

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relating to Gaviscon Advance. Pharmacies would therefore have no choice but to dispense the Gaviscon Advance patent protected product.

8.52 The OFT found that by withdrawing and delisting Gaviscon Original Liquid, Reckitt Benck- iser abused its dominant position.83 According to the OFT, that course of action tended to restrict competition from generic drugs or was at least capable of having that effect.84 On 15 October 2010, Reckitt Benckiser acknowledged the infringement and agreed to pay a £10.2 85

8.53 In 1994, Pharmacia obtained a patent for latanoprost, the active in- application. Pharmacia later applied for a divisional patent, which the EPO granted in early 86

8.54 In January 2012, the Italian Competition Authority (‘ICA’) imposed imposed a €10.7 mil- products away from the market.87 The ICA argued that this strategy involved the following steps: application for a divisional patent and application for a SPC in Italy solely aimed at - 88

8.55 2012, the Lazio Regional Administrative Court annulled the ICA’s decision on the ground 89 In particular, the court took issue with the ICA’s loose approach in characterising an abuse. The ICA broad strategy to keep generics from the market.90 However, the Italian court stressed that

83 OFT, decision No CA98/02/2011, Abuse of a dominant position by Reckitt Benckiser Healthcare (UK) Limit- ed and Reckitt Benckiser Group plc, 12 April 2011, available on the OFT’s website, at http://www.oft.gov.uk/ claims against Reckitt Benckiser in the UK (see for instance: http://www.theguardian.com/business/2011/ feb/21/reckitt-benckiser-legal-action). 84 Reckitt Benckiser, para 6.156. 85 Press Release, 15 October 2010, ‘Reckitt Benckiser agrees to pay £10.2 million penalty for abuse of dominance’, available at http://www.oft.gov.uk/news-and-updates/press/2010/106-10. 86 87 Italian Competition Authority, decision A431 of 11 January 2012, (hereinafter referred to as the ‘ decision’). 88 decision, para 176. 89 the ‘ judgment’). The ICA has appealed this judgment. 90 See, e.g., decision, paras 83, 84, 220, 221, 223.

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and that the ICA had failed to bring forward evidence to the contrary.91 The Italian Court divisional patent in 2010, as the EPO’s ruling was under appeal at the time of the ICA’s in- 92

b) Assessment criteria

‘Competition on the merits’ 8.56 The EU Courts have acknowledged that it is part of the normal competitive process for a dominant company to determine strategies aimed at minimising the erosion of its sales and dealing with generic competition.93 However, such strategies must not depart from competition on the merits.94 Under EU law, dominant companies are deemed to have a ‘special responsibility’ and therefore cannot misuse regulatory procedures to impair competitor entry.95

8.57 In , the General Court determined that the company’s deregistration of some of its marketing authorisations could not constitute competition on the merits. Indeed, this action did not involve the legitimate protection of an investment that fell within the ambit of competition on the merits because AstraZeneca’s exclusive right to use the results from its pharmacological and toxicological tests and clinical trials had expired.96 Besides, when engage in normal competition as, at the relevant time, it was not standard industry practice to deregister a product for which there was still a commercial market.97

8.58 The OFT similarly found that Reckitt Benckiser’s withdrawal and product switch was not normal competitive behaviour because, except for the prospect of pre-empting generic competition, such strategy would have been loss-making and therefore not commercially rational.98 Further, according to the OFT, a ‘normal life cycle management strategy’ would involve a pharmaceutical company replacing an existing product with one that incorporates innovations valued by practitioners and patients, such that it makes commercial sense to withdraw the original product for which there may then be no residual demand.99 The OFT found that Reckitt Benckiser’s strategy could not be ‘normal’, inter alia because it was not

91 judgment, Section 4.1. 92 judgment, Section 4.1. 93 judgment, para 129. 94 Ibid. 95 Reckitt Benckiser, paras 3.40, 3.42 and 3.49. 96 judgment, para 812. 97 decision, paras 791, 821 and 828. 98 Reckitt Benckiser, para 6.30. 99 Reckitt Benckiser, para 6.58.

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demand) with a new, improved product.100 Rather, the strategy was meant to encourage patients and physicians to switch to Gaviscon Advance, a product that had been marketed Liquid.101

8.59 and Reckitt Benckiser also show that intent matters to distinguish what is competition on the merits from what is not. Although the General Court reiterated that intent is not necessary to characterise an abuse of dominance, which primarily necessitates an objective showing of abusive conduct,102 the General Court did note that intent can be a useful 103 The General Court pointed out that import through deregistering its market authorisations.104

8.60 The OFT also determined that intent can be a helpful tool to determine whether a company has engaged in competition that was not on the merits.105 The UK regulator granted considerable weight to Reckitt Benckiser’s contemporaneous documents, which suggested that ‘the desire to impair effective competition was the key factor’ in the decision to withdraw and delist the original drug.106 This approach is in line with the Commission’s position that direct evidence of a strategy to exclude competitors may be helpful in interpreting a dominant company’s conduct.107

Capability of restricting competition 8.61 In , the General Court stressed that the mere withdrawal of the Losec capsules products. Rather, the withdrawal of the market authorisation for the initial Losec version was the central feature of the abuse because it raised regulatory obstacles to generic entry.108 Likewise, in Reckitt Benckiser, it is the conjunction of the withdrawal and delisting together with certain peculiarities of the UK regulatory and prescription system that was capable of hindering generic competition.109

100 Reckitt Benckiser, para 6.62. 101 Ibid. 102 judgment, para 849. 103 judgment, paras 359, 814, 849. See also: Reckitt Benckiser, paras 3.47 and 3.48. 104 judgment, paras 813-814. 105 Reckitt Benckiser, OFT decision, para 6.3. 106 Reckitt Benckiser, OFT decision, para 6.29. 107 Guidance on the Commission’s enforcement priorities in applying Article [102 TFEU] to abusive exclusionary conduct by dominant undertakings, OJ 2009 C45/7, para 20. 108 judgment, para 140. The General Court also stressed that the fact that AstraZeneca was legally entitled to withdraw its marketing authorisation was immaterial in determining whether it infringed Article 102 TFEU (para 677). Similarly, the fact that generic companies had another avenue to get access to market was immaterial because such alternative was more burdensome and would have taken more time (para 833). 109 Reckitt Benckiser, see, e.g., paras 6.14-6.16.

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8.62 Dominant companies may try to objectively justify the alleged anti-competitive aspects of their product portfolio management strategies. In its Guidance on the enforcement of - strating either (i) that the conduct at stake was objectively necessary, or (ii) that this conduct 110

8.63 In the cases described above the competition authorities and the Courts rejected the objec- - ments in order to justify the withdrawal of marketing authorisations. The General Court rejected this argument stating that AstraZeneca failed to show that maintaining marketing 111

8.64 them was that Gaviscon Advance had safety advantages related to its lower level of sodium in comparison to the original Gaviscon. The OFT found that any such safety advantages could not justify the withdrawal of the original product. This was notably because (i) the older version of Gaviscon was perfectly safe for the vast majority of patients, (ii) practitioners themselves were competent to identify the patients for whom the original product was not suitable, and (iii) Reckitt Benckiser would not have kept marketing the original version of Gaviscon in the OTC channel if there was some concern about the level of sodium.112

8.65 Reckitt Benckiser further argued that the withdrawal of Gaviscon Original was meant to preserve of the NHS prescription channel and (iii) avoid the fraudulent dispensing of OTC Gaviscon Original packs against prescriptions. The OFT found that these arguments were not credible and were instead a means of ‘diverting the focus’ from the actual rationale, i.e., the objective to impede generic competition.113

D. PATENT SETTLEMENTS BETWEEN ORIGINATORS AND GENERIC COMPANIES

8.66 Patents settlements are commercial agreements to settle actual or potential patent-related disputes.114 In its Sector Inquiry, the European Commission noted that patent settlements in the pharmaceutical industry between originators and generics could have anticompetitive

110 Guidance on the Commission’s enforcement priorities in applying Article [102 TFEU] to abusive exclusionary conduct by dominant undertakings, supra, paras 28-31. 111 judgment, paras 685-694. Separately, the General Court noted, in passing, that the company had not demonstrated that the deregistrations were necessary or even useful for the introduction of its Losec tablets (para 812). See also, CJEU judgment, paras 135-138. 112 Reckitt Benckiser, paras 6.92-6.93. 113 Reckitt Benckiser, paras 6.66-6.67. 114 Technical annex to the Commission Communication, Part 1, para 704.

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effects, in particular where the settlement involves a restriction on the ability of the generic supplier to enter the market and a value transfer from the originator to the generic.

8.67 Following the Sector Inquiry, the Commission reopened its on-going case against Lund- beck. Thereafter, the Commission decided that Lundbeck’s settlements with generic suppliers concerning the product citalopram infringed Article 101 TFEU and imposed a €93.8 115 The Commission decided that the settlements involved pay-offs by Lundbeck solely to prevent competition from generic drugs.116 In the Commission’s view, the agreements provided substantial value transfers from Lundbeck to the generic competitors, in the form of direct product stocks for destruction to ensure that generic would stay out of the market.

8.68 In addition to cases, the European Commission has been monitoring patent settlements between originator and generic companies on an annual basis since the sector inquiry. In its patent settlement monitoring report published in July 2012, the Commission stated that - cluded in 2011).117

8.69 In this section we explain the rationale behind patent settlements and discuss the criteria used to distinguish pro- and anticompetitive patent settlements.

8.70 The classic scenario of a patent settlement is when a generic company prepares to market its drug and faces patents that protect the pioneer drug. Instead of waiting for the patent to expire, generic manufacturers may decide to challenge the validity of the patent, take the position that their generics do not infringe the patent, or else simply ignore the patent. Orig- inators and generic manufacturers may then prefer settling their dispute to spending years and extensive resources on litigation.

8.71 The Commission acknowledged that settlements were a generally accepted way to put an end to patent disputes.118 An originator and a generic company may want to settle their dispute for a number of reasons, notably to avoid costly, resource-consuming and lengthy procedures, or to avoid the uncertainty and risks of an adverse outcome.119

115 Commission sends Statement of Objections to Lundbeck and others for preventing market entry of generic antidepressant medicine, 25 July 2012, available at http://europa.eu/rapid/press-release_IP-12-834_en.ht- m?locale=en. 116 According to the Commission, entry was possible since Lundbeck’s basic patent had expired and it only held pharma companies for delaying market entry of generic medicines, 19 June 2013, available at http://europa. eu/rapid/press-release_IP-13-563_en.htm?locale=en. 117 http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent_settlements_report3_en.pdf. 118 Technical annex to the Commission Communication, Part 1, para 707. 119 See Technical annex to the Commission Communication, Part 1, para 707.

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8.72 According to the Commission, the main factor that originators consider to decide whether to settle with generic companies is the strength of their patent, and thus their chance of winning. In contrast, generic companies would consider settling primarily to avoid high litigation costs.120 In reality, things are not necessarily clear-cut, as patent litigation entails a opt to settle because it does not want to take any risk that its patent may be invalidated. In other words, individual incentives to settle are complicated by each side’s individual level of risk-aversion.

2. Relevant criteria to distinguish pro- from anti-competitive patent settlements

8.73 The Lundbeck decision has not yet been published. Nevertheless, initial indications with regard to the criteria that the Commission is likely to apply to patent settlements can be drawn from the Sector Inquiry Report and from the Commission’s reports on monitoring patent settlements.121 Based on these sources, the Commission principally relies on the following two factors: 1. Whether the settlement limits the generic company’s ability to market its own drug. Such limitation can take several forms, including non-challenge clauses, non-compete clauses, licenses by the originator to the generic (the rationale is that the licensing terms allow the originator to at least partly control the generic company’s entry), distribution agreements (i.e., the generic becomes a distributor of the originator’s products), or supply agreements (whereby the generic sources its supplies of active pharmaceutical ingredients from the originator company). 2. generic company. In the Commission’s view, while the most clear-cut form of value transfer is a direct lump sum payment, value transfers can take other forms such as: purchasing the generic company’s stock of products, distribution agreements or side e.g., allows entry pre-patent expiry in another geographic area or with another product marketed by the originator), or licenses to the generic company allowing it to enter the market.

8.74 The Commission considers that patent settlements that do not restrict the generic company’s ability to market its drug are typically unproblematic from an antitrust standpoint.122 Likewise, settlements that limit generic entry but without value transfer should generally be unproblematic, unless (i) they go beyond the exclusionary zone of the patent, or (ii) the originator knows that its patent does not meet the patentability requirements (e.g., because it was obtained upon provision of incorrect, misleading or incomplete information).123

120 See Technical annex to the Commission Communication, Part 1, paras 720-721. 121 See, e.g., European Commission, Third Report on the Monitoring of Patent Settlements (period January-De- cember 2011), published on 25 July 2012, paras 7-9. 122 Third Report on the Monitoring of Patent Settlements, para 12. 123 Third Report on the Monitoring of Patent Settlements, para 13.

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8.75 In contrast, settlements that limit generic entry and provide for a reverse value transfer will be subject to the ‘highest degree of antitrust scrutiny’, although the Commission noted that each such settlement should be analysed on its own merits to determine its conformity with EU competition law.124

8.76 It appears that in the Lundbeck case, the Commission determined that the agreements between Lundbeck and the respective generic companies were anti-competitive by their object, such that there was no need for the Commission to determine that the agreements had anti-competitive effects. The Lundbeck decision signals that the Commission may take a strong stance against patent settlements involving a reverse payment.

8.77 Several parties involved in the Lundbeck case indicated that they would appeal the decision. The key issues on which the EU Courts would have to rule in this case are as follows: 1. Can a patent settlement between an originator and a generic involving a reverse payment be analysed as a restriction by object under Article 101 TFEU? It is questionable whether reverse payment patent settlements can constitute restrictions by object, in particular given the presence of IP rights. Further, the Commission does not appear to consider the pharmaceuticals regulatory framework in Europe, which is such that even if the originator enters into a reverse payment settlement with a generic, this will not prevent other generic companies from entering the market. Avoiding generic entry would effectively require the originator to conclude deals with all potential generic entrants. 2. Can a reverse payment patent settlement infringe EU competition law if the settlement remains within the scope of the patent? It is debatable whether such settlements could fall foul of competition laws given that any exclusionary effect results from the patent rights and not from the settlement.

8.78 It should be noted that the U.S. Supreme Court has recently ruled that reverse payment patent settlements must be analysed under the ‘rule of reason’ test.125 However, the Supreme Court pointed out that a large payment could be a strong indicator that the originator had serious doubts about the validity of its patent.

E. CONCLUSION

8.79 life-cycle management strategies constitute legitimate competition on the merits and which strategies violate EU competition law. While the decisions of the competition authorities during the past three years provide limited guidance with respect to certain strategies, these national and EU courts.

124 See, e.g., Third Report on the Monitoring of Patent Settlements (period January-December 2011), paras 4 and 14. 125 US Supreme Court, FTC vs Actavis, 17 June 2013.

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8.80 Despite the legal uncertainty, however, the EU competition authorities are aggressively im- against Lundbeck, the Commission in 2003 told the Danish competition authority that the settlement agreements at issue fell into a legal ‘grey area’,126 but nevertheless found ten years later in its 2013 decision that the same agreements constituted restrictions of compe- uncertain state of the law is not a valid defense against allegations by a competition authority that a life-cycle management strategy violates EU competition law.

126 Danish Competition Authority and Consumer Authority, Study of Lundbeck, Council meeting on 28 January 2004.

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160 EU Law and LifE SciEncES 9 PRICING OF PHARMACEUTICAL PRODUCTS AND COMPETITION LAW

A. ABUSIVE PRICING PRACTICES 9.02 C. EXPLOITATIVE PRICING PRACTICES 9.85 1. Overview of the case law B. EXCLUSIONARY PRICING PRACTICES 9.03 and the decisional practice 9.87 1. Predatory price-cutting 9.04 2. Excessive pricing cases in the a) Overview of the case law and the decisional life sciences sector 9.96 practice 9.05 b) The Commission’s enforcement priorities D. DISCRIMINATORY PRICING as set out in its Guidance Paper on Article PRACTICES 9.103 102 TFEU 9.12 1. Overview of the case law c) Predatory pricing in the life sciences sector 9.20 and the decisional practice 9.106 2. Above-cost selective price cutting 9.27 a) The application of Article 102(c) 3. Margin squeeze 9.31 to secondary line price discrimination 9.107 a) Overview of the case law and the b) The application of Article 102(c) decisional practice 9.32 to primary line price discrimination 9.109 b) Margin squeeze cases in the life sciences c) The application of Article 102(c) sector 9.36 to geographic price discrimination 9.113 4. Conditional rebates 9.40 2. Discriminatory pricing in the life a) Single-product rebates 9.41 sciences sector 9.114 b) Multi-product rebates 9.68 E. CONCLUSION 9.116 5. Naked restrictions 9.80

9.01 EU and national legislation imposes a number of constraints on the ability of pharmaceutical companies to freely determine the price of their products. In addition to these obligations, pharmaceutical companies that hold a dominant position on a relevant market must abide by Article 102 TFEU which prohibits abuses of dominance. Various pricing practices have been found to be abusive in the case law of the EU Courts and the decisional practice of the Commission. Price-cuts and loyalty-inducing rebates can be abusive. So can exces- sively high or discriminatory prices. Vertically integrated pharmaceutical companies that control an important input are also required to ensure that the prices they charge upstream - stream input (i.e., no margin squeeze). The different types of pricing practices that may be found abusive are discussed in Section B below.

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A. ABUSIVE PRICING PRACTICES

9.02 Article 102 TFEU prohibits three main categories of pricing abuses: exclusionary pricing, exploitative pricing, and discriminatory pricing. Each is reviewed below.

B. EXCLUSIONARY PRICING PRACTICES

9.03 Exclusionary pricing practices are those that may reduce or prevent effective competition by excluding existing or potential competitors. ‘Exclusion’, also referred to as ‘anticom- situation where effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking whereby the - ment of consumers”.1 The various forms of exclusionary pricing practices are examined below.

1. Predatory price-cutting

9.04 level in order to discipline or exclude an existing competitor, or to prevent the entry of a new competitor on the market.

a) Overview of the case law and the decisional practice

9.05 In its seminal Akzo judgment,2 the CJEU adopted the legal standard to be applied in predatory pricing cases. This standard is based on three prongs.

3 9.06 First, prices below average variable costs (Pe < AVC)

no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic (that is to say, those which remain constant regardless of the quantities produced) and, at least, part of the variable costs relating to the unit produced.4

1 Communication from the Commission — Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ 2009 C-45/7 (‘Guidance Paper’), para 19. 2 Case C-62/86 Akzo Chemie BV v. Commission [1991] ECR I-3359.

3 Average variable cost (‘AVC’) is calculated by dividing variable costs by total output. Pe is the price effectively paid by the customer (for instance, the list price minus a rebate). 4 Case C-62/86 Akzo Chemie BV v. Commission [1991] ECR I-3359, para 71.

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5 9.07 Second, prices below average total costs (AVC < Pe < ATC), but above average variable costs, are abusive “if they are determined as part of a plan for eliminating a competitor”.6 undertaking but which, due to their smaller size or resources, are incapable of sustaining the price competition waged against them.

9.08 ThirdPe), it is generally not guilty of predation. As will be shown below under Section B.2, above-cost prices may, in exceptional circumstances, amount to abusive selective price cuts.

Example

The Akzo test can be illustrated by a simple example. Assume that the average total cost of producing drug - less of the amount produced), but it also prices below its variable costs (the costs that vary depending of the amount produced), which means that any additional unit of drug A that is sold will increase its loss. Pursued over an extended period of time, this strategy should lead the manufacturer to shut down its operations. Ac- contrast, by setting the price at 45 €, the dominant manufacturer covers all its variable costs, but also part of additional evidence to demonstrate that a price above AVC but below ATC is abusive, that it is indeed part of a “plan for eliminating a competitor”.

9.09 The Commission has followed the EU Courts’ case law in its decisions. For instance, in Wa- 7- band internet services. The Commission found that France Telecom had priced (i) below AVC at certain periods and (ii) above AVC but below ATC at others. In the latter case, the Commission demonstrated predatory intent. This was not necessary for the former period.

9.10 costs, a different methodology has occasionally been utilised by the Commission. This is important because innovative industries such as the pharmaceutical industry tend to have AVC – and thus not be prima facie predatory – but still be substantially lower than the level de facto predatory. To address the problem, the Commission has used the long-run average incremental cost (‘LRAIC’) benchmark.8 The LRAIC covers all the costs incremental to the production of

6 Case C-62/86 Akzo Chemie BV v. Commission [1991] ECR I-3359, para 72. 7 Commission Decision, 16.07.2003, [2005] 5 CMLR 120. 8 See, e.g., the Commission Notice on the Application of the Competition rules to Access Agreements, OJ Deutsche Post, OJ 2001 L125/27, [2001] 5 CMLR 99.

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9 In cases where the LRAIC benchmark is not met, predation is presumed.10

9.11 Notably, it is not necessary for predatory pricing to be found abusive to provide evidence prices.11 This differs from the more reasonable approach that prevails under U.S. antitrust law.12

b) The Commission’s enforcement priorities as set out in its Guidance Paper on Article 102 TFEU

9.12 Building upon the test, the Commission introduced in its 2009 Guidance Paper a more sophisticated approach to predatory pricing. It explained that it will normally inter- do not outweigh its negative effects on consumer welfare.

9.13 predatory strategy on the part of the dominant undertaking. The Commission considers that

to exclusionary abuses (‘Discussion Paper’), paras 125-126. 10 See DG Competition Discussion Paper on Article 82, para 124. LRAIC is the average of all the (variable each other, and are the same in the case of single product undertakings. If multi-product undertakings have economies of scope, LRAIC would be below ATC for each individual product, as true common costs are not taken into account in LRAIC. In the case of multiple products, any costs that could have been avoided by not producing a particular product or range are not considered to be common costs. LRAIC is usually conduct took place. In its recent judgment in Post Danmark, the CJEU accepted that certain common costs could be taken into account when calculating average incremental costs, (Case C-209/10 Post Danmark v. Konkurrencerådet [2012], nyr, paras 31-34). 11 Case T-340/03 France Télécom v Commission [2007] ECR II-107, para 228. The Guidance Paper also makes it clear that proof of actual recoupment is not required (para 71). The NCAs in some Member States seem to take the opposite position (e.g., France, Hungary, Ireland, Italy). See International Competition Network, ‘Report on Predatory Pricing’, (2008), p. 17, fn. 58 (also available at http://www.internationalcompetition- network.org/uploads/library/doc354.pdf). 12 See Brooke Group Ltd. v. Brown & Williamson Tobacco, (1993) 509 U.S. 209, 224, which states “[recoup- aggregate prices in the market, and consumer welfare is enhanced”.

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13 9.14 First, the Guidance Paper states that pricing below average avoidable cost (Pe < AAC) will be 14 As a result, the Commission suggests applying AAC as a cost benchmark instead of AVC, i.e., the benchmark applied in means it incurs a loss it could avoid by simply halting production. In such a case, the dominant strategy can be presumed. In practice, AAC are often equal to AVC as only variable costs production capacity and invest in additional factories/capacities in order to predate.15 If that is 16

9.15 Second, in order to show a predatory strategy, the Commission may investigate whether the alleged predatory conduct led in the short term to net revenues lower than could have been expected from a reasonable alternative conduct. The Commission will examine only 17 This approach, which expands the current state of the case law, appears rather problematic as it is entirely open-ended. With hindsight, it is easy

9.16 Third, the Guidance Paper states that the Commission may also rely upon direct evidence consisting of documents from the dominant undertaking showing clearly a predatory strategy.18

Market foreclosure 9.17 19 When

question (Pe < AAC- 20

Failure to cover LRAIC (Pe < LRAIC - tor’ could be foreclosed from the market.21 The Commission explains that, in principle, only 22

13 avoided, if the company had not produced a discrete amount of (extra) output. 14 Ibid, para 64. 15 DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses, De- cember 2005, para 108. 16 Ibid. 17 Guidance Paper, para 65. 18 Ibid, para 66. 19 Ibid, para 67. 20 Ibid, para 26. 21 Ibid. 22 Ibid, para 67.

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9.18 principle infer that this conduct is unlikely to adversely impact effective competition, and thus consumers, and is unlikely to intervene.23 If, by contrast, the data suggest that the Commission will integrate this into the general assessment of anticompetitive foreclosure.24 Of particular relevance for the general assessment of anticompetitive foreclosure is (i) the degree of dominance, (ii) the conditions of entry and expansion (e.g., network effects, economies of scale), (iii) the position of competitors (e.g., if the undertaking at risk is a maverick), (iv) the position of customers (e.g., may be of particular importance for the entry of competitors), (v) the extent of the abusive conduct (i.e., the percentage of total sales affected by the conduct), (vi) evidence of actual foreclosure, and (vii) direct evidence of an exclusionary strategy.25

Objective necessity 9.19 It is unclear from the case law of the EU Courts whether below AVC selling may be objec- 26 the CJEU held that pricing below AVC “must always be considered abusive as there is no conceivable economic purpose for it other than the elimination of a competitor”.27 Many authors consider, however, that a domi- e.g., sales promotions, disposal of old stock at the end of the season).28 Several judgments of the CJEU suggest that dominant companies should always be able to demonstrate that their conduct is objective- 29 Similarly, the Commission accepts in its Guidance Paper that it may be shown that predation is objectively necessary and proportionate on the basis of factors external to the dominant undertaking.30 The Commission considers it unlikely that predation the market.31

23 Ibid, para 27. 24 Ibid. 25 Ibid, at para 20. 26 Case C-333/94 Tetra Pak International SA v Commission [1996] ECR I-5951, [1997] 4 CMLR 662. 27 Ibid, at paras 41-42. 28 R. Whish, Competition Law (Oxford, OUP 2009) 732-733. 29 Case C-209/10 Post Danmark v. KonkurrencerådetTeliaSonera Sverige [2011] ECR I-00527, paras 31 and 75. 30 Ibid, paras 28-29. 31 Ibid, para 74.

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c) Predatory pricing in the life sciences sector

9.20 There have been several predatory pricing cases in the pharmaceutical sector. In Napp Pharmaceuticals guilty of charging predatory prices for sustained release morphine to hospitals in the UK.32

9.21 The OFT explained that the market for sustained release morphine was divided into two i.e., patients under the ‘hospital segment’, which comprised hospitals that either purchased by competitive tender organised on a regional basis, or directly from the manufacturer. The OFT found that it community segment of the market directly and to get GPs to prescribe their product instead of Napp’s MST product. It was, in principle at least, much easier for new suppliers to enter the hospital segment of the market. Hence, the hospital segment was an important route for new entrants into the much larger community segment of the market.

9.22 The OFT found that since the expiry of Napp’s MST patent and the arrival of competition, Napp had consistently matched or undercut the prices of competitors in the hospital segment. While the price of MST tablets to the community remained relatively stable, discounts to hospitals increased dramatically over the same period. The OFT relied on the CJEU’s case law which provides that prices below AVC should be regarded as abusive. It considered that in this case, and found that Napp’s prices to hospitals were below such costs.33

9.23 In addition, the OFT went to great lengths to establish that Napp’s conduct was harmful to competition. The most critical argument for the OFT was that Napp increased its share of OFT argued that as “hospital sales are central to establishing the reputation of a new product brand of sustained release morphine in the community segment”, Napp’s pricing in the hos- Overall, the OFT concluded that “Napp’s discount policy impaired competition in at least be greater when taking into account the reputation effect.

9.24 34

32 Case CA98/2/2001 Napp Pharmaceuticals Holdings Ltd. (30.03.2001). See generally, C. Ahlborn/ B. Allan, ‘The Napp Case: A Study of Predation’, (2003) 26 World Competition 233-262. 33 - petitors were able to recover the full price from follow-on sales in the community segment. The OFT argued that Napp’s argument was circular. Napp was able to earn high margin in the community segment precisely because its discount policy in the hospital segment had hindered competition in the community segment (paras 192, 195). 34 Napp Pharmaceuticals Holdings Ltd. v. Director General of Fair Trading [2002] Comp. A.R. 13 (CCAT). See also S. Kon/ S. Turnbull, ‘Pricing and the Dominant Firm: Implication of the Competition Commission Appeal Tribunal’s Judgment in the Napp Case’ (2003) 24 ECLR 70-86.

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whether Napp had a plan or intention to eliminate competition and it proved that such an intention indeed existed.35

9.25 Another example of predatory pricing in the pharmaceutical sector is the French - Kline case in which the French national competition authority (‘NCA’) held that GlaxoSmithKline for injectable acyclovir (Zovirax).36 GSK’s pricing behaviour had taken place in 1999 and 2000 and had led to the eviction of one competitor (Flavelab) from the market. After 2000, GSK had noticeably raised its prices, thus largely recouping the losses recorded during the predation period.

9.26 The decision of the French NCA was, however, overruled by the Court of Appeal.37 The latter judgment was then upheld by the Supreme Court (Cour de Cassation).38 Relying on the case law of the CJEU which held that an abuse can be committed on a market other than the dominated market provided that both markets are closely linked,39 the French Courts found that in this case, the links be-

2. Above-cost selective price cutting

9.27 As explained above, prices that are set above ATC are not, in principle, contrary to Article

9.28 However, one controversial strand of decisions has condemned above-cost selective price - tematically and selectively undercutting the prices charged to certain customers by their competitors with the goal of excluding or deterring the entry of such competitors, although the prices charged remained above ATC.40 This strand of decisions is controversial as such conduct is generally viewed as genuine competition on the merits.

9.29 The EU Courts accepted the Commission’s view that above-cost price cutting may be abusive, albeit only in exceptional circumstances. In the exceptional circumstances were that (i) the maritime transport market is a specialised sector, (ii) (iv) there was evidence of an intention to exclude that competitor from the market and (v)

35 Ibid., paras 228-229 and 334. 36 Dec. no 07-D-09, 14.03.2007, . 37 CA Paris, 2007/07008, 08.04.2008, . 38 Cass. com., no 08/14.503, 17.03.2009. 39 Case T-83/91 Tetra Pak v. European Commission [1994] ECR II-755. 40 Joined cases C-395-396/96 Hilti AG v. Commission [1991] ECR II- 1439, para 100.

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undertakings were able to share losses of revenue among themselves.41 The factual circumstances were similar in the Irish Sugar case.42

9.30 - gozzi clearly stated in Post Danmark:

where the (relatively exceptional) conditions of the Compagnie maritime belge and Irish Sugar the dominant undertaking to drive out a competitor or competitors can be inferred from the circumstances other than offers of selective prices, a selective price reduction must be examined by reference to the costs of the dominant undertaking,43

which means that it will not be abusive when prices are set above ATC. The CJEU agreed in its judgment with the Advocate General’s statement.44

3. Margin squeeze

9.31 its control over an input supplied to downstream rivals to prevent them from competing on

a) Overview of the case law and the decisional practice

9.32 Margin squeeze allegations have arisen in a number of Commission cases. In the Deutsche Telekom case, for instance,45 Deutsche Telekom (‘DT’) was found guilty of a margin squeeze in circumstances where it charged competitors more for unbundled wholesale access than it charged its subscribers for access at the retail level. From 2002, prices for wholesale access were lower than retail subscription for the supply of end-user services. The Commission stated that a margin squeeze would occur where the competing services were comparable and “the spread between DT’s retail and wholesale prices is ”.46 This meant that DT would have been unable to offer its own retail services without incurring a loss, if it had had to pay the wholesale access price as an internal transfer price for its own retail operations. As a consequence, the 47 As pointed out by incumbent does not have to support in providing its own retail services”.48

41 Joined cases C-395-396/96 Compagnie maritime belge transports SA, Compagnie maritime belge SA and Dafra-Lines A/S v. Commission [2000] ECR I-1365, para 119. See also Opinion of AG Fennelly in that case, paras 131-137. 42 Case T-228/97 Irish Sugar v. Commission [1999] ECR II-2969, paras 182-183. 43 Opinion of AG Mengozzi in Case C-209/10 Post Danmark v. Konkurrencerådet [2012] nyr, para 95. 44 below ATC are not necessarily abusive (see below). 45 Commission Decision, 21.05.2003, OJ 2003 L263/9. 46 Ibid., para 140. 47 Ibid., para 102. 48 Ibid., para 141.

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Example

A simple numerical example can illustrate margin squeeze practices. Let us assume that company A is a vertically integrated company that produces an input used to manufacture product A. Company B is only active in the downstream market and requests access to the input in order to produce product B. Products A and B compete in the downstream market. Company A charges 5 € for the input and 8 € for product A.

In this case the spread between company A’s wholesale and retail prices is not negative (8 € - 5 € = 3€). downstream costs. There will be a margin squeeze if company A’s downstream costs are above 3 €. Indeed, in the downstream market.

9.33 More recently, in Telefónica,49 the Commission assessed whether the margin between the wholesale prices that Telefónica charged to its competitors for wholesale broadband access in Spain and the retail prices it charged to end-users was too low to enable Telefónica’s competitors to compete in the broadband retail market.50 Based on a detailed analysis, the Commission decided that margin squeeze was indeed present and capable of foreclosing competition in the retail market, and harmed consumers. As there was no objective justi- infringed Article 102 TFEU.

9.34 One of the most interesting questions at stake in Telefónica was whether, to prove the existence of a margin squeeze in breach of Article 102 TFEU, the Commission had to demonstrate that access to Telefónica’s DSL network was ‘essential’ to its competitors to provide retail broadband services. The question arose because a margin squeeze is nothing less than a ‘constructive’ refusal to supply,51 and a refusal to supply is abusive only if the input 52 to which access is sought is essential. Despite the similarities between a ‘refusal to supply’ and a ‘margin squeeze’, the Commission found that it was not necessary to prove that 53 Telefónica’s DSL network was essential to compete on the retail broadband market.

9.35 Whether the ‘essentiality’ of the upstream input must be demonstrated in margin squeeze cases was recently addressed in the TeliaSonera judgment of the CJEU.54 While the CJEU found that essentiality need not be demonstrated in a margin squeeze case,55 it nonethe- less held that “when assessing the effects of the margin squeeze, the question whether the

49 Commission Decision, 04.07.2007, OJ 2008 C-83/5. 50 Ibid., para 5. 51 While access to the requested input is not formally refused, the price at which the input is sold does not allow 52 See, e.g., C-7/97 Oscar Bronner v Mediaprint [1998] ECR I-7791, [1999] 4 CMLR 112, para 40. 53 The Commission’s decision was upheld on appeal in Joined Cases T-336/07 and T-398/07 Telefónica and Telefónica de España v Commission and Spain v Commission, [2012] nyr. 54 Case C-52/09 TeliaSonera Sverige [2011] ECR I-00527. 55 Ibid., paras 55-56.

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wholesale product is indispensable may be relevant”.56 The CJEU stated that “in order to establish that a pricing practice resulting in margin squeeze is abusive, it is necessary to demonstrate that, taking into account, in particular, the fact that the wholesale product is indispensable, that practice produces, at least potentially, an anti-competitive effect on the ”.57 The position of the CJEU i.e., the refusal by the than the test for a margin squeeze (i.e., where access is authorised but only at a price that is (margin squeeze).

b) Margin squeeze cases in the life sciences sector

9.36 Margin squeeze abuses have also been condemned in the pharmaceutical sector. For instance, in the Genzyme case, the OFT concluded that Genzyme Limited (‘Genzyme’) had abused its dominant position in the market for the supply of Cerezyme (a drug for the treat- 58

9.37 Cerezyme is the main drug for the treatment of Gaucher disease. The drug was taken approximately by 190 patients in the UK and was usually administered at home with the assistance of trained medical staff. For more than ten years, HealthCare at Home Ltd (‘HH’) had an exclusive contract with Genzyme for the delivery and home care associated with Cerezyme. However, in May 2001, Genzyme established its own in-house delivery and home care services and bundled it with the supply of the drug.

9.38 The OFT’s decision concluded that there were two relevant markets: one upstream market and delivery in general. Genzyme was found to be dominant in the upstream market with which was served by several providers. The OFT found that through the creation of the bundle, Genzyme was abusing its dominance in the upstream market. By selling the bundle at the same price as the standalone drug, Genzyme was effectively eliminating homecare service providers from the downstream market, because they had no margin with which to compete.

9.39 The CAT fully shared the analysis of OFT:

In those circumstances, it is likely to be wholly uneconomic for other homecare service providers to provide homecare services at no effective margin between [Gen- zyme’s] buying and selling price of Cerezyme. We therefore accept that Genzyme’s pricing policy constitutes a margin squeeze. We also accept that no undertaking,

56 Ibid., para 69. 57 Ibid., para 77. 58 OFT Decision 27 March 2003, Case C-A98/3/03. Genzyme appealed against the decision of the OFT. The CAT allowed the appeal in part, accepting Genzyme’s claims in relation to other abuses, but upheld the OFT , Case No 1016/1/1/03 [2004] CAT 4).

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in the downstream supply of homecare services.59

4. Conditional rebates

9.40 Conditional rebates cover different incentive schemes granted by a supplier to its customers or distributors/retailers provided that the latter’s purchases or sales achieve or exceed certain thresholds of volume targets, percentages of total requirements or increase in purchases.61 Although the case law of the EU courts generally refers to several different concepts, all belong to the broader category of conditional rebates. Within the broader category of conditional rebates, distinctions are also drawn between single-product and multi-product rebates, as explained below.

a) Single-product rebates

9.41 Over the last thirty years, the EU courts adopted a number of important judgments addressing the compatibility of rebates with Article 102 TFEU. Many of these judgments of the dominant undertaking. Single-product rebates are distinguished from multi-product rebates, where the discount is made conditional upon purchasing several different products.

9.42 In Hoffman–La Roche 62 agreements’. Under these agreements, the company paid a rebate to those customers who had obtained all or most of their requirements from Roche, calculated on vitamin total purchases. The amount of the rebate differed from customer to customer and typically varied conditional on the customer’s obtaining all or most of its requirements—whether the quantity of its purchases be large or small,” it violates Article 102 TFEU.63 The CJEU distin- unlike quantity rebates exclusively linked with the volume of purchases from the producer obtaining their supplies from competing producers”.64

59 , Case No 1016/1/1/03 [2004] CAT 4, paras 549-555. 60 Ibid., paras 576-623. 61 - ditional rebates are rebates granted to customers to reward them for a particular form of purchasing behaviour”). 62 Case 85/76 Hoffman- La Roche & Co v. Commission [1979] ECR 461. 63 Ibid., para 89. 64 Ibid.

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9.43 Another important judgment of the CJEU is Michelin I, in which Michelin offered its dealers an annual variable discount based on the dealer’s turnover in Michelin heavy vehicle, van and car tires in the previous year. The dealer received the discount only if he achieved an annual sales target set by Michelin. Neither the discount system as a whole nor the scale discussions. The Commission concluded that this discount scheme violated Article 102,65 and Michelin appealed the decision to the CJEU.

9.44 The CJEU observed that the rebate in question, which was characterised by the use of sales Hoffman–La Roche ‘volume/quantity’ rebates. In deciding whether Michelin committed an abuse, the CJEU said it was necessary:

to consider all the circumstances, particularly the criteria and rules for the grant of the discount, and to investigate whether, in providing an advantage not based on any economic service justifying it, the discount tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties or to strengthen the dominant position by distorting competition.66

Applying this approach, the CJEU determined that the discount systems based on a long reference period, such as the one year period used by Michelin, had “the inherent effect, needed to obtain the discount or to avoid suffering the expected loss for the entire period”.67

9.45 The CJEU also found that, due to the retroactive nature of Michelin’s discount system, “the variations in the rate of discount over a year as a result of one last order, even a small one, tires”.68 Hence, even slight variations could put dealers under appreciable pressure. The CJEU further criticised the lack of transparency of Michelin’s discount system because its rules changed on several occasions during the relevant period. Moreover, neither the scale of discounts nor the sales targets or discounts relating to them were communicated in writing to dealers, which meant that they could not predict the effect of attaining their targets or failing to do so. The CJEU concluded that:

all those factors were instrumental in creating for dealers a situation in which they were under considerable pressure, especially towards the end of a year, to attain Mi- chelin’s sales targets if they did not wish to run the risk of losses which its competitors could not easily make good by means of the discounts which they themselves were able to offer.69

65 Commission Decision, 07.10.1981, - trie Michelin, 66 Case 322/81 NV Nederlandsche Banden Industrie Michelin v Commission (Michelin I) [1983] para 14. 67 Ibid., para 81. 68 Ibid. 69 Ibid., para 84.

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9.46 In a second case against Michelin (Michelin II), the GC reemphasised that quantity rebate considered not to have the foreclosure effect prohibited by Article 102 TFEU. If the supplier is able to reduce its costs by increasing the quantity supplied, it is entitled to pass on that reduction to the customer in the form of a lower price. When the rate of the discount increases according to the volume purchased, a rebate will not infringe Article 102 TFEU “unless the criteria and rules for granting the rebate reveal that the system is not based on an - ty and target rebate, to prevent customers from obtaining their supplies from competitors”.70 The approach followed by the GC is therefore quite restrictive as quantity rebates will only comply with Article 102 TFEU provided that the amount of the rebate is directly linked to the cost savings achieved thanks to the greater volume of supply.

9.47 The GC also rejected the argument made by the applicant in Michelin II that the Commis- sion should have carried out a detailed analysis of the effects of the rebates in question. The other words, that the conduct ‘is capable of’ having that effect.

9.48 Contrary to the formalistic case-law of the EU Courts, the Commission adopted a more effects-based approach to conditional rebates in its Guidance Paper, distinguishing between incremental and retroactive rebates.

Incremental rebates 9.49 An incremental rebate is a conditional rebate that is available only to incremental purchases above the threshold set by the dominant seller. Incremental rebates are subject to an assessment that is largely similar to the predation test. As long as the effective price remains - stances the rebate is usually not capable of foreclosing rivals in an anti-competitive way.71 Where the effective price is below AAC, as a general rule the rebate scheme is capable of 72 Where the effective price is between AAC and LRAIC, the Commission will investigate whether other factors point to the conclusion 73

9.50 As in the case of a traditional predation test, it must also be demonstrated that (i) a sub- II.A.1.2)).

70 Case T-203/01 Manufacture française des pneumatiques Michelin v. Commission (Michelin II) [2003] ECR II-4071, para 59. 71 See Guidance Paper, para 43. 72 Ibid., para 44. 73 Ibid.

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Retroactive rebates 9.51 A retroactive rebate applies to all purchases below and above the threshold once the latter is exceeded. Retroactive rebates are subject to a much more complicated ‘suction effect’ test.74

9.52 Once dominance is found on a relevant market, to establish an anticompetitive effect, it -

9.53 Before turning to the legal test applied by the Commission in its Guidance Paper, it is useful to consider the underlying competition concern. In order to do so, it is essential to explain how retroactive rebates operate. Let us assume that a dominant supplier sells to a particular company. The supplier has an assured base of sales to that customer because, for a portion of the customer’s demand, there are no adequate substitutes.75 These sales represent the non-contestable share of that company’s demand. The portion of the customer’s demand for which substitutes are available represents the contestable share of that customer’s demand.76 The dominant supplier offers the customer a retroactive rebate. This rebate applies to all the quantities sourced over a determined reference period and is activated when the customer’s purchases exceed a certain threshold within that reference period.77

9.54 The competition concern is that when the non-contestable part (‘NC) of the customer demand in question is large as compared to the contestable part (‘C’), the retroactive rebate may enable the dominant supplier to leverage its position of strength in the non-contestable part to the contestable part of its customer’s demand. Indeed, while the dominant supplier can recoup the rebate on its total sales, both contestable and non-contestable, competing suppliers will have to recoup any rebate they grant over a smaller base represented by the contestable part. This retroactive rebate scheme could thus have the effect otherwise be contestable.

9.55 In this context the Commission will estimate what price a competitor would have to offer in order to compensate the customer for the loss of the conditional rebate if the latter would switch part of its demand away from the dominant undertaking. The effective price that the competitor will have to match is not the average price of the dominant undertaking, but the normal (list) price less the rebate the customer loses by switching, calculated over the contestable portion of sales and in the relevant period of time.78

74 additional volumes becomes negative. This the so-called ‘suction effect’”. See S. Bishop/ M. Walker, The Economics of Competition Law (Sweet and Maxwell, 2010), p. 258. 75 See Discussion Paper, para 143. 76 Ibid, para 156. 77 Ibid, para 152. 78 Guidance Paper, para 41.

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9.56 The contestable part of the customer demand over which the effective price is to be how much of a customer’s purchase requirements can realistically be switched to a competitor in the market context. If customers are willing and able to switch large amounts of demand to a (potential) competitor relatively quickly, the contestable share is likely to be relatively large. If, on the other hand, customers are only willing or able to switch small amounts incrementally, then the contestable share will be relatively small. For in those sales over time may also provide an indication of the contestable portion. For potential competitors, an assessment of the scale at which they could potentially enter the market must be undertaken. It may be possible to take the historical growth pattern of new entrants in the same or in similar markets as an indication of a realistic market share of a new entrant.79

9.57 The lower the estimated effective price over the contestable part of the customer demand is compared to the average price of the dominant supplier, the stronger the loyalty-enhancing effect. However, as long as the effective price remains consistently above anticompetitive foreclosure. By contrast, where the effective price is below AAC, the Where the effective price is between AAC and LRAIC, the Commission will investigate whether other factors support the conclusion that entry or expansion even by equally ef- to what extent competitors have realistic and effective counterstrategies at their disposal, such as their capacity to also use a ‘non-contestable’ portion of their buyers’ demand as leverage to decrease the price for the relevant range. Where competitors do not have such counterstrategies at their disposal, the Commission will conclude that the rebate 80

79 Ibid, para 42. 80 Ibid, paras 43 and 44.

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Example

A simple numerical example can clarify the test. Suppose that Customer A will always buy that are available only from the dominant pharmaceutical supplier, so the as- A sured base or the non-contestable share is Q NCS . But the customer’s total demand A Q T and the remaining - A plier or one of its competitors. Thus the contestable share Q CS. The AAC = The LRAIC The dominant supplier offers the following pricing scheme. The customer pays if it

buys any quantity less than 100 units. So PBefore RebateBut if the customer buys 100 units it receives a rebate R worth € 120 in total, or for each of the 100 units bought

in total. PAfter Rebate To determine whether there is a suction effect, the Guidance

Paper requires the calculation of the effective price, Pfor the units that belong to the contestable share and see whether this price is lower to the dominant’s supplier LRAIC.

PBefore Rebate = 4 €/Unit

PAfter Rebate = 2.8 €/Unit = 4€/Unit – 1.2 €/Unit Contestable share C = 50 Units

TotalWith rebate = 100 x 2.80 € = 280 €

TotalWithout rebate = 50 x 4 € = 200 €

TotalWith rebate - TotalWithout rebate = 280 € - 200 € = 80 € is being paid for the last 50 contestable units

The effective price (Pe) over the last 50 = 80 € / 50 = 1.6 €

As AAC < Pe

9.58 The Guidance Paper also states that it is important to consider whether the rebate system is applied with an individualised or a standardised threshold. An individualised threshold—one based on a percentage of the total requirements of the customer or an individualised volume target—allows the dominant supplier to set the threshold at a level such as - ty enhancing effect. By contrast, a standardised volume threshold—where the threshold is the same for all or a group of customers—may be too high for some smaller customers and/or too low for larger customers to have a loyalty enhancing effect. If, however, it can be established that a standardised volume threshold approximates the requirements standardised system of rebates may produce anti-competitive foreclosure effects.81

9.59 Price-cost tests are useful to determine whether the rebates in question can foreclose overcome. But the fact that a given rebate regime fails the price-cost test does not end the assessment. The next stage in the inquiry is to determine whether these customers represent a substantial share of the market to which such rivals can turn, depriving them 82

81 Guidance Paper, para 45. 82 See Ibid, para 27: “If […] the data suggests that the price charged by the dominant undertaking has the poten- anticompetitive foreclosure […]”.

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9.60 - ment of market foreclosure: (i) the degree of dominance, (ii) the conditions of entry and expansion (e.g., network effects, economies of scale), (iii) the position of competitors (e.g., if the undertaking at risk is a maverick), (iv) the position of customers (e.g., if the dominant - tors), (v) the extent of the abusive conduct (i.e., the percentage of total sales affected by the conduct), (vi) evidence of actual foreclosure, and (vii) direct evidence of an exclusionary strategy.83

9.61 A dominant undertaking may also justify its conduct either by demonstrating that it is ob- 84 With rebate systems achieve cost or other advantages which are passed on to customers. Transac- tion-related cost advantages are often more likely to be achieved with standardised volume targets than with individualised volume targets. Similarly, incremental rebate schemes are in general more likely to give resellers an incentive to produce and resell a higher volume than retroactive rebate schemes.85

9.62 Some of the criteria outlined in the Guidance Paper were applied in the Intel decision.86 However, the Commission has not yet fully embraced the new test. It continues to also rely on the case law of the EU Courts, according to which loyalty rebates are caught by Article 102 TFEU, when they are capable of having foreclosure effects. In the recent judgment in Tomra, the GC reiterated that the Commission is not required to show any actual effects on competition.87 The result is an “effects based per se rule”.88 89

9.63 One of the cases where single-product rebates have been examined by an NCA in the life-sciences sector is Abbott, which applies the rather formalistic case law of EU Courts.90 This does not come as a surprise, given that the decision well predates the publication of the 2009 Guidance Paper.

83 Ibid, para 20. 84 Ibid, para 28. 85 Ibid, para 46. 86 Commission Decision, 13.05.2009, Intel, OJ 2009 C-227/13. 87 Case T-155/06 Tomra Systems [2010] ECR II-04361, para 219. 88 L. Kjølbye, ‘Rebates and competition law: An overview of EU and national case law’ (2012) e-Competitions, No. 41936. 89 Unsurprisingly, the dual approach to single-product rebates at EU level has fostered inconsistent application at national level. Some national courts and competition authorities analyse effects to a greater or lesser extent before deciding whether to prohibit loyalty rebates under Article 102 TFEU and/or national equiva- lents. Others reject this approach and apply the strict test of the EU Courts. For instance, see French NCA, Decision no 09-D-04, Messageries Lyonnais de Presse v Nouvelles Messageries de la Presse Parisienne (for an effects based approach)while the Dutch NCA (LJN BN9947, CRV Holding BV v Nma) insisted on a per se approach. 90 See Déc. no 01-D-23, 10.05.2001.

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9.64 In 1993, Abbott proposed to CAHP (Private Hospital Purchasing Syndicate) and CACIC - companies. When a quantity threshold was exceeded, a discount was granted. In addition, CLUB H, another purchasing syndicate, was offered a discount based on overall quantities purchased.

9.65 The French NCA indicated that the above discounts effectively amounted to exclusive purchasing for CAHP, CACIC and CLUB H. Given that Abbott had a dominant position in the

9.66 Abbott argued that the rebate schemes had no loyalty enhancing effect. First, the purchasing syndicates had no power to commit their members (e.g., in 1993, Abbott lost CLUB H members’ clients and a lot of CACIC and CAHP members). Second, one of Abbott’s competitors

9.67 However, the NCA indicated that even when rebate schemes did not lead to actual distor- tions of competition, they still had potential anticompetitive effects. The investigation also showed that in 1993 all of CAHP members continued to purchase from Abbott and that they had signed an exclusivity contract for 1994/1995. In addition, all of CACIC members, except for one, purchased exclusively from Abbott. In such circumstances and because these argument that those practices did not produce any effect was rejected. The NCA concluded that the rebate scheme to CAHP and CACIC had as its object and potentially as its effect to deter certain purchasers from obtaining their supplies from a competing supplier entering the market (e.g., generic producers entering in 1993/1994). By contrast, discounts offered to CLUB H did not have any loyalty inducing effect because they were strictly based on

b) Multi-product rebates

9.68 Multi-product rebates (also referred to as bundled rebates, or mixed bundling) consist in making products jointly available at a discount to the price that would be charged if they were purchased separately.

9.69 In Hoffmann-La Roche, the CJEU held that ‘across-the-board’ rebates granted to its cus- tie-in in breach of Article 102 TFEU.91 The CJEU, as well as the Commission in its early decisions, seem to have taken the strict view that mixed bundling is per se contrary to Arti- cle 102 TFEU, absent cost-savings attributable to the bundle.92

9.70 - proach. This effects-based assessment requires identifying: (i) evidence that the practice is

91 Case 85/76 Hoffmann-La Roche & Co. AG v. Commission [1979] ECR 461, para 111. 92 See Commission Decision 92/163/EEC of 24 July 1991, OJ L 72, Case IV/31043 Tetra Pak II , para 174.

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9.71 A multi-product rebate may be anti-competitive on the market for any of the bundled prod- cannot compete against the discounted bundle.94

9.72 The best way to analyse the effect of the rebate would be to determine whether the incremental revenue generated by each product in the dominant undertaking’s bundle covers its incremental costs. Assessing the incremental revenue is, however, complex. Therefore, the Commission will use the incremental price as a proxy in most situations. If the incremental price that customers pay for each of the dominant undertaking’s products in the bundle may, however, be warranted if the incremental price is below the LRAIC of including the expanding or entering.95

Example

This test can be illustrated through a simple numerical example. Assume that a dominant pharmaceutical company sells two products, X and Y. Product X is only offered by the dominant company, but Product Y rivals. Customer A will always buy from the dominant company, so A this company has an assured base of 50 units (QX NCSBut the customer also has A a demand for Y CS, and these sales could be contested LRAIC of producing one unit of X and Y is the same, i.e., . The dominant company offers the following multi-product rebate scheme: the customer pays for

either product if they buy any aggr gate quantity less than So PBefore Rebate Units. But if they buy they are given a rebate worth in total, or for each of the

units of product (either X or Y). So PAfter Rebate The effective price (Pe) over

the 50 contestable units of As Pe < LRAIC, the rebate creates a suction effect.

9.73 If the evidence suggests that competitors of the dominant undertaking are selling identical bundles, or could do so in a timely way without being deterred by possible additional costs, the Commission will generally regard this as a bundle competing against a bundle. If so, the relevant question is not whether the incremental revenue covers the incremental costs for each product in the bundle, but rather whether the price of the bundle as a whole is predatory.96

93 Guidance Paper, paras 50 and 62. 94 Guidance paper, para 59. 95 Ibid, para 60. 96 Ibid, para 61.

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9.74 competitors, the Commission will integrate this into the general assessment of anticompetitive foreclosure, taking into account the following elements: (i) the degree of dominance, (ii) the conditions of entry and expansion (e.g., network effects, economies of scale), (iii) the position of competitors (e.g., if the undertaking at risk is a maverick), (iv) the position of customers (e.g.,- tance for the entry of competitors), (v) the extent of the abusive conduct (i.e., the percentage of total sales affected by the conduct), (vi) evidence of actual foreclosure, and (vii) direct evidence of an exclusionary strategy.97

9.75 A dominant undertaking may justify its conduct either by demonstrating that its conduct - cies.98- ings that their tying and bundling practices may lead to savings in production or distribution reduce transaction costs for customers. It may also examine whether combining two independent products into a new, single product might enhance the ability to bring such a purchase of large quantities of the tied product.99

9.76 Following the formalistic approach followed by the CJEU, NCAs have often taken decisions that consider bundled rebates to be anti-competitive per se dominant undertakings offering the rebate.

9.77 For instance, in 2003, the French NCA (Authorité de la Concurrence) imposed a EUR 7.8 100 San- doz was manufacturing and marketing two proprietary medicinal products, Sandimmun and Néoral, which were both patented and based on the same active substance, cyclosporin. They were prescribed in hospitals in anti-rejection treatment for organ and bone marrow transplants. During 1994-1997, Sandoz granted university hospitals (CHU) discounts in the purchase price of Sandimmun and Néoral, on condition that the hospital also purchases other Sandoz products (e.g., Vepeside, Sandocal, Miacalcic, Loxen, Icaz, Leponex, Parlodel). The NCA found that Sandoz had a dominant position in the market for cyclosporin and was abusing it to foreclose competitors in the markets for other pharmaceutical products. An appeal against the NCA decision was heard by the Paris Court of Appeal, but was rejected.101 The judgment of the Court of Appeal was unsuccessfully attacked before the Supreme Court of Appeals (Cour de Cassation).102

97 Ibid, para 20. 98 Ibid, para 28. 99 Ibid, para 62. 100 See Déc. no 03-D-35, 24.07.2003. 101 See CA Paris, 1èr ch., 30.03.2004. 102 See Cass. com., No. 04-13.910, 28.06.2005, annotated at Concurrences 4/2005.79-82.

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9.78 The French NCA had dealt with a similar case in 1996.103 Following a general enquiry on the practices employed by hospitals for the purchase of pharmaceuticals, the NCA examined the sales of Dobutrex by Lilly. The company was providing hospitals with a discount on the prices of Dobutrex, only if they bought another Lilly product, Vancocine. The NCA considered that Lilly was dominant in the market for Dobutrex because the product enjoyed patent protection and was an antibiotic and cardio-stimulant without substitutes. It then found that Lilly was abusing its dominance by offering rebates to Dobutrex, only when purchased in a bundle with Vancocine, whose active substance vancomycine was not patent-protected any more. The NCA again followed a per se approach to bundled rebates. Lilly France lodged an appeal before the Paris Court of Appeal attacking the conclusions on dominance and not on abuse. The Court of Appeal rejected Lilly’s claims.104 before the Cour de Cassation, which was also rejected.105

9.79 The Cypriot NCA adopted an approach that is more in line with the Commission Guid- ance Paper in its Decision Wyeth Hellas and Phadisco Ltd.106 and Phadisco Ltd were offering a free quantity of Meningitec (meningococcal vaccine) with complaint made by a competitor, the NCA found that the two companies had a dominant position in the market for Prenevar, which they were using to promote Meningitec. Although the NCA found an abuse effectively on the basis of a per se approach, it took into account the position of competitors in the market and the existence of actual foreclosure effects competitors in the market for meningococcal vaccines, which even increased their market shares despite the bundled rebate schemes of Wyeth and Phadisco. It was also added that the exit of one competitor from the market could not be reasonably linked to the Wyeth and Phadisco’s conduct because it occurred 3 years later. The NCA implicitly accepted those for Phadisco Ltd.

5. Naked restrictions

9.80 The Commission coined the term ‘naked restriction’ in its recent Intel decision.107 Naked restrictions constituted payments made by Intel to customers inducing them to either delay or cancel the launch of competing products. The scope of naked restrictions was more arrangements were longer in term and covered at least entire business segments.108

103 See Déc. no 96-D-12, 05.03.1996. 104 105 See Cass. com., no 97-15.185, 15.06.1999. 106 Cypriot NCA Decision 14/2009, 19.05.2009. 107 Commission Decision, 13.05.2009, Intel, OJ 2009 C-227/13. 108 Ibid, para 1642.

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9.81 The Commission adopted a legal standard close to the per se prohibition of naked restrictions in stating that:

In each case, Intel paid the OEMs to delay, cancel or otherwise restrict the commercialisation of the planned AMD-based products. In each case, Intel’s conduct had a material effect on the OEMs’ decision-making in that they delayed, cancelled or otherwise restricted their commercialisation of the AMD-based computers. […] Furthermore, there is no link between the conducts and any criterion which could - 109

9.82 The Commission concluded as follows:

In the light of the above, Intel’s conduct of making the grant of payments to HP, Acer and Lenovo subject to restrictive conditions concerning the commercialisation of AMD-based products therefore constitutes recourse to methods different from those governing normal competition and are therefore abuses of a dominant position under Article [102] of the Treaty and Article 54 of the EEA Agreement.110

9.83 The same legal standard of per se prohibition appears to have been endorsed in the Guid- ance Paper:

There may be circumstances where it is not necessary for the Commission to carry out a detailed assessment before concluding that the conduct in question is likely to result in consumer harm. If it appears that the conduct can only raise obstacles to - ferred. This could be the case, for instance, if the dominant undertaking prevents its to its customers on condition that they do not test such products, or pays a distributor or a customer to delay the introduction of a competitor’s product.111

9.84 In the life sciences sector, patent settlements and other agreements between originator and generic companies could potentially be assimilated to naked restrictions. For instance, in its 2008 inquiry, the Commission established that between 2000 and 2008, more than 200 transfer from the originator company to the generic company. Direct payments from originator companies to generic companies featured in more than 20 settlement agreements and exceeded € 200 million. A detailed analysis of patent settlements is provided in Chapter 8.

109 Ibid, paras 1678 and 1680. 110 Ibid., para 1681 (emphasis added). 111 Guidance Paper, para 22 (emphasis added).

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C. EXPLOITATIVE PRICING PRACTICES

9.85 imposing unfair purchase or selling prices or other unfair trading conditions” and which 112

9.86 While exclusionary abuses are essentially concerned about anti-competitive low prices, exploitative abuses are concerned with prices that are unfair because they are too high. Unlike exclusionary prices, exploitative prices do not harm competitors (and then in the longer run consumers), but directly hurt consumers.

1. Overview of the case law and the decisional practice

9.87 The criteria for assessing whether a price is ‘unfair’ within the meaning of Article 102 TFEU were established in the seminal United Brands ruling. The CJEU held that a price is deemed ‘excessive’ when “it has no reasonable relation to the economic value of the product supplied”.113 The CJEU adopted a two-stage approach for determining whether a price is 1. “[Examine w]hether the difference between the costs actually incurred and the price 2. been imposed which is either unfair in itself or when compared to competing products”.114

9.88 Unfortunately, subsequent case law of the CJEU has not offered additional guidance in relation to these two conditions. For a long time, the Court had seemed to abandon the United Brands two-part test, and favour a more ‘integrated’ approach based on various benchmarks. 115 In a second

112 - istrable Legal Rules’ (2005) 1 JCLE 97-122. 113 See Case 27/76 United Brands Company and United Brands Continentaal BV v. Commission [1978] ECR- 207, para 250. See also para 251 (“This excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost 114 Ibid., para 252. 115 See Case 110/88 Lucazeau and others v. SACEM and others [1989] ECR-2811 para 25 (“When an undertaking holding a dominant position imposes scales of fees for its services which are appreciably higher than those charged in other Member States and where a comparison of the fee levels has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position”). See also Case 30/87 Corinne Bodson v. SA Pompes funèbres des régions libérées [1988] ECR-2479 (to determine whether prices are unfair, “[I]t must be possible to make a comparison between the prices charged by the group of undertakings which hold concessions and prices charged elsewhere”). This test had already been implicitly referred to in Case 78/70 Deutsche Grammophon v. Metro SB [1971] ECR-487.

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strand of cases, the Court undertook to make comparisons between the prices charged by the 116

9.89 However, the most recent pronouncement of the Commission in Scandlines Sverige AB suggests that the two-part test espoused in United Brands remains the relevant analytical framework to assess excessive pricing.117 two conditions of the United Brand test are cumulative rather than alternative.

9.90 United Brands standard, which requires a determination of “whether the difference between the costs actually incurred and the price actually First, deciding which of the domi- Second, even value of the product/service in question. However, much greater margins can be observed

9.91 United Brands test focuses on a price-cost comparison to determine the excessiveness of a price, the second part of the test suggests the need to benchmark prices. As discussed below, the various benchmarks that have been applied by the Commis-

9.92 In British Leyland, the CJEU undertook a comparison between the prices of the dominant 118 The considered them abusive. In that case, it was manifest that the increase in fees was not jus-

116 See Case 226/84 British Leyland Public Limited Company v. Commission [1986] ECR-3263at paras 27-28 (where the Court restated – along the lines of the United Brands language – that a price is excessive where it is “disproportionate to the economic value of the service provided”. However, the Court concluded that the was not proportionate to the minimal cost differences between several services). A similar standard had already been applied in Case 26/75 General Motors v. Commission [1975] ECR-1367, para 12. The lack of clarity of the case law is further aggravated by isolated rulings applying a different methodology. See, e.g. Case T-89/98 National Association of Licensed Opencast Operators (NALOO) v. Commission [2001] ECR II- i.e., 117 The decision arose from a complaint brought by Scandlines Sverige AB, a ferry operator active on the Hel- singborg (Sweden) – Elsinore (Denmark) route, who sought to contest the pricing policy of the port of Helsingborg. See Commission Decision, 23.07.2004, [2006] bears no reasonable relation to the economic value of the services provided. The Commission would have in order to determine whether the prices charged to the ferry operators are unfair, either in themselves or when compared to other ports” (emphasis added)). 118 See Case 226/84 British Leyland Public Limited Company v. Commission [1986] ECR-3263.

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trade in motor vehicles. However, in many other cases, application of such a benchmark factors distinct from the desire to exploit consumers (e.g., change in input price, market circumstances).

9.93 In United Brands and Bodson, the CJEU compared the prices of a given product in different geographic markets.119 Apart from the fact that comparing prices across geographic e.g., selection of the appropriate comparator, taking into account difference in market conditions), it may not be appropriate to infer the ‘unfair- ness’ of a pricing policy from the observation of geographic price differentials. A ban on consequences.

9.94 In certain cases, the EU Courts and the Commission also adopted a so-called ‘competitors’ benchmark which calls for comparing the prices charged by the dominant company with those charged by its competitors.120 Such a methodology was used in United Brands and General Motors. In General Motors, for instance, the Commission observed that the prices manufacturers for a similar service.121

9.95 Reliance on this method is not without problems. For instance, price differences among products of higher standards also sell at a higher price. Moreover, and perhaps more fun- damentally, the presence of competitors seems to suggest that the market in question is not subject to insurmountable barriers to entry.122 However, scholars as well as Commission - thorities to intervene against allegedly excessive prices.123

119 Case 27/76 United Brands Company and United Brands Continentaal BV v. Commission Case 30/87 Corinne Bodson v. SA Pompes funèbres des régions libérées [1988] ECR-2479. See also, Case 395/87 Ministère Public v. Tournier [1989] ECR-2521 (“When an undertaking holding a dominant position imposes scales of fees for its services which are appreciably higher than those charged in other Member States and where a comparison of the fee levels has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position. In such a case it is for the undertaking in question to justify the difference by reference to objective dissimilarities between the situation in the Member States concerned and the situation prevailing in all the other Member States”) and Case 110/88 Lucazeau v. SACEM [1989] ECR-2811 (another case concerning the level of royalties charged by SACEM for the playing of recorded music in discotheques). 120 See R. O’Donoghue/ J. Padilla, supra 112, p. 616. 121 See Commission Decision, 19.12.1974, General Motors Continental, OJ 1975 L29/14, para 8. 122 See M. Motta/ A. de Streel, ‘Excessive Pricing and Price Squeeze under EU Law’ in C.D. Ehlermann/ I. Atanasiu (eds), (Hart Publishing, 2006), pages 91-125, at 113. 123 See Section D.

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2. Excessive pricing cases in the life sciences sector

124 9.96 In the Napp Pharmaceutical case, prices were found excessive by the UK OFT. As explained above, Napp supplied sustained release morphine tablets (‘MST’) to both the hos- both consumer segments. Combining that with the considerable barriers to entry in these markets, the OFT decided that Napp had market dominance. The OFT found that Napp’s pricing policies were both predatory and excessive. Predation has already been analysed above, under II. A. 1.3

9.97 Napp’s pricing in the community segment was found to be excessive. The OFT held that there were two ways to determine whether Napp’s prices to the community were above the competitive level.

9.98 of MST on other markets (e.g., sales to the hospitals, export sales) and on sales of other -

9.99 The second method was to establish what the competitive price of MST should be and com- MST by looking at the prices of competitors and the price Napp charged over time. It found - itors in 2000. Napps’ prices for the community segment had not changed for 10 years after patent expiration. OFT also benchmarked Napp’s prices with prices charged outside the UK: community segment prices were 4-7 times higher than export prices.

9.100 On appeal, Napp argued that the OFT had not properly taken into account the dynamic nature of competition in the market. It reasoned that any assessment of whether prices are excessive should take into account that the pharmaceutical sector:

is a research-based, innovative industry, in which a few successful ‘winners’ must not only repay their own development and promotion costs, but must also fund the research and development of a large number of other products which do not cover their own costs, as well as ongoing research into new products, very many of which ultimately turn out to be unsuccessful.

9.101 The CAT did not altogether reject this argument. It just found it inapplicable to the case of Napp, by underlining that “Napp’s original investment in MST was made in the early 1980s… [i]n the absence of any indication to the contrary, [the OFT] would expect initial investment to have been recouped long ago”.

124 Case CA98/2/2001 Napp Pharmaceuticals Holdings Ltd. (30.03.2001).

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9.102 Finally, Napp argued that prices were higher because of the undertaking’s brand value.

D. DISCRIMINATORY PRICING PRACTICES

9.103 to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage”. The CJEU has extended this notion of abuse to the converse situation of the application of similar conditions to unequal transactions.125

9.104 Among the conditions which need to be met for the application of Article 102(c) is the requirement that the measure under investigation applies dissimilar prices to ‘equivalent transactions’. The evaluation of the equivalence of two transactions is not a clear-cut matter as there are a myriad of factors that can be invoked to justify the lack of equivalence between two transactions. The most obvious example is that the transactions may involve different costs to the seller.126 differences should be for two transactions to be considered non-equivalent. Indeed, if all cost differences, however small, were to be taken into consideration, very few transactions would be considered as equivalent. Another example is timing. For many products or services (airline tickets, package holidays, etc), the moment a sale is made has a major impact on the price imposed by the sellers. Finally, one other possible difference between transactions is the position of buyers.127 For instance, an undertaking may be selling to buyers with different levels of demand elasticity. In such case, the common strategy of sellers to offer prices inversely related to the elasticity would not be discriminatory under Article 102(c). Unfortunately, the decisional practice of the Commission and the case law of the EU Courts fail to provide any clear guidance on the above issues. In fact, the Commission and the 128 courts generally assume that two transactions are equivalent without much analysis.

9.105 Scholarly discussions regarding price discrimination often draw a distinction between ‘pri- different prices to its own customers, and ‘secondary line’ injury, which is imposed on one 129 The -

125 See Case 13/63 Italian Republic v Commission [1963] ECR-165 in the context of the ECSC Treaty. 126 See J. Faull and A. Nikpay, The EC Law of Competition, (Oxford, OUP 2007), para 4.397ff. 127 See, however, in Case 27/76 United Brands Company and United Brands Continentaal BV v. Commission [1978] ECR-207, where the CJEU indicated para 228 that: “[...] Differences in transport costs, taxation, customs duties, the wages of the labour force, the conditions of marketing, the differences in the parity of currencies, the density of competition may eventually culminate in different retail selling price [...]”. 128 See I. Van Bael/ J.F. Bellis, Competition Law of the EU, Alphen aan den Rijn, (Kluwer Law International, 2010), at 811-812. 129 See, e.g. A. Jones and B. Sufrin, EU Competition Law The EC Law of Competition (Oxford, OUP 2007), para 4.397ff..

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tage” clearly indicates that the parties Article 102(c) seeks to protect are the customers of the dominant player and not its competitors. The majority of all legal scholars seem to agree 130 on this point.

1. Overview of the case law and the decisional practice

9.106 Despite the wording of Article 102(c) clearly indicates that this provision was designed to disadvantage vis-à-vis other customers, the Commission and the EU Courts have relied on Article 102(c) to condemn not only secondary line price discrimination, but also primary line and geographic price discriminations. The application of Article 102(c) to these three types of price discrimination is examined below.

a) The application of Article 102(c) to secondary line price discrimination

9.107 The decisional practice of the Commission and the case law of the EU Courts provide several examples of secondary line price discrimination. Market structures where vertically-inte- Indeed, vertically-integrated operators generally have a strong incentive to charge a lower price to their downstream subsidiary than to that subsidiary’s competitors. An illustration can be found in Deutsche Bahn. In that case, Deutsche Bahn charged different prices to Transfracht (a subsidiary of Deutsche Bahn) and Intercontainer for access to the rail infra- structure, although the two undertakings were providing similar services. The price charged and the GC thus determined that Deutsche Bahn had infringed Article 102(c) through this conduct. The discrimination had the effect of placing the parties operating from western ports (Intercontainer) at a competitive disadvantage vis-à-vis Deutsche Bahn and its subsidiary.131

9.108 The decisional practice of the Commission and the case law of the EU courts also abounds with examples of secondary line injury price discrimination by non-vertically-integrated operators, in particular in the transport sector where an undertaking (often a public one) has been granted an exclusive right to operate an essential facility without, however, being active on the downstream market. Most of the cases addressed by the Commission and the courts involved direct or indirect discrimination on nationality grounds. For instance, in the Brussels National Airport case, the Belgian legislation provided for a system of stepped 132 The thresholds established

130 See S. Martinez Lage/ R. Allendesalazar, ‘Community Policy on Discriminatory Pricing: A Practitioner’s Perspective’ in C.D. Ehlermann/ I. Atanasiu (eds), Competition Law of the EUCompetition Law (Oxford, OUP 2011), at 759ff. 131 More generally, the Commission had gathered evidence that Deutsche Bahn’s price discrimination had substantially limited the carriage of containers between the western ports and Germany in favour of imports and exports to and from Germany through the port of Hamburg. 132 See Commission Decision, 28.06.1995, OJ 1995 L216/8.

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by the Belgian legislation were such that only a carrier based at the Brussels airport could favouring the Belgian public carrier over its competitors. The Commission found that the Airways Authority had a dominant position and its discriminatory pricing constituted an abuse under Articles 102(c) and 106 TFEU.133

b) The application of Article 102(c) to primary line price discrimination

9.109 In several cases, Commission and EU Courts have condemned practices such as rebates and selective price cuts on the basis of Article 102(c), omitting in their analysis the ‘competitive disadvantage’ condition built in this provision.134 This can, for instance, be observed in Hoffmann-La Roche, a case where the dominant company had granted rebates to a number of purchasers as a counterpart to the commitment from the purchasers to acquire all or most of their vitamins or certain vitamins from Hoffmann-La Roche.135 The Commission held that these contracts, on the one hand, had a horizontal effect by distorting competition between vitamins producers and, on the other hand, had a discriminatory effect in that they applied dissimilar conditions to equivalent transactions. The ECJ ruled on the question of discrimination by holding that:

- tions with other trading parties in that two purchasers pay a different price for the same quantity of the same product depending on whether they obtain their supplies exclusively from the undertaking in a dominant position or have several sources of supplies.

9.110 The Court condemned the discrimination on face value and did not engage in an analysis of the competitive situation downstream as required under Article 102(c).136 Hoffmann La Roche, however, argued that the rebates were not of such a kind as to place its customers at a competitive disadvantage. The Court eluded the question declaring: [...] since the course of conduct under consideration is that of an undertaking occu- pying a dominant position on a market where for this reason the structure of com- any further weakening of the structure of competition may constitute an abuse of a dominant position.137

9.111 The CJEU’s reference to the weakening of the structure of competition on the producer’s rather than for the secondary line injury required by Article 102(c).

133 Ibid para 17. 134 See, e.g., Case 85/76, Hoffmann-La Roche v. Commission 07.10.1981, , OJ 1981 CewalCompagnie Maritime Belge Transports SA and Others v. Commission [1996] ECR II-1211. 135 See Case 85/76 Hoffmann-La Roche v. Commission [1979] ECR 461. 136 137 Ibid., para 122ff.

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9.112 Primary line price discrimination was also at stake in a recent preliminary ruling involving selective price cuts applied by the Danish postal incumbent, Post Danmark, in favour or three of its competitor’s main clients. In this case, the Court found that primary-line discrimination is not an abuse in itself.138 In the absence of any evidence that the dominant undertaking sought to eliminate a competitor,139 a policy by which a dominant undertaking charges low prices to certain major customers of a competitor may not be considered to amount to an exclusionary abuse merely because the price that undertaking charges one of those customers is lower than the average total costs attributed to the activity concerned, but higher than the average incremental costs pertaining to that activity.140 The Court explained that:

to the extent that a dominant undertaking sets its prices at a level covering the great bulk of the costs attributable to the supply of the goods or services in question, it to compete with those prices without suffering losses that are unsustainable in the long term.141

c) The application of Article 102(c) to geographic price discrimination

The EU courts’ case law also offers a number of illustrations where Article 102(c) has been geographic price discrimination. The seminal case is United Brands.142 United Brands Company unloaded at Rotterdam and Bremen ports bananas of similar quality with identical unloading costs and then sold these bananas prices. In its decision, the Commission considered that the practice of differentiating prices according to the origin of the customers amounted to an abuse of a dominant position. In its judgment, the CJEU upheld the decision of the Commission, stating that “the policy of differing prices enabling UBC to apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, was an abuse of a dominant position”. The analysis of the CJEU in the above passage postulates that the price discrimination placed distributors/ripeners “at a competitive disadvantage”. However, this conclusion could be questioned, given that distributors/ripeners operated in different Mem- ber States (different geographic markets) and therefore did not compete with each other.

2. Discriminatory pricing in the life sciences sector

9.113 Two NCAs have issued decisions relating to discriminatory pricing by dominant companies. SIA is a producer and trader of medical gas, which had a dominant position in the relevant

138 Case C-209/10 Post Danmark v. Konkurrencerådet [2012], nyr, para 30. 139 Case C-209/10 Post Danmark v. Konkurrencerådet [2012], nyr, para 29. 140 Ibid. Danmark’s common costs (Ibid., para 31). 141 Ibid., para 38. 142 See Case 27/76 United Brands Company and United Brands Continentaal BV v. Commission [1978] ECR- 207.

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markets, notably in the market for bottled medical gas. Prices set by AGA for different i.e., were also imposed. AGA was required to start applying fair, non-discriminatory and cost- 143 based prices and to keep separate accounts for each product sold.

9.114 In the same year, the Maltese NCA examined a complaint that private clinics owners submitted against NBTS (the National Blood Transfusion Services). NBTS is the State authority entrusted with the regulation of blood products in Malta, but is also responsible for the commercial trading of some of the blood products it manufactures. The Maltese NCA found that NBSTS was an ‘undertaking’ given its commercial activities and that it possessed a dominant position in the market for the manufacturing and sale of blood products in Malta. NBTS’ pricing placed private clinics at a disadvantage vis-à-vis public hospitals. While it was providing the latter with blood products free of charge, it charged commercial prices to private clinics. This was found to be an abuse of dominant position, breaching Article 9(2) 144 (e) of Maltese Competition Act, which is equivalent to Article 102(c) TFEU.

E. CONCLUSION

9.115 This Chapter has shown that dominant undertakings operate in a complex legal environment that competition law authorities may impose for competition law infringements,145 it is thus crucial for undertakings operating in this sector to analyse on an basis the competition law implications of their pricing strategies.

143 Competition Council of the Republic of Latvia (Latvijas Republikas Konkurences Padome), 07.09.2006, AGA SIA, Case n° p/04/04/8. 144 Maltese Commission for Fair Trading (Kummissjoni Ghall-Kummerc Gust), 09.10.2006, National Blood Transfusion Service, Measure 5/2005. 145 - ing (Article 23 of Regulation 1/2003).

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A. INTRODUCTION 10.01 c) Other entry barriers: marketing and distribution costs 10.49 B. PROCEDURAL RULES 10.04 5. Countervailing buyer power 10.52 a) Change of control 10.06 OTHER THEORIES OF HARM 10.55 1. Collective dominance 10.56 2. EU merger control procedure 10.13 2. Vertical foreclosure 10.57 3. National merger control regimes 10.18 a) Vertical issues in pharmaceutical concentrations 10.58 SINGLE DOMINANCE 10.21 b) Vertical issues in mergers relating to medical devices 10.60 1. The test 10.22 3. Conglomerate effects 2. Analytical framework 10.24 3. Competitive constraints imposed E. REMEDIES 10.64 by existing competitors 10.29 1. Role of remedies in eu merger review 10.65 a) Competitive interaction between 2. Scope of the remedies 10.67 OTC products and prescription drugs 10.30 a) Transfer of production capacity b) Competitive pressure exercised and personnel 10.69 by ‘Off Label’ use 10.34 b) Divestitures extending beyond c) Competitive interaction between affected markets 10.72 originator products and generics 10.36 c) Remedies in cases relating 4. Assessment of potential competition 10.38 to medical devices 10.75 a) Competitive pressure exercised 3. Selection of a suitable purchaser 10.77 by pipeline products 10.41 b) Competitive pressure exercised F. CONCLUSION 10.82 by the threat of generic entry 10.44

A. INTRODUCTION

10.01 billion.1- -

1 Source: Irving Levin Associates, Deal Search Online.

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life-cycle, pipeline and related issues being experienced by certain sector players that were behind many recent transactions will continue to drive further transactions in the sector.

10.02 In the EU, large mergers and acquisitions (of both shares and assets), and the formation of certain joint ventures are examined by the European Commission (the Commission) under the Merger Regulation.2 The Commission can make its clearance conditional upon divestitures and other remedies. Since 2000, the Commission has imposed remedies on 16 phar-

10.03 In this chapter, we provide an overview of EU merger control rules with a special focus on rules. Second, we provide an overview of the Commission’s approach to the concept of single dominance in life sciences transactions. Third, we describe other theories of harm on which the Commission relies under the Merger Regulation. Finally, we analyse the Com- mission’s approach to remedies.

B. PROCEDURAL RULES

10.04 in the Merger Regulation. Below we outline these thresholds and summarise the main steps between the EU and national regimes.

10.05 Under the Merger Regulation, a transaction is reportable if it results in a change of con- thresholds (giving the concentration a ‘Community dimension’).

a) Change of control

10.06 A concentration occurs where a change of control on a lasting basis results from: 1. 2. The acquisition by one or more undertakings of direct or indirect control of the whole or parts of one or more other undertakings.3

10.07 4 Con- trol is typically achieved when one company acquires the majority of voting rights in another company. However, a minority stake can also confer control, e.g., if the minority share-

2 See Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ 2004 L24/1. 3 See Article 3(1) of the Merger Regulation. 4 See Article 3(2) of the Merger Regulation.

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holder has veto rights over the company’s strategic decisions. Control may be acquired solely by one entity or jointly by two or more entities.5

10.08 The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity also constitutes a concentration.6 A joint venture is deemed to be resources and should not rely exclusively on sales to or purchases from parent companies (beyond a reasonable start-up period). It is important to appreciate that it is the turnover of the parents of a newly formed joint venture that is considered in determining whether the thresholds under the Merger Regulation are met. This means that a newly created joint ven-

10.09 In the life sciences sector, licensing-in of intellectual property rights often represents an attractive alternative to an acquisition. Such in-licenses can amount to a concentration if the licensed patents (and/or brands) are exclusive and constitute a business with a market turnover.7 In the life sciences sector, licensing agreements are typically entered into before the relevant product is launched. For example, a pharmaceutical company may enter into an exclusive in-license with a biotech start-up developing a novel product before the prod- Regulation. Similarly, if a ‘naked’ patent portfolio is licensed-in (i.e., an exclusive license

10.10 Concentrations that result in a change of control are reportable to the Commission if they have a ‘Community dimension’, i.e., if the turnover of particular parties to the concentration 8 Article 1 of the Merger Regulation set out two alternative sets of turnover thresholds, such that a concentration is reportable to the Commission if: 1. The combined worldwide turnover of the undertakings concerned exceeds €5 billion, and each of at least two of the undertakings concerned has turnover in the EU that 2. The combined worldwide turnover of the undertakings concerned exceeds €2.5 billion, and each of at least two of the undertakings concerned has turnover in the EU that exceeds €100 million. In addition, the combined turnover of the undertakings concerned must exceed €100 million in three EU Member States and the turnover of at least two of the undertakings concerned must exceed €25 million in each of those same Member States.

10.11 However, where the undertakings concerned achieve at least two-thirds of their EU-wide turnover within the same EU Member State jurisdiction reverts to that Member State (essentially excluding domestic transactions from the Commission’s jurisdiction).

5 See Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (‘Jurisdictional Notice’), OJ 2008 C-95/1. 6 See Article 3(4) of the Merger Regulation. 7 See Jurisdictional Notice, para 24. 8 ‘Turnover’ is broadly equivalent to net revenues.

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10.12 The Jurisdictional Notice provides detailed instructions on the calculation of turnover. For example, a joint venture’s turnover should be allocated to each of its parents in proportion to their respective shareholdings.9 With regard to geographic allocation, the general rule is that turnover should be allocated to the country in which the customer is located, although centralised ‘hub’ purchasing contracts are often treated differently.10 The geographic allocation rules also mean that royalties generated under global licensing agreements have to be allocated to individual jurisdictions.

2. EU merger control procedure

10.13 cannot be implemented until it is cleared by the Commission.11 Where the Commission has 12

10.14 If a transaction does not meet EU thresholds, it may be reportable in one or more Member States. When a transaction does not exceed EU thresholds but at least three EU Member States have jurisdiction to review the transaction, the parties may request that the Com- mission review the transaction. If none of the Member States with jurisdiction opposes this request, the transaction would then be ‘referred’ to the Commission.13 This referral one EU submission.

10.15 a ‘Short Form’) setting out key information about the concentration. The review procedure can be split into three stages: 1. : following the announcement of the transaction, the parties usually - is crucial as it enables the parties to familiarise the case team with markets that might be new to them and to provide the case team with information and input on any poten- clear that remedies are likely to be required, discussions about appropriate scope and form can also take place at this stage.

9 See Article 5(5)(b) of the Merger Regulation. 10 See Jurisdictional Notice, para 196. 11 See Article 7(1) of the Merger Regulation. The buyer may, however, implement a public bid provided that it does not exercise voting rights prior to obtaining the Commission’s approval. 12 See Article 21 of the Merger Regulation. However, the Commission may decide to refer the transaction, in whole or in part, to national competition authorities. See Article 9 of the Merger Regulation. In addition, the notifying party may submit a reasoned submission to the Commission requesting that a concentration State. See Article 4(4) of the Merger Regulation. 13 See Article 4(5) of the Merger Regulation. Member States may also request the Commission to review a transaction but such requests are rare. See Article 22 of the Merger Regulation.

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2. Phase 1 review: the Commission must take a decision within 25 working days from Phase 1 review period is automatically extended by 10 working days.14 3. Phase 2 investigation: if the Commission considers that the transaction “raises serious doubts as to its compatibility with the common market” and the parties do not offer adequate remedies, the Commission will open an in-depth investigation.15 The in-depth investigation (this time period may be extended in certain circumstances).16

10.16 The Commission must either clear the transaction (unconditionally or subject to remedies)

10.17 - mission’s growing experience with the sector means that both the Commission and the parties have a good understanding of what is required to obtain Phase 1 clearance for a transactions tend to involve). However, the more protracted processes seen in medical de- abandoned joint venture make it clear that the Commission is alive to interop- erability and other technology-based competition concerns that such transactions can raise.

3. National merger control regimes

10.18 of one or more EU Member States. Of course, transactions are usually also reportable in jurisdictions outside of the EU, depending on the geographic spread of the parties’ activities.

10.19 one jurisdiction to the other. This section does not attempt to address all of various national globe: 1. Reportable transactions: from country to country. Many jurisdictions follow an approach similar to the EU ‘concentration’ standard. However, acquisitions of non-controlling minority stakes are reportable in certain jurisdictions (e.g., Germany, the UK and Austria). This effectively 2. : based on the parties’ revenues, others on market shares or assets. In recent years, several countries with low thresholds (e.g., Germany, Brazil, Russia) have amended their some jurisdictions still have thresholds that can be met even if the target has limited local presence (e.g., Italy, Ukraine and Ireland). 3. Suspensive effect: in most jurisdictions, transactions cannot be implemented prior to

14 See Article 10(1) of the Merger Regulation. 15 See Article 6(1)(c) of the Merger Regulation. 16 See Article 10(3) of the Merger Regulation.

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obtaining antitrust approval, and very few of these will allow a transaction to ‘close around’ them (e.g., Spain). However, in certain countries (e.g., the UK, Australia, New e.g., Italy, after - menting while reviews are ongoing.

10.20 It managing the process of obtaining multi-jurisdictional approvals for a transaction it is important to ensure that the extent and manner of cooperation and coordination amongst authorities is given due weight. For example, the U.S., Canadian and Australian antitrust agencies closely cooperate with the Commission. Further, the Chinese Ministry of Com- merce (‘MOFCOM’) is becoming increasingly assertive, and required that commitments be offered in two recent pharmaceutical transactions ( and ).

1. The test

10.21 Article 2(2) of the Merger Regulation provides that:

common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared compatible with the common market.

10.22 While the test goes beyond dominance, the analysis of the competitive effects of a concentration focuses on whether it would enable the acquisition or strengthening of a dominant position. The reality of most market structures is such that the Commission’s analysis generally focuses on single dominance concerns (e.g., market share and is able to raise prices and otherwise carry on its business without being constrained by competitors or customers).

10.23 There are several other theories of harm on which the Commission can rely to challenge a merger (e.g., collective dominance, vertical and conglomerate concerns). These theories tend to play a more limited role in the Commission’s analysis of concentrations in the life sciences sector. We summarise these theories in Section D below.

2. Analytical framework

10.24 The Commission’s analysis of concentrations involves two basic steps. First, the Commis- above). Second, it conducts an assessment of the competitive effects of the concentration.

10.25 The Commission usually begins its competitive assessment with a review of the market positions (particularly shares) of the parties and their competitors in the relevant markets. -

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mission as evidence the existence of a dominant market position.17 Below that level, the not usually raise competition concerns in the markets in which the parties hold very low 18

10.26 - numbers of overlaps in life sciences transactions). In essence, the Commission focuses 19 Having said that, if one party is already dominant in a relevant market and another has late stage pipeline products that make it an imminent new entrant or has a new product that could ‘take the market’, the Commission will look closely at the effects of the concentration in the market.

10.27 The Commission traditionally relied on the value-based (i.e., revenue) sales data to calculate market shares in pharmaceutical transactions. However, in several recent cases involving generic producers, the Commission acknowledged that value-based estimates can overstate - volume (e.g., for markets consisting of several molecules, where it is necessary to agree on some measure of therapeutic value, such as days of treatment). In , for example, the Commission relied on value-based data but also considered volume-based shares in the markets in which the transaction raised competition concerns.20 In - pharm, the Commission went further: it used data based on the weight of active ingredient for multi-molecule markets in which there were competition concerns.21

10.28 While high market shares are often indicative of dominance, the parties can rely on the following factors to argue that the transaction does not raise competition concerns: 1. 2. Constraints imposed by the credible threat of entry by potential competitors in the

17 See Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (‘Horizontal Mergers Guidelines’), OJ 2004 C-31/5, para 17. 18 Regulation (EC) No 139/2004, O.J 2005 C-56/32. 19 See, e.g., , , , Case COM- - vay, Case COMP/M.6175, Commission decision of 16 June 2011, para 37. 20 See , Case COMP/M.5253, Commission decision of 4 February 2009, paras 204-209. 21 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 49-53.

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3. Constraints imposed by the bargaining power of the parties’ customers.

3. Competitive constraints imposed by existing competitors

10.29 There are a number of sources of existing competition that should be considered in assessing the competitive dynamics of pharmaceutical markets. Beyond competition from drugs categorised in the same ATC3 category (or, ATC4, in certain circumstances), it is important to also consider the competitive impact of over-the-counter products, off label use of drugs (particularly for oncology drugs) and generics. These competing forces (or the threat of

a) Competitive interaction between OTC products and prescription drugs

10.30 As explained in Chapter 2 above, the Commission generally takes the view that drugs available over-the-counter (‘OTC’), i.e., without prescription, fall into product markets that are distinct from those in which prescription drugs (‘Rx’) fall. However, in several recent cases - stances.

10.31 provides an illustration of the Commission’s analysis of the competitive interaction between OTC and Rx drugs. Both parties supplied drops used to treat eye allergies (ATC 3 category S1G). The Commission found that: - ry as some products are available OTC, but they can be reimbursed if prescribed. This means that they can be sold both as OTC and Rx. Furthermore, the regulatory framework regarding the availability of these drugs may also differ from country to country, i.e., the same drug may be prescription only in one country and might be available OTC in another country. 22

10.32 The Commission reviewed the competitive interaction between the OTC and Rx drugs on however, the Commission considered that this distinction was not decisive in Denmark because Novartis had only recently received approval to sell its product OTC and the product continued to be reimbursed when prescribed.23

10.33 As this case illustrates, the Commission can take the competitive impact of OTC products on Rx products into account either by including them in the relevant product market or by products on the supply of Rx drugs.

22 See , Case COMP/M.5778, Commission decision of 9 August 2010, para 119. 23 Ibid., paras 140-142. See also , Case COMP/M.4314, Com- mission decision of 11 December 2006, para 22 (with regard to topical anti-haemorrhoidal treatments, ATC 3 category C5A).

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b) Competitive pressure exercised by ‘Off Label’ use

10.34 In certain markets (particularly those for oncology treatments) the Commission’s competitive assessment can be based on how the products are actually used and whether they are regarded as substitutable, rather than solely on their approved therapeutic indications.

10.35 Certain medicines are prescribed ‘off label’, meaning they are prescribed for an indication for which they have not been approved. This most commonly happens with oncology drugs, where certain treatment protocols are designed around combinations of multiple drugs (irrespective of their approved uses). The Commission will take into account the competitive pressure exercised by such ‘off label’ use on drugs that are indicated for a particular treatment. For example, in , the Commission examined markets related to the treatment of kidney cancer and noted that Wyeth’s Torisel product, although only approved for 24

c) Competitive interaction between originator products and generics

10.36 The Commission has increasingly found that generic drugs are substitutes for originator drugs.25 Initially stemming from the analysis of products for oncology drugs, the Commis- - ic type of cancer and the role (and substitutability) of individual molecules in the treatment regime. For example, the Commission considers whether drugs containing the same active molecules are used together or in sequence in a treatment protocol, or are used in different lines of treatment (e.g.,

10.37 The Commission considers that generics exercise a particularly strong competitive pressure on originators in the Member States in which health regulation strongly encourages the use of generics. For instance, in , the parties successfully argued that pharmaceutical markets in the UK were among the most competitive in Europe because of the regulation of prescriptions in the UK were written generically. Similarly, the reimbursement scheme successfully encouraged generic competition. Generic substitution was also strongly encouraged at the hospital level. The Commission took into account the level of generic competition in the UK to conclude that the transaction did not raise concerns in UK markets.26

4. Assessment of potential competition

10.38 - ences deals. Transactions may raise competition concerns if they eliminate potential com-

24 See , Case COMP/M.5476, Commission decision of 17 July 2009, para 25. Cf. - , Case COMP/M.4314, Commission decision of 11 December 2006, paras 84-86 (substitutability between two products that were marketed and positioned differently). 25 See , Case COMP/M.5253, Commission decision of 4 February 2009, para 17. 26 See Wyeth, Case COMP/M.5476, Commission decision of 17 July 2009, para 80 (the Commission noted that the Netherlands had a ‘preferential’ reimbursement scheme for generics).

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petition, particularly in already concentrated markets. Conversely, if barriers to entry are low, and this is evidenced by the presence of several potential entrants, the transaction is less likely to raise competition concerns.27

10.39 - itive assessments shaped by credible threats of entry (in the short- to -medium-term). Po- tential entry in the sector takes a range of forms (many quite particular to these markets), including: 1. The Commission will consider the likely impact of ‘pipeline’ products (usually only those in ‘Phase III’ of development) that will provide a treatment regime that competes with existing products (including existing products still protected by patents). 2. Where patents protecting the products have expired or may be expiring in the near future, the Commission will consider the impact of the likely introduction of generic products.28

10.40 Potential competition concerns relating to medical devices are very similar to those associated with other technology sectors.29 Accordingly, this section focuses on the analysis of potential competition in pharmaceutical concentrations.

a) Competitive pressure exercised by pipeline products

10.41 The Commission generally considers pipeline products to be a potential competitive constraint only when the products have reached clinical trials (Phase III),30 risk of failure of products that have reached this point in their development cycle and the likelihood that such products will be marketed within three years (bearing in mind the two to three year timeframe that the Commission uses in making its competitive assessments).

10.42 Although a product in Phase III is usually considered to impose a competitive constraint, this will not always be the case. For example, in , the parties successfully argued that Phase III products for Alzheimer’s disease were more likely to be abandoned than both parties had Phase III pipeline Alzheimer’s products, the Commission concluded that this overlap in pipeline products was unlikely to harm potential competition.31

10.43 Conversely, in certain markets, pipeline products in Phase III might be regarded as sources of existing (rather than potential) competition. In , the Commission considered the impact of pipeline products in the market for kidney cancer treatment. Because the market

27 See Horizontal Mergers Guidelines, paras 68-75. 28 Other sources of potential competition include, for example, products that have been withdrawn from the market to address regulatory concerns being re-launched. 29 See , Case COMP/M.3687, Commission decision of 25 August 2005: the Com- stents, while the target was a potential entrant. However, the Commission concluded that the transaction would not raise concerns in that market because other new entrants (e.g., Medtronic and Abbott) also exer- 30 See, e.g., , Case COMP/M.5778, Commission decision of 9 August 2010, para 111. 31 See , Case COMP/M.5476, Commission decision of 17 July 2009, paras 88-91.

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trials usually involved 1000 to 5000 patients, a pipeline product in clinical testing might represent a substitute for approved treatments, for the duration of the clinical trial and in the geographic catchment area for the trial. In these unusual circumstances the Commission concluded that kidney cancer pipeline products in clinical trial were sources of actual competition.32

b) Competitive pressure exercised by the threat of generic entry 10.44 When patents expires, generic entry becomes possible. The likelihood of generic entry shares. For example, in , the parties held high shares in the supply of to occur in the near future. As a result (and because the parties’ products were not the closest substitutes), the Commission concluded that the transaction did not raise concerns in the relevant market.33 Zentiva had a number of pipeline products that were generic molecular the removal of the future constraint represented by Zentiva’s pipeline products raised serious competition concerns in each of the relevant markets.34

10.45 Having said that, quick and successful generic entry following patent expiry is not a fore- gone conclusion. In the recent case (a merger between two generics manufacturers), the Commission analysed entry barriers for generics, concluding that: the investment required to get a marketing authorisation, to build up an operation, to register for reimbursement, to get reimbursement approval, to promote and organise the distribution of a generic drug are the main entry barriers. Furthermore, a generic company needs to have credibility in the national market and knowledge of the national market. In addition, there is a certain degree of market saturation in some of the affected countries and therefore prices are low. To enter a national market with a generic drug takes one to two years. 35

10.46 This timeframe is within the approximate two year timeframe that the Commission uses to determine whether entry is timely.36 In addition to these barriers to entry, the Commission 1. Markets that are small and/or mature with a number of established players, leaving 37

32 See , Case COMP/M.5476, Commission decision of 17 July 2009, para 35. 33 See , Case COMP/M.5253, Commission decision of 4 February 2009, paras 301-309. 34 See , Case COMP/M.5253, Commission decision of 4 February 2009, para 194. 35 See , Case COMP/M.5295, Commission decision of 19 December 2008, para 26. See also Sano- , Case COMP/M.5253, Commission decision of 4 February 2009, paras 213-216. 36 See Horizontal Mergers Guidelines, para 74. 37 See , Case COMP/M.1878, Commission decision of 22 May 2000, paras 59-64: the destroy parasitic worms, ATC 3 segment P1B). The parties argued that their products have been off-patent for over ten years and that any price increase would trigger a generic entry. The Commission disagreed: because the relevant markets were small and mature, generic entry was unlikely and, indeed, has not taken place despite the absence of patent protection.

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2. Markets in which there is migration away from older products towards new, patent-protected products, such that the earlier generation product is rendered obsolete. This is particularly likely to be the case where the holder of the expiring patent has made a deliberate effort to migrate its customers to the newer product.38

10.47 In essence, there is often a good case to be made that generic entry (and the threat thereof) - piry. However, the case needs to be made to persuade the Commission -- the Commission would not assume generic entry (and the resulting effect on competitive dynamics).

10.48 The Commission may also consider the broader question of whether the transaction would strengthen the parties’ market position at the expense of generic competition by enabling the acquirer to adopt an ‘authorised generics’ strategy. The issue is essentially whether the holder of an expiring patent would exploit the protection afforded by the patent by releasing an ‘authorised’ generic version of its drug just before the patent expires, giving it this risk in between 1996 and 2008 to perform an econometric analysis of the competitive constraint - cised by Zentiva was no stronger than that exercised by an average generic competitor, such that the transaction did not raise competition concerns simply as a result of its elimination of Zentiva as an independent generics supplier.39

c) Other entry barriers: marketing and distribution costs

10.49 - es sector, particularly in OTC pharmaceutical markets because manufacturers market products directly to consumers, rather than doctors. For example, in OTC analgesics (ATC 3 segment N2B). The Commission noted that customers displayed high levels of brand loyalty and that the parties’ brands (Aspro and Aspirin) were perceived as ‘must have’ brands. The Commission concluded that new entry was impeded by brand loyalty and high advertising/marketing costs.40

10.50 - shelf space.41

38 See , Case COMP/M.1846, Commission decision of 8 May 2000, paras 94, 108: the parties held high combined shares in the supply of anti-virals (ATC 3 category J5B) in several Member States. The parties argued that Glaxo’s Zovirax product was off patent and faced generic competition. However, the Commission noted that a large part of Zovirax’s market share had migrated to the parties’ second generation drugs Valtrex and Famvir, which were patent-protected. 39 , Case COMP/M.5253, Commission decision of 4 February 2009, paras 538-548. 40 See , Case COMP/M.3544, Commission decision of 19 November 2004, paras 50-53. Cf. , Case COMP/M.3751, Commission decision of 27 May 2005, p. 11: the Com- mission considered that new entries in the German market for topical anti-rheumatics (ATC 3 segment M2A) were unlikely due to high advertising costs. 41 See , Case COMP/M.4314, Commission decision of 11 December 2006, para 112.

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10.51 In prescription markets, historic prescribing behaviour of doctors may create a barrier to entry, since direct consumer advertising is not permitted and doctors may be slow to change their behaviour patterns.42

5. Countervailing buyer power

10.52 Market power can also be constrained by customers. Countervailing buyer power is the bargaining strength that the buyer has vis-à-vis the seller in commercial negotiations due 43

10.53 In the life sciences sector, the Commission rarely accepts that suppliers face countervailing buyer power. In general, the customer base is fragmented (e.g., a large number of pharma- market power.44 there was countervailing buyer power. For example, in the Commission found that (in several Member States) certain vaccines were procured by public tenders by State attempt by the merged entity to raise prices.45

10.54 The Commission appreciates that the competitive dynamics of markets can change, such that buyer power may increase over time. For example, in the in vitro diagnostics sector, the 46 However, in recent decisions the Commission observed a trend towards consolidation on the buyer side resulting in an increase in countervailing buyer power. The Commission noted that customers procured through formal tenders, frequently switched between suppliers, and multi-sourced. These factors constrained suppliers’ market power.47

42 See , Case COMP/M.1846, Commission decision of 8 May 2000, paras 110 and 135. 43 See Horizontal Mergers Guidelines, para 64. 44 See, e.g., , Case COMP/M.3083, Commission decision of 2 September 2003, paras 204- 210 (no countervailing buyer power in the market for patient monitors). 45 See , Case COMP/M.5476, Commission decision of 17 July 2009, para 264. Cf. Scher- , Case COMP/M.4691, Commission decision of 11 October 2007, para 296 , Case COMP/M.3687, Commission decision of 25 August 2005, paras 83-86, 237-238, 281 (the Commission considered that hospitals exercised countervailing buyer power with regard to drug-eluting stents but not with regard to other relevant devices). 46 See , Case IV/M.950, Commission decision of 4 February 1998, paras 101-105. 47 See , para 34.

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OTHER THEORIES OF HARM

10.55 Theories of harm in life sciences transactions are less frequently based on collective domi- markets. However, if production outsourcing, sub-contracting and input supplying (e.g., of active pharmaceutical ingredients) continue to grow, and consolidation leads to suppliers with ever-broadening portfolios, this could change overtime.

1. Collective dominance

10.56 Collective dominance exists in highly concentrated markets in which: oligopolists can mon- actual/potential competitors or customers.48 These conditions have very rarely been found in life sciences markets. As a result, there are very few life sciences transactions in which the analysis has turned on theories of harm based on collective dominance.49

2. Vertical foreclosure

10.57 Concentrations may have vertical effects when one party to the transaction supplies input products or services that the other party and/or its competitors use in related markets. The basic question to be addressed in assessing these transactions is whether they might lead to vertical foreclosure. Vertical foreclosure would arise if the merged entity would have the ability and the incentive to impede competition by refusing to supply to its downstream competitors or to purchase from its upstream rivals.50

a) Vertical issues in pharmaceutical concentrations

10.58 In several cases the Commission has examined potential vertical concerns relating to the supply of active pharmaceutical ingredients (‘APIs’). For example, in , the Commission found that Teva had a large portfolio of APIs that it supplied to third parties, identifying 49 vertically affected markets (i.e., markets in which Teva produced the API while Ratiopharm was active in a downstream market for a pharmaceutical product in which the API was used). However, the Commission concluded that the transaction did not raise serious vertical concerns because it would not:

48 See Case T-342/99, Airtours plc v Commission, [2002] ECR II-2585, para 62. 49 See , Case COMP/M.1846, Commission decision of 8 May 2000, para 148: the Commission ruled out collective dominance in the supply of topical antibiotics (ATC 3 segment , Case IV/M.1298, Commission decision of 23 October 1998, paras 58-59: no collec- 50 See Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings (‘Non-Horizontal Mergers Guidelines’), OJ 2008 C-265/6, paras 28 et seq.

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1. Affect downstream customers: if Teva stopped supplying its customers or offered to supply them on less favourable terms, customers would be able to switch to alternative 2. Affect Teva’s competitors active in the upstream API markets: while the parties held high combined shares in certain national downstream markets, the Commission considered API markets to be global in scope, such that the parties represented only a small fraction of total worldwide demand for the relevant APIs.51

10.59 The Commission has rejected vertical foreclosure concerns in a number of cases.52 How- ever, in , it imposed remedies intended to of nicotine patches while the target sold nicotine patches in the OTC retail market. The - ity to foreclose GSK by limiting or reducing supply of nicotine patches, reducing quality, patch business.53

b) Vertical issues in mergers relating to medical devices

10.60 The Commission has had concerns about vertical foreclosure in several medical devices transactions. The most prominent precedent is . Instrumentarium supplied medical devices, including patient monitors and anaesthesia delivery machines. It held a strong position in the supply of anaesthesia delivery machines (GE was not active in that market). The Commission noted that anaesthesia machines and patient monitors (a market in which the parties had a high combined market share) were complementary products: while a patient is undergoing anaesthesia, doctors use monitors to control the patient’s vital signs. The Commission was concerned that the transaction would give GE the manufacturers of patient monitors to connect their devices to Instrumentarium’s anaesthesia machines. To address the Commission’s concerns, GE divested Instrumentarium’s patient monitoring business and undertook to enable third parties to interconnect their patient mon-

51 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 393-407. The Commission followed the same approach with regard to APIs in several other cases. See , Case , Case COM- , Case COM- P/M.5661, Commission decision of 11 February 2010, paras 38-43. 52 See, e.g., , Case COMP/M.2922, Commission decision of 27 February 2003, paras 102- this would have no appreciable effect on the availability of hard gelatine capsules in the EEA. 53 See , Case COMP/M.4314, Commission decision of 11 December 2006, paras 119-135.

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itors with GE’s equipment used in operating theatres and intensive care units (including anaesthesia machines).54

3. Conglomerate effects

10.61 Conglomerate effects can occur as a result of transactions that combine companies active in related markets. The main concern is also foreclosure-related: will the combined entity have the ability and incentive to leverage a strong position from one market into another, e.g., by refusing to sell two products separately (tying) or by offering discounts to customers that buy both products as a package (bundling).55 Foreclosure concerns are often a combination of ‘vertical’ and ‘conglomerate’ effects (as illustrated by the case).

10.62 - petition concerns raised by horizontal overlaps. For example, in the Com- mission took into account the risk of bundling in its review of the German market for OTC topical anti-rheumatics (ATC 3 category M2A). In this market the parties held a combined itself problematically high, the transaction raised concerns in this market because “the combination of the leading originator brand with the leading generic would give the parties the opportunity to offer package deals to pharmacies and to block shelf space”. 56

10.63 The Commission rarely views conglomerate issues as a stand-alone concern in life sciences mergers. For instance, in , the Commission found that the transaction did not raise conglomerate concerns in the Netherlands because the parties would face a number of important competitors (including both originators and generics) and their range discounts would not foreclose these rivals.57

54 See , Case COMP/M.3083, Commission decision of 2 September 2003. Cf. Drägewerk, Case COMP/M.2861, Commission decision of 30 April 2003 (similar vertical concerns and interface undertakings). 55 See Non-Horizontal Mergers Guidelines, paras 91-118. 56 See , Case COMP/M.3751, Commission decision of 27 May 2005, pp. 10-11. Cf. Hoffmann , Case IV/M.950, Commission decision of 4 February 1998, paras 92-94 (increased bundling possibilities in the supply of clinical chemistry reagents and instruments viewed as a , Case COMP/M.5476, Commission decision of 17 July 2009, paras 301, 309 and 381 (multi-product discounts viewed as a barrier to entry in certain animal health markets). 57 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 461-469. Cf. Novartis-Alcon, Case COMP/M.5778, Commission decision of 9 August 2010, paras 259-260 (solutions for , Case COMP/M.3816, Commission decision of 15 June 2005, paras 35-36 , Case COMP/M.4569, Commission decision of 24 April 2007, paras 41-44 (in vivo and in vitro diagnostics).

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E. REMEDIES

1. Role of remedies in EU merger review

10.64 competition, the parties may offer remedies aimed at alleviating the Commission’s concerns in an effort to obtain ‘conditional clearance’. Remedies can be offered in Phase 1 of the review (to avoid an in-depth investigation) or in Phase 2 (to avoid a prohibition decision).

10.65 The Commission generally prefers structural (rather than behavioural) remedies,58 and frequently requires divestiture commitments be made in the life sciences transactions. In sev- - ber of products. For example, in relating to 15 pharmaceutical markets in six Member States. In , the divestitures

10.66 In this section we describe the approach adopted by the Commission with regard to determining the scope of remedies, the selection of a suitable purchaser, and the implementation transactions in an effort to avoid divestitures.

2. Scope of the remedies

10.67 - ceutical mergers described a standard remedy package as follows: divestment of medicines limited to the country where the competition concerns actually arise, together with their brand names, marketing authorisations and all relevant assets. 59

10.68 The Commission considers this approach to be generally appropriate because (i) assets are divested to suitable purchasers who have their own production and distribution facilities and (ii) markets are national in scope and there are few cross-border spill-over effects (i.e., medicines can be marketed under the same brand by different suppliers in different countries).60 However, in some cases the Commission has departed from this approach and has required - sion also occasionally requires divestitures that go beyond the affected geographic markets.

58 See Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 (‘Remedies Notice’), OJ 2008 C-267/1, para 15. Having said this, the Commission has sometimes accepted behavioural remedies in medical devices cases (e.g., remedies relating to access to interfaces). 59 See S. Greenaway et al., “Recent Commission Merger Control Decisions in the Pharmaceutical Sector: Sa- Competition Policy Newsletter, No 2, para 64. 60 Ibid.

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a) Transfer of production capacity and personnel

10.69 A commitment to transfer production facilities may be required if existing production capacity is scarce. For example, in - ufacturing facility in Sligo, Ireland (unless the purchaser acquired a minimum set of vaccines). The Commission found that production capacity for vaccines was scarce in the EEA and that the building or transfer of production capacity was a lengthy and complex process - 61

10.70 The Commission was considering similar commitments in connection with the abandoned animal health joint venture. However, in addition to requiring the divestiture of production facilities, it was also considering carefully the identity of those facilities, in an effort to reduce the number of vaccines that would be transferred to a new production facility (bearing in mind that transferring vaccine production is time consuming and potentially how far the Commission would have gone in this respect.

10.71 In several recent pharmaceutical cases the parties undertook to transfer certain key personnel to the purchaser. This requirement is relatively standard if the divestitures include pipeline products or technologies under development: the parties undertake to transfer the researchers involved in the development of the product.62 In the abandoned case transactions.

b) Divestitures extending beyond affected markets

10.72 The principle of proportionality is ordinarily interpreted to require that divestitures be limited to the markets in which the transaction raises competition concerns. However, in several cases the Commission decided that an EEA-wide divestiture was required (even though competitive concerns were limited to certain Member States) because (i) a carve-out would have compromised the business’s viability and attractiveness and (ii) there were centralised assets and functions used on a pan-European basis that were essential for the viability of the divested assets.

10.73 For example, in types of animal health vaccines, pharmaceuticals and medicinal feed additives. While con-

61 Ibid, paras 461-463. Cf. , Case COMP/M.4314, Commis- patch facility by way of lease (or at the option of purchaser by temporary sale) for a period of at least 3 years. 62 See Case COMP/M.4314, Commission decision of 11 De- , Case COMP/M.5778, Commission decision of 9 August 2010, para 289.

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EEA-wide business. The Commission argued that only an EEA-wide divestiture could ensure the viability of the divested assets.63

10.74 In several recent cases, the Commission included so-called ‘crown jewels’ provisions in the divestiture package. This means that the parties would have been required to divest a more extensive package if they had failed to divest a more limited package within a certain period of time. Such provisions incentivise the acquirer to make the more limited sale. For example, in - a purchaser for these assets within a certain (undisclosed) period of time, Teva promised to divest Ratiopharm’s entire Dutch business.64

c) Remedies in cases relating to medical devices

10.75 Remedies imposed in cases relating to medical devices normally include both the facility at which the device is produced and dedicated personnel. For example, in ConvaTec the buyer undertook to divest its existing wound care production facility.65 This is potentially more complicated where the competitive concerns relate to a product that is one of many produced in a particular facility.

10.76 In several cases relating to medical devices, the Commission has also accepted behavioural undertakings. The interface undertakings offered in and Drägewerk are discussed in Section D above. In , the Commission imposed - action. This case arose from the joint bid for Guidant, a supplier of cardiovascular devices Guidant’s interventional cardiovascular devices (e.g., - quired the rest of the company. The buyers agreed to share Guidant’s intellectual property portfolio relating to drug-eluting stents (‘DES’). The Commission was primarily concerned with the effect of the transactions on DES. The parties agreed to amend the license given by 66

63 See , Case COMP/M.5476, Commission decision of 17 July 2009, paras 458 and 465. See also , Case COMP/M.4314, Commission decision of 11 Decem- raised concerns only in Greece. 64 See , Case COMP/M.5865, Commission decision of 3 August 2010, paras 471-498. A similar approach was used, e.g., in , Case COMP/M.4314, would divest the entire business). 65 See , Case COMP/M.5190, Commission decision of 15 July 2008, paras 69-75 (the facility also produced ophthalmic needles and this business was also included in the divestiture even though it did not raise any concerns). 66 See , Case M.4150, Commission decision of 11 April 2006, paras 98-100.

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3. Selection of a suitable purchaser

10.77 A divestiture can only maintain effective competition in the relevant market if the business is transferred to a suitable purchaser in whose hands it is viable, in that it will be an active competitive force. To be approved as the purchaser of assets being divested a potential purchaser must: 1. 2. Have the ability and incentive to maintain and develop the divested business (in partic- 3. Not raise new competition concerns.67

10.78 In considering the suitability of potential purchasers of life sciences divested assets, the Commission goes beyond these basic conditions. First, it frequently requires that the pur- 1. The Commission has required that the purchaser be active in the relevant product and/or geographic market. For example, in , the Commission’s clearance was conditional upon the divestiture of certain of SSL’s products in the UK and Ireland to a purchaser already active in the sales and marketing of pharmaceutical products in the UK and Ireland because the divested business was small and might not justify the creation of a stand-alone distribution system.68 2. If the divestiture includes production facilities, the Commission may require that the purchaser be able to run the facility.69 Conversely, if production facilities are not included, the Commission may require that the purchaser has existing facilities with the capacity to take over manufacturing the divested products (or to outsource manufacturing to an independent third party).70

10.79 Second, in some circumstances the Commission requires that all assets be transferred to a single purchaser, particularly if the overall package is not large. For instance, in , the Commission’s clearance was conditional upon the divestiture of a number of oncology - chaser have an existing presence in oncology pharmaceuticals in the EEA.71

10.80 Depending on the risks inherent in the divestiture package there are three approaches open to ensure that the assets/business go to a suitable purchaser:

67 See Remedies Notice, para 48. 68 See , Case COMP/M.5953, Commission decision of 25 October 2010, para 120. See also , Case COMP/M.5661, Commission decision of 11 February 2010, para have experience with molecular testing). 69 See , Case COMP/M.4314, Commission decision of 11 December 2006, para 165. 70 See , Case COMP/M.5253, Commission decision of 4 February 2009, para 553. 71 See , Case COMP/M.5295, Commission decision of 19 December 2008, para 210. Cf. Wyeth, Case COMP/M.5476, Commission decision of 17 July 2009, paras 469-470.

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1. The Commission may require that the divested assets/business be transferred within a - 2. 3. The parties may commit to identify a purchaser and enter into a binding agreement approach) -- similar to the up-front buyer approach, except that the Commission knows the identity of the buyer before it issues the approval decision.

10.81 The approach taken is largely driven by how certain the Commission needs to be that the divested package will be viable in the hands of the particular buyer. The more self-standing and complete the divestiture package, the larger the group of possible purchasers is likely to be, reducing the Commission’s concern about ensuring that the assets/business go to one of a small number of players.

F. CONCLUSION

10.82 The current trends in EU merger control in the area of life sciences can be summarised as follows: 1. Competition analysis: the Commission usually focuses on horizontal overlaps between the parties’ activities. However, the Commission’s analysis is not a mechanistic ‘numbers’ exercise based simply on market shares. Rather, the Commission will look at concentration in the market, potential entry (including new products that might represent competition ‘for the market’), and competitive constraints imposed by OTC/ prescription and off-label use of products. Accordingly, it is important to thoroughly assess the competitive dynamics of markets in which the activities of parties to a transaction overlap and prepare the appropriate econometric and expert evidence longer before engaging with the Commission. 2. Remedies: the Commission views divestitures as the best way to eliminate competition concerns. It is becoming increasingly focused on ensuring that the divested assets/ business are truly viable, focusing on the adequacy of facilities and the sustainability of the divestiture package (e.g.,

3. Process: competition issues. Engaging up front on the key issues is crucial to a constructive and frank working relationship with the case team.

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A. EU DATA PROTECTION LAW 1. Laws and codes of conduct 11.28 1. Background 11.01 2. Origin 11.04 a) Clinical trials 11.34 b) Pharmacovigilance 11.38 3. The EU data protection directive and its general principles 11.07 c) CRM databases 11.41 a) Data controllers and processors 11.09 C. DATA PROTECTION LAW b) Lawfulness of the processing 11.11 IN THE PHARMACEUTICAL c) Purpose limitation 11.13 SECTOR IN PRACTICE 11.43 d) Proportionality 11.15 1. Concept of personal data 11.43 e) Transparency 11.17 2. Responsibility 11.55 4. International data transfers 11.20 3. Consent or not? 11.59 4. Purpose limitation 11.62 activities or databases 11.23 5. Transparency 11.66 6. The future of eu privacy law: 6. Rights of individuals – the general data protection regulation 11.24 B. DATA PROTECTION IN THE PHARMACEUTICAL SECTOR 11.27 8. International transfers 11.74

A. EU DATA PROTECTION LAW

1. Background

11.01 Europe has a long history of protecting the privacy of individuals, and the current EU regulatory framework on data protection is often referred to as the most sophisticated and in many under EU data protection law of what constitutes ‘processing of personal data’, virtually every company that is doing business in Europe, and an increasing number of companies

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that are located outside of the EU,1 are in one way or another subject to the provisions of the EU Data Protection Directive. Data protection considerations have to be taken into account whenever an EU based company processes the personal information of current, future and past employees, collects customer or vendor data, provides online services, responds to queries from a regulator or shares personal data of its employees, vendors or customers within its corporate group (i.e., from one subsidiary to another or to its parent company).

11.02 For decades, compliance with European data protection laws has not a top priority for many companies. In recent years, however, businesses in Europe and elsewhere have been re- thinking their approach to data protection. This is partly due to new rules and regulations, to be a change in attitude among both regulators and the general public. Nowadays, Euro- pean regulators attentively monitor compliance with data protection laws and, if necessary, stringently enforce them. The days of educating and encouraging companies to do the right - - was imposed on the German railway company, Deutsche Bahn. In 2009, the regional data repeated privacy violations, when the railway company covertly screened bank account data of its employees and their family members as part of its anti-corruption program.2

11.03 misuse of their personal data. In many countries, the media regularly takes up stories on privacy violations. These often are front page news. Such risk appears especially high for companies in the life sciences industry, which inevitably process very sensitive data such as health or genetic data.

2. Origin

11.04 in the early 1970s, quickly followed by other Scandinavian countries and by Germany, France and other EU Member States. Because of the increasingly global nature of data differences in the various data protection laws were a serious obstacle to the creation of the European common market and that an EU wide initiative therefore would need to be

1 Under the current EU Data Protection Directive (and the national legislation transposing the Directive), a company located outside of the EU but ‘using means’ in the EU to collect data, is subject to EU data protection law. An example of using means is the use of a server located on EU territory. Under pending data protection legislation, the ‘use of means’ test will be replaced by a ‘targeting EU consumers’ test which potentially could bring even more companies under the ambit of EU data protection law. available at http://www.dat- enschutz-berlin.de.

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taken. At the same time, international organisations like the Council of Europe3 and the Or- ganisation for Economic Co-Operation and Development (‘OECD’)4 adopted international the existing national laws in the various Member States form the basis for the 1995 EU Data Protection Directive.

11.05 It is important to emphasise that in the EU, contrary to the situation in many other parts of the world, the right to data protection is a fundamental right enshrined in Art. 8 of the Char- ter of Fundamental Rights of the European Union which reads as follows: Everyone has the right to the protection of personal data concerning him or her. Such of the person concerned or some other legitimate basis laid down by law. Everyone has the right of access to data which has been collected about him or her, and the an independent authority.5

11.06 The right to data protection is often referred to as the right to privacy, which is also a fundamental right. In fact, the right to data protection includes the right to privacy but it is considerably broader. The right to privacy refers to the right to private and family life, the right of a private home and private correspondence. The right to data protection is considerably more encompassing as evidenced by the above cited Art. 8 of the Charter of Fundamental Rights.

3. The EU data protection directive and its general principles

11.07 One of the most important milestones in the development of modern data protection law is the adoption of the EU Data Protection Directive 95/46/EC in 1995.6 This Directive has shaped the privacy landscape in Europe - and beyond - by setting forth general principles for the handling (or as the Directive puts it: the ‘processing’) of personal data which apply to all individuals and entities irrespective of whether they process data in the private or public sector or whether they are an individual or a legal entity.7

11.08 The Directive undoubtedly is the cornerstone of EU data protection law and this chapter is therefore focused solely on the Directive and the national laws transposing the Directive into the laws of the EU Member States. However, it is worth mentioning that at the EU

3 Council of Europe Convention for the Protection of Individuals with Regard to Automatic Processing of Personal Data (ETS No. 108), 28 January 1981. - tember 1980. 5 Charter of Fundamental Rights of the European Union, OJ 2000 C364/1. 6 Directive 95/46/EC of the European Parliament and the Council of 24 October 1995 on the Protection of Individuals with Regard to the Processing of Personal Data and the Free Movement of Such Data, OJ 1995 L281/31. 7 In fact, the only areas excluded from the scope of the Directive are processing operations (i) concerning public security and defence or (ii) by a natural person in the course of a purely personal or household activity (see Art. 2 of the Directive).

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level a second important Directive, the so called e-Privacy Directive 2002/58/EC, as amend- ed8 important rules on spam and cookies that have a broader application, and apply to everyone that solicits consumers or places cookies.

a) Data controllers and processors

11.09 The distinction between data controllers and data processors is key to understanding EU data protection law. While many different parties may be involved in the processing of a set of data, the Directive makes it clear that it is the data controller that is responsible (and ultimately liable) for the compliance with data protection rules. The Directive essentially de- A classic example of a data controller is an employer, for the personal data of its employees. Processor is a term of art for every natural or legal person that processes personal data ‘on behalf’ of the controller. A classic example of a data processor is a payroll company that processes human resources data on behalf of the employer.

11.10 Before entrusting personal data to a processor, the data controller must enter into a written agreement with the processor. This agreement must contain a number of provisions, including a provision that the processor only acts upon the instructions of the controller and only uses the data for the purposes stipulated by the data controller. It is important to emphasise that even though some of the processing activities have been delegated to a processor, the controller remains responsible for the entirety of the data processing activities towards the data subject, i.e., the individual whose data is being processed. The data controller also remains responsible towards the data protection authorities (‘DPAs’). If the DPAs need to intervene, they will address themselves to the data controller and not the processor.

b) Lawfulness of the processing

11.11 The EU Data Protection Directive is based on a number of principles. One of the key the Directive which distinguishes between legal bases for regular personal data and more narrow legal bases for sensitive personal data, such as health data. The most common legal basis for data controllers to rely on are: 1. Consenti.e., based on complete and clear information) and freely given (i.e., 2. Necessity of the processing for the performance of a contract to which the data subject 3. 4. A catch all basis referred to as the ‘legitimate business interest’ of the controller, with the caveat that these interests must be weighed against the equally legitimate privacy interests of the individual.

8 Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector, OJ 2002 L201/37.

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11.12 There is no formal hierarchy amongst the different legal bases. Traditionally, most companies have relied on consent but this tendency is changing, mainly because regulators increasingly insist that the conditions imposed on consent by the Directive (consent must be informed and freely given) are not met.9 For instance, regulators take the position that there is no such thing as a freely given consent in an employer/employee relationship, and therefore show increasing reluctance to accept that the consent of the employees is a proper legal basis for the employer to collect and process personal data from his employees. Also, if there is a legal basis other than consent on which the data controller can rely, such as a legal obligation to collect certain information, the data controller should not seek consent as it creates the false impression with the data subjects that they actually have a choice, including the choice to refuse, which of course they do not since the data controller is in fact relying on another legal basis. Requesting consent in such circumstances is viewed as misleading.10

c) Purpose limitation

11.13 The Directive further provides that personal information may only be collected for a “spec- on the purposes for which data may be processed. Any processing that goes beyond the originally determined purpose is unlawful and may trigger the intervention of the regulator.

11.14 Because of the purpose limitation, companies are limited in what they can do with the personal information they possess. In particular, they must resist the temptation to exploit the vast amount of information they often collect during their normal course of business, even though this information is potentially commercially valuable for the companies themselves or others. For example, a car dealer may not make available the personal data of its customers to an insurance company, which of course is interested in obtaining this data for advertising of its car insurance products, because the purpose for collecting the customer’s contact details is to perform the purchase agreement. Only if the customer has been informed and has agreed at the time of the purchase, that his contact details may be passed on to third parties such as insurance companies, can the car dealer pass on the information and the insurance company use the information in a lawful manner.

d) Proportionality

11.15 Another bedrock principle of data protection law with large practical implications is the principle that that every data processing activity has to be proportionate. The Directive prohibits any processing that is ‘excessive’ in relation to the purposes for which the data is collected. In other words, do not collect too much information and do not keep it for longer than necessary. Also, if there is more than one possible way to reach a particular goal, choose the least privacy intrusive way.

9 For a detailed analysis on the legal bases used in the context of processing operations carried out by pharmaceutical companies, see further under Section 5 of this chapter. 10 Article 29 Working Party, Working Document on the processing of personal data relating to health in elec- 13 July 2011.

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11.16 It is worth highlighting that the principle of proportionality always applies, regardless of the legal basis on which a data controller is relying to justify the collection and processing of personal data. This means, among others, that consent of the data subject is not a blank cheque - even if the data subject has consented, the data controller must follow the proportionality principle and, for instance, not collect more data than necessary, not keep it longer than necessary and chose the least privacy intrusive approach.

e) Transparency

11.17 Another key component of the Directive is transparency. Transparency means that any collection and processing of data must be carried out openly and fairly. Companies are legally collection and processing that is about to be carried out. Any failure to provide accurate and complete information endangers the subsequent processing of the data, among other reasons

11.18 The required level of information depends on the actual circumstances of the data processing. As a rule of thumb, the less obvious or expected the processing and use of the data is to the data subject, the more detailed the information to be provided to the data subject must be. The Directive provides the following guidance as to the kind of information that must be provided to the data subject at the moment of collection of the data: 1. 2. Purposes of the processing for which the data is intended 3. Recipients or categories of recipients of the data 4. Existence of the data subject’s right of access to and the right to rectify the collected data

11.19 The information needs to be presented in a clear and intelligible manner to data subjects.

4. International data transfers

11.20 The transfer of EU data to countries outside the EU11 is subject to particularly strict rules. With a view towards protecting the rights of EU citizens in the best possible way, the Direc- tive generally prohibits, subject to very limited exceptions, every transfer12 of personal data to a ‘third country’ (i.e., a country outside the EU) unless that country ensures an ‘adequate level of protection’ for privacy rights. The decision whether or not a country offers an adequate level of protection can only be taken by the European Commission after a lengthy procedure. To date very few countries have achieved adequacy status.13 Similarly, companies that certify to and apply the EU-US Safe Harbor Agreement are deemed to provide an adequate level of protection, subject to the limitations of the EU-US Safe Harbor Agree-

11 Technically this should read: outside of the European Economic Area (‘EEA’) which is comprised of the 27 EU member states plus Norway, Lichtenstein and Iceland. Switzerland is not part of the EEA but its data protection law is very similar to that of the EU, including the data transfer restrictions. 12 Please note that providing remote access to data to a person residing outside of the EU equals a data transfer in the eyes of the data protection regulator. 13 Andorra, Argentina, Australia, Canada, Switzerland, Faeroe Islands, Guernsey, Israel, Isle of Man, Jersey, New Zealand and Uruguay.

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ment. The Agreement is limited to transfers from the EU to the US. Transfers to countries other than the US are not covered by the Safe Harbor Agreement.

11.21 Absent adequacy, companies can put in place a contract, referred to as ‘model contract clauses’, between the EU based data exporter(s) and the data importer(s). These clauses intend to bind the non-EU recipient(s) of the data to a level of protection equivalent to that in the EU. These clauses are drafted by the European Commission and cannot be changed. type of data and the purposes of the transfer. Even though the terms of the model contract the authorities and a limited number of countries moreover require that the companies wait for authorisation from the relevant authorities before initiating the transfer of data. This a Data Protection Regulation that would replace the current Directive.14

11.22 Recently, the EU developed a new mechanism for international transfers within a group of companies, the Binding Corporate Rules (‘BCRs’).15 Companies that adopt BCRs commit to apply their corporate data protection rules to European personal data regardless of the location within the group where data is being processed. BCRs only apply internally within the company and do not cover the disclosure of personal data to third parties or service providers outside the company. BCRs must be approved by the EU Data Protection Authorities (‘DPAs’) of all the countries where the company has a covered establishment, which is still a fairly lengthy process. Moreover, some DPAs consider that even with a BCR each individual transfer outside the EU still requires an authorisation. So far, only large companies have adopted BCRs, including some pharmaceutical companies. The pending Proposal for for BCRs, which is likely to foster their uptake.

5. or databases

11.23 Subject to several exceptions and exemptions, data processing activities or databases must likely will be abolished once the pending Proposal for a Data Protection Regulation has -

6. The Future of EU privacy law: the general data protection regulation

11.24 The EU is currently in the process of reviewing Directive 95/46/EC. In January 2012, the European Commission presented its Proposal for a General Data Protection Regulation,

14 of this Chapter. 15 third countries: Applying Article 26 (2) of the EU Data Protection Directive to Binding Corporate Rules for International Data Transfers (WP 74), 3 June 2003, and then further elaborated and developed in WP 108, WP 153, WP 154, WP 155, and WP 195.

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which is intended to replace Directive 95/46/EC.16 The Proposal which is very controversial, is currently being reviewed in the European Parliament and the Council. Its primary aim is to update the existing Directive from 1995 and address new privacy challenges arising from the internet and the digital economy.

11.25 The Proposal calls for a regulation which means the new rules would be directly applicable would address one of the chief criticisms of the existing EU data protection regime, namely that EU Member States have often implemented the Directive in divergent ways leading to burdensome ‘national’ differences.

11.26 Although the current version will almost certainly undergo numerous changes throughout the legislative process, it seems for now that the new Regulation (which contains more than 90 articles) will adhere to the general principles of the existing privacy regime, but will also include a number of new concepts: 1. Higher sanctions: along the same lines as sanctions for infringements of EU compe- enterprise’s annual worldwide turnover. 2. Different test for extra-territorial application of EU privacy law to non-EU companies that ‘direct’ their processing activities toward data subjects residing in the EU or whose activities serve to monitor the behaviour of data subjects. The current ‘use of means’ test would be abolished. 3. Further limited use of consent as a legal basis: consent cannot be used as a legal basis between the position of the data subject and the data controller” exists. 4. - vacy impact assessments and others). 5. 6. Mandatory privacy by design. 7. New rights for data subjects: the draft proposal contains a heavily caveated ‘right to be forgotten’ according to which a data controller must render certain data inaccessible, and ‘a right of data portability’.

B. DATA PROTECTION IN THE PHARMACEUTICAL SECTOR17

1. Laws and codes of conduct

11.27 Like any other economic sector in the EU, the pharmaceutical sector is subject to EU data

16 17 Portions of this chapter have been updated from an article previously published: K. Van Quathem, ‘Con-

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operations in the pharmaceutical sector are similar to the processing operations in other sectors (e.g., processing of employee data for human resources purposes or the processing of vendor data for accounting purposes).

11.28 protection laws presents particular challenges. For example, clinical research conducted through clinical trials, almost inevitably involves the collection and use of data related to the sector is subject to detailed reporting obligations on the safety of its products – the so-called ‘pharmacovigilance’ obligations which involve the collection of health data.

11.29 The often sensitive nature of the pharmaceutical sector’s operations has led to the development of an extensive regulatory framework. This is also true in the area of data protection. While general data protection laws apply also to the pharmaceutical sector, many Member States have created add-ons that concern more sensitive areas, such as medical research.

11.30 The approach taken by the Member States to create these add-ons differs. In Germany, for example, data protection in clinical trials is almost exclusively addressed by the Medicines Law (Arzneimittelgesetz) instead of the Federal Data Protection Law (Bundesdatenschutzge- setz but those rules have been incorporated in the dedicated chapter of the data protection law (Loi informatique et libertées).

11.31 In other Member States, industry groups have developed sector codes of conduct often with the support of the national data protection authorities. In The Netherlands, for example, the DPA approved the Nefarma Code on clinical trials in 2002 and 2010.18 In Spain, Pharmain- dustria adopted an extensive code of conduct on data protection in clinical trials, which also received support from the Spanish DPA.19

11.32 Having to comply with this plethora of laws, regulations and guidelines in complex research settings sometimes frustrates researchers, prevents collaboration and data exchange, and from Obstruction to Construction”.20 That said, real obstruction should be rare, provided companies are diligent and forward-looking in complying with their data protection obligations.

18 Dutch Data Protection Authority, Decision of 26 April 2010, Goedkeuring van de Gedragscode inzake het verwerken van persoonsgegevens van de Nederlandse Vereniging van de Research-georiënteerde Farma- ceutische Industrie (Nefarma). 19 Código tipo de Farmaindustria de protección de datos personales en el ámbito de la investigación clínica y de farmacovigilancia. 20 Conference organized by the Belgian Data Protection Authority on 23 November 2010 (http://www.privacy- commission.be/nl/evenementen/congres-privacy-en-wetenschappelijk-onderzoek).

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11.33 As indicated above, the research and commercial practices of the pharmaceutical sector

a) Clinical trials

11.34 Clinical trials are at the heart of the pharmaceutical industry’s research and development and safety testing. This testing requires experimenting with new substances on humans and collecting relevant information from such experiments. The conduct of clinical trials has been the subject of strict regulation for many years. On an international level, the non-binding Helsinki Declaration established the basic principles.21 In addition, the International Conference on Harmonisation (‘ICH’) developed “Good Clinical Practices” setting out very detailed rules on the many aspects of clinical trials. At the EU level, the Clinical Trials Directive (currently under revision) sets out a standard for the EU and serves as a basis for making the Good Clinical Practices mandatory. 22

11.35 As a general rule, clinical trials involve three main parties. First, there is the ‘trial subject’ or patient on whom a substance will be tested and whose data will be collected. Second is the ‘investigator’, the doctor who executes the trial, often in a hospital. Third is the ‘sponsor’, the pharmaceutical company that develops a drug and wants it tested. In addition to these three parties, ‘ethics committees’ evaluate trials and approve them, and pharmaceutical inspectors supervise the correct implementation. Finally, sponsors often engage clinical research organizations (‘CROs’) to the monitoring of the trial to ensure it is conducted properly, but it can also extend to the monitoring, collecting and preparing research data, etc.).

11.36 subjects (the source data). This data is key-coded by replacing the patient name and sometimes birth date by a code (e.g., based on initials and birth year or just an random number). The investigator holds the key that matches the code to a trial subject. The coded data are then shared with the sponsor. The sponsor, CRO and competent authorities may have on- site access to the (nominative) source data to verify that the trial is conducted properly (e.g., to ensure that all necessary consents have been obtained). However, neither the sponsor

11.37 Save exceptional circumstances, clinical trials are conducted on the basis of the informed consent of the trial subject. In most cases, this consent also covers the lifting of the in-

21 World Medical Association (‘WMA’), Declaration of Helsinki on Ethical Principles for Medical Research Involving Human Subjects, adopted by the 18th WMA General Assembly, June 1964. 22 Directive 2001/20/EC of the European Parliament and of the Council of 4 April 2001 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the implementation of good clinical practice in the conduct of clinical trials on medicinal products for human use, OJ 2001 L-121, p. 34.

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documents) and the collection and processing of sensitive personal data (e.g., health and genetic data) by the sponsor.

b) Pharmacovigilance

11.38 Pharmacovigilance refers to the extensive regulatory framework governing the safety of medicines. 23 Companies conducting clinical trials or receiving an authorisation to market their medicines have an obligation to collect any available information on the safety of their products and to regularly report this information to competent authorities.

11.39 In practice, pharmaceutical companies collect this information in a variety of ways. In clinical trials, the investigator reports adverse effects. For products on the market, physicians inform pharmaceutical companies of side effects shown by patients. They use dedicated forms to that effect, which generally only identify the patient with a code. In addition, pharmaceutical companies collect pharmacovigilance data from patients who may contact them directly and by monitoring specialised publications.

11.40 It is important for pharmaceutical companies that pharmacovigilance reports can be linked - ety of channels by which safety reports can be collected, it is not uncommon for a company to receive several reports on the same incident involving the same patient. Such duplica- tions must be avoided as it might exaggerate the safety concerns surrounding a medicine and result in undue restrictions on its allowed use.

c) CRM databases

11.41 The sales of medicines is heavily regulated in the EU. Many medicines can only be sold by pharmaceutical companies. As a result, many marketing campaigns in the pharmaceutical sector focus on the prescriber rather than the user. Companies develop sophisticated infor- their medicines.

11.42 Market intelligence is an essential element of such tailored marketing campaigns. Success- ful campaigns depend on knowing who you are dealing with, which physicians are more likely to prescribe your product, what information is most likely to convince them, etc. The vast majority of companies therefore hold and/or purchase sophisticated customer relationship management (‘CRM’) databases containing information on physicians and feed these publications. The data in those databases obviously constitutes personal data, even though some of the data is publicly available (e.g., name, specialty, professional address and contact details of the physician).

23 Regulation (EU) No 1027/2012 of the European Parliament and of the Council of 25 October 2012 amending Regulation (EC) No 726/2004 as regards pharmacovigilance, OJ 2012 L-316, p. 38.

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C. DATA PROTECTION LAW IN THE PHARMACEUTICAL SECTOR IN PRACTICE

1. Concept of personal data

11.43 - sonal nature and subject to the law, or it is not and therefore not subject to the law. In many cases, the situation will be quite clear. A CRM database containing names and addresses of physicians, clearly contains personal data. In contrast, generic data and most statistical data will usually be considered anonymous. But what about key-coded clinical trial data and key-coded pharmacovigilance data?

11.44 the least because of the controversy in the area of information technology applications and clinical trials, health data incorporated in case report forms are key-coded by the investigator in line with a procedure set out in the research protocol. There are no standardised methods for key-coding patient data. Companies use different techniques ranging from randomly allocated numbers to numbers based on the initials and/or birth date or year of the patient. The investigator holds the key and only discloses coded data to the sponsor in the case report forms.

11.45 European data protection laws and regulators adopt diverging positions on the status of such point of contention relates to the Data Protection Directive’s provision that for assessing the status of data, account must be taken of the means reasonably and practically available to identify data subjects, taking into account cost and time. Regulatory authorities seem to disagree about the question whom those means should be made available to: only the entity holding the data or ‘anyone else’ (as provided in Recital 26 of the Directive). In other words, in order to determine if the key-coded data held by the sponsor is personal data for the sponsor, do we only have to consider the ability of the sponsor to identify the patient (using reasonable means), or also the ability of the investigator?

11.46 - sonal data of reversibly key-coded data. If only the ability of the sponsor to identify a patient is considered, one could conclude that the sponsor will not succeed if the data is adequately key-coded and if the sponsor cannot otherwise identify a patient.24 However, if the ability of the sponsor and anyone else is considered, reversibly key-coded data held by the sponsor is always personal data, because someone (i.e., the investigator) can de-code the data, and quite easily so.

11.47 The Article 29 Working Party 2007.25

24 For example, in case of very rare diseases or extremely old age, the patient group can be so narrow that iden- 25 Art. 29 Working Party, Opinion 4/2007 on the concept of personal data (WP136), 20 June 2007.

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element for our discussion.

11.48 The Working Party extensively discusses the complex issues surrounding data on (indirect- is covered by European data protection law. In particular, the Working Party discusses Recital 26 of the Directive, which provides that in order to evaluate the nature of indirectly controller or anyone else”.

11.49 data, all factors at stake should be taken into account: the intended purpose of the data, the subjects concerned, and the available state of the art technological processes to identify individuals on the basis of the available data.

11.50 The Working Party stresses the importance of the ‘purpose’ pursued by the entity that holds the data. If data is being held with the purpose of identifying someone or being able to do thus serve two distinct objectives depending on the purpose for which the data is used: 1. measure (key-coding) is a security measure – a ‘consequence’ of Art. 17 of the Data 2. - nical measure (key-coding) is a ‘condition’ for the data not to be considered personal data.

11.51 The Working Party’s opinion gives two practical examples to illustrate its analysis. First, a company that receives key-coded patient data from a physician (presumably in a registry) may be considered not to be processing personal data, provided the data does not allow for

11.52 Second, and in contrast to the above, key-coded clinical trial data should generally be considered personal data. The difference is that the key-coding in clinical trials is meant to pharmaceutical company has construed the means for the processing, including the organisational measures and its relations with the researcher who holds the key in such a way that may happen, but rather as something that must happen under certain circumstances”. However, the Working Party points out that this key-coded trial data should not always be considered personal data. Indeed, the same key-coded data may be used by entities who will never have a need, interest, or possibility (because of technical, organisational and legal protections) to identify patients. While the Working Party does not offer examples, one may think of cases where a sponsor shares the key-coded trial data with a partnering company cooperating in the research into the development of a drug. If this partnering company has no formal role in the trial (and thus no responsibility), it will have no reason to identify the patients, and may thus be considered as not processing personal data.

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11.53 In the case of clinical trials, the Working Party’s bottom line seems to be that trial data should be considered personal data for those who may have access to the key (or nominative source data) in certain circumstances, and thus to most parties directly involved in a trial, such as the sponsor, the CRO, and obviously the investigator.

11.54 in the context of clinical trials continues to vary. In countries like Belgium, France, Italy, Portugal and Sweden, key-coded clinical trial data is generally considered personal data. In countries such as Germany and the UK, the situation is analysed on a case-by-case basis, while in countries such as Spain and the Netherlands, key-coded clinical trial data is typically not considered personal data. One of the objectives of the ongoing revision of the Data

2. Responsibility

11.55 The allocation of responsibility under applicable data protection laws will be obviously depend on whether certain data is considered personal data or not. For CRM databases, the pharmaceutical companies using those databases will be responsible for compliance and be considered the data controller. But what about clinical trials and pharmacovigilance? Given the number of parties involved and the uncertain nature of the data, it is not always easy to allocate and clearly delineate responsibility.

11.56 The responsibility of the sponsor will be determined in part by the data it collects and uses. As indicated above, key-coded data increasingly seems to be considered personal data, either because of the amounts of data available to the sponsor, the characteristics of the (regulatory) environment in which trials are conducted, or the investigator’s ability to reverse the code. As a logical result, sponsors are increasingly considered data controllers, subject to the data protection law.

11.57 CROs, on the other hand, are hired by the sponsor to perform a variety of functions. In some cases, their role is limited to a monitoring function, in which they mainly verify the proper implementation of the trial by the investigators and their teams, and the accuracy of the data included in case report forms. In other cases, they play a more prominent role and are paid by the sponsor to conduct most aspects of the trials. CRO are most often considered data processors of the sponsor. French, Italian and Portuguese guidelines explicitly support performs its tasks, through appropriate contractual measures and regular supervision and audits. The Italian Garante’s guidelines, however, clearly warn sponsors that if they do not take their responsibility towards their CROs seriously, CROs may morph into data controllers, with all possible adverse consequences in terms of the legality of disclosures to CROs, and the legality of their use of patient data.

11.58 The position of the investigator is more delicate. On the one hand, the investigator is subject to very strict rules, controls, and contractual obligations imposed by the sponsor, which investigators have their own professional responsibility, have a direct relationship with the patient (the data subject), and are actively involved in the set-up of a trial, which support a -

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troller is most common. This has been supported by the Italian Garante in its consultation document which states that “the individual trial facilities and sponsor companies in general have distinct responsibilities with autonomous actors”.

3. Consent or not?

11.59 As indicated in the introductory chapter, under EU data protection law, any processing of legal bases can be found in the EU Data Protection Directive (and the upcoming Regula- tion), which distinguishes between legal bases for personal data and more narrow legal bases for sensitive personal data, such as health data. In both cases, consent is one of the which may or may not be available depending on the circumstances. In the absence of consent, personal data may be processed for the execution of a contract (e.g., a consulting agreement with a HCP), because of a legal obligation (e.g., pharmacovigilance obligations or document retention obligations) or in the vital interest of the individual (e.g., emergency procedures or emergency clinical trials). Finally, non-sensitive data can be processed for a legitimate business interest, provided this interest is not outweighed by the privacy interests of the individuals concerned. This legal basis requires companies to balance their interests against the interests of the individuals involved. For example, do the privacy interests of an HCP outweigh the legitimate interests of a pharmaceutical company to collect and hold publicly available data on the HCP for outreach purposes? Probably not, although the assessment can vary from one Member State to another. In any event, it is clear that consent is by no means a necessary condition for the processing of personal data in all circumstances.

11.60 The use of consent is further limited by the conditions imposed on its use. The EU Direc- tive provides that consent must be informed and freely given. The proposed Regulation subordinate position and thus not in a position to freely consent (e.g., an employee in respect of his or her employer). The question of how free consent can or must be continues to be a against data, etc.). But in the research area this question can also raise concerns. For example, what is the quality of someone’s freely given consent to participate in a clinical trial if - ments in his or her general well-being? Did the patient consent freely in this case? In some countries, such as France, the question was important enough to replace patient consent by an authorisation of the data protection authority. In that case, trial participants no longer consent to the collection of their data in clinical trials (they do consent to participate in the trial, as required by clinical trial rules). Instead, a public authority assesses the trials and data collection methods and consents on behalf of the patients, through an authorisation.26

11.61 Various other national laws also contain provisions that allow for the collection of (sensitive) data for research purposes, without consent. These research exemptions are often accompanied by conditions, such as authorisation by competent authorities or data minimi-

26 The French approach is nevertheless ambivalent because consent is required for the collection of genetic data. For the most sensitive data processing operations (and the one of which the potential impact is most

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zation obligations. However, these rules are often vague and not harmonised, which makes them ill-suited for multi-site research projects. For this reason, most clinical research is still performed on the basis of consent, at least when such consent can be easily obtained. The proposed Regulation could bring about some important changes as it harmonises the research exemption and provides that personal data, including sensitive data, may be used for the research purposes, without consent, if (i) the research aims cannot be achieved by the need to obtain consent for the processing of personal data in clinical trials. Unfortunate- ly, matters may not be that simple, as discussed below.

4. Purpose limitation

11.62 One central tenet of European data protection law is that personal data must be collected and research under appropriate safeguards.27 These safeguards for secondary use (or further use) have not been harmonised and sometimes impose heavy regulatory requirements.28 - sequences. For HR and CRM data, secondary use is rarely an issue because employee HCP data are collected for precise but fairly broad purposes. In the research area, however, secondary use is much more common.

11.63 Clinical trials, for example, often rely on personal data drawn from patient records. Those the special safeguards set out by Member States. However, sponsors design clinical trials - search. The end result is a data set of which some data (from the pre-exiting patient record) subject to primary use rules. In practice, this distinction is seldom made and all the data is collected and used on the basis of patient consent, irrespective of whether the use constitutes a primary or secondary use. This begs the question how broad a patient consent can be?

11.64 A broad consent results in a broad primary use (e.g., consent to the use of my health data - ment, in particular where the data involved is sensitive and a higher level of precision on the purpose may be expected. Most Informed Consent Forms therefore tend to narrow the primary use consent to uses for research in the particular condition (e.g., Alzheimer disease) or the particular compound under investigation.

27 Directive 95/46/EC, Art. 6(b). 28 See, for example, the regime set out by the Belgian Royal Decree of 13 February 2000, which imposes a complicated set of obligations, including the use of trusted third parties, depending on the nature of the personal data used (coded versus nominative).

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11.65 The European Commission’s proposed Regulation may have an important impact on sec- - tions do not include research, this probably means that a new consent would be required for any further use of personal data for research purposes. Interestingly, for sensitive data, including health data, the proposal is silent on the subject of further use. The meaning of this omission is not entirely clear. Does this mean that no secondary use of health data is allowed? That seems too stringent as it would seriously undermine many research opportu- for primary use? But then the rules for sensitive data would be more relaxed than for ordinary data. It would mean, for example, that secondary use of health data is allowed on the basis of the very broad research exemption, so without consent. Further guidance from the regulator on this important issue would be desirable.

5. Transparency

11.66 As indicated above, European data protection laws heavily emphasise transparency and rights of individuals. In a pharmaceutical context, these obligations and rights sometimes pose unique problems.

11.67 Informing individuals of the processing of their data (i.e., notice) is fairly straightforward for CRM database. Those databases are developed for the precise purpose of reaching out to health professionals and informing them about the use of their personal data and should not present insurmountable problems. Such information can be imparted in a dedicated letter or through inserts in other communications with health professionals.

11.68 Similarly, in clinical trials, patients can easily be informed through the informed consent forms they have to sign before entering a study. These forms contain dedicated sections on the collection of health data and the rights of patients in respect of their data. However, in some cases for new research (further use of data). In principle, individuals must be informed about such new use, but this is often impossible or very hard to do (the sponsor may not have their names, study participants may have moved or passed away, etc.). Data protection laws often contain exemptions that allow for such use of data for research purposes, under certain conditions. As indicated above, the conditions can take different forms and include such things as excluding data of persons who opposed further research, the non-reversible coding or anonymisation of data, or obtaining an authorisation from the data protection authority.

11.69 In the context of pharmacovigilance, the transparency obligation is a thorny issue despite the legal obligation of companies to collect this data. For example, it is not easy for an authorisation holder to inform a patient that (coded) data about him or her is being processed in this context, if the authorisation holder received this information from other sources (e.g., a physician). In this case, the authorisation holder will have no choice but to rely on the physician to impart the necessary information to the respective patients.29

29 See French authorisation requirement for the processing of personal data in pharmacovigilance. Délibération n° 2008-005 du 10 janvier 2008 portant autorisation unique de mise en œuvre par les entreprises ou organ- ismes exploitants de médicaments de traitements automatisés de données à caractère personnel relatifs à la gestion des données de santé recueillies dans le cadre de la pharmacovigilance des médicaments postérieure- ment à leur mise sur le marché, n° 39, 15 February 2008.

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11.70 - cant problems. That said, a physician asking access to the information about him or her in a company’s CRM database can be very embarrassing depending on the liberties taken by company representatives in documenting their relationship with the respective physician. - icant PR concerns.

11.71 In the research area, the rights of individuals raise concerns in two main areas: blind studies and the consequences of the right of opposition. In blind studies, a group of patients receive a placebo in order to eliminate the impact of bias from test results. However, if patients can use their right of access to learn what substance they have received, blind studies would become impossible. At the same time, the right of access is often considered a central piece of data protection law to which very little exceptions can be accepted. In some countries, such as France, the right of access has been interpreted to supersede the research interest of sponsors. Patients have a right of access and may request the un-blinding of their data, although exercising this right will exclude them from further participation in the study.30 Other countries, such as Belgium, accept that in certain circumstances and with the initial consent of the individual, the right of access can be postponed.31

11.72 Similarly, the right of opposition and the withdrawal of consent can have serious consequences. It is generally accepted that such opposition or withdrawal of consent has no retroactive effect – it does not require the deletion of already collected data (unless the collection study sponsors and physicians to retain data. Moreover, such deletion of data would allow unscrupulous researchers to manipulate results by encouraging ‘bad patients’ to exercise their rights and remove them from the study. A more complicated question concerns the use of the information already collected. Clearly, it should serve to demonstrate the proper implementation of the study and to demonstrate the integrity of the study results. But can it be used for actual research? It probably can. The recently proposed data protection regulation, which contains an expanded right of opposition in the form of a ‘right to be forgotten’ limits this latter right by legal retention obligations and research.32

11.73 - monised European approach has encouraged individual Member States to adopt their own laws. In 2009, for example, the German data protection law was amended to introduce a 33 The obligation applies to the unlawful disclosure of certain types of data, including sensitive data (such as health data), unless the

30 Code de la santé public, Art. L 1111-7. 31 Belgian Data Protection Law of 8 December 1992, as amended, Art. 10§2. 32 33 Bundesdatenschutzgesetz, para 42a.

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Such a risk can be avoided, for example, by ensuring that data is suitably protected against access by unauthorised persons through technical means, such as encryption. Whether the circumstances of the case, including the method of key-coding, and the ability of unauthorised parties to identify the affected individuals.

8. International transfers

11.74 The restrictions on international transfers of personal data are among of the most comment- ed and criticised aspects of European data protection law. Like any other sector, they also seriously affect the pharmaceutical sector. For most pharmaceutical companies, international transfers of employee data, HCP data and research data is essential for their business operations. Those transfers are often geared to company headquarters or serve providers in third countries, such as the U.S. or India. Sometimes the transfers serve to render data e.g., a centralised employee or HCP database), while in other cases the transfers are necessary to meet regulatory requirements (e.g., the submission of medical data for product authorisations in third countries).

11.75 As explained in the introductory part of this chapter, the methods used to frame a transfer purpose of the transfer, and the countries of destination.

11.76 An additional word on the exemptions foreseen in art 26 of the Directive needs to be added. Those exemptions need to be used with caution and they often are less promising than they sound. For example, transfer restrictions can be overcome for HCP data if the transfer is necessary to perform a contract, such as making payments to an HCP for consulting services. Similarly, the transfer of pharmacovigilance data may be acceptable, if such transfer is necessary to meet a legal obligation. The latter example, however, also demonstrates the limitations of relying on the exemptions, which are interpreted narrowly. Regulatory authorities have argued that the legal obligations that underlie a transfer must be European obligations, not foreign obligations. As a result, pharmacovigilance data (assuming it is in a form that would constitute personal data) could only be transferred internationally on the basis of this exemption if European law or the national law of a Member States requires such transfer, not because U.S. law requires it.34

11.77 The narrow interpretation of the exemptions has also been applied to the use of consent for international transfers of personal data. European data protection authorities have argued that consent should only be used in exceptional circumstances and not for regular bulk transfers. This interpretation is based entirely on the idea that exemptions must be interpreted narrowly but has no explicit basis in the Data Protection Directive.35

34 Article 29 Working Party, Working document on a common interpretation of Article 26(1) of Directive 95/46/ EC of 24 October 1995 (WP114), 25 November 2005, p. 15. 35 Ibid., p. 11.

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11.78 As indicated in the introductory chapter, as an alternative to the exemptions, a company can put in place protective measures that overcome the restrictions, such as transfer contracts or binding corporate rules.

11.79 In practice and despite regulators’ criticism of the use of consent, in the research area, consent is still often used to overcome transfer restrictions, partly because consent must be predict to which countries the data may be transferred, for example, to obtain product authorisations. In such cases, the Safe Harbor mechanism, transfer contracts and even BCRs do not offer a practical solution (BCRs only cater to internal company transfers, not transfers to public authorities in third countries). Many U.S. pharmaceutical companies have to their U.S. headquarters and onward transfers from there.36

11.80 The European reporting obligations also affect the pharmaceutical sector in many ways. The EU Directive allows Member States to subject the processing of personal data to a transparency of data processing in the EU. In some cases, the processing of personal data may be subject to an authorisation, in particular the more sensitive processing operations (e.g., health data, and biometrics). The requirements vary considerably from one Member State to another. In France, for example, the sponsor of a clinical trial must obtain an authorisation from the Data Protection Authority (‘CNIL’)37, whereas in Belgium the same to data protection law.

36 The agreement and a list of registered companies can be found on the website of the U.S. Department of Commerce (http://export.gov/safeharbor).

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A. OVERVIEW OF BRIBERY ACT 12.11 2. US enforcement actions 12.68 1. Jurisdiction 12.12 a) 12.68 b) Smith & Nephew plc 12.77 2. Offenses 12.14 c) 12.82 3. Adequate procedures defense 12.19 d) Eli Lilly 12.88 4. Penalties and other consequences 12.20 e) Other potential settlements with life sciences companies 12.93 B. OVERVIEW OF THE FCPA 12.23 D. RISK AREAS AND ANTI-CORRUPTION 1. Jurisdiction 12.26 CONTROLS 12.95 2. Anti-bribery provisions 12.32 1. Distributors, sales agents, 3. Accounting/Financial control provisions 12.38 joint venture partners and 4. 12.41 other representatives 12.97 2. Consulting agreements, studies, 5. Penalties and other consequences 12.46 clinical trials, opinion leader groups C. RECENT EUROPEAN LIFE and advisory panels 12.101 SCIENCES ANTI-CORRUPTION 3. Medical congresses and ENFORCEMENT ACTIONS 12.49 other educational grants 12.106 1. Recent European life sciences 4. Sales incentives and pricing 12.110 anti-corruption enforcement actions 12.50 5. Travel, gifts, meals, and entertainment 12.114 a) DePuy International Limited 12.51 6. Charitable donations 12.118 b) R v Dougall 12.55 7. Product registration, shipping, and customs 12.121 c) 12.59 8. Acquisitions 12.124 d) 12.65 E. CONCLUSION 12.129

12.01 - Practices Act (‘FCPA’) and another £4.83 million for violating the UK anti-bribery laws. With at least ten other pharmaceutical and medical device companies reporting investigations by US government authorities, additional large settlements are likely in the future.

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12.02 Moreover, the Chinese government’s recent targeting of multinational pharmaceutical companies presents an additional enforcement risk: prosecution under domestic Chinese law, in addition to potential exposure under the UK Bribery Act (the ‘Bribery Act’), FCPA and anti-bribery statutes in other countries.1

12.03 Why has the life sciences industry become a magnet for anti-corruption enforcement? Be- cause doctors and other professionals who work for public hospitals outside the US are con- 2 Accordingly, transactions in which companies provide something of value to a Health Care Professional (‘HCP’), such as a consulting contract, a trip to a medical congress or a subscription to a pharmaceutical journal, can be fraught with risk.3

12.04 In addition, governments around the world having limited resources are naturally tempted and using the levers that are available to them to exert downward pressure on the cost of both medicines and medical devices.

12.05 As Lanny Breuer, former head of the criminal division at the US Department of Justice (‘DOJ’) and once again a Covington partner, has stated:

[…] under certain circumstances and in certain countries, […] nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug industry competition and the closed nature of many public formularies, creates, in 4

12.06 Green, announced that the SFO will begin ‘proactive sweeps’ of key sectors that are “most vulnerable to economic crime, such as construction and public contracts, oil and gas”.5 The

1 In late June 2013, the Chinese government announced that it had detained four senior executives of UK-based GlaxoSmithKline for alleged economic crimes including bribery of health care professionals. By September 2013, several other multinational pharmaceutical companies had announced that Chinese authorities had 2 As we explain below, although the FCPA focuses on public sector bribery, anti-bribery laws of other countries, including the Bribery Act, criminalize bribery in both the public sector and the private sector. 3 In that regard, a recent Transparency International survey report highlights how the pharmaceuticals and healthcare sector is perceived by 3,016 senior business executives from 30 countries around the world. On - sponds to a perception that they always do, the pharmaceuticals and healthcare sector scored 6.4. Transpar- ency International, (2011), 16-17. In our experience, enforcement authorities will often be guided by such data when they are deciding how to target scarce enforcement resources. 4 Lanny Breuer, Former Assistant Attorney General, Criminal Division, Prepared Keynote Address to the Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum, 12 November 2009, available at http://www.justice.gov/criminal/pr/speeches-testimony/documents/11-12-09breuer-phar- maspeech.pdf. 5 The Financial Times, ‘SFO Changes approach with aggressive scrutiny of key sectors’ (24 October 2013), available at http://www.ft.com/cms/s/0/01b12dbc-3cc9-11e3-86ef-00144feab7de.html#axzz2j0VBn76a.

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with the National Health Service within the United Kingdom and other countries’ public health systems.

12.07 Although a life sciences company is permitted to enter into contracts with and provide in exchange for the HCP’s purchasing or prescribing the company’s products or providing some other advantage to the company. Otherwise, the company may face an anti-corruption enforcement action by UK, US and other regulators.

12.08 In fact, Breuer announced to a Pharmaceutical Regulatory and Compliance conference in 2009 that the DOJ would be “intensely focused on rooting out foreign bribery [in the life sciences] industry6”. Life sciences companies are thus under increasing pressure to ensure - ence in an improper manner HCP purchasing or prescribing decisions.

12.09 This chapter will provide an overview of the Bribery Act which entered into force in July 2011, followed by an overview of the FCPA. The chapter will then review recent anti-corruption enforcement actions against European and US life sciences companies that have been penalized for improper conduct in Europe. As will become clear from the cases discussed in that section, the long arms of UK and US enforcement authorities frequently reach to life sciences companies that are doing business in Europe.

12.10 Finally, the chapter will review the predominant risk areas for life sciences companies and to prevent or quickly detect improper conduct. Although focused on the Bribery Act and FCPA, the recommendations in this chapter should go a long way toward protecting life sciences companies subject to anti-bribery statutes in other countries.

A. OVERVIEW OF BRIBERY ACT

12.11 The Bribery Act, enacted in 2010, amended the UK criminal law to replace common law bribery offenses and several statutory offenses with a new, consolidated scheme of bribery offenses. The Bribery Act, which does not apply retroactively, took effect in July 2011. We are still in the early stages of the Bribery Act’s implementation and the lead enforcement agency for the Bribery Act, the SFO, continues to resolve actions against companies and individuals under older statutes for improper conduct that pre-dates July 2011. At the time of writing, the SFO has eight active Bribery Act cases.7

1. Jurisdiction

12.12 The Bribery Act applies to UK companies, UK partnerships, and other UK commercial organisations and to British citizens, nationals and residents. The Bribery Act also applies

6 Ibid. 7 Speech by David Green to the Cambridge Symposium (2 September 2013), available at http://www.sfo.gov. uk/about-us/our-views/director’s-speeches/speeches-2013/cambridge-symposium-2013.aspx.

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to non-UK companies, partnerships and other commercial organisations that “carry on a business, or part of a business” in the UK. Finally, the Bribery Act applies territorially to non-UK commercial entities and individuals when an act or omission forming part of the offense takes place within the UK.

12.13 business” in the UK, the Ministry of Justice (‘MOJ’) has published guidance suggesting that the Bribery Act would not apply to commercial organisations lacking a demonstrable business presence in the UK. For example, a mere listing on the London Stock Exchange or possession of a UK subsidiary may not automatically subject a company to the jurisdiction of the Bribery Act, according to the MOJ.8 However, the SFO - which is not bound by the jurisdiction.

2. Offenses

12.14 The Bribery Act creates four substantive offenses: bribing another person (Section 1), being (Section 7).

12.15 - tage” to another person, directly or indirectly, whenever the person intends the advantage to itself would be improper.

12.16 or other advantage in three circumstances: (1) when the person intends, as a consequence, that a relevant function or activity will be improperly performed (whether by that person or or another) of a relevant function or activity.

12.17 Section 6 prohibits a person from - directly or indirectly - offering, promising or giving any - by the offer, promise or gift.9

12.18 Finally, Section 7 creates a new offense for commercial organisations that fail to prevent bribes being paid on their behalf. Commercial organisations commit this crime if an ‘as-

8 Ministry of Justice, - isations Can Put Into Place to Prevent Persons Associated With Them From Bribing, para 36 (March 2011), available at http://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf.

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sociated person’ bribes another person to obtain or retain business or an advantage in the conduct of business for a relevant commercial organisation and they are deemed to have failed to implement ‘adequate procedures’ to combat bribery. An ‘associated person’ is someone who performs services for or on behalf of a commercial organisation. Employees are presumed to act for or on behalf of their employers, although companies can seek to rebut that assumption.

3. Adequate procedures defense

12.19 The Bribery Act allows commercial organisations to defend themselves from a Section 7 charge by proving they had implemented ‘adequate procedures’ to prevent associated persons from engaging in bribery. The MOJ guidance sets forth six principles for companies seeking to implement adequate procedures to prevent bribery.10 In brief, the six principles include: 1. Proportionate procedures: Employers should have bribery prevention policies and procedures that are clear, practical, accessible, effectively implemented and enforced. The type of policies and procedures should be proportionate to the bribery risk faced by a commercial organisation and its nature, size and activities. 2. Top level commitment: The ‘top-level’ management of a company must be committed to preventing bribery by persons associated with the company and must foster a culture within the company in which bribery is never acceptable. 3. Risk assessment: The organisation should carry out periodically documented assessments of the nature and extent of its exposure to internal and external risks of bribery on its behalf by associated persons. 4. Due diligence: Due diligence should be carried out in respect of persons who perform services on the organisation’s behalf to mitigate the risk of bribery. 5. Communication (including training): Internal and external communication, including training, should ensure that the organisation’s anti-bribery policies and procedures are embedded and understood by all associated persons. 6. Monitoring and review: Anti-bribery policies and procedures should be monitored and reviewed periodically by internal or external experts to ensure ongoing effectiveness and improvements made wherever necessary.

4. Penalties and other consequences

12.20

12.21 within the European Union, including public health services. In the United Kingdom, the Public Contracts Regulations 2006 (the ‘Regulations’) prevent public authorities from selecting as a contractor any commercial organisation that has been convicted under Section 1

10 Ministry of Justice Guidance, supra.

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or Section 6 of the Bribery Act. This mandatory debarment rule extends to other European Union member states pursuant to Article 45 of the EU Public Procurement Directive.11

12.22 The Regulations also give contracting authorities discretion to exclude from selection any commercial organisation that has been convicted of an offense under Section 7 of the Brib- ery Act.

B. OVERVIEW OF THE FCPA

12.23 The US Congress passed the FCPA in 1977 in response to Securities and Exchange Com- mission (‘SEC’) investigations that uncovered hundreds of millions of dollars in corrupt parties outside the US.12 The FCPA contains two sets of provisions: anti-bribery provisions 13

12.24 The anti-bribery provisions, which apply to a broad set of companies and individuals, impose criminal and civil penalties on covered persons who and entities that bribe non-US ‘issuers’ of securities in the United States, impose criminal and civil penalties on covered companies that fail to record accurately and in reasonable detail in their books and records payments that they have made or that fail to adopt an adequate system of accounting controls.

12.25 The DOJ and SEC share enforcement responsibilities under the FCPA.

1. Jurisdiction

12.26 The FCPA provides jurisdiction over three categories of entities and individuals: ‘issuers,’ ‘domestic concerns,’ and ‘any person’ who or that takes an act in the United States in furtherance of a corrupt scheme – that is, a scheme that violates the FCPA.

12.27 An ‘issuer’ is a company that trades its own securities or American Depository Receipts on - the FCPA apply to issuers.

12.28 The FCPA’s anti-bribery provisions also apply to ‘domestic concerns’, a category that includes non-issuers, partnerships and other entities organised under the laws of a US state

11 Directive 2004/18/EC OJ L134/114. 12 Criminal Division of the US Department of Justice and Enforcement Division of the US Securities and Ex- change Commission, A Resource Guide to the FCPA, page 3, available at http://www.justice.gov/criminal/ fraud/fcpa/guide.pdf . 13 15 U.S.C. §§ 78dd-1 et seq.

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or having a principal place of business in the United States. Like the issuer provisions, the employees and agents. Domestic concerns also include citizens, nationals and residents of the United States.

12.29 US-based issuers and domestic concerns can violate the FCPA even if the improper conduct lacks a US nexus. Non-US based issuers must make use of the mails or some other means or instrumentality of interstate commerce in furtherance of a corrupt scheme to be prosecuted under the FCPA.

12.30 In 1998, Congress amended the FCPA to add territoriality jurisdiction over ‘any person’ in the territory of the United States. US enforcement authorities have interpreted these territoriality requirements broadly, taking the position that transferring funds through a corre- spondent bank account in the United States or sending emails or faxes to the United States, 14

12.31 The FCPA therefore applies to many European companies, including both parent companies that trade ADRs on a US stock exchange and the US subsidiaries of companies that do not trade on a US exchange. US enforcement authorities also have charged non-issuer foreign subsidiaries under the theory that the foreign entity acted as an ‘agent’ of the issuer. As of October 2013, eight of the ten largest recoveries from FCPA enforcement actions had been involved European companies.15

2. Anti-bribery provisions

12.32 The FCPA’s anti-bribery provisions apply to every category of person and entity subject to the FCPA - issuers, domestic concerns and ‘any person’ taking in the United States an act in furtherance of a corrupt scheme. The FCPA makes it unlawful for covered individuals and entities corruptly to offer, pay, promise to pay or authorise the payment or offer of money purpose of obtaining or retaining business or securing a business related advantage. The the World Bank.

12.33 The scope of the FCPA anti-bribery provisions is broad in a number of respects. First, the intent can be inferred from the circumstances, including circumstantial evidence demon- his or her position.

14 A Resource Guide to the FCPA, page 11. 15 - -

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12.34 Second, the provisions prohibit the corrupt provision of ‘anything of value.’ In addition to companies, this broad interpretation means that the provision of travel, registration fees for congresses, free samples, consulting contracts, honoraria, journal subscriptions and many

12.35 non-US government or any department, agency or instrumentality thereof or of a public US government or government entity. US enforcement authorities have interpreted the - ernment-controlled entities, an interpretation that has been upheld by several US courts.16

12.36 with obtaining or retaining business, US courts have interpreted that requirement to include opportunities of the payor”.17 - toms or tax liability have been held to trigger FCPA liability even though the offer, promise, 18

12.37 Finally, the knowledge element of the FCPA has been interpreted broadly to include ‘willful blindness’ or ‘conscious disregard’ of likely FCPA violations.19 A life sciences company therefore can face liability, for example, for improper payments made by an intermediary even if the company did not actively authorise or have actual knowledge of the improper payment.

3. Accounting/Financial control provisions

12.38 control provisions. The books and records provisions require issuers and their controlled that, among other things, transactions will be executed in accordance with management in- and DOJ focus on, among other issues, whether a company has devised, implemented and maintained controls designed to prevent and detect violations of the FCPA.

16 United States v AguilarUnited States v Carson, 2011 WL 5101701, at *9 (C.D. Cal. May 18, 2011). 17 United States v Kay, 359 F.3d 738, 751 (5th Cir. 2004). 18 Id., at 755. 19 A Resource Guide to the FCPA, page 22.

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12.39 which the issuer does not hold a majority interest or with respect to which the issuer is not - ence in good faith, and to the extent reasonable under the circumstances, to cause the entity

12.40 - duct that is prohibited by the FCPA’s anti-bribery provisions. For instance, the anti-bribery the accounting provisions do cover such payments if they are not recorded accurately and in reasonable detail or if the payments are made without management’s having exercised adequate control over them. Similarly, the FCPA anti-bribery provisions do not cover com- are inaccurately recorded in a company’s books and records or suggest a lack of adequate controls.20

12.41 The FCPA’s anti-bribery provisions do not apply to “facilitating or expediting payment[s] ”.21 The statute provides examples of - formance or the transit of goods.

12.42 The US enforcement authorities have interpreted the FCPA facilitation payment exception modest payment to a regulator to register a product likely would fall outside the exception and could expose the company to liability under the FCPA. Moreover, even a permissible facilitating payment must be recorded accurately or it could trigger a books and records violation under the FCPA accounting provisions.

12.43 - written laws and regulations of the country in which it was made”.22 Second, the FCPA - rectly related to “the promotion, demonstration, or explanation of products or services” or “the execution or performance of a contract with a foreign government or agency thereof”.23

20 Although not prohibited by the FCPA, commercial bribery is prohibited by other federal statutes as well as statutes that have been adopted in many 20 US states. John P. Rupp and David Fink, ‘Foreign Commercial Bribery and the Long Reach of U.S. Law’, Bloomberg Law Reports (11 January 2012). 21 15 U.S.C. §§78dd-1(b), -2(b), -3(b). 22 15 U.S.C. §§ 78dd-1(c)(1), -2(c)(1), -3(c)(1). 23 15 U.S.C. §§ 78dd-1(c)(2), 2(c)(2), -3(c)(2).

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12.44 Although the latter defense permits companies to provide travel and lodging for legitimate promotional purposes, US enforcement authorities have brought criminal and civil charges Companies have found themselves facing enforcement actions for trips that lacked a legitimate business purpose, included non-business-related side trips or involved payment for a family member’s expenses, among other characteristics that bring a trip outside the scope

12.45 In contrast to the ‘adequate procedures’ defense that exists under the Bribery Act with respect to the Section 7 offense of failing to prevent bribery, the FCPA does not include compliance programs. However, the DOJ and SEC will consider the adequacy of an organisation’s program when determining how to exercise their prosecutorial discretion under the FCPA.24 effective anti-bribery compliance program, which are equivalent to the six principles listed in the MOJ guidance in the United Kingdom.

5. Penalties and other consequences

12.46 - al.25 A willful - and therefore criminal - violation of the accounting provisions can result in a - ment for an individual. Under the Alternative Fines Act, enforcement authorities can obtain 26 Each violation in a series of violations can result in penalties.

12.47 Companies and individuals can also face civil penalties for violating the FCPA. Compa- -

12.48 In addition to the penalties provided by statute, companies can face other consequences from FCPA violations. The DOJ may require the company to engage - at the company’s expense - an independent compliance monitor for several years as a condition of a Deferred or - panies could face debarment from government contracts, loans, grants, or other programs.

24 A Resource Guide to the FCPA, page 56: “In addition to considering whether a company has self-reported, cooperated, and taken appropriate remedial actions, DOJ and SEC also consider the adequacy of a company’s charges should resolved through a deferred prosecution agreement (‘DPA’) or non-prosecution agreement (‘NPA’), as well as the appropriate length of any DPA or NPA, or the term of corporate probation. It will often affect the penalty amount and the need for a monitor or self-reporting”. 25 - payment. 26 18 U.S.C. § 3571.

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suit to recoup their losses. And, of course, companies may suffer reputational harm.

C. RECENT EUROPEAN LIFE SCIENCES ANTI-CORRUPTION ENFORCEMENT ACTIONS

12.49 Enforcement authorities in the United States and the United Kingdom have been actively investigating a number of life sciences companies and associated individuals. US enforcement authorities have settled several recent anti-corruption enforcement actions against life sciences companies that involved improper conduct in Europe and additional settlements are expected. Several European countries other than the United Kingdom also recently have pursued anti-corruption charges against life sciences companies and individual employees.

1. Recent European life sciences anti-corruption enforcement actions

12.50 In the past several years, European enforcement agencies have followed the lead of their anti-corruption enforcement.

a) DePuy International Limited

12.51 in 1998. DPI is a Leeds-based manufacturer and seller of orthopedic products. According to enforcement documents, at the time of the acquisition, DPI was engaged in a widespread bribery scheme in Greece to sell surgical implants. DPI sold its products in Greece through products and paid commissions via a separate contract to the distributor’s offshore company.

12.52 The agent /distributor used the commissions to bribe publicly-employed doctors to induce and after DPI acquired the agent’s Greek company in 2011, hiring the agent as a consultant. DPI executives and at least one executive from DePuy were aware that the agent paid cash incentives to doctors to generate sales.

12.53 DPI later terminated its relationship with the agent and hired a new agent to continue making improper payments to doctors. In addition to the payments made by the Greek agents, employees of a DPI subsidiary also withdrew petty cash to make direct payments to doctors. period of eight years and mischaracterised the payments on their books.

12.54 - cussed below, DPI’s parent company, the SFO concluded that double jeopardy prevented a criminal prosecution in the UK. The SFO obtained a civil recovery order against DePuy International for £4.829 million plus prosecution costs, however, with the order being an-

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States.

b) R v Dougall

12.55 The SFO also brought charges against Robert Dougall, a UK citizen who became the Di- rector of Marketing at DPI in 1999. The SFO charged Dougall with conspiracy to corrupt, alleging that he had conspired with DPI and others to make corrupt payments to publicly-employed HCPs in Greece in exchange for contracts to supply DPI products. Dougall reportedly acted as a whistleblower with respect to others within the company: the SFO investigation.27

12.56 Dougall pleaded guilty to the conspiracy charge, having entered into a plea agreement with the prosecution pursuant to Section 73 of the Serious Organised Crime and Police Act 2005.28 The plea agreement stated that “[i]n particular, the court would act wholly within its discretion by imposing a suspended sentence of imprisonment”. According to the SFO, Dougall was of previous good character and had cooperated fully with the SFO investigation.

12.57 Mr. Justice Bean initially sentenced Dougall to 12 months imprisonment, rejecting the SFO plea agreement that had suggested a 12 month suspended sentence. Commentators noted that Dougall’s sentence threatened to deter future whistleblowers since the SFO had thought to make an example of Dougall to encourage whistleblowers.29

12.58 On appeal, the Court of Appeal suspended Dougall’s 12-month sentence. In reaching its verdict, the court took into account several mitigation factors, including Dougall’s cooperation with the SFO’s investigation, his guilty plea and the fact that he had not derived any - er, that plea agreements are always subject to approval of the court and that judges are not bound by such agreements.30 In particular, “agreements between the prosecution and the defence about the sentence to be imposed on a defendant are not countenanced”.31

27 available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2010/british-executive-jailed-for-part-in-greek-healthcare-corruption.aspx. 28 to the prosecutor in relation to an offence, with powers being given to the courts to take that into account in accordance with Section 71(4)(c) of the Serious Organised Crime and Police Act 2005. 29 E.g., Sean Farrell, ‘SFO Whistleblower Robert Dougall is Spared Prison,’ The Telegraph International Whistleblowers.com, ‘SFO Whistleblower is Spared Prison,’ available at https://www.interna- tionalwhistleblowers.com/whistleblowers/38-research-and-case-studies/655-sfo-whistleblower-robert-dougall-is-spared-prison. 30 Case 2010/02063/A3, R v Dougall [2010] EWCA Crim 1048. 31 Ibid.

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12.59 In November 2009, the SFO charged Mark Jessop with criminal violations in connection with payments that Jessop had made to the Iraqi government in connection with the UN Oil for Food Program. Jessop, a UK citizen, was the sole director of two life sciences companies, JJ Bureau Limited and Opthalmedex Limited, through which he sold medical goods in Iraq.

12.60 Jessop also acted as an agent of other suppliers, negotiating contracts on their behalf. Be- tween 1996 and 2003, Jessop entered into 54 contracts for medical goods with Iraq’s State Company for Marketing Drugs and Medical Appliances, known as Kimadia. The contracts

12.61 allow a ten percent kickback to the regime. Pursuant to that policy, suppliers were required to pay the kickbacks to the Iraqi government prior to their shipping goods into Iraq.

12.62 Jessop accepted contracts on that basis and paid ten percent kickbacks totaling approximately €104,649 to the former Iraqi regime, with a further €235,237 outstanding. Jessop made the payments through intermediaries, who were paid commission in excess of £40,000. Both the commission payments and the kickbacks were in breach of UN sanctions that prohibited payments to Iraq or persons in Iraq without (in the UK) a Treasury license.

12.63 Jessop plead guilty to ten counts of engaging in activities to make funds available to the Iraqi government in contravention of the Iraq (United Nations Sanctions) Order 200032, which made it a criminal offence to do so without a license granted by HM Treasury. On 13 April 2011, HHJ Leonard sentenced Jessop to 24 weeks imprisonment and ordered him to pay £25,000 in prosecution costs and £150,000 to the Development Fund for Iraq.

12.64 UK enforcement authorities have also investigated other companies for ten percent kickback payments to the former Iraqi regime in connection with the UN Oil for Food Program.33 It was reported in 2007 that the SFO had requested documents from GlaxoSmithKline, As- traZeneca and Eli Lilly in connection with its investigation of the Oil for Food Program.34

d) (Serbia)

12.65 served with a criminal indictment. The indictment concerned allegations that local employees of AZ had made improper payments to doctors at the Institute of Oncology and Radiology of Serbia.

12.66 Radiology of Serbia, including director Nenad Borojevic and representatives from several

32 SI 2000/3241. 33 34 See, e.g., ‘Drug Firms Probed Over Iraq Cash,’ BBC News (30 December 2007), available at http://news.bbc. co.uk/2/hi/uk_news/7164677.stm.

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pharmaceutical companies - including AZ and Roche - on suspicion of accepting and giving

12.67 35

2. US enforcement actions

12.68 along with an accompanying settlement with the SFO, which is described above. In addi- Romania and Iraq.

12.69 were responsible for selecting medical products for Polish hospitals through a tender process. Although the contracts were purportedly for professional services such as lecturing, leading workshops and conducting clinical trials, the HCPs did not in fact provide any services under the contracts and were not required to provide proof of any work completed.

12.70 The subsidiary also paid for HCPs to travel to medical conferences in Poland and abroad

12.71 distributors to provide cash payments and gifts to HCPs at public hospitals in exchange for percent of the sales value of the pharmaceuticals, distributors provided laptops, electronics

12.72 - ucts. Employees of the subsidiary also arranged for travel agents to overcharge for travel and used the excess cash generated to provide ‘pocket money’ to the HCPs above the limits -

12.73 - nection with the Iraq Oil for Food program. While the FCPA’s anti-bribery provisions do

35 AstraZeneca plc, Form 6-K (October 2011), available at http://www.sec.gov/Archives/edgar/ data/901832/000095010311004642/dp27061_6k.htm.

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not apply to payments to non-US government agencies, corrupt payments to non-US government agencies can violate the FCPA’s accounting provisions when the corrupt payments DPI case.

12.74 and individuals in connection with business practices in various markets”.36 The DPA also - sion not to impose a corporate monitor.37

12.75 - ruption realm38.

12.76 risk areas faced by life sciences companies, including the engagement of distributors, consulting agreements with doctors and the provision of travel support to HCPs. These areas and others will be discussed in more detail later in this chapter.

b) Smith & Nephew plc

12.77 - to the DOJ and the SEC in connection with improper payments to government-employed doctors in Greece.

12.78 sold orthopedic products to a Greek distributor at full list price and then paid a percentage representing the distributor’s discount to off-shore shell companies controlled by the distributor. The subsidiaries paid between 25 and 40 percent of sales to the shell companies as part of ‘marketing arrangements’ with the companies, although the shell companies did not, in fact, provide any marketing services. The distributor used these off-shore funds to provide cash incentives and other things of value to doctors at public hospitals.

12.79 The US subsidiary later entered into a distribution contract with another shell company discount on its purchases of orthopedic products sold in Greece. The Greek distributor used the discount to fund bribe payments to Greek HCPs.

36 available at http://www.justice. gov/criminal/fraud/fcpa/cases/depuy-inc/04-08-11depuy-dpa.pdf . 37 Ibid. 38 This point is emphasised through a statement by former SFO director Richard Alderman in October 2010: The SFO is also looking closely at the pharmaceutical industry, and businesses should not “underestimate the amount of information sharing that goes on between us and the DOJ and the SEC about all of these issues”.

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12.80 investigations of “other companies and individuals in connection with business practices in various markets”.39- months. The DOJ’s press release noted that the settlement was “part of an investigation into bribery by medical device companies of physicians employed by government institutions”.40 Indeed, the very next month, medical device company Biomet settled FCPA violations with the DOJ and SEC involving conduct in Latin America and China.

12.81 - mation about a corrupt distributor to go after multiple companies selling to that particular intermediary. At least one of the Greek distributor’s shell companies involved in the im- company to pay bribes to public doctors in Greece”.41 Given the similarity of the allega-

12.82 SEC in a three-part settlement announced in August 2012: an indirect wholly-owned sub- - -

12.83 According to the enforcement documents, from at least 1997 through 2006, employees and pharmaceutical products and secure regulatory approvals. The improper payments were made through a variety of means including ‘bonus agreements’ tied to sales, ‘incentive care professionals.

12.84 expensive gifts to sales representatives and government health care providers in exchange for sales agreements and formulary approval. The Italian subsidiary additionally conducted

12.85 gifts and support for international travel to doctors employed by Chinese government-af-

39 available at http://www. justice.gov/criminal/fraud/fcpa/cases/smith-nephew/2012-02-01-s-n-dpa.pdf. 40 Press Release, U.S. Dep’t of Justice (Feb. 6, 2012), available at http://www.justice.gov/opa/pr/2012/Febru- ary/12-crm-166.html. 41 See Complaint, SEC v Smith & Nephew plc, No. 1:12-cv-00187, para 20 (D.D.C. Feb. 6, 2012), available at http://www.sec.gov/litigation/complaints/2012/comp22252.pdf.

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250 EU Law and LifE SciEncES BRIBERY RELATED RISK AND MITIGATION MEASURES FOR LIFE SCIENCES COMPANIES

incentives for future sales and prescriptions. The SEC also alleged misconduct by subsid- China, Indonesia, Pakistan and Saudi Arabia.

12.86 and integration of anti-corruption controls on successor liability. Although the DOJ im- -

12.87 - ducted an extensive due diligence and risk assessment review of Wyeth’s operations after the acquisition and promptly integrated the new Wyeth entities into its internal controls pro-

d) Eli Lilly

12.88 - lion to the SEC to resolve allegations of FCPA violations based on alleged bribes to govern-

12.89 According to the enforcement documents, Lilly’s Polish subsidiary made eight payments to the Chudow Castle Foundation, a small charitable foundation founded and administered by the head of a regional government health authority at the same time the subsidiary sought SEC alleged that the payments were improperly recorded as charitable donations because to allow the purchase of a Lilly product.

12.90 In Russia, Lilly’s subsidiary allegedly paid millions of dollars to off-shore entities for pur- ported ‘marketing services’ in order to induce pharmaceutical distributors and government entities to purchase Lilly’s drugs. The SEC alleged that the subsidiary had little information about these third-party entities, beyond their addresses and bank accounts outside of Russia.

12.91 provided, the SEC alleged that there was “little evidence that any services were actually provided under any of these third party agreements”. In particular, the subsidiary was al- associated with an important member of Russia’s Parliament.

12.92 Notably, the SEC criticized Lilly’s due diligence efforts in Russia, noting several examples the third party was able to provide the contracted-for services. The settlement underscores the importance of conducting thorough due diligence on higher-risk third party representatives, including distributors and sales agents. Indeed, the SEC’s settlement with Lilly closely followed the November 2012 release of US regulators’ Resource Guide to the FCPA,

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which included “third party due diligence and payments” as one of the ten elements of an 42

e) Other potential settlements with life sciences companies

12.93 More than ten additional life sciences companies recently have disclosed FCPA-related inquiries and investigations. Some of the investigations involve conduct occurring in Europe, and two UK pharmaceutical companies - AstraZeneca and GlaxoSmithKline - are among the companies that have disclosed inquiries.

12.94 in Germany, Italy, Poland and Russia as well as countries outside Europe. Similarly, Bristol matters formerly under investigation by the German prosecutor in Munich, Germany, which since have been resolved.

D. RISK AREAS AND ANTI-CORRUPTION CONTROLS

12.95 - - to HCPs. Life sciences companies would be well advised to put controls in place to ensure the company.

12.96 The suggestions summarised below are not intended to present a comprehensive compliance program. Both US and UK enforcement authorities expect companies to implement - ular risk areas. In addition to effective controls, an optimum compliance program should include monitoring and auditing as well as a prompt response to any issues that arise.

1. Distributors , sales agents, joint venture partners and other representatives

12.97 Representatives present one of the highest risk areas for life sciences companies, which often in trouble under the Bribery Act, FCPA and other anti-bribery statutes when a representative makes an improper payment to a publicly employed HCP to sell the company’s product or obtain some other advantage for the company. Moreover, when multiple companies use the

42 A Resource Guide to the FCPA, page 60.

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252 EU Law and LifE SciEncES BRIBERY RELATED RISK AND MITIGATION MEASURES FOR LIFE SCIENCES COMPANIES

same sales agent or distributor, an investigation of or disclosure by one company can lead enforcement authorities to other companies working with the same corrupt representative.43

12.98 UK and US enforcement authorities expect life sciences companies to conduct due diligence on their representatives and joint venture partners who will be making or arranging - bust anti-corruption due diligence - which can be conducted internally or by an outside detailed above).

12.99 - clude provisions requiring compliance with applicable anti-corruption laws and permitting the company to terminate in the event of a violation. After a representative is engaged, companies should carefully monitor the representative’s activities, invoices and expenses. Emerging markets often represent a special area of concern.

12.100 A life sciences company also should considering educating its representatives about applicable anti-corruption laws and the company’s expectations of compliance. Representatives may be accustomed to a local culture in which the provision of expensive gifts and meals is customary and expected. They also may be accustomed to “playing by local rules” in countries where corruption is prevalent.

2. Consulting agreements, studies, clinical trials, opinion leader groups and advisory panels

12.101 Life sciences companies must exercise caution when entering into consulting agreements or other contracts with HCPs, which can constitute something of value under anti-corruption laws.

12.102 Consulting arrangements present at least two types of risk: (1) that the company is choosing to hire a particular consultant in exchange for the consultant or the consultant’s family representative) has entered into sham contracts as a means of creating a pool of money for improper payments. Engaging HCPs to conduct studies and clinical trials, or sit on advisory panels, can present corruption risks for similar reasons.

12.103 Several recent FCPA settlements with life sciences companies involved consulting agree- - duce their purchase of Biomet products. The subsidiary paid these commissions through

43 distributor to investigate multiple companies selling to that intermediary. At least one of the Greek distribu- another medical device company to pay bribes to public doctors in Greece”. See Complaint, SEC v Smith & Nephew plc, No. 1:12-cv-00187, para 20 (D.D.C. Feb. 6, 2012), available at http://www.sec.gov/litigation/

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invoices for consulting or professional services. In China, Biomet’s subsidiary paid doctors

12.104 that did not provide marketing services as a way of creating funds for its distributor to use products such as by entering into an agreement for ‘regulatory consultancy services’ with a Croatian doctor who held various positions within Croatian government agencies regulating the pharmaceutical industry.

12.105 As a result, proposals to enter into consulting agreements or engage doctors to participate in studies or clinical trials should be carefully reviewed. Companies should take care to ensure that a legitimate business purpose exists for the arrangement and should avoid entering into agreements with HCPs who are in a position to provide an advantage to the company (such as, for example, HCPs sitting on tender committees).

3. Medical congresses and other educational grants

12.106 cash incentives with sponsored travel after the company began an internal investigation into the cash incentives. The distributor sponsored travel for HCPs in exchange for prescribing travel and used the excess cash generated to provide ‘pocket money’ to the HCPs above the

12.107 purchasing of company products by their institutions.44 Some of these bonuses took the form of travel expenses for attending medical conferences. Regulators also alleged that the company used conference attendance and travel as a corrupt inducement for healthcare 45

12.108 Other FCPA enforcement actions similarly have faulted companies for providing govern- - congresses due to the compliance risks associated with such activities.46

12.109 company avoid paying for trips with excessive leisure components, lavish receptions, unre-

44 available at Nephew Deferred Prosecution Agreement, para 43 (6 February 2012), available at http://www.justice.gov/ criminal/fraud/fcpa/cases/smith-nephew/2012-02-01-s-n-dpa.pdf. 45 Id., paras 18, 32, 42. 46 Ben Hirschler, ‘AstraZeneca Pulls Plug on Free Trips for Doctors,’ Reuters (May 27, 2011).

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254 EU Law and LifE SciEncES BRIBERY RELATED RISK AND MITIGATION MEASURES FOR LIFE SCIENCES COMPANIES

lated side trips or other features that are likely to bring the trip within the scope of applicable anti-bribery provisions. A company also should consider implementing controls to track its sponsorships to ensure that the company does not provide multiple sponsorships to the same physician within a short period of time as well as assist with accurate recording of the

4. Sales incentives and pricing

12.110 Sales incentives and pricing structures can be used to mask improper payments to govern- funds that can be used to make improper payments.

12.111 commissions to its sales agent through separate contracts with the agent’s offshore compa- paid a percentage of sales made by its Greek distributor to offshore shell companies, purportedly in exchange for marketing services. The SEC also alleged that Lilly gave a distributor in Brazil “unusually large discounts”, a portion of which the distributor used to bribe 47

12.112 There are many legitimate reasons for a life sciences company to provide sales incentives. But sales incentives structures create varying degrees of risk from a compliance perspective. Among other issues, managers and controllers should consider whether a commercial reason exists for the incentive structure that is being considered and whether an HCP might

12.113 Similarly, managers and controllers should consider compliance concerns when entering into commission arrangements. Among other issues, managers and controllers should con- - mission will be paid and whether the commission represents the market rate for comparable work.

5. Travel, gifts, meals, and entertainment

12.114 Companies that provide travel, gifts, meals, entertainment or other hospitality as an incentive or reward for obtaining business or some other improper advantage could face liability under the Bribery Act, FCPA and other comparable statutes. Gifts can be a particularly thorny issue in cultures where gift-giving is customary at business meetings and helps cul- tivate business relationships.

12.115 Lavish hospitality is typically viewed as improper and the repeated provision of meals and entertainment - even if not lavish - can violate anti-corruption laws. As the UK MOJ stated in its Bribery Act Guidance, “the more lavish the hospitality or the higher the expenditure in relation to travel, accommodation or other similar business expenditures provided to a for-

47 See Complaint, SEC v. Eli Lilly and Company, No. 1:12-cv-02045, para 23 (D.D.C. Dec. 20, 2012), available at http://www.sec.gov/litigation/complaints/2012/comp-pr2012-273.pdf.

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48”.

12.116 Similarly, the Resource Guide released by US regulators provides:

Items of nominal value, such as cab fare, reasonable meals and entertainment ex- - cial, and, as a result, are not, without more, items that have resulted in enforcement action by DOJ or SEC. The larger or more extravagant the gift, however, the more likely it was given with an improper purpose.49

12.117 Most anti-corruption compliance programs therefore include controls relating to the provision of gifts and hospitality.

6. Charitable donations

12.118 Because the FCPA, like many other anti-bribery statutes, such as the Bribery Act, covers the can come within the scope of the statute if the other elements of the statute are met. In and agreed to hire an independent consultant to settle an enforcement action involving a donation to the favourite charity of a regulator in Poland.50

12.119 Polish subsidiary and had made clear that it would be in the subsidiary’s interest to make the contribution. The subsidiary’s manager authorised the contribution in several smaller payments to avoid exceeding his authorisation level. The company then mischaracterised the payments in its accounting records.51

12.120 Many anti-corruption compliance programs thus include the implementation of controls relating to a company’s charitable contributions, potentially including review by a compliance committee, charitable contributions committee or senior businessperson who has been trained to spot potential anti-corruption issues.

7. Product registration, shipping, and customs

12.121 Life sciences companies also may face anti-corruption risks when registering or importing a product into a foreign market. A 2009 settlement with the SEC by Nature’s Sunshine

48 Ministry of Justice Guidance, supra, para 28. 49 A Resource Guide to the FCPA, page 15. 50 In re Schering-Plough Corporation, Exchange Act Release No. 49838 (9 June 2004), available at http:// www.sec.gov/litigation/admin/34-49838.htm. 51 The SEC similarly alleged that Lilly violated the FCPA’s accounting provisions based on payments the company made to the same charitable foundation in Poland .

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256 EU Law and LifE SciEncES BRIBERY RELATED RISK AND MITIGATION MEASURES FOR LIFE SCIENCES COMPANIES

12.122 According to the SEC’s complaint,52 the Sunshine Products’ Brazilian subsidiary had had - tain vitamins, herbal products and nutritional products as medicines, thereby requiring the company to register these products before importing or selling them in Brazil. To circum- vent the new registration requirements, the Brazilian subsidiary made undocumented cash payments to Brazilian customs brokers, some of which were later paid to Brazilian customs

12.123 - tors on import/export issues, policies and procedures adopted with respect to representatives also might consider implementing additional controls to address these types of risks.

8. Acquisitions

12.124 - pany could face potential liability for improper payments made after an acquisition. Much - tinued long after the acquisition. Depending on the anti-corruption laws applicable to the on the target’s conduct prior to the acquisition.

12.125 Second, a company might overpay for a target if the target relied upon a corrupt business model. If the target company’s sales volumes are based on a network of corrupt dealers, the target company will make far fewer sales after the acquiring company terminates the corrupt dealers.

12.126 Pre-acquisition anti-corruption due diligence helps companies assess the value of a target. If corruption problems are discovered, the acquiring company might require the target to remediate the issue prior to the acquisition, demand a reduction in purchase price or create an escrow account for part of the purchase price to cover the costs the acquiring company may incur because of the pre-acquisition conduct of the target. The acquiring company also can seek to take advantage of pre-clearance mechanisms that have been created in some countries, including the UK.

12.127 After an acquisition, the acquiring company should roll out its anti-corruption compliance policies and procedures promptly and train new employees on the new compliance framework. The acquirer also should remediate any issues uncovered but not addressed prior to the acquisition.

12.128 US regulators included pre-acquisition due diligence and post-acquisition integration as one

52 See Complaint, , No. 2:09-cv-0672, paras 1-6 (C.D. Utah Jul. 31, 2009), available at http://www.sec.gov/litigation/complaints/2009/comp21162.pdf. Notably, the SEC complaint also charged the company’s President/CEO and former CFO under a ‘control person’ theory of liability. Neither executive was alleged to have participated in or had personal knowledge of the improper payments. Rather, the executives were alleged to have, directly or indirectly, failed to keep accurate books and records that transactions were recorded accurately.

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of their ten “hallmarks of an effective compliance program” in the Resource Guide.53 US regulators encouraged companies to:

(1) conduct thorough risk-based FCPA and anti-corruption due diligence on potential and compliance policies and procedures regarding the FCPA and other anti-corruption laws apply as quickly as is practicable to newly acquired businesses or merged - nesses or merged entities, and when appropriate, train agents and business partners, on the FCPA and other relevant anti-corruption laws and the company’s code of conduct and compliance policies and procedures, among other steps.54

E. CONCLUSION

12.129 The focus of regulators on the life sciences industry combined with the myriad anti-corruption risk areas faced by the industry makes it prudent for companies throughout the industry to take pro-active steps to decrease their compliance risk. The continued imposition of those companies seems likely in the coming years.

53 A Resource Guide to the FCPA, page 62. 54 Id., page 29.

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258 EU Law and LifE SciEncES INDEX

Advertising and information 63 Due diligence 239 EU Public Procurement Directive 240 Advertising and promotion of medical devices 82 Jurisdiction 237, 240 Advertising to the general public and to HCPs 64 Monitoring and review 239 Agreements 83 Offenses 238 Code of Practice 65 Penalties 105, 239, 244 Proportionate procedures 239 EFPIA Code 65 Public Contracts Regulations 2006 239 EFPIA Patient Organizations Code 66 Risk assessment 239 Eucomed Code 82 Top level commitment 239 FCPA 240 Hospitality 77 Accounting control 240 Incentives 77 Anti-bribery provisions 241 Information to patients 71 Jurisdiction 237, 240 The International Federation of Pharmaceutical Penalties 105, 239, 244 Manufacturers and Associations (IFPMA) 65 Meetings 83 Data protection 215 Other incentives 77 Patient associations 84 Clinical trials 253 Sales representatives 76 Clinical research organizations (CROs) 224 Samples 78 Coded data 224 Sunshine rules 83 Investigator 224 Websites 78 Pharmacovigilance 43, 225 Source data 224 Sponsor 224 Bribery 235 Consent 218 Anti-corruption controls 252 CRM databases 225 Acquisitions 257 Data controllers 218 Agents 252 Data processors 218 Charitable donations 256 Clinical trials 253 General data protection regulation 221 Congresses 254 International transfers 233 Consulting agreements 253 International data transfers 220 Distributors 252 Personal data 226 Educational grants 254 Article 29 Working Party 226 Entertainment 255 Data minimization 230 Gifts 255 Sensitive data 231 Product registration 256 Sales 255 Studies 253 Proportionality 219 Anti-corruption enforcement actions 245 Purpose limitation 219 AstraZeneca 142, 247 Right of access 232 DePuy 245 Right of opposition 232 Dougall 246 Safe harbor 234 Eli Lilly 251 J&J / DPI 248 Transparency 220 Jessop 247 Life-cycle management 139 Smith & Nephew 249 Bribery Act 237 Patent settlements 156 Adequate procedures defense 239 Pro- from anticompetitive patent settlements 158 Communication (including training) 239 Regulatory abuse 142

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EU Law and LifE SciEncES EU Law and LifE SciEncES 259 AstraZeneca 142, 247 Chapter 2 of Volume 2A of the Notice to Applicants 31 Capability of restricting competition 145, 149, 155 Chapter 4 of Directive 2001/83/EC 31 Competition on the merits 154 Decentralised procedure 33 Denigration 145 Procedure 32, 196 Link between denigration and dominance 148 Scope 31, 209 Misleading conduct 144 National procedure 34 Supply of misleading information 142 Other authorisation procedures 39 Restricting competition 155 Compassionate use programmes 41 Exceptional marketing authorisation 41 Special responsibility 142 Herbal medicinal products 40 Sector inquiry 140 Homeopathic products 14, 32 Interventions in administrative proceedings 141 Hospital compounding 42 Launch of an own generic 141 Named patient use 42 Licensing to a third party 141 Temporary marketing authorisation 41 Types of marketing authorisation 34 Patent litigation 140 Bibliographical application for well-established Patent settlements 141 medicinal use 37 Pricing strategies 141 Biosimilar application 37 Switching patients to a second generation product 141 Conditional marketing authorisations 39 Switch to OTC 141 Applications under exceptional circumstances 38 Marketing strategies targeted at the generic product 141 Fixed combinations applications 38 Full application 35 Generic application 36, 53 Hybrid application 37 Animal health products 117 Informed consent applications 38 Biologicals 117 Mixed application 38 Factors 117 Modules 35 Human pharmaceuticals 109 Action time 111 Merger control 193 Galenic form 112 Mode of action 110 Collective dominance 206 Originator v generic products 113 Conglomerate effects 208 Prescription v OTC products 114 Countervailing buyer power 205 Pricing 112, 161 Product characteristics 110 Change of control 194 Phase 1 review 197 Other product groups 115 Phase 2 investigation 197 European Diagnostics Manufacturers Association (EDMA) 116 Pharmacies v hospitals 114 Procedure 32, 196 Medical devices 16, 115, 207 National merger control regimes 197 Clinical chemistry 116 , Directive 98/79 16 117 Reportable transactions 197 Relevant geographic market 108 Potential competition 201 Relevant product market 107 Entry barriers 204 Pipeline products 202 Marketing authorisation 25 Threat of generic entry 203 Remedies 209 Centralised procedure 26 Divestitures 210 Approval process 29, 32 Role 209 Committee for Medicinal Products Scope 31, 209 for Human Use (CHMP) 29, 87 Suitable purchaser 212 EU-Common Technical Document (CTD) 30 Transfer of production capacity 210 Mandatory and optional scope 27 Single dominance 198 New active substance 27 Analytical framework 198 Standing Committee on Medicinal Products Competitive constraints 200 for Human Use 30 Off label use 201 Marketing authorisation holder 42 Originator products and generics 201 Interaction between OTC Manufacturing and batch release 43 Products and prescription drugs 200 Distributor issues 44 Suspensive effect 197 Other obligations 44 The test 198 Pharmacovigilance 43, 225 Vertical foreclosure 206 Mutual recognition 31 Pharmaceutical concentrations 206 Approval process 29, 32 Advertising and promotion of medical devices 82

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260 EU Law and LifE SciEncES Parallel trade 121 Follow-up 93 Legal obligations 90 Agreement subject to Article 101 TFEU 124 Regulatory authorities 12, 87 Direct-to-pharmacy 138 European Medicines Agency 8, 87 Dual pricing 137 National authorities 10 EU Courts 124 Risk Assessment Committee (PRAC) procedures 104 Health care funds 122 Article 29 Working Party 226 European Commission 12, 123 Risk management plan 97 National Competition Authorities 123 Format and contents 97 Submission 97 National health authorities 122 Updates 97 National legislation 132 Belgian Bofar Case 131 Pricing 112, 161 French Medicine Distribution Case 131 Above-cost selective price cutting 168 Greek GSK Case 128 Conditional rebates 172 Parallel traders 122 Incremental rebates 174 Pharmaceutical suppliers 122 Multi-product rebates 179 Necessary to protect the supplier Retroactive rebates 175 Intellectual property 133 Single-product rebates 172 Exhaustion 133 Sunction effect 175 Repackaging 134 Discriminatory pricing 188 Special mechanism 133 Geographic price discrimination 191 Supply quotas 136 Primary line price discrimination 190 Violation of Article 101 TFEU 123 Secondary line price discrimination 189 GSK case 125 Exploitative pricing 184 Excessive pricing 187 Pharmacovigilance 43, 225 Margin squeeze 169 Enforcement and penalties 103 Market foreclosure 165 Article 116 procedure 105 Objective necessity 166 Article 31 referral 104 Inspections 103 Predatory price-cutting 162 Penalties 105, 239, 244 Pharmacovigilance Risk Assessment Committee (PRAC) Thresholds 195 88 Urgent safety restrictions 105 Other considerations 101 Contractual issues 102 Patent protection 47 Data protection 101 Absence of patent linkage 49 Safety data exchange agreements 102 Exhaustion 49 Other sources of reporting obligations 99 General considerations 48 Scope of the patent 51 Conditions 99 Requests for information 100 Regulatory exclusivity 57 Risk management plans 100 Periodic reporting requirements 95 Exceptional regimes 58 Assessment of PSURs 96 Global marketing authorisation 53 PSURs 95 New active substance 53 Submission schedules 95 ‘New’ regime 53 Post-authorisation 98 ‘Old’ regime 52 Orphan market exclusivity 59 Directive 2001/20/EC 98 Paediatric rewards 61 Directive 2001/83/EC 11, 98 Regulatory exclusivity periods 57 GVP Guidelines 98 New indication of well-established substances 58 Non-interventional clinical trials 98 Quality system 88 Audits 90 Regulatory categories and regimes 5 Biocidal products 19 European Chemicals Agency 20 Reporting requirements 90 Evaluations 20 Additional reporting requirements 93 Regulation 528/2012 19 Causality 91 Electronic reporting 92 Treated articles 20

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EU Law and LifE SciEncES EU Law and LifE SciEncES 261 Borderline determinations 21 European Medicines Agency (EMA) 8 EU-wide approach 21 European Commission 12, 123 Marketing authorization 25 Pharmaceutical operators 15 Cosmetic products 17 Regulation 726/2004 20 Cosmetics Directive 76/768 17 Regulatory authorities 12, 87 List of banned ingredients 17 Market surveillance 17 National rules and procedures 9 Product safety assessment 17 Article 168 of the Treaty on the Functioning of the EU 9 Regulation 1223/2009 17 Comprehensive 9 EU life sciences product rules 6 National authorities 10 Jurisdiction of the national courts 10 EMA 12 National rules of procedure 10 First EU life sciences rules 7 Private litigation 10 Foodstuffs 18 Retail distribution 9 European Food Safety Authority (EFSA) 18 Transparency Directive 9 Nutrition and Health Claims Regulation 1924/2006 19 Rapid Alert System 18 Non-branded generic medicines 7 Regulation 178/2002 18 Products for animal use 20 Geographical scope 22 Antibiotics 20 Common regulatory approach 23 Directive 2001/82 20 Customs Union Agreement 23 Directive 2008/38 20 EU rules on feedingstuffs 20 Medical devices 16, 115, 208 Parnut 20 Directive 90/385 16 Regulation 726/2004 20 , Directive 98/79 16 117 Regulation 767/2009 20 Medicinal products 11 REACH Regulation 1907/2006 11 Committees 12 Single market legislation 6 Directive 2001/82 20 Protection of public health 6

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262 EU Law and LifE SciEncES BIOS

EDITORS

Peter Bogaert the life sciences group. He has been a member of the Brussels bar since 1984 and was called to the English bar in 1995. Peter has developed a pan-European practice in the regulation of pharmaceuticals, medical devices and other health products, as well as biotechnology, foods and feedingstuffs under European Union law and the national laws of the EU Member States. His practice comprises among others regulatory counselling, litigation before the EU and Belgian courts, strategic advice and compliance assistance. He has been involved in all EU legislative projects affecting the pharmaceutical and medical devices industry over the last 20 years. He frequently speaks at professional seminars, and has taught pharmaceutical law classes at the universities of Leuven and Brussels. Peter holds law degrees from the University of Leuven and Oxford University.

Damien Geradin Commission investigations with a focus on the high-technology and life sciences industries. He is also representing clients before the General Court and the Court of Justice of the European Union. In addition to being a practitioner, Damien is a Professor of Competition Law & Economics at Tilburg University and at George Mason University. He is the co-editor of the Journal of Com- petition Law & Economics, a non-governmental advisor to the ICN, and a member of the ABA’s Antitrust Section International Task Force. After his law degree in Belgium, Damien gained a LLM at King’s College London and a PhD at Cambridge University. He was a Fulbright Scholar at Yale Law School.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 263 CONTRIBUTORS

Robin Blaney- tice focuses on life sciences matters. He advises pharmaceutical, biotechnology, medical device and cosmetic manufacturers and trade associations on a wide range of regulatory, compliance, transactional and legislative matters, as well as the full range of commercial agreements that span the product life-cycle in the life sciences sector.

Jennifer Boudet focuses on all areas of EU competition law, including abuse of dominance investigations, merger control, state aid and litigation before the European Courts.

Miranda Cole practices competition law. Her competition law expertise encompasses merger control, actions under Articles 101 and 102 TFEU, advisory work and actions before the European courts in Luxem- bourg.

Michael Clancy he practices competition law. He has developed particular expertise in the life sciences sector advising clients on compliance issues and defending clients against investigations by the European Commission concerning restrictions on generic entry and reverse-payment patent settlements.

Sarah Forest- tice focuses on life sciences matters. She has developed particular expertise in pharmaceutical law, including regulatory exclusivity rights, advertising and transparency.

Laurie-Anne Grelier assists international companies with navigating complex areas of European competition law, including cartel investigations, the clearance of mergers, the structuring of distribution, collaborative and other commercial arrangements, and issues related to abuse of dominant position.

Christos Malamataris he practices EU Competition law. He has developed particular expertise in abuse of dominance investigations, mergers, and State aid.

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264 EU Law and LifE SciEncES John Rupp companies in revising their compliance policies and procedures and structuring and undertaking internal investigations involving trade control issues, bribery, money laundering, accounting irre- gularities and pharmaceutical marketing issues.

Jennifer Saperstein where she practices civil and criminal litigation. She has developed particular expertise advising clients on compliance with the Foreign Corrupt Practices Act and other anti-bribery laws.

Henriette (Jetty) Tielemans

Nicoleta Tuominen practice focuses on all areas of EU Competition law, European and international trade law and various regulatory issues.

Kristof Van Quathem - ling LLP where he practices data protection and privacy law. He has developed particular expertise in the area of clinical trials, CRM databases and the use of Internet applications in clinical research and patient programs.

John Wileur at the University of Liège Law School. His practice focuses on EU and Belgian competition law, with a particular emphasis on the interface between competition and intellectual property and the application of competition law in network industries.

The editors would also like to thank the following individuals for their help on some of the chapters: Vladimir Adamis, Brian Byrne, Ianis Girgenson, David Hull, and Gabriela Klasa.

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EU Law and LifE SciEncES EU Law and LifE SciEncES 265 The Institute of Competition Law

The Institute of Competition Law is a think tank, founded in 2004 by Dr. Nicolas Charbit, based in Paris and New-York. The Institute cultivates scholarship and discussion about antitrust issues through publications committees to ensure independence, objectivity, and academic rigor. Thanks to this management, the

Aim Events The Institute attracts government, business and More than 130 events since 2004 in Brussels, academic attention to a broad range of subjects London, New York, Paris, and Washington DC,. relating to competition law, regulations and industrial economics. Publications The Institute publishes Concurrences Journal, a Boards print and online quarterly peer-reviewed journal To maintain its unique focus, the Institute relies dedicated to EU and national competitions laws. upon highly distinguished editors, all leading experts in national or international antitrust: Bill of Competition Law, the journal provides a forum Kovacic, Mario Monti, Eleanor Fox, Barry Hawk, for both practitioners and academics to shape Laurence Idot, Fred Jenny, etc. competition policies. The Institute also releases that features more than 9,000 case summaries Authors from 1,900 experts in 55 countries. In addition to 2,500 authors, from 55 jurisdictions. Concurrences Journal and e-Competitions Bulletin, the Institute publishes two series of books. The e-Competitions series comprises an annual Competition Digest, in US and EU Partners versions, and Festschrift or Mélanges. The - Universities: University College London, King’s Concurrences series comprises the proceedings of College London, Queen Mary University, Paris the annual conferences, the Concurrences Award Sorbonne Panthéon-Assas, etc. thesis, and books by academics and practitioners. - Law firms: Allen & Overy, Cleary Gottlieb Steen & Hamilton, Hogan Lovells, Jones Day, White & Case, Kinstellar, Vogel & Vogel, etc. Website Concurrences website provides all articles published since its inception, and about 1,000 articles published online only, in the electronic supplement.

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Concurrences is a print and online quarterly peer reviewed journal dedicated to EU and national compe- Hollande and Nicolas Sarkozy.

Contents Boards More than 8,000 articles, print and/or online. Quarterly issues provide current coverage with Idot, Professor at Panthéon Assas University. The contributions from the EU or national or foreign International Committee is headed by Frederic countries thanks to more than 800 authors in Jenny, OECD Competition Comitteee Chairman. Europe and abroad. Approximately 25 % of the Boards members include Bruno Lasserre, Mario contributions are published in English, 75 % in Monti, Richard Whish, Wouter Wils, etc. Court of justice of the EU; all contributions have English abstracts. Online version Concurrences website provides all articles published since its inception, in addition to selected Format articles published online only in the electronic - In order to balance academic contributions with supplement. opinions or legal practice notes, Concurrences - Interviews: Interviews of antitrust experts provides its insight and analysis in a number of formats: - Trends: 4 to 6 short papers on hot issues - Law & Economics: Short papers written - Forewords: Opinions by leading academics or enforcers by economists for a legal audience - Interviews: Interviews of antitrust experts - Doctrines: Long academic papers - Trends: 4 to 6 short papers on hot issues - Case Summaries: Case commentary - Law & Economics: Short papers written by on EU and French case law economists for a legal audience - Doctrines: Long academic papers - Legal Practice Short papers for in-house counsels - Case Summaries: Case commentary - International: Medium size papers on EU and French case law on international policies - Legal Practice Short papers for in-house counsels - Books Review: Summaries of recent antitrust books - International: Medium size papers on international - Articles Review: Summaries of leading policies articles published in 45 antitrust journals - Books Review: Summaries of recent antitrust books - Articles Review: Summaries of leading articles published in 45 antitrust journals

GO TO TABLE OF CONTENTS e-Competitions Bulletin

Case law database Prestigious Boards e-Competitions is the only online resource that e-Competitions draws upon highly distinguished provides consistent coverage of antitrust cases editors, all leading experts in national or interna- from 55 jurisdictions, organized into a searchable tional antitrust. Advisory Board Members include: database structure. e-Competitions concentrates Sir Christopher Bellamy, Ioanis Lianos (UCL), on cases summaries taking into account that in the Eleanor Fox (NYU), Damien Geradin (Tilburg context of a continuing growing number of University), Barry Hawk (Fordham University) sources there is a need for factual information, Fred Jenny (OECD), Jacqueline Riffault-Silk i.e., case law. (Cour de cassation), Wouter Wils (DG COMP), etc.

- 9,000 case summaries - 1,850 authors - 55 countries covered Leading Partners - 24,000 subscribers - Association of European Competition Law Judges: The AECLJ is a forum for judges of national Courts specializing in antitrust case law. Sophisticated Members timely feed e-Competitions with just editorial and IT enrichment released cases. e-Competitions is structured as a database. The - Academics partners: Antitrust research centres editors make a highly sophisticated technical and from leading universities write regularly in legal work on all articles by tagging these with e-Competitions: University College London, key words, drafting abstracts and writing html King’s College London, Queen Mary University, code to increase Google ranking. There is a team etc. of antitrust lawyers—PhD andjudges clerks—and a - team of IT experts. e-Competitions makes comparative law possible. Thanks to this expert editorial for e-Competitions: Allen & Overy, Hogan work, it is possible to search and compare cases. Lovells, Jones Day, White & Case, etc.

GO TO TABLE OF CONTENTS Peter BOGAERT Damien GERADIN EU Law and Editors Life Sciences

This volume comprises 12 chapters authored by Covington & Burling lawyers. These chapters cover key areas of EU law that impact the life sciences industry, including the specific regulatory obligations that apply to life sciences companies, EU competition rules, EU data protection rules and the laws governing bribery. Each chapter is authored by one or several leading specialists of the subject matter discussed.

EU Law and Life Sciences aims at providing in house counsel in life sciences of rules that affect the business of life sciences companies. It combines theoretical insights with practical advice.

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