The evolution of EU competition law and policy in the pharmaceutical sector: long-lasting impacts of a pandemic

Abstract

This article investigates the evolution of the European Union (EU) competition law and policy enforcement in the pharmaceuticals sector, focusing on the impact of the coronavirus disease 2019 (COVID-19) crisis as a turning point. Before COVID-19, EU competition authorities’ goals and priorities focused on pay-for-delay agreements between originators and generic pharmaceutical undertakings. During COVID-19, the European Commission developed soft laws (such as temporary frameworks and comfort letters) enabling undertakings to cooperate to increase access to essential health products and COVID-19 vaccines. In the post-pandemic era, initiatives like the Pharmaceutical Strategy for Europe, the Single Market Emergency Instrument (SMEI), the Health Emergency Response Authority (HERA), the compulsory licensing proposal and the upcoming changes in the pharmaceutical regulations reflect a patient-centred approach and diverse agenda. This article underscores the move towards a more inclusive EU competition law and policy framework in the pharmaceutical sector as part of this evolution.

1. INTRODUCTION

The pharmaceutical industry is unique in its position at the nexus of multiple disciplines and plays an important role in the healthcare sector, driving innovation, developing life-saving medicines, and contributing to public health.

The pharmaceutical sector is different from other sectors of the economy in terms of pricing,¹ price elasticity of demand (PED),² barriers to entry,³ consumer choice,⁴ and relevant market⁵; therefore, enforcing competition law in this sector can be challenging. Ensuring affordable access to medications and promoting innovation are often seen as competing objectives that require careful balancing within the pharmaceutical sector. Striking this balance remains a challenge for policymakers and regulators and should be considered in designing and following a competition law and policy enforcement agenda.

The European Commission has vigorously implemented European Union (EU) competition rules in the last 16 years to scrutinize anticompetitive practices in this sector. However, this enforcement was not on the same level during these years and was impacted by several factors, including the coronavirus disease 2019 (COVID-19) pandemic. There is a vast literature on EU competition law in the pharmaceutical sector, including the recently edited books by Sauter, Canoy, and Mulder⁶ and Figueroa and Guerrero.⁷ Colangelo⁸ and Stavroulaki’s⁹ recently published monographs provide an overview of the pharmaceutical industry and competition law. Some papers address various issues surrounding the pandemic by analysing the responses of competition authorities to the situation.¹⁰ This study aims to contribute to the academic literature on the intersection of competition law and health, examine the EU’s implementation of competition law and policy in the pharmaceutical industry across various periods, and illuminate an understanding of the complex interplay between competition law enforcement, crisis policies, practices, and the pharmaceutical industry’s activities within the EU and the long-lasting impact of COVID-19 on enforcement, policy, and regulations.

Most of the cases in the pharmaceutical sector regarding EU competition law and policy deal with the arrangements between generics, biosimilar,¹¹ and originator¹² undertakings.¹³ However, in recent years, concerns have been raised regarding product hopping, disparagement practices, excessive pricing, and off-label use of drugs. Analysing notable incidents predating the COVID-19 outbreak, encompassing instances involving pay-for-delay arrangements and abuse of dominance, this article discusses how enforcement measures evolved during the public health crisis to facilitate essential collaboration among competitors. The study will offer an overview of this evolution that can be seen as a shift from combating specific anti-competitive practices (namely pay-for-delay agreements) to a diverse agenda that includes combating cartels, excessive pricing and disparagement practices. This shift after the pandemic reflects on the policy-making initiatives aimed at enhancing pandemic preparedness and increasing access to medicine as a part of an active and inclusive competition law and policy. Although we cannot deny the impact of the pandemic, these transformations were already in motion before the COVID-19 pandemic, and even in the absence of the pandemic, it would be logical for the Commission to have a diverse agenda after a decade and a half of pursuing pay-for-delay cases.

Besides the supply chain disruption and changes in the pharmaceutical industry, the pandemic also substantially changed (or adjusted) the Commission’s antitrust policy. However, these changes are more comprehensive than the changes in enforcement; a more significant change happens in the policy and regulations in this sector. Most of the Commission’s focus now is on ‘the preparation’ side of the problem. Lessons learned from COVID-19 impacted the steps taken for future health crises. These changes in policy and practice are a good sign of a flexible and evolving approach that could lead to a more effective way to combat the next health crisis from a competition law point of view.

The article is divided into two parts. The first part explores a brief history of EU competition law enforcement in the pharmaceutical sector, critically investigating the pre-COVID era (up to 2008 and 2008–2019) and discussing landmark cases involving anticompetitive practices. In the second part, the study focuses on the impacts of the COVID-19 pandemic on the EU competition law enforcement (steps taken by the European Commission during the pandemic) and on the policy and regulations in this sector.

2. PRE-PANDEMIC EU COMPETITION LAW AND POLICY IN THE PHARMACEUTICAL SECTOR

Competition law trends in the pharmaceutical sector pre-pandemic were quite different from pandemic times. For years, the pro-innovation approach and the special relationship between incentive to innovate, law enforcement, and citizens’ health were dominant in the pharmaceutical sector. A turning point in enforcing competition law in this sector was the Commission’s sector inquiry in 2008. Before the investigation, the Commission was willing to allow arrangements between originators and generic undertakings by issuing comfort letters.¹⁴ Although this approach led to evergreening the branded product and creating a significant entry barrier for generic products, it was defended by pro-innovation arguments. This can be seen, for example, in Elsa/Pfizer (1999), in which their agreement regarding the co-promotion and co-marketing of Alzheimer’s therapy drugs led to a dominant position in many Member States and raised competition law concerns. Still, the European Commission cleared the case by issuing a comfort letter for seven years because of the consumer benefits¹⁵ of the agreement.¹⁶ Another example of this flexibility from the Commission’s perspective is the Pfizer+ Hoechst Marion Roussel AG (1999) case, in which these two pharmaceutical companies entered into several agreements to produce and distribute inhalable insulin to compete with the classic injectable insulin in the market. They also agreed to market that product internationally. The European Commission issued a comfort letter and exempted the agreement from the application of Article 81(1) EC. However, following the inquiry, the Commission changed its stance dramatically.¹⁷

After statistics on originator and generic pharmaceutical producers and the probability of anticompetitive practices raised some concerns about hampering competition in the market,¹⁸ the European Commission initiated a sector inquiry into the EU pharmaceuticals sector in January 2008. Following an exhaustive investigation, the Commission released its final report in 2009,¹⁹ published some annual brief monitoring reports, and released a comprehensive report in 2019.²⁰ The latest Commission report on pharmaceuticals was published in 2024²¹ and the evolving nature and the enforcement trend of competition law enforcement in this sector can easily be seen in these reports. The investigation looked into the regulatory system, trademarks, marketing authorizations, pricing, and reimbursement to determine if companies engaged in anticompetitive practices to delay²² or prevent competition in generic pharmaceutical markets.²³

Lundbeck²⁴ was the European Commission’s first pay-for-delay decision and a milestone for enforcing competition law in the pharmaceutical sector. The Commission fined Lundbeck €93.8 million for entering into the pay-for-delay scheme that delayed the sale of generic Citalopram. Furthermore, the generic companies were fined a combined €52.2 million.²⁵ The Commission decided that the agreement infringed Article 101 TFEU²⁶ and ordered them to terminate the contract.²⁷ The General Court, upholding the Commission’s decision in Lundbeck v Commission, found that these pay-for-delay settlements restrict competition by object. As the Court of Justice stated in its judgment of 21 March 2021, the decision of the General Court was upheld, and the pay-for-delay agreement between Lundbeck and generic companies restricted competition by object. The Court of Justice also mentioned that Lundbeck and generic undertakings were potential competitors when they signed the agreement.²⁸ The court determined that reverse settlement constitutes a violation of Article 101 TFEU, taking into consideration the possibility of potential competition.²⁹

Another pay-for-delay agreement between two pharmaceutical companies, Johnson & Johnson (J&J) and Novartis/Sandoz, was about delaying the entrance of a generic version of Fentanyl,³⁰ a painkiller for patients diagnosed with cancer. In 2013, the Commission decided that Johnson & Johnson(J&J) and Novartis/Sandoz’s deal was a restraint by object and found the agreement aimed to violate Article 101 TFEU, and J&J was fined €10.8 million, while Novartis €5.5 million. The parties did not challenge the Commission’s ruling.³¹ The pandora is now open after a long time of limited enforcement activity in the pharmaceutical sector. The European Commission’s decision on Servier³² is another example of the importance of pay-for-delay agreements in the pre-pandemic era. The Commission determined that Servier violated Article 101 TFEU by entering into five patent settlements to delay the potential generic version of its successful medicine (Perindopril) into the market. The Commission then concluded that Servier’s agreement with generic manufacturers is a restriction of competition by object and also a restriction by effect.³³ The Commission also decided that Servier’s behaviour was against Article 102 and fined Servier 331 million euros. In Servier v Commission,³⁴ the General Court found that the Commission made a few mistakes in its decision regarding ‘therapeutic substitution’,³⁵ ‘attributing too much weight to price factors’,³⁶ ‘relevant market definition’,³⁷ and ‘violation of Article 102 TFEU’³⁸ and reduced the fine to €228 million. The servier case in CJEU is still pending.

Teva and Cephalon’s case was about Modafinil, a sleep disorder medicine produced by Cephalon, a blockbuster drug whose primary patent exclusivity expired in 2005. After a pay-for-delay agreement with the manufacturer of the generic version of Modafinil, which banned the entry of the generic version into the European pharmaceutical market until 2012, the Commission started formal antitrust proceedings in April 2011. In the Commission’s decision, Teva and Cephalon’s pay-for-delay agreement is considered a breach of Article 101 TFEU. The Commission fined them €60.5 million for entering into a pay-for-delay agreement on 26 November 2020.³⁹ Pay-for-delay agreements were popular trends in the EU competition law enforcement from 2008 until the COVID-19 pandemic. Similarly, the new Teva Copaxone lawsuit raises antitrust concerns about abuse of dominance and patent abuse. The European Commission released a Statement of Objections on 10 October 2022, suggesting that Teva may have engaged in anticompetitive conduct in numerous European markets for multiple sclerosis drug glatiramer acetate. The Commission found that Teva hindered the market entry and uptake of competitive glatiramer acetate products to prolong Copaxone’s exclusivity. The Commission’s preliminary assessment reveals that Teva staggered filed divisional patent applications with significantly overlapping content with the European Patent Office. Teva allegedly impeded patent review by withdrawing parent patent applications when competitors seeking market entry disputed them. Thus, competitors had to fight comparable patent claims for each divisional patent, extending legal ambiguity and preventing generic or generic drugs from entering the market.⁴⁰

The focus of enforcement gradually shifted over time. The relationship between intellectual property rights and antitrust laws and how an access-based approach to patent cases over a mere market approach is needed, especially during a health crisis, was a hot debate. Where pay-for-delay agreements had long dominated discussions, excessive pricing emerged as a rising issue. The pandemic underscored its importance as a concern, with debates continuing in its aftermath.⁴¹ Access to medicine, the need for a patient-centred pharmaceutical sector, and the evergreening of pharmaceuticals are closely related to excessive pricing.

The Aspen case⁴² is the Commission’s first decision regarding prohibiting excessive pricing under Article 102(a) TFEU, using the United Brand’s framework.⁴³ On 15 May 2017, the European Commission began formal antitrust proceedings against Aspen based on some facts, such as that Aspen raised the prices of six cancer drugs. Based on Article 9 of Council Regulation (EC) No 1/2003,⁴⁴ Aspen offered some commitments to resolve the Commission’s competitive concerns.⁴⁵ The difference between Aspen and previous decisions in this arena is that the focus has shifted from branded pharmaceutical producers to generic manufacturers. If competition law infringements are essential because they create a barrier to entry for generics, competition law also meddles when generic companies raise prices.

Anticompetitive practices in the pharmaceutical sector are interconnected. Gallasch argues that pay-for-delay agreements can ‘facilitate a broader unilateral strategy’ of pharmaceutical undertakings such as product hopping.⁴⁶ Excessive pricing could result from product hopping, in which pharmaceutical companies extend the exclusivity period for branded products. Disparagement practices are also connected to pay-for-delay agreements and excessive pricing. This practice usually promotes the company’s original medicine and/or its generic product.⁴⁷ In Sanofi’s case, the advertising strategy of this company was found to be misleading regarding the quality and safety of a generic blood-thinning drug (Plavix(R)), according to the French Competition Authority decision in 2010.⁴⁸ Although most cases involving disparagement practices in European competition law have been investigated nationally, in June 2022, the Commission started formally investigating disparagement practices for Vifor Pharma. The Vifor case is still under scrutiny by the Commission regarding Viofer Pharma’s dominance in the intravenous iron treatment market. Having a calculated strategy for disseminating misleading safety information regarding its main competitor, Monofer, to healthcare professionals might be considered an abuse of dominance under Article 102 TFEU.⁴⁹

Off-label use of drugs, which refers to using them for purposes other than those listed in the approved information by regulatory agencies, is another practice which is closely connected to disparagement practices and could be a competition law violation⁵⁰ and, in some cases, such as Hoffmann-La Roche (2018), might even consider a ‘restriction of competition by the object’ under Article 102 TFEU. In this case,⁵¹ Roche and Novartis agreed to reduce the demand for Avastin (a product developed by Roche) for ophthalmology purposes in favour of Lucentis (a product licensed by and marketed by Novartis). Pharmaceutical companies disseminated information about Avastin’s increased risks and decreased effectiveness for eye treatments without scientific proof. Both companies were found to violate Article 101 TFEU by the Italian competition authority by disseminating misleading information and disparagement practices that manipulated the normal competition process in the pharmaceutical market.⁵² The EUCJ reviewed whether pharmaceutical products without authorization can be sold on the same relevant market as products with approval. Because Avastin’s off-label prescription was not legally established, the court found it belonged in the same market as Lucentis.⁵³ Colangelo⁵⁴ argues that restriction by object analysis about off-label use of drugs and disparagement practices in the pharmaceutical sector should be done on a case-by-case basis.

Regulatory gaps in the EU pharmaceutical regulations may lead to competition law violations. Papadopoulou (2022) suggests that the current regulatory system governing supplementary protection certificates (SPC) in the pharmaceutical market and the lack of adequate regulations could violate patients’ rights and increase the number of anti-competitive practices.⁵⁵ Obtaining SPC through misusing the regulatory system in the AstraZeneca case proves this claim. In this case, AstraZeneca⁵⁶ aimed to encourage customers to buy Nexium instead of Losec and used different business strategies to make the older product more expensive and less attractive. The Commission held that this strategy abuses a dominant position and violated Article 102 TFEU.⁵⁷

3. THE IMPACTS OF COVID-19 PANDEMIC ON EU COMPETITION LAW AND POLICY

The pharmaceutical industry has played a critical role in addressing and mitigating health problems during the COVID-19 pandemic, and this health crisis significantly impacted this sector. The urgent need for COVID-19 vaccines has led to accelerating product development, clinical trials, and regulatory processes.⁵⁸ Governments have invested heavily in research and development to manufacture vaccines and other pandemic-related products. Increasing public funding in this sector, the profits from selling vaccines, and some objections regarding intellectual property rights create severe doubts about the current system’s effectiveness.⁵⁹ The pandemic brought attention to the need for transparency in this sector, particularly in R&D costs, public funding, public procurement processes, and inequities regarding the distribution of vaccines. A ‘renewed, innovative, patient-centred and world-leading pharmaceutical sector’ is among the goals of the EU pharmaceutical sector strategy,⁶⁰ and the steps towards a ‘European Health Union’⁶¹ and the competition law enforcement has the potential to help achieve these goals. The Commission’s goal in the ‘EU Pharmaceutical Strategy’ impacted by COVID-19 is to align this enforcement with an emphasis on enhancing access to medicine.

The impacts on the enforcement

The enforcement shift: More flexible, more pragmatic

During the COVID-19 pandemic, many governments around the globe, including the EU, temporarily suspended,⁶² adjusted or relaxed specific antitrust, state aid and public procurement rules or changed the normal policies to allow for cooperation and collaboration among businesses and increase the production or distribution of crisis-related products in the health sector. The pandemic impacted goals and priorities in policy and environment, and all competition authorities focused on the on-time and effective production of pandemic-related products, namely vaccines, to citizens.

In the EU, temporary measures to facilitate the supply of essential goods were adopted and updated during the pandemic. The ‘Temporary Framework Communication’⁶³ issued by the European Commission on 8 April 2020, is an example of a pragmatic and flexible approach⁶⁴ during the COVID-19 outbreak. Some behaviours that typically violate EU competition law were, to some extent, acceptable in the COVID-19 era. The Framework mentioned that undertakings could cooperate and coordinate their practices to ensure that essential goods are available to meet the increased demand, provided that their activities do not breach EU competition law. Furthermore, the cooperation must be limited, proportionate, and temporary and serve the interests of consumers and the general public. The joint practices of competitors based on this framework must be transparent, and crisis cannot be used as a cover for exploiting consumers, anti-competitive collusions, and abusing dominance. A set of safeguards and monitoring mechanisms are also anticipated in the Framework. This flexible approach did not ignore the danger of anticompetitive practices, such as excessive pricing, horizontal anticompetitive agreements, or market foreclosure, even in a health crisis. Despite its flexible approach, the European Commission and national competition authorities remained committed to combating anticompetitive practices and agreements during the pandemic. Although Article 102 TFEU used to prohibit abuse of a dominant market position, and traditionally, this applies to the undertakings with a lasting hold on the market in case of crises like the COVID-19 pandemic and the emergence of a ‘situational monopoly’, where a company dominates a market temporarily, as Costa-Cabral and others suggest, Article 102 TFEU may also apply to combat the virus-profiteering of some market players, especially when they have new technology and try to squeeze out their competitors by creating barriers to entry.⁶⁵ Some of the reasons for this flexible approach are explained in the Commission’s 2024 report, including ‘the crucial role of the health sector businesses’, especially in ‘mitigating the effects of the crisis’, also ‘exceptional circumstances and a need for companies to cooperate’, ‘to ensure supply and fair distribution of essential and possibly scare products and services’.⁶⁶

Some examples of the reaction to competition law infringements during the pandemic include the Dutch NCA investigating Roche Diagnostics for not providing the formula for a key component of its PCR COVID-19 tests. This led to the removal of restrictions and the increase in the capacity to produce this specific pandemic-related product.⁶⁷ Another successful crisis initiative by NCAs was the approval of a ‘VCI Emergency Platform for Vaccination Equipment’ to coordinate vaccine supply, including syringes, cannulas, and NaCI solutions in Germany. This initiative focused on the emergency-only approach, and data and price sharing were limited based on this.⁶⁸

The Commission provides comfort letters to undertakings to ensure their proposed actions do not violate competition law; comfort letters are an old EU competition law tradition⁶⁹ that was revived during the pandemic (eg issuing a comfort letter to Medicines for Europe on April 29 2020).⁷⁰ The comfort letter exempts specific cooperative acts aimed at improving the supply and increasing production of vital medications for COVID-19 patients from the ordinary application of EU competition law. According to this comfort letter, uncertainty around COVID-19 worsens the problem of medicine shortages by increasing the risk of overestimation or underestimation of demand. The European Commission, in a second comport letter issued on 21 March 2021, stated that providing that competition law principles are followed, the cooperation of participating companies in Matchmaking Event, especially by sharing COVID-related commercial data, is not against Article 101 TFEU.⁷¹ Among the actions taken by the European Commission during the COVID-19 pandemic was ‘Commission Recommendation (EU), 2020/403 of March 13 2020’,⁷² the Commission emphasized enhancing market surveillance and ensuring COVID-19-related products’ continued availability and safety. ⁷³

During the COVID-19 crisis, national health systems made many decisions regarding prescribing off-label drugs.⁷⁴ These prescriptions were determined case-by-case, considering each patient’s treatment’s pros and cons. Many suggested that the prescription of off-label drugs outside clinical trials should be avoided without data supporting their use.⁷⁵ The problem of competition between off-label and authorized drug manufacturers and defining the relevant market (analysed in Hoffmann La Roche) can also be applied to the pandemic. Hoffman La Roche’s case highlighted the challenges regarding defining the relevant market when off-label drugs compete with authorized ones for treating the same condition. This issue became applicable during the COVID-19 pandemic when some medications were repurposed off-label as a potential treatment, mainly before developing authorized vaccines and drugs for pandemic purposes.⁷⁶ In this case, the question of the relevant market must be carefully considered, and it is also related to pricing and ensuring affordable access.

The European Commission’s approach to competition law enforcement during the pandemic can be characterized as following the rule of reason articulated in Wouters’ case.⁷⁷ Kozak⁷⁸ argues that the Commission followed the Wouters⁷⁹ approach during the pandemic when economic (efficiency) and non-economic (public interest) goals were at odds. This can be observed even in the post-pandemic era and as an example for future crises.⁸⁰ This approach involves the potential economic efficiency gains from a particular practice or transaction (such as cooperation and collaboration of vaccine producers) against any possible adverse effects on non-economic goals such as the public interest. Wardhaugh believes competition law cannot be suspended or relaxed as a solution in a crisis because ‘too much competition is not the problem that injection of a further monopoly into a relevant market’ can help.⁸¹ He argues that ‘the disapplication of the competition rules via a so-called public policy exemption (introduced after the initial stages of the pandemic) was not in the consumer interest’⁸² also, this kind of cooperation can sometimes form durable and stable agreements even after the crisis, and the US’s experience in battling the Great Depression proves this claim.⁸³

It seems that the Commission faced difficult trade-offs between preserving competition, protecting consumers, promoting economic stability, and supporting the continuity of essential services during the pandemic. Considering the unique circumstances of the crisis, the Commission made decisions based on a soft-law-based approach. Although these changes were substantially based on multiple temporary-based frameworks, cover letters and soft law were revised or withdrawn after the (health) crisis phase. The Commission and the national competition authorities had not planned to permit the collaboration between undertakings after the crisis phase. However, controlling the road of exchanging data and collaborating that once was open seems complicated (if not impossible).

Another aspect of the pandemic was dealing with state aid in the pharmaceutical sector. The objective of state aid control is not specific to competition⁸⁴ and can be used effectively during times of crisis. As a result of the COVID-19 outbreak, state aid control in the health sector has undergone revisions and modifications. During the pandemic, the EU promoted state aid, particularly for health products. A ‘Temporary Framework for State Aid’⁸⁵ was adopted on 19 March 2020, to allow Member States to take advantage of all the flexibility state aid regulations provide. The legal basis for the pandemic state aid at the beginning of the Pandemic was Article 107(2) b TFEU,⁸⁶ and after the situation changed and became more severe, the legal basis changed to Article 107(3) TFEU.⁸⁷

The temporary framework was modified six times and extended until 30 June 2022. Based on this framework, 1350 decisions and more than 980 national measures (approximately €3.2 trillion) were adopted.⁸⁸ Several of these decisions dealt with the pharmaceutical industry. Temporary measures and state aid framework allowed Member States to provide financial support to pharmaceutical undertakings through grants, loans, guarantees, or tax incentives. Biondi⁸⁹ assesses the European Commission’s temporary framework on state aid, the effectiveness of the measures taken, and the ability of Member States to take appropriate actions in this regard. A European Parliament report on the ‘Impact of State Aid on Competition and Competitiveness during the COVID-19 Pandemic’⁹⁰ calls for the Commission to improve transparency in evaluating state aid cases. This report’s recommendation includes a more precise articulation of the motivations and conditions for case approval and consideration of earlier submissions made by the same Member State or comparable submissions made by other Member States during the evaluation process. It also proposes a differentiated approach to evaluating smaller and more significant cases to mitigate excessive administrative challenges. In addition, the report emphasizes the significance of a more thorough screening of umbrella deals submitted by large Member States.⁹¹ The long-lasting impacts of the pandemic are still felt in post-pandemic, a newly approved €1 billion for state aid for the first ‘Important Project of Common European Interest in the Health Sector’ to support ‘research, innovation, and the first industrial deployment of healthcare products, as well as innovative production processes of pharmaceuticals’,⁹² is an example of continued flexibility in state aid in the health sector.

Public procurement (PP) is another issue brought to the forefront by the crisis. As Sanchez-Graells (2015)⁹³ mentioned, competition considerations have always played a natural role in public procurement.⁹⁴ Anticompetitive practices, such as excessive pricing and bid-rigging, threaten the procurement process. These risks are especially acute during crises. During the pandemic, public procurement policies were changed and modified to facilitate the timely and efficient procurement of crisis-related products (specifically pharmaceutical products). Among the various actions taken, specific procurement rules were eased, simplifying the process for businesses to participate in bidding and negotiations.⁹⁵

The availability of vaccines for Europeans was also one of the Commission’s missions during the pandemic. The Commission secured advance purchase agreements⁹⁶ with vaccine manufacturers and took some steps to facilitate the rapid approval and distribution of vaccines. McEvoy and Ferri analyse the European Joint Procurement Agreement (JPA) during the COVID-19 pandemic and how it has helped Member States strengthen their buying power and enjoy the benefits of economies of scale. However, the transparency of the pricing mechanism⁹⁷ that the authors claimed was not obvious in the contracts with vaccine manufacturers. COVID-19 Vaccine manufacturers consider themselves ‘the pandemic champions’, and vaccine contracts with these undertakings were utterly confidential. One of Pfizer’s leaked vaccine agreements shows several confidentiality clauses. Furthermore, the negotiations with vaccine manufacturers during the pandemic did not follow the official public procurement procedures, transparency, and accountability concerns about pandemic champions.

The COVID-19 pandemic presented challenges in the current competition law system, state aid and public procurement in the health sector, including the need for more transparency. This was exemplified by the negotiation process of purchasing the COVID-19 vaccine between the European Commission’s president and Pfizer’s CEO, conducted mainly through unusual negotiating tools such as SMS.⁹⁸ As a result of the European Ombudsman’s investigation, Pfizer’s CEO was invited to the European Parliament hearing. However, he did not attend the hearing.⁹⁹ The WHO Guidance Report (2016), derived from consultations with Member States and key partners, noted that some features, such as transparency, equality of treatment, proportionality, annual financial audits, and regular reporting, can enhance the effectiveness of pharmaceutical public procurement. These features are essential during a health crisis.¹⁰⁰ Transparency increases the possibility of having a level playing field, and as a result, the prices of essential medicines can be reduced for patients, and access to them can be increased.

The EU’s crisis policy endorsed the implementation of Compulsory Licensing (CL) instead of IP waivers. In compulsory licensing, governments can authorize a third party to manufacture and sell a patented medicinal product during a public health crisis, even without the patent holder’s permission.¹⁰¹ CL is one of the WTO (World Trade Organization) TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement’s flexibilities, focusing on using in a crisis. On the other hand, an IP waiver, which some consider a rather radical solution, includes suspending the informant of a whole package of IP rights, not just patents. The radical nature of an IP waiver (from the opponents’ viewpoint) lies in the fact that it does not need any consent or compensation from the government.¹⁰² The access-based approach to pandemic-related products during the COVID-19 pandemic was a hot debate, and there was a global shortage. Still, the innovation and IP supporters have a firm position among the pharmaceutical industry and many Western governments.¹⁰³

Using the Essential Facilities Doctrine (EFD) as a competition law tool to improve access can also be helpful in the context of a global pandemic. The FED is based on the idea that certain facilities, infrastructure, or assets necessary to a market’s operation, without any available alternative, must be accessible to all market players on fair and non-discriminatory terms.¹⁰⁴ Refusing to provide this facility might be considered abusing the dominant position under EU law.¹⁰⁵ EFD concept can be applied in the context of IP and vaccines to resolve problems when a vaccine producer has exclusive control over a piece of technology required to manufacture a vaccine and refuses to share it with other pharmaceutical companies.¹⁰⁶ When a business holds a patent on a crucial technology needed to produce a vaccine for a pandemic disease but refuses to license that technology to others, this can be considered anti-competitive behaviour.

Another possibility is to use excessive pricing as a tool for the antitrust crisis agenda, although there are some serious doubts regarding its effectiveness. The first doubt concerns the necessity of using excessive pricing in an antitrust agenda; this view that the market’s function and supply and demand should set the price, and even in case of irregularities, sector regulators are responsible, not competition authorities, is a dominant argument in the literature.¹⁰⁷ However, as Colangelo argues in her book, the Aspen case proved that competition law enforcement is sometimes necessary because of a ‘failure of exciting sectoral regulatory framework’,¹⁰⁸ although it should not be considered a first solution.

The second doubt regarding this tool is the difficulty of utilizing the United Brands Framework for excessive pharmaceutical pricing due to the complex nature of this framework’s two-step tests. This complication was further exacerbated by the rapid spread of the global pandemic, as thousands of pandemic-related producers aimed to capitalize on the crisis by selling the product at an unjustly increased price and achieving unwarrantedly high revenues. Abbott¹⁰⁹ and Veraldi¹¹⁰ argue that applying this framework creates added complexity regarding the excessive pricing of branded pharmaceuticals. The competition authorities’ challenge regarding originators is innovation defence, R&D investment, market definition, and accessing risks and ‘unfairness’. The relevant assessment market is predominantly tiny and, in many cases, relatively hard to define. Therefore, judging whether a branded pharmaceutical product is excessively priced is more difficult than the generics. However, as Veraldi explains, it is not impossible.¹¹¹

In her proposal, Stavroulaki articulated that extending the notion of ‘consumer welfare’ and including public policy goals, such as access and equity in the health sector, could be useful in a health crisis context and beyond. She argues that accepting a narrow consumer welfare approach will not cover other essential aspects of public health, such as access, equity and acceptability. Stravroulaki argues that if competition authorities refuse to consider these objectives in their enforcement, this assessment will not match society’s objectives, such as equity.¹¹² This was also reflected in the pandemic, and we saw that society expected to follow the public policy objectives. The flexibility of competition law enforcement in the EU (through different frameworks, comfort letters, and soft laws) and the encouragement to collaborate between vaccine producers are examples of following public health objectives rather than mere economic objectives.

Combining these tools and a solidarity and access-based approach (also followed in the European Pharmaceutical Strategy) could reduce barriers to the market. This will enable more manufacturers to produce pandemic-related products, facilitate access to essential medicines at a lower price, and better allocate them, especially for disadvantaged groups. This approach also aligns with the solidarity goals of the EU vaccine strategy.¹¹³

A new wave of Pharmaceutical Cartels?

The impact of the pandemic on the pharmaceutical sector will be long-lasting. In a historic move, the Commission fined six corporations €13.4 million for participating in a price-fixing cartel in October 2023. This first (discovered and punished) cartel case in the pharmaceutical sector regards N-butyl bromide scopolamine/Hyoscine (SNBB), essential in producing the abdominal antispasmodic medicine Buscopan and its generic equivalents. Several pharmaceutical companies, including Alkaloids of Australia, Alkaloids Corporation, Boehringer Ingelheim, C2 Pharma, Linnea, Transco-Pharma, and Alchem, were involved in establishing minimum sales prices, quotas, and the exchange of confidential commercial information regarding SNBB for more than 12 years of restricting competition by the object.

All companies settled with the Commission except for Alchem. Linnea and Transo-Pharma also saw their fines reduced because they agreed to assist the Commission. As a whistleblower, C2 Pharma received complete protection.¹¹⁴

Detecting pharmaceutical cartels extends beyond the scope of the EU-level competition law enforcement, and this anticompetitive agreement during and after the COVID-19 outbreak also attracted the attention of national competition authorities. ‘Vaccine Cartle’ in Belgium is one of these cases in which the Belgian competition authority sanctioned Febleco CV and Pharma Belgium-Beldmedis SA in February 2022 for participating in a cartel regarding direct sales of (mainly) flu vaccines from these pharmaceutical companies to pharmacies, which involves some discounts and return prohibition clauses about flu vaccines during the pre-sale period. Fableco CV was granted immunity because of the whistleblowing.¹¹⁵

According to the latest 2024 Commission report, European competition authorities actively investigate over 30 pharmaceutical sector cases.¹¹⁶ Although there is no indication of the number of cartel cases, it seems that a new era of more serious competition enforcement, including a wave of cartel cases, is underway.

Cooperation in enforcement between competition authorities

Another impact of COVID-19 was the cooperation between national competition authorities. The pandemic revealed global markets’ interconnection and the need for intra-state co-enforcement. The outbreak became a driving factor behind the unprecedented cooperation between NCAs, proving that the complexities of global market interconnectedness made it impossible to deal with such issues unilaterally. As a result, NCAs began to cooperate more actively to exchange information and conduct joint investigations and enforcement measures, best exemplified by the collaboration of the European Competition Network, which united NCAs and the European Commission.¹¹⁷ For example, coordinated efforts were used to control the supply of personal protective equipment; this cooperative approach was highly beneficial as it enabled a more flexible enforcement model and introduced further support provisions from a regulatory perspective.

The impacts on the policy and regulation

COVID-19 is not over and will continue as long as its effects linger. The economic, social, and political impact of COVID-19 will likely be long-lasting. Rakic¹¹⁸ discussed the post-crisis condition and proposed three recovery pathways, explaining how the final step depends on several aspects such as the ‘economy’s sector, the intensity of its output, consumption, and trade’. After the health crisis, the collaboration and cooperation between undertakings and the exchange of data and information between rivals might continue. It may have a lasting effect on the pharmaceutical market, lead to anticompetitive practices, and harm competition and consumers. It is unlikely that the supply chain disruptions and horizontal cooperation between rivals will return to the period before the pandemic (at least not in a short time).

The pandemic also highlighted the danger of excessive pricing in the health sector. Costa-Cabral and others suggest that ‘the reinforcement of the idea that the prohibition of excessive prices must always be present in competition law regimes is one of the lessons that must be learnt from the COVID-19 Pandemic’.¹¹⁹ A recent case in this regard is Humira’s excessive pricing and evergreening. Pharmaceutical Accountability Foundation (PAF) filed a lawsuit against AbbVie, manufacturer of this Autoimmune drug, in February of 2023 based on competition law and human rights allegations.¹²⁰ PAF claimed that AbbVie engaged in unfair pricing practices regarding Humira, causing the Netherlands healthcare system to be overcharged by €1.2 billion. Although AbbVie’s patent expired in 2018, with the patent evergreening, its exclusivity on the market was not impacted. The pandemic established a need to include human rights considerations in competition law and for more effective, patient-centred enforcement.¹²¹ The EU post-pandemic initiatives enhance this idea. Considering the specific characteristics of crisis flexibilities, European competition authorities may need to adapt to the new-era changes and ensure that the pandemic champions (vaccine producers) obey the EU competition law in the post-pandemic era. As Moreira mentioned, competition authorities have a significant role in the post-pandemic recovery process¹²² and must monitor the collaboration and cooperation of undertakings in the post-pandemic era.

The COVID-19 pandemic severely damaged the EU and the rest of the world’s supply chains. Preparing for the worst-case situation is one of the many vital lessons the pandemic has taught us. Creative destruction¹²³ was an exemplary aspect of COVID-19, and the pandemic accelerates innovation in policy-making. Post-pandemic initiatives¹²⁴ and the upcoming changes in pharmaceutical regulations and policy are among the pandemic’s impacts on this sector.

In the pharmaceutical industry, competition law and regulation interact complexly. Policymakers in this sector aim to provide access to safe, effective, and affordable medications. Regulations guarantee that pharmaceutical products have undergone extensive testing and are secure, while competition laws protect the affordability of these products through competition. Some initiatives in this field may serve regulatory purposes while also affecting competition law, so it is critical to consider this intersection.

Pharmaceutical strategy for Europe

To ensure the accessibility of patients to ‘innovative and affordable drugs’ and to promote the EU ‘pharmaceutical industry's competitiveness, innovative capacity, and sustainability’, the European Commission adopted a ‘New Pharmaceutical Strategy for Europe’ on 26 November 2020.¹²⁵

This strategy covers some key elements, such as ‘Access to safe medicine’, one of the pillars of the previously introduced ‘European Health Union’.¹²⁶ The unmet needs of the patients (especially rare diseases), the limitation of investment in this area, revising the legislation regarding ‘medicines for children and rare diseases’,¹²⁷ and ‘facilitating collaboration on unmet needs’, ‘Pilot innovative approaches to the EU research and development and public procurement for antimicrobials and their alternatives’,¹²⁸ promoting ‘investment and coordinating research, development, manufacturing, deployment and use for new antibiotics as part of the new EU Health Emergency Response Authority’, and introducing ‘new measures to restrict and optimise the use of antimicrobial medicines’ are among initiatives of the Strategy related to the antimicrobial resistance.¹²⁹

Optimizing the SPC system according to the ‘Intellectual Support Action Plan’, establishing an ‘interoperable data access infrastructure for the European health data space’ by 2025,¹³⁰ and supporting ‘public-private and public-public partnership’ are some of the strategies’ flagship initiatives regarding competitiveness. Regarding innovation, ‘enhancing dialogue among authorities’ and ‘promoting artificial intelligence use in this sector’ are among the pharmaceutical strategy’s proposals.¹³¹ Issuing appropriate policies for supporting ‘greater generic and biosimilar competition’,¹³² ‘removal of barriers to entry into the market’, and emphasis on the ‘enforcement of the EU competition rules’ are also mentioned in the strategy.¹³³ The Strategy also stressed the importance of transparency in R&D costs and improving the ‘public procurement process of pharmaceuticals’, which were very important during COVID-19. The Commission has announced its intention to unveil a revised pharmaceutical package in 2023.

The European Commission’s adaptation of the New Pharmaceutical Strategy for Europe highlights the importance of ensuring patients have access to innovative and affordable drugs. Balancing these two competing goals can be challenging, as the cost of R&D must be recouped for the industry to remain sustainable. The strategy aims to improve competition between generic and biosimilar products by removing barriers to entry. It also emphasizes transparency in research and development costs and seeks to revise the supplementary protection certificate system, which could lead to a more transparent and competitive pharmaceutical sector. This strategy can impact competition law in this sector as it highlights the delicate balance between competition policy, affordability of drugs, enhancing the competition between biosimilars, generics and branded products and intellectual property protection.

Pharmaceutical Reform Package

The Pharmaceutical Strategy for Europe set a framework to reform the European pharmaceutical regulations and the Pharmaceutical Reform Package followed it.¹³⁴ On 26 April 2023, the Commission announced the adaptation of a new regulation and directive proposal to reform the current EU pharmaceutical legislation after 20 years. This reform will significantly impact the pharmaceutical sector in line with the EU pharmaceutical strategy and strive to improve the ‘accessibility, availability, and affordability’ of medicines across EU Member States, particularly for those patients with ‘rare diseases’ or ‘unmet medical needs’. One of the aspects of this reform that will impact competition law is the emphasis on high prices for innovative medicines and the costs of patented drugs for patients and health systems. The new pharmaceutical regulation will affect the relationship between originators with generics and biosimilar producers and help design a more patient-centred pharmaceutical sector. The proposal specifically mentioned these products’ simplified availability and earlier availability.

The proposal also highlighted the need to strengthen the competitiveness of the EU pharmaceutical industry globally and improve the EU’s standing as a leader in the biopharmaceutical market by engaging in ‘digital transformation and new technologies’. It also aims to create a ‘single market for medicines’ to achieve the goals of effectiveness, affordability, and accessibility. The proposal also seeks to simplify the review process and shorten the approval time for pharmaceuticals. This will result in patients having more rapid access to medicine. It will lay the groundwork for creating a patient-centric and forward-focused pharmaceutical system, allowing the EU industry to lead the way in medical innovation. The pharmaceutical package, comprising 55 action points, aims to create a patient-centred and forward-thinking pharmaceutical system; it also includes non-legislative actions that, through information sharing, aim to improve Member State collaboration on pricing, reimbursement, and procurement laws.¹³⁵ However, as Plank¹³⁶ argues that COVID-19 was only an accelerator in these reforms, and the impact of the pandemic showed the ugly face of market failure in this sector. All the solidarity-based and patient-centred pharmaceutical sectors made more sense after COVID-19.

Proposal for a regulation on compulsory licensing for crisis management¹³⁷

On 27 April 2023, the Commission published a proposal for compulsory licensing. This proposal will impact patent law, crisis management and competition law, and the commission aims to increase EU resilience in case of future crises and increase the accessibility of pandemic-related products by using compulsory licensing as an effective tool. The proposal also seeks to improve competitiveness by empowering small- and medium-sized undertakings to use the technology of big pharmaceutical companies in the framework of compulsory licensing, which is supposed to be a valuable tool in an emergency. Compulsory licensing allows governments to license patented technologies under certain conditions without the rightsholder’s consent. There is a national-level framework for compulsory licensing in each Member State. Still, its shortcomings became apparent during the pandemic, and the pressure from civil society, NGOs and the general public and the fact that people blame IP holders for pandemic-related products were some reasons that accelerated the approval of these new regulations. The legal basis of this proposal is Articles 114 and 207 of TFEU.

The proposed pharmaceutical legislation recommends suspending both data and marketing exclusivity protections during public health emergencies. It impacts competition law by enabling generic manufacturers to utilize the original regulatory test data to approve generic versions, decreasing the market entry obstacles for these producers and increasing access to machines for all. McMahon¹³⁸ mentioned that based on the current proposal, this framework only applies to EU-wide crises and does not consider emergencies affecting individual Member States. EU could terminate the compulsory licensing framework when the crisis mode ends at the EU level, possibly causing a sudden loss of access to related products. It must make sense for generic pharmaceutical producers to invest in a temporary basis framework.

Single Market Emergency Instrument

On 19 September 2022, EU Commissioner M Vestager announced the Single Market Emergency Instrument (SMEI) proposal in a press release titled ‘Crisis-proofing the single market’.¹³⁹ This governance framework aims to ease the crisis management of the single market and allows European policymakers to react efficiently and effectively to future crises. In the impending crisis, SMEI aims to complement other EU rules and ‘ensure the free movement of goods and people’. When an interruption occurs in the supply chain, SMEI anticipates some actions. The key novelty of this initiative is the anticipation of three modes: contingency, vigilance and emergency modes. The Commission is responsible for ‘activating the vigilance mode’, and in case of disruption (such as a global pandemic or war that has a wide-ranging impact), the European Council has the power to activate the emergency mode.

The SMEI proposed the establishment of an advisory group consisting of representatives from the commission and Member States. The advisory group would be empowered, through the authority of the Commission, to prohibit or approve the circulation of critical goods or require undertakings to disclose certain information. The SMEI envisaged some extraordinary measures under the emergency mode that would necessitate stricter procedural mechanisms, which would be activated by a subsequent Commission implementing Act (dual activation). These procedures must be put in place in a given industry. Such actions would always be done following consultation with that sector and submitting a voluntary request.

In discussing the SMEA, some Member States expressed concerns about how a crisis is defined and Member States’ involvement in the process.¹⁴⁰ They stressed the importance of clearly communicating the temporary and urgent nature of the crisis definition in the policy. In the same vein, Linden argued that SMEI should not impose an unnecessary burden on undertakings which were under pressure because of the pandemic and the obligations imposed on companies (as proposed by the SMEI), should be subject to a proportionality test,¹⁴¹ according to Article 5 TEU (the Treaty on EU).¹⁴² Bardt and others believe that this instrument can lead to normalizing ‘the state control in private ownership’ and ‘war economy structure’ and is also ineffective in severing ties with third countries in a crisis.¹⁴³

The new instrument will generally change the laws and regulations already in place. However, The SMEI proposal clarifies that this regulation does not affect Union competition rules, including antitrust, merger, and state aid rules. Still, it may influence the EU policies on compulsory pharmaceutical licensing, especially during a health crisis. During the next crisis, measures may be issued to regulate cooperation and collaboration among businesses in different markets, including the health sector, with regard to competition law. Companies not complying with SMEI regulations may be fined 1.5% of their daily turnover. In June 2023, the EU Council published its opinions on SMEI, and in July of the same year, the European Parliament adopted its first reading. In February 2024, the Council and the European Parliament reached a provisional agreement on the SMEI’s regulation. After this agreement, the SMEI will be renamed the Internal Market Emergency and Resilience Act (IMERA).¹⁴⁴

The Health Emergency Preparedness and Response Authority

The Health Emergency Preparedness and Response (HERA) is a new European Commission Directorate-General created in September 2021 to anticipate threats and health crises through intelligence gathering and response capacity building. It complements similar agencies such as the European Centre for Disease Prevention and Control (ECDC), the European Commission Directorate-General for Health and Food Safety (DG-SANTE), and the European Medicines Agency (EMA).¹⁴⁵ Like its US version, BARDA (Biomedical Advanced Research and Development Authority), HERA’s duties include maintaining a stockpile of necessary medical supplies and equipment and sponsoring relevant health and development research.¹⁴⁶ The creation of HERA was a timely and critical step in addressing the COVID-19 pandemic and being cautious and prepared for future health crises, including pandemics and environmental and antimicrobial resistance crises.¹⁴⁷ Shroff and others (2022) suggested that HERA collaborate with WHO as an international moderator to remove current barriers in the health sector and promote procurement transparency for pharmaceuticals. Furthermore, they emphasize the importance of patient involvement in regulation and HERA’s role in this process.¹⁴⁸ HERA has a critical role in enforcing ‘The European Health Union’,¹⁴⁹ and some of its responsibilities are related to competition law. HERA’s position as a new regulatory authority can impact the enforcement of competition law in the pharmaceutical sector, especially regarding transparency in public procurement in the health sector and maintaining a stockpile of essential medical supplies that may affect the pharmaceutical market. Monitoring and regulating the stockpile of pandemic-related products can prevent hoarding or other anticompetitive practices in the pharmaceutical market and ensure equitable access to medical supplies. Promoting patient-centred policies from HERA can increase competition by incentivizing undertakings to produce medicines that address patients' needs and preferences. This will lead to a more competitive pharmaceutical industry.

4. CONCLUSIONS

This study concisely examined EU competition law and policy in the pharmaceutical sector, focusing on the evolving landscape and the impact of the COVID-19 global health crisis. The Commission’s 2008 inquiry into the pharmaceutical sector was a turning point, revealing several anticompetitive practices aimed at impeding market competition. Subsequently, from 2009 to 2019, European competition authorities investigated various anti-competitive practices such as pay-for-delay agreements, excessive pricing, and more. The COVID-19 pandemic has significantly impacted competition law enforcement in the pharmaceutical sector. By temporarily relaxing some rules, the Commission allowed businesses to work together and pool resources to confront the issue. The crisis’ unique conditions justified this departure from conventional enforcement procedures; however, European competition authorities remained dedicated to upholding fair competition and safeguarding consumer interests, balancing these objectives and the requirement for flexibility in its strategy. The Commission used soft law tools, including recommendations and guidelines, to achieve this balance, and antitrust policies have taken a pragmatic and flexible approach driven by public policy objectives. This approach involved approving substantial state aid amounting to 27 countries and implementing significant pharmaceutical strategies and regulations changes. However, negotiations surrounding the procurement of vaccines have shown the importance of transparency and accountability within the pharmaceutical sector.

These pandemic concerns regarding price and supply highlighted the need for patient-centred EU competition law enforcement in the post-COVID-19 era. The Commission can achieve its accessibility, availability, and affordability goals for the new pharmaceutical strategy by supporting the early entry of generic and biosimilar pharmaceuticals and monitoring the excessive pricing of patented products and pay-for-delay agreements. The future of EU competition law will be impacted by the Pharmaceutical Strategy for Europe, the pharmaceutical reform package, the proposal for a regulation on compulsory licensing for crisis management, the SMEI, the establishment of HERA and, in fact, many regulations that will be in place shortly. While these initiatives have limitations and shortcomings, they propose a better preparedness perspective for the next health crisis. However, there is another problem with so many different initiatives in different forms: overregulation of markets. The pharmaceutical market is currently overregulated, and adding to these regulations with the aim of preparedness may become overwhelming. The emergence of new technologies and the use of these technologies in developing, procuring, and distributing pharmaceuticals may cause different concerns, and other regulations may be sought as a solution. It seems that the long-lasting impact of COVID-19 on the pharmaceutical sector is beyond expectations. COVID-19 taught us some lessons, including the need and desire for more patient-centred and inclusive competition enforcement in the pharmaceutical sector, and we should respect and practice this lesson in the next health crisis.

Acknowledgements

This research is part of the COMPHACRISIS project, which has received funding from the European Union’s Horizon Europe MSCA programme (grant agreement no 101061575). The views and opinions expressed are, however, those of the author only and do not necessarily reflect those of the European Union or the European Research Executive Agency. Neither the EU nor the Agency can be held responsible for them. I would like to thank Professor Imelda Maher and two anonymous reviewers for their valuable feedback on the early version of this article. In accordance with the Academic Society for Competition Law (ASCOLA) Declaration of Ethics, I have no conflict of interests to declare.

Footnotes