In one way or another, the pharma sector continues to be under the scrutiny of the Romanian Competition Council’s (RCC’s). Relatively recently, the RCC released its final report on the second sector inquiry (Second Sector Report) into the Romanian pharma market, while other investigations on the market relating to potential breaches of competition law pursuant to the implementation of limited distribution systems or direct-to pharmacy (DTP) systems are still pending (according to publicly available data). Based on the available public information, at least two separate investigations into various DTP systems implemented by suppliers of pharmaceutical products are underway.
The star topics of the Second Sector Report are (i) the marketing expenses and pricing of generic versus original drugs; and (ii) the limited distribution/DTP systems.
The level of marketing expenses borne by the suppliers of original drugs, especially upon patent expiry, is a major concern for the authority, as it raises barriers to entry and/or expansion for competing generic drugs. The RCC observed that marketing efforts have a direct impact on market share, and therefore protection measures must be taken.
Unlike other competition authorities, for instance the competition authority of the United Kingdom, the RCC appears to indicate that it will not intervene where a regulatory authority should act.
Therefore, on the topic of marketing expenses and cost-efficient drugs, the RCC makes recommendations or proposals de lege ferenda to other state authorities, rather than identifying competition policy trends. Obviously, this does not mean that the authority will not intervene where it identifies a potential breach of competition law.
The main recommendations related to marketing efforts for medicines and promoting cost-efficient drugs include:
- Equivalent pricing for innovative and generic drugs based on the International Non-proprietary Name. However, the recommendation is subject to a prior impact assessment study so as to avoid the policy triggering market exits;
- Eliminating from the regulated price list products that are not put on the market in sufficient quantities within a certain reference period (normally 6 months), but are kept on the list with the sole purpose of setting a reference price;
- Levelling the distribution and pharmacy mark-ups by reference to a similar system to a service tax;
- Legal measures to limit maximum discount levels, especially if such discounts are not passed on to patients. Nevertheless, the authority emphasises that the measure should not trigger minimum price thresholds banned under competition rules;
- Close monitoring of prescription patterns (innovative versus generics) by the National House of Health Insurance and potential implementation of the target threshold for the prescription of generics. Also, the sums spent on advertising drugs should be closely monitored and corresponding measures implemented according to the results of the monitoring;
- Information programmes for doctors, pharmacies and patients, as well as a system of financial incentives for doctors not exceeding a certain monthly budget in their prescription activities;
- It is also suggested that lower claw-back taxes for generics may help support the market entry and presence on the market of cost-efficient products.
Another hot topic of the RCC’s assessment relates to the different measures undertaken by pharmaceutical companies to ensure rapid and efficient access to products on the market.
The RCC acknowledges in the Second Sector Report that shortages of medicine may occur on the market due to either insufficient product volumes put on the market or parallel trade. However, the proposed solution to such shortages does not rest on a particular distribution system, but rather to strong legal provisions related to the fulfilment of public service obligations allowing the regulatory authority to (i) verify/monitor the manner in which companies in the production-distribution-retail chain fulfil their public service obligations; as well as (ii) to apply severe fines if such obligations are not observed.
In terms of the various distribution systems aimed at ensuring rapid and efficient access to products on the market, the authority does not discriminate between (i) the traditional distribution system (multiple distributors); (ii) the limited distribution system (e.g., 3 distributors); and (iii) the DTP system, but emphasised that the latter two systems might raise competition law compatibility issues in the case of dominant companies, in particular, if benefits are not passed on to patients.
In any case, out of all the assessment topics put forward by the RCC in the Second Sector Report, the undisputable front stage star is the DTP system.
The RCC is currently investigating various DTP systems implemented on the Romanian market. Based on public information, one of the investigations is currently exploring the commitments option, meaning that the investigation will be closed with no consequences subject to a set of behavioural rules being adopted by the party under investigation for a determined period.
Even though the investigations are still ongoing, the Second Sector Report includes some important conclusions on the DTP system going forward:
- The DTP system is not illegal per se, but may be anticompetitive if implemented by a dominant company;
- The DTP system is normally based on services provided by a logistics agent. It is recommended that the selection procedure of the logistics agent is based on competitive and transparency principles;
- The switch from traditional distribution to the DTP system should allow distributors sufficient time to adapt and develop new strategies. However, the applicable reasonable time-frame for this is still to be determined. In any case, it should be adjusted depending on the product concerned; and
- The DTP system should be based on objective needs and should lead to efficiencies such as: (i) ensuring product availability; (ii) passing benefits on to the patients and pharmacies (both in terms of financial benefits and the service provided, including timely delivery and ease of order); and (iii) reducing the risk of counterfeit products coming onto the market.
Also, the DTP system should not represent a means to implement anticompetitive practices such as the restriction of parallel trade.
The final conclusions on the DTP systems will be clearer once the RCC issues its final position on the ongoing investigations into DTP systems already implemented by some pharmaceutical companies in Romania (e.g., GSK).
In any case, it is obvious that the implementation of a DTP system would require careful consideration, in particular if this system were considered for dominant products. This should not represent an absolute barrier to the implementation of a DTP system, but it would require extensive efforts even from the moment the DTP system were merely on the drawing board. Also, the system may require careful assessment not only from competition-law perspective, but also from regulatory perspective.
Even though the pharma sector presents particularities that are not applicable to other industries (e.g., FMCG), for instance, given the compensation of certain drugs by the National House of Health Insurance and the role of the prescribing physician in patient care and acquisition trends, the concepts developed by the RCC relating to the DTP system might be considered by dominant companies in other industries as best practices, were a similar system used in their sector of activity.
In addition to the extensive comments on the DTP system (the actor in the leading role in the Second Sector Report), the best supporting role is attributed to the limited distribution system, including up to 3 distributors investigated by the RCC in relation to the system introduced by Pfizer.
Posing fewer risks of negatively impacting the competitive environment than the DTP system, the limited distribution system seems to be regarded with less concern by the authority, without being granted an absolute green light.
The assessment undertaken by the authority showed both positive and negative sides.
The positive effects of a limited distribution system are:
- Enhanced service level and collaboration between supplier and distributors. Distributors being selected following an objective process would represent an important step towards such results;
- Enhanced product availability; and
- Support in the fight against counterfeit products.
Nevertheless, the limited distribution system also has its drawbacks:
- Disadvantages (g., in delivery and commercial terms) for independent pharmacies as distributors tend to primarily supply their vertically integrated pharmacy chains;
- Potential disadvantages for small or regional wholesale distributors; and
- Potential risks of anticompetitive behaviour.
Even though the approach appears to be more relaxed in the case of the limited distribution system, upon the implementation of this model, especially in the case of dominant products, it could be sensible to adjust some of the rules developed by the RCC for the DTP system in order to mitigate potential competition law risks.
To conclude, the Second Sector Report, although it does not take the form of best practice guidelines from the authority, represents a useful assessment tool for companies implementing a DTP or limited distribution system. Its general conclusions may also be relevant to other industries.
In any case, it will be interesting to follow the final RCC conclusions from its ongoing investigations into the DTP system, as they will be of the utmost importance in fine-tuning the legal approach.