See the news release that corresponds to this position statement.
July 24, 2023 – GATINEAU, QC — On March 24, 2023, the Commissioner of Competition entered into a consent agreement with Isologic Innovative Radiopharmaceuticals Inc. (Isologic) after an investigation by the Competition Bureau into allegations related to Isologic’s contracting practices in the supply of radiopharmaceuticals in Canada. This position statement summarizes the Bureau’s investigation and the terms of the consent agreement.
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Background
Nuclear medicine is an integral part of modern health care for Canadians, playing an important role in the diagnosis, monitoring and treatment of many illnesses and diseases. Radiopharmaceuticals are radioactive compounds used by hospitals and health clinics in nuclear diagnostic imaging and therapies. In particular, single-photon emission computed tomography (SPECT) is a type of imaging scan that uses certain types of radiopharmaceuticals to make detailed images of specific areas of the body. To offer SPECT scans, many hospitals and clinics in Canada purchase patient doses (or unit doses) of radiopharmaceuticals from third-party radiopharmacies such as Isologic.
The Bureau’s investigation
In 2021, the Commissioner launched an inquiry after hearing concerns that Isologic’s contracting practices were allegedly anti-competitive. The Bureau used the framework set out in its Abuse of Dominance Enforcement Guidelines to analyze the company’s conduct.
An abuse of dominance can occur when:
- a firm is dominant, meaning it has a substantial degree of market power
- the dominant firm has engaged in practice of anti-competitive acts that is intended to have a negative predatory, exclusionary, or disciplinary impact on a competitor, and
- these anti-competitive practices have substantially reduced or are likely to reduce the overall level of competition in the market
As part of its investigation, the Bureau interviewed a wide range of stakeholders, including hospitals, health clinics, hospital buying groups and input suppliers. The Bureau also reviewed a significant volume of records and data, including customer contracts, internal records and transactional data, that were provided voluntarily by Isologic and other stakeholders. In addition, the Bureau hired an independent economic expert to assess the likely competitive effects of the contracting practices at issue.
The following analysis of the information gathered during the Bureau’s investigation informed the Commissioner’s conclusion.
Dominance
Isologic is the leading Canadian supplier of radiopharmaceuticals and holds a dominant position in the market for the supply of SPECT radiopharmaceuticals in Canada. In most markets where it supplies SPECT radiopharmaceuticals, Isologic is the sole supplier or holds a high market share.
Companies face significant barriers to entry and expansion in the SPECT radiopharmaceutical market in Canada. Producing and distributing radiopharmaceuticals requires extensive regulatory review and approvals by Canadian health authorities. Further barriers to entry and expansion include substantial upfront investments associated with establishing a radiopharmacy, barriers in obtaining skilled staff, large economies of scale and reputational barriers.
A practice of anti-competitive acts
The Bureau identified concerns with several clauses in Isologic’s contracts with certain customers, including clauses requiring customers to buy radiopharmaceuticals from Isologic exclusively. Other contract clauses of concern related to minimum purchase, automatic renewal and termination fees.
The Bureau recognizes that the use of exclusive arrangements is not necessarily anti-competitive, and can be engaged in for reasons other than to exclude competitors. As such, the Bureau weighs any evidence of anti-competitive intent against any legitimate business justifications. In this case, the Bureau concluded that the clauses of concern impeded the ability of actual or potential competitors to enter or expand in the SPECT radiopharmaceutical market in Canada.
Substantial lessening or prevention of competition
Lastly, the Bureau considered whether these contracting practices have prevented or lessened or are likely to prevent or lessen competition substantially in the SPECT radiopharmaceutical market in Canada. The use of restrictive terms in a contract by a dominant firm may substantially lessen or prevent competition in a market, if such contracts create material barriers to entry or expansion by preventing customers from switching to a competitor. Given the information gathered during the investigation, the Bureau concluded that certain terms found in Isologic’s contracts with certain customers have had, and would otherwise continue to have, the effect of substantially lessening or preventing competition in the SPECT radiopharmaceutical market in Canada. The result is greater barriers to entry and expansion for competitors than would likely exist in the absence of these practices.
Terms of the consent agreement
Under the agreement, Isologic will not enter into any new contracts or renew existing contracts containing terms that:
- require customers to purchase products exclusively from Isologic
- require customers to purchase a minimum quantity based on a percentage of their total purchases, and
- for multi-year contracts, do not allow the customer to terminate the contract without penalty, subject to certain conditions
The terms of the consent agreement do not apply to contracts between Isologic and a hospital buying group or provincial authority arising out of a public procurement process. However, the agreement prohibits Isologic from inducing such entities to purchase radiopharmaceuticals on an exclusive basis where such a term was not originally sought in the request for proposals.
Isologic is also prohibited from refusing to supply a customer solely because that customer refused to purchase from Isologic exclusively.
The consent agreement between the Commissioner and Isologic covers a period of 10 years from its registration with the Competition Tribunal.
Conclusion
The Commissioner is satisfied the terms of this consent agreement will adequately resolve the anti-competitive concerns raised by Isologic’s contracting practices in the SPECT radiopharmaceuticals market in Canada.
The Bureau appreciates Isologic’s cooperation throughout the investigation and its responsiveness in addressing the Commissioner’s concerns.
The health care sector is vital to the Canadian economy and its long-term well-being. The Bureau remains committed to protecting and promoting competition within the industry and to supporting the health care needs of Canadians. If you are aware of or subject to anti-competitive conduct in the health care industry, do not hesitate to bring these concerns to the Bureau’s attention.