Investigation into alleged practices of Celgene, Pfizer and Sanofi

Position Statement

See the news release that corresponds to this position statement.

OTTAWA, December 20, 2018 — Today, the Interim Commissioner of Competition announced that he has discontinued his inquiry relating to policies or practices of certain branded drug manufacturers, which were alleged to restrict generic drug manufacturers’ access to samples of their branded products contrary to the abuse of dominance provisions of the Competition Act (Act).

This position statement summarizes the analysis and conclusions of the Competition Bureau’s investigation and the reasons for discontinuing the Inquiry. While the Bureau has not concluded that the Act has been contravened at this time, the practices within the pharmaceutical industry that gave rise to its investigation are of concern to the Bureau, and may warrant further enforcement or advocacy action in the future.

I. Background: The Pharmaceutical Industry

Pharmaceuticals comprised 16.4% of total health care expenditures in Canada in 2017.Footnote 1 On average, annual pharmaceutical expenditure per capita was approximately $1,086.Footnote 2 Because of the important role of pharmaceuticals in treating illnesses and improving the lives of patients, vigorous competition among pharmaceutical manufacturers is essential in order to ensure that Canadian consumers benefit from low drug prices and continued innovation.

Canada’s regulatory and intellectual property framework is aimed at balancing incentives for branded pharmaceutical manufacturers (Brands) to provide Canadians access to new and innovative drugs on one hand, and the benefits that come from access to lower priced drugs from generic drug manufacturers (Generics) on the other.

Brands incur significant costs in researching and commercializing branded pharmaceuticals, including costs to comply with regulatory requirements. Before marketing a branded pharmaceutical, Brands need to obtain the approval of the Minister of Health. Among other things, seeking approval of a new drug involves conducting extensive clinical trials to prove that the new drug is safe and effective. Brands typically apply for patent and other protections that enable them to enjoy some degree of time-limited market exclusivity, providing a period of time where they can introduce a branded pharmaceutical and be insulated from competition. This serves as an incentive for Brands to continue making investments and developing innovative therapies.

Following the expiry, successful challenge or negotiated agreement related to a Brand’s intellectual property, competition from generic drugs typically emerges. Generic drugs are therapeutically equivalent to branded drugs, and are usually sold at a significantly lower price. Typically, the first generic drug introduced to the market, whether following patent expiry, negotiated agreement or a successful patent validity challenge, is priced at 85% (or less) of the cost of the branded pharmaceutical. Subsequent generic drugs further decrease the drug price. For example, the introduction of the third generic drug typically decreases the drug price to 25% of the branded pharmaceutical.Footnote 3

One of the reasons why generic drugs are less expensive than branded drugs is that Generics generally rely on the clinical testing that the Brand had conducted to prove the drug was safe and effective, resulting in significant cost savings. However, in order to do so, a Generic must prove that its product is “bio-equivalent” – that is, prove it is therapeutically equivalent – to the branded drug, which generally requires samples of the branded drug (Canadian Reference Products or CRPs). Without access to CRPs a Generic cannot conduct bioequivalence testing, and therefore in many cases cannot receive the necessary regulatory approval to market the generic drug. As a result, if a Brand can prevent or delay Generics from accessing CRPs, this may limit competition from Generics and deny Canadians timely access to safe and effective generic drugs at lower prices.

II. The Inquiry

In 2016, the Bureau was made aware of certain alleged conduct by Brands that may foreclose or delay the ability of Generics to obtain sufficient amounts of CRPs to secure regulatory approvals, thereby delaying the marketing of generic equivalents.Footnote 4 In particular, Generics alleged that they have been increasingly impeded in access to CRPs through pharmaceutical wholesalers,Footnote 5 who typically serve as intermediaries in the supply chain between pharmaceutical manufacturers and downstream purchasers such as pharmacies and hospitals. Based on preliminary information from relevant market participants, the Commissioner initiated an inquiry in November 2016. Specifically, the Bureau inquired into the conduct of certain Brands, including Celgene, Inc., Pfizer Canada, Inc. and Sanofi-Aventis Canada, Inc.

The Inquiry focused on two types of conduct. First, the Bureau looked into alleged restrictions imposed by Celgene, Pfizer and Sanofi on wholesalers or other distributors that may prevent them from supplying CRPs to Generics. Second, the Bureau examined the approach taken by Brands in dealing with requests for CRPs they receive directly from Generics.

The Bureau assessed the allegations under the abuse of dominance provisions of the Act. Under the Act, abuse of dominance occurs when a dominant firm or group of firms in a market, engages in a practice of anti-competitive acts, with the result that competition has been or is likely to be lessened or prevented substantially.

Over the course of its investigation, the Bureau gathered information from numerous third-parties, including key private and public stakeholders in the pharmaceutical industry, as well as information directly from Celgene, Pfizer and Sanofi pursuant to a court order.

The conduct examined by the Bureau during the course of the Inquiry varied to a degree by Brand and the findings are therefore explained below in groupings.

A. Bureau Findings – Celgene

The Bureau’s investigation into Celgene’s practices focussed on two issues:

  1. whether Celgene’s risk management program was anti-competitive due to explicit distribution restrictions that prevented Generics from accessing CRPs from pharmaceutical wholesalers; and
  2. whether Celgene’s approach in dealing with direct requests for CRPs from Generics materially delayed or blocked the marketing of the Generic version of the drug.

i. Celgene’s risk management program

In order to market certain pharmaceuticals, Health Canada requires the implementation of a risk management program to mitigate the health and safety risks associated with uncontrolled distribution and dispensing of high risk drugs. Revlimid, one of Celgene’s products, is used to treat various cancers, such as multiple myeloma, but also poses significant risks to fetal development, causing life-threatening deformities and abnormalities when exposed to patients during pregnancy. Revlimid is subject to a risk management program, known as RevAid.

Among other things, the RevAid program includes distribution of Revlimid through limited channels, and registration of pharmacies, physicians, and patients who may access Revlimid. Through this system, Celgene is able to limit the distribution of Revlimid to specific entities or individuals that will be provided access to these pharmaceuticals. These restrictions on distribution raised concerns that elements of the RevAid program may go beyond what was necessary to address health and safety concerns posed by Revlimid in order to limit the ability of Generics to access CRPs.

Based on the information the Bureau has gathered, there is insufficient evidence to conclude that the elements of the RevAid program that limit distribution to Generics are anti-competitive. That is, at this time the Bureau has not concluded they go beyond legitimate measures to ensure safe use of Revlimid or other regulatory requirements.

ii. Celgene’s approach to direct requests for CRPs from Generics

One consequence of the RevAid program is that Generics may be forced to approach Celgene directly in order to obtain CRPs for drugs subject to the program. Thus, even if the RevAid program is not itself anti-competitive, it may contribute to other potentially anti-competitive conduct relating to Celgene’s treatment of requests by Generics to purchase CRPs.

Based on the information gathered in the course of the Inquiry, the Bureau found that Generics have indeed requested CRPs directly from Celgene on more than one occasion. However, the Bureau is not aware of any instance where a request for restricted CRPs has been fulfilled by Celgene due to various reasons. In at least one case, Celgene has imposed conditions on the supply to a Generic, which the Generic has characterized as unnecessary and burdensome.

While these requests remained unfulfilled by Celgene, the Bureau was made aware of the fact that certain Generics were ultimately able to obtain sufficient CRPs through other means. The Bureau’s decision to discontinue its investigation against Celgene turned on this fact as well as on the fact that these Generics were eventually able to conduct the necessary studies to make the submissions needed for Health Canada approval.

Consequently, in spite of finding some evidence suggesting that Celgene’s conduct resulted in some delays, difficulties and costs to Generics, at this time there is insufficient evidence to conclude that Celgene’s conduct gives rise to a substantial lessening or prevention of competition – one of three elements needed to demonstrate that Celgene is contravening the abuse of dominance provisions of the Act.

B. Bureau Findings – Pfizer and Sanofi

In addition to Celgene, the Bureau also inquired into allegations against certain other Brands, including Pfizer and Sanofi, had restricted the supply of CRPs to Generics by wholesalers. The Bureau did not find sufficient evidence suggesting that these parties have policies or practices that have the effect of inhibiting Generics from obtaining CRPs and substantially delaying or preventing their entry. Notably, over the course of the investigation, the Bureau has also become aware that one or more Generics have generally obtained the CRPs that were the specific focus of the Inquiry.

In particular, the Bureau commends Pfizer for its cooperation during the Inquiry. In June 2018, Pfizer sent a notice letter to relevant internal staff and distributors confirming that it does not have a policy restricting Generics’ access to its pharmaceutical products, and that there should be no discrimination between Generics and other customers. While the Bureau concluded that Pfizer has not violated the Act or engaged in any wrongdoing, the Bureau wishes to acknowledge Pfizer’s proactive measures to ensure clarity of its policies.

III. Guidance to the Pharmaceutical Industry

The Bureau’s investigation into the practices by certain Brands raised many important competition issues that are of relevance to various participants in the pharmaceutical industry. Some of these issues are highlighted below and are intended to provide guidance to market participants:

A. Assessing market power in the pharmaceutical industry

When assessing allegations of abuse of dominance, the Bureau will generally define one or more relevant markets, consisting of both a product and geographic dimension. With respect to the product dimension, although the Bureau has not reached any final conclusions, in this particular case the Bureau has generally proceeded on the basis that drugs containing a particular active ingredient constitute a relevant market (i.e., in most cases, the market is the branded drug and its generics). Due to the fact pharmaceuticals are generally marketed on a national basis, the starting point of the Bureau’s analysis would be to consider that the relevant geographic market is national.

Given such market definition, prior to Generic entry the Bureau would generally consider that a Brand would have sufficient market power to satisfy the first element of the abuse of dominance provisions. Among other things, prior to Generic entry a brand would typically hold a 100% market share and would be insulated from competition by barriers such as intellectual property protections.

B. Inhibiting a potential competitor’s ability to prepare for market entry

In the course of the Inquiry, the Bureau considered whether the conduct at issue is subject to the exception contained in subsection 79(5)Footnote 6 of the Act. The Bureau is of the view that the conduct at issue goes beyond the mere exercise of an intellectual property right and may engage the abuse of dominance provisions.

In this particular case, the evidence gathered supports the position that Generics may at times face barriers that impede their access to CRPs, barriers that in some cases are due to actions by Brands. For example, the Bureau’s Inquiry has revealed several cases where Generics have had to seek alternate sources of supply to the means through which they typically obtain CRPs, which has introduced delays in obtaining samples as well as increased cost. In such cases, Generics may have been hindered to some degree. However, based on the information gathered at this time, the Bureau has not identified any case where the impact on the ultimate marketing of a generic drug rises to a substantial lessening or prevention of competition, the threshold necessary to engage the abuse of dominance provisions.

C. Limited distribution of pharmaceuticals

Over the course of the Inquiry, the Bureau has heard that there is an increasing trend to limited distribution of Brand drugs, for example, in cases where drugs are only distributed from manufacturers to end-users through certain specialty pharmacies. Where such mechanisms are used by Brands to inhibit their potential competitors’ ability to penetrate the market, this may raise concerns of potential anti-competitive conduct.

IV. Developments in the United States and the potential for Canadian Policy Action

The allegations examined by the Bureau during the course of this Inquiry are not unique to Canada. On May 31, 2018, the Food and Drug Administration (FDA) issued a public statement highlighting the exploitation of risk evaluation and mitigation strategies (REMS) in the United States. Similar to Canada, the goal of a REMS program is to improve drug safety in situations where there are significant safety concerns due to high toxicity or other risks. The FDA asserted that Brands have abused FDA-approved REMS programs by:

  1. denying Generics access to reference products and
  2. preventing Generics from participating in the Brands’ REMS programs even when Generics are in a position to market their Generic Equivalents.

The Bureau is aware that legislative action is underway in the United States in order to address such issues.

In Canada, similar legislative or policy approaches have not yet been undertaken to address the broader issue of access to CRPs for pharmaceuticals that are subject to risk management programs. Although the specific facts of this Inquiry did not permit the Bureau to conclude an abuse of dominance has occurred, there are broader issues in this arena that may benefit from further exploration of policy options.

V. Conclusion

The Bureau remains very mindful of the importance of competition in the pharmaceutical industry especially where potential competitors experience undue difficulties or delays in penetrating the market. In this case, the Commissioner has decided to discontinue his Inquiry as the evidence uncovered by the Bureau to date is insufficient for the Commissioner to commence legal proceedings before the Competition Tribunal. However, the Bureau is of the view that the type of conduct at issue in the Inquiry has the potential to raise serious concerns under the abuse of dominance provisions.

Should new and compelling evidence of harm come to light, the Bureau will not hesitate to take appropriate action.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.

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