Competition law in the pharmaceutical sector: Balancing innovation with market access

Introduction

The interaction between intellectual property rights (“IPRs”) and competition law in the pharmaceutical sector has long been a troublesome issue.

Both fields are crucial to the industry: IPRs provide time-limited protection against competition and incentivise innovation, while competition law aims to ensure market competition and consumer access to affordable drugs and medical devices (which might not exist without innovation).

However, the tension between these two regimes is becoming increasingly pronounced as pharmaceutical companies find innovative ways to use their IPRs to maintain monopolies, sometimes at the expense of competition and public welfare.

Pharmaceutical Sector’s Unique Challenges

The unique features of pharmaceutical markets present a particular challenge for competition law enforcement. The following factors are key:

• Patent protection and market exclusivity: pharmaceutical companies rely heavily on patents to protect their innovations. A patent grants the holder exclusive rights to produce and sell the drug for a limited time (typically 20 years, but potentially longer if there are delays in gaining regulatory approval), which is crucial for recovering the extremely high costs associated with drug development and clinical trials.
• High prices and access issues: while patents foster innovation, they can also lead to high drug prices.  Without competition, the patent holder can set prices without the typical market pressure that drives prices down.  This becomes a significant concern in public health, especially when life-saving medications are priced out of reach for many patients.
• Generic drugs: as patents expire, generic drug manufacturers can enter the market, offering cheaper alternatives. Generic drug manufacturers have a lower regulatory burden in getting their products approved and on the market. However, brand-name pharmaceutical companies may attempt to delay this entry through various tactics, such as pay-for-delay agreements or the creation of patent thickets, where multiple patents are filed on slight modifications to extend market exclusivity (so-called “evergreening”).

Key areas of competition law scrutiny

1. Price-fixing and supply chain manipulation

Price-fixing and supply chain manipulation are clear violations of competition law, and both the CMA and the Commission have recently investigated such practices in the pharmaceutical sector.

• Price-fixing cartels: the CMA and EU regulators have uncovered price-fixing cartels, where pharmaceutical companies collude to set the prices of essential drugs at artificially high levels. These cartels harm consumers by keeping drug prices above competitive levels, reducing affordability and access to necessary medicines. In Hydrocortisone Tablets – CMA 2021, the CMA imposed fines of over £260 million on Audley Pharmaceuticals and Actavis for price-fixing in the supply of generic hydrocortisone tablets.  The companies were found to have conspired to increase the price of the drug to the NHS by over 10,000% over an eight-year period.
• Supply chain manipulation: companies may also engage in manipulating supply chains to restrict access to affordable alternatives.  This may include deliberately limiting the availability of generics or blocking competitors’ products from entering the market. Such practices reduce competition and can delay the entry of lower-priced medicines. In Fludrocortisone – CMA 2021, the CMA fined Aspen Amilco and Tiofarma for engaging in unlawful market-sharing agreements. Aspen paid the other two firms not to enter the UK market with competing fludrocortisone (used to treat adrenal insufficiency).  Supply manipulation can sustain inflated prices for essential drugs by keeping competitors out of the distribution chain.  As part of the settlement of the case with the CMA Aspen agreed to pay £8 million compensation to the NHS and to reduce prices.

Regulatory Response: the CMA and Commission have been proactive in investigating and sanctioning such practices, using cartel enforcement mechanisms to punish anti-competitive conduct. Both authorities have shown that they are willing to take decisive action to protect consumers from price manipulation in the pharmaceutical industry.

2. Patent thickets and pay-for-delay agreements

A more subtle form of anti-competitive practice in the pharmaceutical sector involves the use of patents to extend monopoly power beyond the original patent’s expiration date, or the use of agreements between branded and generic manufacturers to delay market entry.

• Patent thickets: a patent thicket is a dense web of overlapping patents that makes it difficult for competitors to enter the market without infringing on multiple patents. Branded pharmaceutical companies sometimes create patent thickets by filing numerous patents on small variations of a drug, such as new formulations, dosages, or delivery methods, even when the underlying active ingredient is already patented. This strategy may prolong the monopoly period, preventing generic manufacturers from entering the market with cheaper alternatives. In the case of Teva/Copaxone 2024 (see also below on product disparagement), Teva pursued a patent thicket strategy in Europe combined with disparagement of the generic version. Teva was also accused of sham litigation and misleading representations to regulators. This strategy served as a barrier to regulatory approval by competitors.
• Pay-for-delay agreements: in a pay-for-delay agreement, a brand-name pharmaceutical company pays a generic manufacturer to delay the release of a cheaper generic version of a drug.  This allows the brand-name company to maintain its monopoly profits while depriving consumers of more affordable alternatives. The  Commission has investigated several high-profile pay-for-delay cases. In the Lundbeck case (Citalopram-Antidepressant) 2013, the Commission found that Lundbeck had paid generic producers to postpone launching generic citalopram. The Commission imposed a fine of €146 million on Lundbeck and the generic firms. These deals limited competition and went beyond the scope of legitimate patent protection.

Regulatory response: both the CMA and EU competition authorities are closely scrutinising patent thickets and pay-for-delay agreements under Article 101 TFEU (EU competition law) and Chapter 1 Competition Act 1998 (UK competition law). These practices are seen as harmful to consumers, as they prevent access to more affordable drugs and limit competition.

3.  Gaming the Patent System 

Brand manufacturers in certain circumstances can “game” the patent protection system to prolong the patent protection of their products by resorting to procedural devices. The use of these procedures can be technically compliant with the patent office procedures and regulations, but can still be considered an abuse of dominance under Article 102 TFEU or Chapter II of the Competition Act 1998 if they have the effect of restricting competition.

The leading case on the misuse of patent procedures is the case of AstraZeneca v Commission (Losec- omeprazole) 2012. The EU Commission fined AstraZeneca €60 million (later reduced on appeal to €52.5 million) for abusing its dominant position in the market for the ulcer drug, Losec, by misusing patent procedures to hinder generic drug market entry and parallel imports in the following ways:

(i) Misleading patent offices: AstraZeneca provided false or misleading information to national patent offices to obtain Supplementary Protection Certificates (SPCs), which extended their patent protection.

(ii) Deregistration of Losec capsules: AstraZeneca deregistered the marketing authorisation for Losec capsules, which was a reference product needed for generic drug registration. Simultaneously, they introduced a new tablet formulation of Losec, which couldn’t be used as a reference product for generic capsules, thus creating an artificial barrier to market entry for generic competitors.

Regulatory response: the EU Commission and the CMA will use their competition powers to stop pharmaceutical companies from misusing patent office procedures and regulations to hinder generic competition. The AstraZeneca case highlights the importance of fair competition in the pharmaceutical industry and the potential for companies to misuse patent and regulatory systems to stifle competition. This case also clarified the scope of Article 102 TFEU, emphasising that even actions that are technically compliant with other regulations can be considered an abuse of dominance if they have the effect of restricting competition.

4. Product disparagement

There have been several cases involving competition law and product disparagement. In these cases, dominant companies disseminate misleading or misleadingly alarmist information to hinder competing drugs on the market. Many of these early cases dating back to 2012 and 2013 (see Sanofi-Aventis and Schering Plough) have been decisions of the French Competition Authority.

However, the leading case in relation to this behaviour is the EU case of Teva (Copaxone – glatiramer acetate generics) 2024.  Teva embarked on a systematic disparagement campaign undermining the safety, efficacy, and therapeutic equivalence of a rival generic MS drug made by Synthon, combined with patent strategy abuse to delay entry.  

The misuse comprised the filing of multiple “divisional” patent applications and obstructing effective legal review by strategic withdrawals of these patents before competent bodies could adopt a decision, and while one or more patents with similar, overlapping claims were still in place.  This prevented the European Patent Office from issuing a final decision on the validity of overlapping claims, prolonging the period of uncertainty. This practice has earned the name “the divisional game”.

For this behaviour, the EU Commission fined Teva €462.6 million in October 2024 for abusive conduct, including disparagement and misuse of the patent system.

This decision is subject to appeal by Teva.

Regulatory response: both the Commission and the French Authority, as well as the CMA, are alive to the anti-competitive/foreclosure effect of product disparagement in the pharmaceutical sector. The CMA in 2024 accepted commitments from Vifor Pharma relating to misleading claims Vifor had made to healthcare professionals about the safety and effectiveness of Pharmacosmos’s IV iron product, Monofer, to protect its own product, Ferinject. Competition regulators are therefore aware of the growth of this particular abuse and determined to take action to stamp out this exclusionary behaviour.    

Balancing intellectual property and competition: the ongoing debate

At the heart of the tension between competition law and intellectual property in the pharmaceutical sector is the balance between incentivising innovation and ensuring that new drugs are affordable and accessible. Intellectual property rights, particularly patents, serve as a mechanism to reward pharmaceutical companies for their investments in research and development. Without strong patent protections, companies might be less incentivised to develop the next generation of life-saving treatments.

However, competition law exists to ensure that companies do not misuse their market power to the detriment of consumers. When pharmaceutical companies manipulate patents, engage in anti-competitive practices, or use their market dominance to delay generics, they are undermining competition and harming consumers who rely on affordable medications.

The need for reform: both the CMA and Commission face significant challenges in navigating this tension. There is increasing recognition that the application of competition law and intellectual property law needs to address the unique characteristics of the pharmaceutical industry.

Some have suggested reforming patent law to limit the use of patent thickets and improve transparency, while others advocate for greater scrutiny of pay-for-delay agreements and the strategic use of IPRs to delay market entry.

However, there is a danger that adjusting patent law to deal with bad behaviour in the high-stakes and highly litigious pharmaceutical industry may damage the IPR incentives to innovators in other fields.

A better approach may be for Courts adjudicating patent disputes to be aware of the potential effect on competition of such bad behaviour (particularly when granting interim injunctions), and for patent-granting authorities to be alert to “patent thickets” that might indicate a need for closer scrutiny.

A quick fix for the “divisional game” could be for competent institutions (patent offices or courts) to always issue a decision on patent validity if a patent is abandoned where there are related patents or applications having similar or overlapping claims.

Conclusion: a need for vigilance

The intersection of competition law and intellectual property law in the pharmaceutical sector remains a complex and evolving issue. The CMA and Commission have shown that they are committed to cracking down on anti-competitive practices that harm consumers, including price-fixing, supply chain manipulation, the use of patents to delay generic entry and product disparagement.

As both regulators and industry players continue to navigate this challenging landscape, a careful balance must be struck between rewarding innovation through patents and ensuring that consumers have access to affordable medicines. The future of pharmaceutical competition law will likely involve greater cooperation between regulators, more stringent enforcement of anti-competitive practices, and perhaps even reforms to patent practice to ensure that the ultimate beneficiaries of pharmaceutical innovation are patients, not monopolies.

What must be ensured is that solutions adopted for the pharmaceutical industry, with its unique characteristics, do not prejudice other industries with widely different competition landscapes.

For those in the pharmaceutical industry, this evolving regulatory environment requires constant vigilance and a commitment to compliance, especially as both UK and EU competition law continue to adapt to the changing dynamics of the global pharmaceutical market.