This presentation by DG COMP of the European Commission was made during a workshop on “Recent Challenges in Competition and IP in Pharmaceutical Markets” held by the OECD in Paris on 26 February 2019. More papers and presentations on the topic can be found out at oe.cd/2tD

1. Pay for delay deals:
selection of practical issues
OECD Paris, 26 February 2019
Blaž Višnar & Adriaan Brouwer, DG Competition
DISCLAIMER
The views expressed are purely personal and do not represent an official position of the European Commission

2. Overview
• Life cycle and dynamics behind pay for delay
• Recent pay for delay enforcement
• An example: Lundbeck
• Legal framework
• (and some thoughts on how to prove those)
• Additional factors
• (and some thoughts on how to prove those)
• Recent litigation challenges (Servier, UK paroxetine)

3. Life cycle of medicines

4. 4
• Generic price from Sept. 2003 to Nov. 2004: 90% price decline (UK).
(Lundbeck agreements: Jan. 2002 – June./Oct./Dec. 2003)
Red line: Lundbeck
Blue line: weighted average
generic citalopram prices per
DDD in the UK (GBP) 2002-
2005. (Decision, ¶212)
Real life example: impact of generic
citalopram entry in the UK (Lundbeck)

6. European Commission Decisions:
• 39.226 Lundbeck 06/2013, General Court 9/2016, appealed
• 39.685 Fentanyl 12/2013
• 39.612 Servier 07/2014, General Court 12/2018
• 39.686 Cephalon 07/2017 Statement of Objections
U.K.: CE/9531-11 Paroxetine Decision (04/2016), preliminary ruling
U.S.: (not discussed)
• Supreme Court: Actavis Opinion (06/2013)
• Litigation in 20+ pay-for-delay matters across the US
6
Recent pay-for-delay enforcement

7. Factual context
• Citalopram: blockbuster antidepressant medicine and Lundbeck's best-
selling product at the time: its "golden egg".
• Lundbeck's basic patent for the citalopram molecule and two original
processes had expired (1/2002). Thus, market was in principle open
for generic competition.
• Lundbeck had patented some 30 different citalopram processes
including of intermediates, which offered still limited protection. The
scope of those patents led to uncertainty and at least to a potential
patent dispute among the parties.
• Several generic companies had made serious preparations to enter;
one of them had actually started selling its own generic version of
citalopram.
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8. Did patents stay in the way of (potential)
competition?
In Lundbeck, objective elements, but also:
Lundbeck: "It would be naïve to think that it is not possible for
producers of generic copies to produce Cipramil without breaking our
patent.“(Nov. 02, ¶150)
Lundbeck acknowledged that proof of process patent infringement is
"very difficult“. (¶745)
Regarding the crystallization patent, Lundbeck (internally) estimated
invalidation risk at 60%. (¶157) ("not the strongest of all patents")
Lagap UK settlement allowing generic entry to avoid a “humiliating
defeat”. (¶160)
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9. Lundbeck – 6/2013
• In 2002, Lundbeck entered into six agreements with these four
groups of generic companies for a duration of between 10
and 22 months. In total, Lundbeck transferred a value of
around EUR 66.8 million. Lundbeck booked this money as “cost”
to gain “time”.
• The value transfers consisted of significant lump sums, purchase
of generics' stock for the sole purpose of destroying it, and
guaranteed profits in a distribution agreement.
• What did the generics offer in return? Not to enter with citalopram
in EU/EEA markets – but there was no guarantee of litigation free
entry after expiry.
• Restrictions by object, fines: Lundbeck ~ €90 million; generics ~
€50 million
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10. Commission‘s legal framework
• Potential competition: originator and generic companies were
at least potential competitors
• Commitment of the generic company to limit its independent
efforts to enter the market
• Value transfers that substantially reduced the incentives of
the generic company to pursue its independent efforts to enter
EU markets
10

11. Limit independent efforts to enter
• Non-compete and non-challenge
• Duration
• Authorized entry can still be restricted

12. Value transfer that reduced incentives
• What is the baseline against which significant is
to be measured?
• Foregone profits of generic?
• Other (>inherent settlement costs?)
• Suppose non-monetary consideration is paid—is
that a reverse payment?
• Counterfactual versus arm’s length
• Interests of each party concerned
• Link between side-deal and patent settlement

13. Additional factors
• Inducement related to foregone profits
• Out of scope
• Litigation ultimately not settled

14. Servier – General Court rulings in 12/2018
• confirmed large parts of the decision (4 out of 5 by object
infringements), surviving fines of 315m out of 427m BUT
• annulled finding of abuse under Article 102 & finding that the
settlement agreement with Krka violated Article 101 by object or by
effect
Article 101 by object
• GC confirms Lundbeck case law: generics accept to withdraw from
competition due to the inducement, not due to patent litigation
• payment in excess of inherent costs a strong indication of its anti-
competitive nature
• not only direct payments but also side deals can induce generics to
withdraw from competition, but certain side deals are not a strong
indication of anti-competitive coordination
• GC rejected that the licence to Krka was an inducement
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15. Servier – GC rulings in 12/2018 cont‘d
Article 101 by effect:
• COM did not prove that Krka settlement had anti-competitive effects
• GC suggests that COM should have assessed actual, and not only
potential effects on competition, also taking into account factual
developments occurring after the agreement was concluded
Article 102 / market definition
• COM failed to show that the relevant product market was limited to
the perindopril molecule alone
• COM wrongly assessed therapeutic substitution with other medicines
of the same therapeutic class AND
• excessively relied on price-related factors (despite low price-
sensitivity of prescribers)
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16. Thank you!
Questions?

17. Background

18. Demand structure for pharmaceuticals