A temporary framework has been adopted by the European Commission that will allow companies and industry associations to co-ordinate their activities as part of efforts to tackle supply obstacles in the face of the coronavirus pandemic. The framework allows industry to co-operate without raising competition concerns and has been welcomed by European off-patent association Medicines for Europe.
Setting out the temporary framework, the commission acknowledged that “measures to adapt production, stock management and, potentially, distribution in the industry may require exchanges of commercially-sensitive information and a certain co-ordination of which site produces which medicines, so that not all undertakings focus on one or a few medicines, while others remain in under-production.”
Such exchanges and co-ordination between undertakings “are in normal circumstances problematic under EU competition rules,” the commission acknowledged. “Nevertheless, in the current exceptional circumstances, such measures would not be problematic under EU competition law or – in view of the emergency situation and temporary nature – they would not give rise to an enforcement priority for the Commission.”
This was to the extent that such measures would be:
designed and objectively necessary to increase output in the most efficient way to address or avoid a shortage of supply of essential products or services, such as those that are used to treat COVID-19 patients;
temporary in nature, to be applied only as long as there is a risk of shortage or in any event during the COVID-19 outbreak; and
not exceeding what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.
All exchanges between firms should be documented, the commission recommends, with agreements between parties made available to the commission on request.
“The fact that a co-operation is encouraged and/or coordinated by a public authority – or carried out within a framework set up by the latter – is also a relevant factor to be taken into account,” the framework says, in calculating whether such co-operation would be problematic under EU competition law, or would not be an enforcement priority for the commission.
‘Comfort Letter’ Issued To Medicines For Europe
Under the framework, the commission can issue "comfort letters" to provide guidance to firms and trade associations on specific co-operation initiatives that affect the EU and which need to be implemented quickly to effectively tackle the coronavirus pandemic, “especially where there is still uncertainty about whether such initiatives are compatible with EU competition law.”
This would help increase legal certainty over antitrust guidance “within a timeframe that is compatible with the urgency of certain situations related to the current COVID-19 outbreak.”
The first such comfort letter was issued on 8 April to Medicines for Europe.
“The comfort letter addresses a specific voluntary co-operation project among pharmaceutical producers – both members and non-members of the association – that targets the risk of shortage of critical hospital medicines for the treatment of coronavirus patients,” the commission explained.
“Generic pharmaceutical companies produce the largest part of the critical hospital medicines that are now urgently needed in large scale volumes to avoid shortages,” the commission observed. “In the current circumstances, this temporary co-operation appears indeed justifiable under EU antitrust law, in view of its objective and the safeguards put in place to avoid anticompetitive concerns and as long as it remains within the scope communicated to the Commission.”
Temporary Framework Welcomed By Industry
“We warmly welcome the guidance of the European Commission on this issue,” Medicines for Europe stated. “This is an important partnership to help countries get the supplies to battle COVID-19.”
Applauding the temporary framework, Medicines for Europe – which represents manufacturers supplying around 67% of the European prescription market – said the move would “facilitate co-operation initiatives aimed at securing supply of hospital medicines during the COVID-19 pandemic.”
Pointing to a recent surge in demand for intensive care unit medicines, most of which were off-patent drugs, Medicines for Europe said the situation “deserves particular EU-wide efforts.”
“ICU medicines of critical importance to maintain patients on invasive mechanical ventilation include sedatives, muscle relaxants, analgesics, and antibiotics among others,” the association noted. “These medicines are necessary, together with ventilators and trained healthcare professionals, to help patients with respiratory difficulties.”
Medicines for Europe invited all companies holding marketing authorizations for injectable forms of these medicines to contact the association “if they want to help Europe and participate in the project in accordance with the Commission decision and guidelines.”
A project developed by Medicines for Europe will assess the demand spikes for these medicines in European countries, working alongside the commission and the European Medicines Agency. This, the industry association said, would “best ensure their supply where they are needed most.”
Thanking the commission for issuing its comfort letter, Medicines for Europe director general Adrian van den Hoven pledged that the association would “fully comply with the guidance it requires.”
“This European co-ordination is vital to ensure equitable access to patients,” van den Hoven stated. “As we work on the issue of ICU medicines supply, we hope to continue to co-operate with the EU institutions and member states to help patients in all countries in Europe.”
Since the early stages of the European coronavirus outbreak, Medicines for Europe has been calling for a “structured dialog” between industry, the commission, member states and regulators to “plan for a possible extended duration” of the pandemic. (Also see "European Coronavirus Planning Requires ‘Structured Dialog’" - Generics Bulletin, 11 Mar, 2020.)
Various Measures Anticipated By Temporary Framework
The temporary framework acknowledges that “many EU member states have indicated that they are already experiencing shortages of medicines used to treat patients with COVID-19 or are expecting such shortages to occur very soon,” adding that “different measures may contribute to bridging the gap between demand and supply.”
“It might require a very significant, rapid increase of production for products that are needed but are in short supply. This may lead to a reduction in the production of other products,” the framework outlines. “It might also require the reallocation of stocks, which would require that undertakings agree to exchange/communicate information on sales and stocks.”
To increase production, undertakings “might need to switch their production lines for some non-essential/non-shortage medicines to medicines necessary to address the outbreak,” it suggests. “In addition, output could be increased further and more efficiently if, at a certain site, only one medicine was produced, as opposed to switching production between different products, which requires time-consuming cleaning of machinery.”
However, it was important to balance economies of scale with the need to avoid “excessive reliance on any particular production site,” according to the framework.
Co-operation activities envisaged by the framework – including trade associations co-ordinating joint transport for input materials, using forecasts to identify essential medicines likely to be in shortage, aggregating production and capacity information and sharing "supply gap" information – “do not raise antitrust concerns, provided that they are subject to sufficient safeguards, such as no flow of individualized company information back to competitors.”
“Co-operation in the health sector might even need to go further to overcome critical supply shortages,” the framework foresees. “It may, for instance, need to extend to co-ordinating the reorganization of production with a view to increasing and optimizing output so that not all firms focus on one or a few medicines, and other medicines remain in under-production, where such re-organization would allow producers to satisfy demand for urgently needed medicines across member states.”
Encouraging Co-operation But Closely Monitoring Behavior
Acknowledging “the exceptional challenges that undertakings are facing due to the COVID-19 outbreak and their crucial role in overcoming the effects of such a crisis,” the commission said it was encouraging “pro-competitive co-operation aimed at addressing these challenges, notably in response to urgent situations related to the current COVID-19 outbreak.”
At the same time, however, the commission emphasized that “in these exceptional circumstances, it is more important than ever that undertakings and consumers receive protection under competition law. It will therefore continue to closely and actively monitor relevant market developments to detect instances of undertakings taking advantage of the current situation to breach EU antitrust law, either by engaging in anti-competitive agreements or abusing their dominant position.”
In particular, the commission said it “will not tolerate conduct by undertakings that opportunistically seek to exploit the crisis as a cover for anti-competitive collusion or abuses of their dominant position, including dominant positions conferred by the particular circumstances of this crisis.”
This could include exploiting customers and consumers by charging unusually high prices or limiting production “to the ultimate prejudice of consumers” such as by obstructing attempts to scale up production to address shortages.”
“The Commission thus encourages undertakings and citizens to continue reporting any cartels and other antitrust violations, including abuses of dominant positions, that may come to their attention through the usual tools at their disposal.”
The commission's move to relax competition rules to facilitate a response to the coronavirus pandemic comes shortly after Australia’s competition regulator, the ACCC, granted a conditional dispensation to allow the local generics and brand industry associations to work together on the local response by sharing certain supply-chain information. (Also see "Australia Relaxes Competition Rules To Facilitate Coronavirus Response" - Generics Bulletin, 6 Apr, 2020.)