Flick J has ruled that Pfizer did not breach antitrust rules by trying to maintain sales of Lipitor after it came off patent.
Pfizer’s patent on atorvastatin (Lipitor) was due to expire on 18 May 2012. Its analysis showed it was facing a revenue cliff: from $771 million a year in 2011 to $70 million a years by 2015. Pfizer came up with a 3-part plan:
- in the 18 months prior to expiry, it stopped supplying Lipitor through wholesalers and started supplying pharmacies directly (thereby earning the wholesale margin for itself);
- it offered a 5% discount to those pharmacies it supplied + a 5% “rebate” credited to an accrual fund. The “rebate” was repayable to the pharmacy if it committed to buy from Pfizer a specified proportion of its anticipated generic atorvastatin needs after the patent expired – the amount of “rebate” repaid would vary according to the proportion of generic needs committed to and the time frame for the commitment. For example, the pharmacy would receive 100% if it committed to taking 75% of its anticipated needs for 12 months. but only 50% if it committed to taking 75% for only 6 months.
- Pfizer also made a bundled offer – it could offer to supply both Lipitor and its generic product “atorvastatin Pfizer”.
The ACCC brought action alleging by implementing this plan, Pfizer had contravened:
- section 46 of the Competition and Consumer Act (CCA), which prohibits a corporation with a substantiall degree of power in a market from taking advantage of that power for proscribed anti-competitive purposes; and
- section47 of the CCA which prohibits exclusive dealing that has the purpose or effect of substantially lessening competition in a market.
Flick J has dismissed the ACCC’s action.
His Honour found that the relevant market was the market for the supply to community pharmacies in Australia of atorvastatin as the ACCC contended. Pfizer argued the market was the market for the wholesale supply of pharmaceutical products and over the counter products to community pharmacies.
Substantial degree of power in the market
His Honour also found that Pfizer had a substantial degree of power in that market until late 2011 and had taken advantage of that power by implementing its scheme. Pfizer did not have a substantial degree of power in the market from January 2012 on wards.
Before January 2012, Pfizer was the only supplier of atorvastatin and the constraints on the price it could charge imposed by the PBS was “not sufficient to render its market power anything other than “substantial”.” Flick J recognised that there was no precise date which could be identified as the point where Pfizer’s market power ceased to be substantial. By late 2011, however, that power was no longer “enduring” as the expiry date of the patent loomed closer. By February 2012, Ranbaxy was able to enter the market offering its generic atorvastatin for sale and the other intending generic suppliers had registered their products on the Therapeutic Goods Register and were starting sales discussions with potential customers.
Flick J found Pfizer took advantage of its power to impose the direct sales to pharmacies model because the pharmacies were opposed to it, but Pfizer was able to impose it on them as the only possible source of atorvastatin. Similarly, the rebate scheme took advantage of that power because it created an expection of payments in the future on terms that were unclear and yet to be decided. Flick J found that the amount of money accumulated within the rebate scheme by the time the patent expired was very substantial – $35 million – a powerful incentive to buy product from Pfizer. One might wonder, however, why the position would have been any different if the terms on which the rebate could be claimed had been clear.
No anti-competitive purpose
Even in the period before January 2012 when it had a substantial degree of power in the market, however, there was no contravention of 2 46 because it did not take advantage of its market power for a proscribed anti-competitive purpose.
Pfizer also did not contravene s 47 because in implementing the scheme it did not have the purpose of substantially lessening competition.
Rather than having a purpose of deterring competition by the generics, Flick J accepted that Pfizer was motivated by rationale business objectives. For example, selling directly to pharmacies rather than through wholesalers:
But my question, Mr Latham, was directed to Lipitor and generic atorvastatin, not some dream of establishing a generics business? — But once again you’re asking me to make a decision on – on one product, when I have seven products, over $1 billion, coming off patent. And it’s not just Pfizer Australia. It’s around the world. And to try to get the best business organisation that’s going to deliver continuing operations through those generic products, plus, they have these additional benefits of being closer to pharmacy. Going through the licensee doesn’t tick that important box.
The requirement to take 75% of the pharmacies needs to qualify for the “rebate” also did not have an anti-competitive purpose. Rather, Flick J found that the requirement had been reduced from 100% to 75% – sacrificing $30 million in potential revenue – to enable the pharmacy to establish a second source of supply.
Section 51(3) exempts from s 47 conditions in, amongst other things, licences of patent to the extent they relate to the invention to which the patent relates or articles made according to the invention.
Although its operation did not fall to be determined because there was no contravention of s 47, Flick J would have found it did not apply in this case. His Honour considered that the sale of atorvastatin to the pharmacies would not involve any licence. More importantly, his Honour would have held that the condition was collateral to the patent and so outside the scope of the exemption.
What actually happened
In the event, Pfizer went from selling 100% of the prescribed atorvastatin (as Lipitor) in March 2012, to 32% of prescription in April and settling around 22 – 23% by June 2012. While Pfizer antiticpated marketing advantages in being the only supplier likely to supply generic atorvastatin in pills the same shape, size and colour as Lipitor, the evidence showed it held 100% of the generic market until September 2012, after which its share fell away to 16 – 17% by March/April 2013.
- PBS figures for the year to June 2012 showed Lipitor was the highest cost to the scheme ($593 million) followed by rosuvastatin ($359 million) and ranibizumab ($308 million). ?
- Pfizer and Ranbaxy had settled other litigation on terms which enabled Ranbaxy to enter the market before the patent expired. ?