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Algorithmic pricing raises concerns for EU competition law enforcement
Out-Law Analysis | 30 Sep 2020 | 8:28 am | 7 min. read
An easing of competition rules and flexibility shown by regulators has helped pharmaceutical companies and medical device manufacturers in direct competition with one another cooperate to overcome problems that threatened the security of supply of vital medicines and equipment during the Covid-19 pandemic. Competitors continue to work together to address supply chain risk with the shared goal of combating the public health emergency and protecting against the risks posed of a 'second wave' of the virus.
However, opportunities exist in the sector to build other, lasting collaborations beyond those formed within the prism of security of supply concerns and 'doing the right thing' by society.
The global nature of supply chains in life sciences means the supply of active pharmaceutical ingredients (APIs) and other raw materials, packaged medicines or medical devices and other equipment can be disrupted due to geo-political tensions, natural disasters or a range of other factors. This is why in so-called 'normal' times many countries hold between three and six months' worth of medical supplies to safeguard against potential threats to the future supply of vital medicines and kit.
The Covid-19 pandemic is arguably the most extreme and lasting event to threaten this security of supply of medicines and medical equipment since the Second World War. As the virus spread from China into Europe and further afield, there was an unprecedented surge in demand for intensive care unit (ICU) medicines, such as anaesthetics and muscle relaxants, as well as personal protective equipment (PPE) for health and social care workers, and, for a time in countries such as the UK, for ventilators too. Existing stock levels were quickly depleted and there was a rush to produce more, involving both traditional life sciences companies and manufacturers from other sectors repurposing their production lines.
In addition, industry had to overcome travel restrictions and other logistical challenges, as well as protectionist export restrictions in some countries, to ensure hospitals that needed supplies received them. To do this they needed to cooperate.
What we're now doing is rebuilding that resilience in the supply chain in many ways, restocking those critical drugs. If we don't do that on an industry, continent and global basis [then] … if the second wave hits and we've only got one month's worth of inventory, well, things could get a lot worse, a lot more quickly
Competition law is a common barrier to rival businesses working closely together to carve up markets and share sensitive information with one another, but competition authorities in Europe responded quickly to industry requests for clarification and comfort in relation to the rules to enable them to combat the public health emergency through close cooperation without fear of subsequent penalties.
Andrew Webb, general counsel for the UK and Ireland and head of mergers and acquisitions legal for Europe at Accord Healthcare, said: "The biggest changes that I've seen are the way that the industry has worked together, through bodies like Medicines for Europe and in communication with regulators such as the European Commission and the European Medicines Agency, to do the best for patients on the continent."
Medicines For Europe, a trade association that represents manufacturers of generic and biosimilar medicines, worked with the Commission to secure a so-called 'comfort letter'. This enabled companies willing to participate in the coordinated effort to provide commercially sensitive data, through an independent consultant, for the purposes of supporting the programme of demand and supply modelling for ICU medicines, without the fear of being pursued by the Commission or national competition authorities for breaching competition rules, subject to the activity being carried out within strict parameters.
Webb said: "Medicines for Europe, with some other key stakeholders, have been very good at recognising the need to work together because what we were otherwise seeing were countries potentially acting individually. You might have seen one country stockpiling more than it needed causing another country to run out of stocks of critical medicines. The way that the industry came together to help stop that happening, for example by mapping the supply and demand and being able to say 'country X, you don't need any more' was a great positive during the pandemic and helped ensure that patients got access to vital medicines during a crisis situation."
The fall in number of cases and ICU patients in hospitals across Europe over the summer has provided the industry with some respite in which to seek to rebuild depleted stocks ahead of further potential waves of the virus over the winter months. Moving forward, the pandemic has emphasised the need for the continent to work on its supply chain resilience, access to local manufacturing, maintaining local reserves and ensuring uninterrupted supply of essential medicines as a priority. Collaboration can help here.
"What we're now doing is rebuilding that resilience in the supply chain in many ways, restocking those critical drugs," Webb said. "If we don't do that on an industry, continent and global basis [then] … if the second wave hits and we've only got one month's worth of inventory, well, things could get a lot worse, a lot more quickly."
As a further example of collaborative efforts during the pandemic, Accord Healthcare has partnered with Sterling Pharma Solutions, which is based in Northumberland in the north-east of England, in an effort to safeguard its and the UK’s access to APIs it usually sources from elsewhere, to help it manufacture hydroxychloroquine, a drug that is being tested for its potential to help prevent or address some of the symptoms of Covid-19.
"We're supporting the largest international clinical study, COPCOV, which is enrolling over 40,000 frontline healthcare workers in tens of countries across the world and will study the use of hydroxychloroquine for the prevention of Covid-19," Webb said. "That's something that we're supporting with a donation of over two million tablets of hydroxychloroquine and matching placebo. If such repurposed medicines are ultimately shown to demonstrate a positive effect, then these could be rolled out to healthcare professionals on the frontline around the world rapidly and for a relatively low cost."
Collaboration in life sciences pre-dates the coronavirus crisis. For years many pharmaceutical companies have worked in partnership with universities on research projects, for example, while it is common for companies to work with others on the development of new treatments for rare diseases – for instance, the multi-million pound collaboration between big pharma, the UK government and Alzheimer’s Research UK to fund research into possible treatments for dementia.
Competition law will continue to be a relevant factor in determining the scope of suitable collaboration in future. Robert Vidal, a partner at Pinsent Masons, who specialises in competition law and life sciences, said that in the UK he is aware of efforts by innovators to secure a rare opinion from the Competition and Markets Authority (CMA) to give them scope to pool resources to develop better therapies. Vidal said: "We are likely to see competition authorities retreat from some of the relaxations on collaboration between competitors. However, there will always be space for collaboration where the aim is to benefit consumers as long as the right precautions are adopted. For example, the sharing of information will always need to managed carefully."
Roger Marquilles, who heads the legal department at Accord Healthcare for the European region, said that while industry would benefit from more political cooperation across governments to spur innovation, and that targeted interventions can help incentivise companies to develop new drugs for rare diseases, in most cases leaving life sciences companies alone to compete naturally in the market is the best way to deliver innovative new products.
"To foster innovation, I think the best thing is to allow as much as possible the companies to compete," Marquilles said. "The less [governments and regulators] intervene the better, I think."
While much of the focus and coordinated efforts within the life sciences sector currently is understandably on finding a vaccine for Covid-19 or on researching the potential for existing treatments to be repurposed to safely alleviate the virus' symptoms, collaborative models can also help companies deliver less glamorous but nevertheless meaningful improvements to medicines and medical devices to the benefit of patients.
You start to see biotech companies collaborating with biotech companies much more, and that may result in a better product
Catherine Drew, a specialist in life sciences at Pinsent Masons, said: "It is tempting to focus on the discovery of blockbuster new therapies when thinking about innovating in life sciences, but the concept of innovation is much broader than that and, though it often attracts a lower profile, can deliver positive outcomes. It is notable that, for example, in the hunt for a treatment for Covid-19, many manufacturers, researchers and regulators are exploring the potential of existing, sometimes very old therapeutics. Collaboration in this area – in repurposing of existing medicines – could really help to make the most of existing medicines, and the investment that went into them to develop them originally."
In the biotech sector, technology is advancing so quickly that it can make sense for two or more businesses in the market to work together, said Beverley Carr, chief business officer at Achilles Therapeutics, a cell therapy company that develops products to help treat cancer.
According to Carr, biotechs would traditionally have to partner with big pharma to help them develop new products. That model of collaboration continues to be a major part of Achilles Therapeutics' collaboration strategy "because those kinds of deals can advance the company significantly, both from a financial perspective and from a capabilities perspective", Carr said. However, she said the emergence of companies such as Iovance has demonstrated that biotechs can operate sustainably without the help of big pharma and still "go to market with a personalised cell therapy product".
Earlier this year Achilles Therapeutics entered into collaboration with another biotech company, Ori Biotech. The collaboration will explore how Ori's technology can help Achilles Therapeutics improve the efficiency of the manufacturing process for cell therapy as well as improve the effectiveness of the cells themselves.
"Cell therapy is such a fast moving space and such an evolving space that there are many companies that are developing technologies that are complimentary to what we do," Carr said. "There are a number of different companies with whom we are exploring collaborations. That, I think, is a shift in the biotech model compared to what you would have seen five to 10 years ago. You start to see biotech companies collaborating with biotech companies much more, and that may result in a better product."
Overcoming restrictions on access to cash continue to be a challenge for smaller innovators hoping to collaborate in the biotech market, however.
Carr said: "With biotech – biotech collaborations there may be less opportunity to contribute large cash upfront payments and we will need to be creative about how we structure deals to reflect the relative investments made and value contributions of each party, whilst ensuring each board is comfortable with the outcome."
According to Carr, equity, JV structures and co-development options may increasingly be features of these deals, to ensure that each party’s value contribution is recognised and rewarded.
"I think that the more deals like that that we see, the more that will facilitate collaboration and, and using synergistic technologies together," she said.
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Algorithmic pricing raises concerns for EU competition law enforcement