South Africa: Pharmaceutical Companies in the Spotlight after Excessive Pricing Investigation Announced

On 13 June 2017, the South African Competition Commission (SACC) announced that it would be investigating three pharmaceutical companies namely, Roche Holding AG (Roche), Pfizer Inc (Pfizer) and Aspen Pharmacare Holdings Ltd (Aspen), for allegedly abusing their dominance in relation to certain lung cancer medication.

In the SACC’s press statement, the SACC indicated that it would be investigating the firms for allegedly engaging in “excessive pricing, price discrimination and/or exclusionary conduct”.

The decision to investigate the pharmaceutical companies comes shortly after the BRICS competition agencies apparently agreed to investigate the pharmaceutical companies who conduct business in the BRICS member states. A World Bank Report, which prompted the BRICS agencies to investigate this sector, indicated that the pharmaceutical industry is prone to “cartel like” behavior.

In relation to the SACC’s current investigation, the SACC appears to have identified primarily two areas of concern. Firstly, that the relevant companies are charging ‘excessive prices’ and secondly, that there is a discrepancy between the prices charged to the public versus private healthcare sector – which may amount to price discrimination or exclusionary conduct.

Importantly, neither a contravention in relation to ‘price discrimination’ nor ‘general exclusionary conduct’ carries with it an administrative penalty for a first time offence. In relation to ‘excessive pricing’, however, a firm could be fined an administrative penalty of up to 10% of its annual turnover if found to have contravened section 8(a) of the South African Competition Act.

The seminal case on excessive pricing was the recent Sasol case in which the Competition Appeal Court ultimately over turned the Competition Tribunal’s finding the Sasol had engaged in ‘excessive pricing’. AAT published a paper by John Oxenham and Michael-James Currie which provides an in depth evaluation of the Sasol case and the criteria which must be met by the SACC in order to sustain a case of excessive pricing. AAT followers can access the full article here.

The timing of the SACC’s decision is also particularly noteworthy. As Andreas Stargard, director at Primerio, states “the SACC is currently conducting a market inquiry into the private healthcare sector and the SACC has far reaching powers to obtain information and evidence from third parties – which includes pharmaceutical companies. Whether the SACC’s decision to investigate these companies sprung from submissions received during the market inquiry is not yet clear, but cannot be ruled out at this stage”.

Stargard, however, also points out that “the cost of private healthcare and certain medicinal products has been the focus of a number of agencies worldwide. The Italian, Spanish and UK authorities have recently launched investigations in relation to the prices of certain cancer treatment products. The SACC’s investigation may well be a shaped by broader collaboration between the various competition law agencies”.

As the investigation unfolds, so it will become clearer what the catalyst was for the SACC’s decision to launch this particular investigation.

A particularly noteworthy comment expressed by the Commissioner of the SACC is that the use of patents has potentially resulted in the relevant companies having created monopolistic positions in the market. The interplay between competition and intellectual property law is no doubt going to play a key role in this investigation and the outcome of the SACC’s investigation may have far reaching consequences not only in the pharmaceutical sector but in a number of industries where patents are particularly prevalent.

Although it will be some time before more light is shed on this investigation from the authority’s perspective, the SACC indicated that additional resources have been allocated to this investigation as it has been categorized as a ‘priority’ investigation by the SACC.

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