June 11, 2021

Italian Competition Authority investigates orphan drug manufacturer (Leadiant) for excessive pricing

Thanks to Luca Russo for collaborating on this article

In October 2019, the Italian Competition Authority launched an investigation into abuse of dominance pursuant to Article 102 TFEU against the Leadiant group in connection with the marketing in Italy of the “orphan” drug Chenodeoxycholic Acid Leadiant, used to treat an ultra-rare disease.

In October 2019, the Italian Competition Authority (hereinafter the “ICA” or the “Authority”) launched an investigation into abuse of dominance pursuant to Article 102 TFEU against Leadiant Biosciences Ltd (formerly Sigma Tau Rare Disease Ltd) and other companies in the Leadiant group (“Leadiant”) in connection with the marketing in Italy of the “orphan” drug Chenodeoxycholic Acid Leadiant (“Leadiant CDCA”), used to treat an ultra-rare disease, Cerebrotendinous Xanthomatosis (or “CTX”).

Cross-border and regulatory context of the investigation

In 2018, the national competition authorities of the Netherlands, Belgium, and Spain received reports complaining about Leadiant’s excessive price increase for CDCA (in the Dutch case, reportedly a 500-fold increase in price). In July 2019, the ICA received a similar report from the consumer association “Altroconsumo” concerning the price Leadiant had proposed to the Italian Medicines Agency (the “AIFA”) for reimbursement purposes. The European Commission is supporting these investigations behind the scenes in the conviction that national competition authorities are better positioned to assess such conduct, considering the national structure of the markets and the impact of local regulation.

Patients with CTX were previously treated with off-label drugs with the same active ingredient, chenodeoxycholic acid (CDCA), at a much lower cost (up to EUR 36 per capsule) than that of Leadiant CDCA. However, in December 2014 Leadiant CDCA obtained the “orphan” designation under Regulation EC No. 141/2000 (the Orphan Drug Regulation), which granted it statutory 10-year market exclusivity (as of the date of marketing authorization) with regard to any similarly effective treatment for the same disease. Pursuant to Section 3(1) of Regulation No. 141/2000, an orphan drug is (i) used to treat a life-threatening disease or a disease that causes chronic disability found in no more than 5 out of every 10,000 individuals in the EU, or a disease for which, absent such incentives, companies are unlikely to invest in and develop drugs and therapies for treatment, and (b) there are no other appropriate treatments for such diseases or the new drug grants additional benefits to the patients using it. Pharmaceutical companies that receive orphan designation from the European Medicines Agency (“EMA”) receive ten years of exclusivity to market the orphan drug, irrespective of whether the drug or active ingredient is no longer patentable, thus making the investment more worthwhile.

Background of the Italian investigation

Beginning in the 1970s, drugs based on CDCA were used to treat gallstones, although more valid alternatives were quickly found to treat that condition. In Europe, however, several physicians prescribed the CDCA-based drug Chenofalk off-label to treat serious diseases such as CTX. Chenofalk cost approximately EUR 0.3 per capsule in Italy (for a total of EUR 370 per year of treatment) and up to EUR 0.50 in other European countries.

However, in the 1990s in Italy, and from 2005 through 2009 elsewhere in Europe, Chenofalk was removed from the market. Beginning in 2010 and lasting until the market authorization of Leadiant CDCA, Sigma Tau Arzneimittel GmbH (“Sigma Tau”) marketed a new CDCA-based drug called Xenbilox in Germany, and other countries had to rely on importation to treat CTX patients, at a price of Eur 6.5 per capsule (for a total of EUR 7,200.00 yearly for treatment). In June 2014, Sigma Tau increased the price to EUR 29 per capsule (for a total of EUR 32,000.00 yearly for treatment).

Xenbilox was not imported into Italy until late 2016 because in 1997, following the removal of Chenofalk from the market, the Azienda Ospedaliera Universitaria Senese (or “UOSA”) started galenic production of the drug (under Article 3, para 1, lett. a and b of Legislative Decree No. 219/2006), with an overall cost of EUR 0.65 per capsule and EUR 730 yearly, to ensure continuity of care for patients with CTX. To this end, it acquired the CDCA active ingredient from the national chemical company ICE S.p.A. (“ICE”). However, in 2005 ICE announced it had to stop producing the active ingredient and therefore in 2016, after the remaining stock purchased in 2005 by UOSA from ICE had been exhausted, national healthcare facilities were forced to import Xenbilox to ensure continuity of care, paying EUR 33–36 per capsule (and EUR 36,000 to EUR 39,000 yearly).

In August 2014, Sigma Tau sought to have the European Commission designate Sigma Tau CDCA (now Leadiant CDCA) as an orphan drug. On December 16, 2014, Sigma Tau obtained orphan drug designation from the EMA pursuant to the Orphan Drug Regulation, and in 2015 the company began the procedure to request marketing authorization (MA). With the procedure pending, Sigma Tau withdrew Xenbilox from the German market and entered into an agreement with a subsidiary of ICE to obtain exclusive supply of raw CDCA. In April 2017, MA was granted to Sigma Tau CDCA by the European Commission. Following a reorganization of the Sigma Tau group, the trademark was transferred to Leadiant, and the drug was renamed Leadiant CDCA. Finally, in June 2017 the EMA confirmed the drug’s orphan status and, as a result, granted it 10-year market exclusivity expiring in April 2027.

In June 2017, the AIFA started negotiations with Leadiant to set the price for Leadiant CDCA, which is indispensable to add it to the list of drugs reimbursed by the Italian NHS. Numerous meetings and voluminous correspondence between Leadiant and the Prices and Reimbursements Committee (CPR) ensued. However, pursuant to Italian legislation in the sector, pending the negotiation of the price with the AIFA, a drug can be included on a list of provisionally authorized and marketable drugs (Cnn class) at a market price set by the MA holder. The AIFA complained to the ICA about the excessive price Leadiant sought to impose, which seemed unjustified compared to the previous cost of CTX treatment. It also noted that Leadiant failed to provide the requested documentation on cost structure to justify the proposed price. Since the parties did not reach an agreement and Leadiant suspended negotiations indefinitely in 2019, currently Leadiant CDCA is imported to Italy from other Member States upon a physician’s request at an ex-factory price of EUR 155 per capsule.

The relevant market for CTX treatments and the dominant position of Leadiant CDCA

The ICA identified the relevant market on the basis of Anatomical Therapeutic Classification (ATC), which includes five levels of specification. According to Italian and EU case-law, the relevant market for a drug can be identified based on the drug’s ATC3 to catch all relevant and likely substitutes for treating the same disease without including unlikely competitors in the market definition. However, sometimes further levels of specification of the therapeutic classification of a drug down to a single active ingredient may be necessary for specific diseases or groups of patients. In this case, the ICA noted that in the EU there is another drug infrequently used to treat CTX: cholic acid (ATC4). However, no such drug has been authorized in Italy, and moreover, CDCA seems more effective in treating CTX. On these grounds, the ICA concluded that cholic acid is not a full substitute for CDCA (as it is less effective) and thus the former cannot exercise competitive pressure over the latter. The relevant market has therefore been defined at the level of the single active ingredient (ATC5).

Since 2016, Leadiant CDCA (formerly Xenbilox) has been the only CTX drug authorized in Italy, and the orphan designation grants it statutory 10-year market exclusivity over any similarly effective treatment for CTX until 2027. Furthermore, applicable regulation prevents pharmacists from creating a galenic drug with the same active ingredient, same dosage, and same overall composition. This hinders the possibility of creating a CDCA-based galenic drug as a viable alternative to Leadiant CDCA. Considering this, the ICA stated that Leadiant seems to hold a dominant position in the market for CTX treatments.

The contested conduct

The ICA preliminary stated that, prima facie, Leadiant’s behavior seems to be part of an overall, articulated foreclosure strategy to prevent other undertakings from entering the CDCA-based drug market in order to impose unjustified excessive prices. In this regard, the ICA notes that, while applying for orphan drug designation, Leadiant (upon taking over the relevant Sigma Tau business) entered into an exclusive agreement for the supply of the raw material (CDCA) from ICE, which was formerly supplying CDCA to UOSA for galenic production. The ICA considers ICE the only entity that has sufficient expertise and administrative authorization to produce enough CDCA in Italy and likely elsewhere. Furthermore, the ICA alleges that by leveraging its dominant position, Leadiant slowed the process and was generally obstructive during negotiations with the AIFA by failing to reply to the latter’s request for justification for the proposed reimbursement price and by suspending negotiations for several months until 2019, when it proposed a new price, only to then suspend the process indefinitely because the AIFA did not agree to that price.

Based on all of the above, the ICA started an investigation into whether Leadiant infringed Section 102 of the TFEU. The investigation is provisionally scheduled to end by June 30, 2021.

Criticalities of the subject matter of the investigation

This ICA investigation—together with those of the ICA’s Belgian, Dutch, and Spanish counterparts—is of particular relevance as it is the first to address regulatory gaming (also known as abuse of rights) and excessive pricing concerns in the field of orphan drugs. Regulatory gaming (or abuse of rights) and excessive pricing are notoriously very challenging charges to argue and substantiate against dominant firms under EU competition law (and even more so in the United States). Indeed, the pharmaceutical sector is one of the very few where such cases have been pursued with some success (e.g., Aspen in Italy and the EU) because the threat to life posed by underenforcement is sufficiently strong reason and incentive for competition authorities to test the antitrust limits.

However, firms in the pharmaceutical sector also need to compete in terms of innovation, which is driven by huge R&D investments in projects characterized by uncertain and lengthy timescales for market delivery and high risk of failure. These characteristics require that pharma firms see strong incentives to continue investing in new and improved medicines. The risk of curbed prices, or of investigations and steep fines for trying to set high prices, will have the opposite effect and disincentivize them from investing in better drugs. A delicate balance thus needs to be struck between these two opposing public objectives.

This is even more true when talking about orphan drugs, which require stronger regulatory incentives, since without incentives it is unlikely that companies will invest in and develop drugs and therapies to treat rare diseases. Accusing firms of exploiting the rules governing the orphan drug designation to exclude competitors and ensure high returns therefore seems equivalent to accusing such firms of pursuing the very objective and rationale behind the Orphan Drug Regulation. Nonetheless, raising these concerns is less likely to have a negative effect when the drug concerned is not new or does not reflect significant improvements to an existing drug, but rather is the very same drug that has already been available on the market for years. (Indeed, that was also the situation addressed in the cited Aspen case in Italy and the EU.)

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