On 31 January, the Danish Competition Council established for the first time that price increases in the pharma sector could lead to abuse of dominant position
The CD Pharma case in brief
The Competition Council ruled that the drug distributor CD Pharma has used its dominant position on the market by raising the price of the stimulant, Syntocinon, by 2000 percent. Syntocinon is drug given to pregnant women during childbirth. The drug is used at all public hospitals in Denmark and is purchased by the regional procurement organization, Amgros.
Amgros have had a framework contract with another parallel importer, Orifarm since 2013. This contract involved delivery of the drug to DKK 45 per package. In spring 2014, Orifarm could not deliver the drug as agreed, and Amgros was therefore required to buy the drug from the only other supplier of the drug in Denmark, CD Pharma. CD Pharma has an exclusive distribution agreement with the manufacturer of the stimulant in Denmark, for which reason CD Pharma, opposite the parallel importer, had a delivery guarantee. Therefore, the company had a monopoly-like position in Denmark. CD Pharma took advantage of the situation in April 2014 by raising the price of the drug from DKK 45 to DKK 945.
It was agreed in the framework contract between Amgros and Orifarm that Orifarm should cover Amgros’ loss in case of failure to deliver. As a result of the high price increase, Orifarm faced a significant compensation claim for Amgros’ expenses.
The decision of the Competition Council
The Competition Council justified its results in several circumstances.
Firstly, they found that the price increase was qualified to constitute abuse. According to the Council’s assessment, the high price could not be justified in an objective necessity. Over a period of about half a year, the public hospitals had paid an unreasonably high price for the drug.
Secondly, the decision was based on the fact that CD Pharma’s exclusive distributorship gave the company a significant competitive advantage which they could use to increase prices independently of competitors and customers.
Thirdly, the high barriers for market entry, combined with Orifarm’s liability, have resulted in CD Pharma's abuse being of an exclusive nature. Further the increased costs for Amgros mean that companies such as Orifarm should expect an increase in costs in the event of a supply failure. As the risk and costs increase, it will lead to a price increase, which may have consequences for a subsequent bidding round. The Competition Council has thus stated the case to be of fundamental importance to the region's procurement of medicines as a high price may weaken competition from parallel importers on subsequent bids.
The Competition Council found that CD Pharma has abused its dominant position in the Danish market by selling the drug for an unreasonably high price; cf. the Competition Act section 11 and the TFEU article 102. For the same reason, the Council has chosen to report the matter to the Advocate General for Special Economic and International Crime (SØIK) for the purpose of criminal prosecution.
If you have any questions to this article, please contact Partner, Attorney David Frølich.