Excessive Drug Price Leads to Hefty Fine for Company in the Netherlands

Why was a company fined €17 million for excessive pricing?

Okay, sit tight! This story involves an old drug, a bile acid, from the 1970s that now cost €153,300 per patient per year.

Chenodeoxycholic acid (CDCA), is originally sold under the brand name Chenofalk. In 2008, the company Leadiant acquires the drug, rebrands it as Xenbilox, and increases its price nearly twentyfold. Then, in 2014, the company applies for 'orphan drug designation' for an off-label indication of the drug and raises the price again, this time by fourfold. This off-label indication, the rare genetic metabolic disorder cerebrotendinous xanthomatosis (CTX), is not new, as its use has been documented in the literature since at least the mid-1980s.

In 2017, the European Medicines Agency (EMA) grants marketing authorisation for CTX. The price is increased again, this time by more than fourfold.

Figure 1 shows the increase in the price of a package of 100 capsules between 2009 and 2017.

It is noteworthy that the supporting clinical data for the EMA authorisation did not belong to the company, but were generated over the years by independent researchers, with some even relating to the use of pharmacy compounding. In other words, the company did not develop or design the drug, nor conduct the clinical trials, yet it received orphan designation, which secured 10 years of market exclusivity in the EU, effectively blocking competitors. In 2021, the Dutch Competition Authority fined the company for violating competition rules by charging an excessive price.

Appeal Against the Fine

The pharmaceutical company appealed to the court in Rotterdam against the €17,044,000 fine imposed by the Competition Authority. They argued that not only were procedural errors made by the Authority (a.o., some documents were redacted and the cost of translating the penalty report was not covered), but they were also wrongly accused of abusing their market power. The list price of their drug was considered too high, and they were criticised for not doing enough to negotiate a lower price with the insurance companies.

The company argued that the list price is the wrong benchmark for assessing the fairness of the price. It was never their intention to charge the list price and their ultimate goal was to charge a lower, negotiated price. In fact, they were willing to offer a 50% discount. However, they did not do so because the health insurers and the Ministry of Health imposed restrictions on the negotiations.

The company also argued that the legal interpretation was unforeseeable for them and that the Competition Authority miscalculated the fine by using the list price; the fine should be reduced at least by 50%, as they had intended to offer a 50% discount. They claimed to have recorded a 50% provision in their books and always intended to refund half of the revenue. Furthermore, the company blamed the health insurers for contributing to the situation that led to the fine, as the insurers continued to cover the full list price.

The “Intentions” Are Not Relevant for Assessing the Company's “Actual Behaviour”

Last week the court ruled that the Competition Authority rightfully based its assessment on the list price of the drug because the company actually billed and received that price. The stated intentions of the company were not relevant when evaluating its actual behaviour. The healthcare budget is limited; the excessively high price meant that fewer financial resources were available for other healthcare services. Additionally, CTX patients were disadvantaged because of the uncertainty surrounding the reimbursement of their medication

Market exclusivity comes with responsibility

The court rejects the company's argument that there has been an unforeseeable legal interpretation under which “the behaviour qualifies as abuse”. Several previous cases by the European Commission and national competition authorities regarding excessive prices have resulted in fines. Therefore, the methodology (price-to-costs comparison) and the fine were foreseeable (lex certa).

The granted market exclusivity comes with a “special responsibility” regarding pricing. After all, this medicine has been prescribed to CTX patients for years. Due to the patients' dependence on this treatment, health insurers were required to continue reimbursement. The court adds: regardless of the company’s views on the insurers' behaviour, it has always been the company’s own choice to bill and collect an excessively high price. This conduct is the sole reason for the fine.

What Else Happened in the Past Years?

For the first 2.5 years after market authorisation, the Dutch healthcare system paid the full list price for the drug. However, after that, a coalition of health insurers and the University Medical Centre of Amsterdam initiated the pharmacy compounding of CDCA. The process was not without challenges, as the company prohibited the supplier of the raw material from providing CDCA for compounding. Eventually, though, the result was a pharmacy-compounded product that met the requirements of the European Pharmacopoeia, serving as a more affordable alternative to the commercial variant.

In 2022, both the Italian Competition Authority (AGCM) and the Spanish Competition Authority (CNMC) imposed fines of €3.5 million and €10.25 million, respectively, bringing the total fines for the company to €31 million.

The question remains: does granting market exclusivity to an existing drug benefit anyone at all, especially in this case when the company played no key role in creating the evidence?