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ACCC v Pfizer (Federal Court of Australia)
Background
Pfizer Australia Pty Ltd (Pfizer Australia) sells the branded prescription pharmaceutical Lipitor (atorvastatin) in Australia. Lipitor was a very successful drug and was probably the best-selling and best-known of the cholesterol-lowering medications known as “statins.” The Australian patent covering Lipitor was due to expire in 2012, at which point Pfizer expected a flood of generic atorvastatin products. This expected entry, the anticipated launch of generic versions of other prescription pharmaceuticals sold by Pfizer Australia, and reforms to the Pharmaceutical Benefits Scheme (PBS)—a government-administered program that provides medicines to patients in Australia at government-subsidized prices—led Pfizer Australia to make changes to its business model beginning in 2011.
In a nutshell, Pfizer Australia moved from the traditional Australian model in which a pharmaceutical manufacturer supplies its products through wholesalers (who, in turn, supply pharmacies) to a “direct-to-pharmacy” model in which Pfizer sold directly to pharmacies (known as community pharmacies in Australia). Its objective at the time was to compete by supplying a range of pharmaceuticals—including several generic medications—directly to community pharmacies. Presumably to make the new model attractive to pharmacies, Pfizer Australia informed them that a percentage of each pharmacy’s dollar purchases of Lipitor would be set aside as an accrual fund and that the monies in those funds would be paid out to the pharmacies as a rebate, with the specific terms to be announced at a later date.
In January 2012, shortly before patent expiration, Pfizer Australia began offering to supply Lipitor and generic atorvastatin to community pharmacies. This offer included discounts on Lipitor and generic atorvastatin, as well as payment of all or part of the pharmacy’s accrued rebate. The more of a pharmacy’s nominal requirements it committed to purchase from Pfizer, the better the terms the pharmacy could obtain (including the extent to which it could convert its accrual into a rebate).
In February 2014, the Australian Competition and Consumer Commission (ACCC) sued Pfizer Australia in the Federal Court of Australia, amending its claim in September 2014. The ACCC alleged that Pfizer Australia held substantial market power in a market for atorvastatin and had taken advantage of that power by (i) selling directly to community pharmacies, (ii) establishing the accrued rebates for purchases of Lipitor, and (iii) supplying Lipitor and generic atorvastatin to community pharmacies under terms that tied the redemption of a pharmacy’s accrued rebate to the quantity of Pfizer Australia’s generic atorvastatin that the pharmacy purchased. The ACCC challenged Pfizer Australia’s pricing practices, alleging that they were intended to exclude other suppliers of generic atorvastatin and cause a substantial lessening of competition.
The Outcome
On February 25, 2015, Australian Federal Court Judge Geoffrey Flick dismissed the ACCC’s claim against Pfizer Australia. In doing so, Judge Flick found that “the market power possessed by Pfizer [Australia] during the period from January to May 2012 was significantly less than that which it previously enjoyed and that as from January 2012 Pfizer [Australia]’s power in the atorvastatin market could no longer be described as ‘substantial’.” He also concluded that Pfizer Australia’s conduct was “for the purpose of seeking to remain competitive in the market” and “it did not engage in the conduct in question for any substantial purpose of deterring or preventing the other generic manufacturers from entering the market.” In making his findings, Judge Flick also noted that, although Pfizer Australia had not been shown to be selling below cost, in any event, “the mere fact that goods may be sold at below cost does not necessarily expose any anti-competitive conduct.”
In sum, the Judge focused properly on the facts on the ground in testing the merits of the ACCC’s theory. When confronted with the facts, the claims that Pfizer Australia had “taken advantage of market power” with the purpose of “deterring and preventing” competition could not stand.
NERA Senior Vice President Dr. Sumanth Addanki testified as an economic expert on behalf of Pfizer Australia in this proceeding.