Cooperative Agreements: A Private Practitioner's Perspective

• Published date: 02 November 2022
• Subject Matter: Antitrust/Competition Law, Food, Drugs, Healthcare, Life Sciences, Antitrust, EU Competition
• Law Firm: Arnold & Porter
• Author: Mr Niels Christian Ersb'll

Introduction

Cooperative agreements have always played a particularly significant role in the pharmaceutical industry, with companies partnering from early stage research and development (R&D) through to late stage commercialisation.

The COVID-19 pandemic has been an opportunity for actors across the pharmaceutical supply chain to demonstrate the benefits that swift and flexible cooperation can bring. Faced with lockdowns and other restrictions, companies have come together to help avoid or unblock shortages of, and increase access to, medicines. The need for this cooperation was swiftly recognised by competition authorities. They pointed to the wider societal benefits that certain joint efforts could deliver, and showed a willingness to take this into account when assessing cooperation under their competition laws. Several regulators have issued general guidance in this context, and some have offered and provided case-specific comfort in this regard.

Looking beyond the crisis, the pharmaceutical industry is facing increasing pressure to boost access to, and ensure the affordability of, new medicines. In Europe, for example, when the European Commission (EC) launched its new Pharmaceutical Strategy, it noted concerns that access to innovative medicines is not equal across Member States.² Companies are not obliged to market centrally approved medicines in all Member States, and many choose not to in light of differences in, and challenges associated with, national pricing and reimbursement systems, for example. The EC also holds a view that current incentive models do not provide an adequate solution for orphan and unmet medical needs or appropriately incentivise investment in innovation, and the EC is considering whether the system of incentives linked to intellectual property (IP) or the grant of a marketing authorisation (MA) should be 'conditioned' by, for example, an obligation to launch the product in most, if not all, EU Member States. Should these proposals succeed, or should the EC otherwise succeed in its ambition to ensure broader launches, small and medium-sized innovative companies - in particular those focused on rare disease - may increasingly need to partner with others for commercialisation purposes. These trends are also likely to be felt in other geographies, as the debate on access and affordability intensifies.

Another area of focus for the EC is ensuring the resilience of medicine supply chains. In Europe, the role that parallel traders can play in facilitating access, as well as in potentially contributing to risks of shortages, represents an area of emphasis. This is not new, but the COVID-19 pandemic accentuated this concern as supply chains came under increased stress. Some governments have resorted to regulation prohibiting, or at least making more difficult, exports of products for which a risk of shortages is identified. We may see more of that going forward, while pressure on manufacturers to manage supply and avoid shortages is also likely to increase. Any obligation to market across all Member States would only add to the complexity.

Given these trends, cooperation agreements will remain of central importance to pharmaceutical companies, perhaps increasingly so. Most licensing and commercialisation agreements should not raise significant competition law concern if entered into to create efficiencies, whether through increased use of technology or broader access to finished products. The practical difficulty principally lies in the concrete balancing of pro-competitive effects and necessary restrictions of competition. The author's experience is, however, that through discussions with the business, a reasonable balance can usually be found when the purpose of the agreement is to pursue legitimate objectives. The greater compliance risk lies where these agreements risk being used in pursuit of restrictions that go beyond their legitimate objectives.

COVID-19 response to cooperative agreements

Guidance

Early in the COVID-19 pandemic, competition authorities in major jurisdictions, such as the EU, the US, Australia, Canada, Japan, Mexico and the UK, responded to the crisis by providing guidance on the parameters of lawful competitor cooperation seeking to address the challenges posed by the crisis.

Practically all the guidance made it clear that the approach to classic hardcore restrictions of competition, such as agreements on price, markets, customers and volumes, would not change, and that attempts to profit from the crisis by restricting competition would not be tolerated. The guidance provided, with a view to removing the uncertainties associated with self-assessment by companies, an explanation of the types of lawful collaboration that could be helpful in addressing the steep rise in demand for certain products and services, notably in the health sector, in a context of supply chain disruptions as manufacturing and distribution was hit by lockdowns and other restrictions.

As noted by the Organisation for Economic Co-operation and Development in its discussion paper on cooperation between competitors in the time of COVID-19, 'These kinds of [collaborations] have the potential to yield significant benefits for consumers, which would be lost if, in fear of falling foul of competition provisions, companies would refrain from entering into efficient and lawful co-operation agreements'.³

The EC, the US Department of Justice (DOJ) and the US Federal Trade Commission (FTC), have also said that where uncertainty remains, they would be open to providing specific guidance and comfort on an expedited basis, thereby helping ensure that pro-competitive collaborative efforts to counter the pandemic could be implemented without delay. For example, the DOJ and FTC announced that they would accelerate the review of requests for FTC advisory opinions and DOJ business review letters related to cooperative conduct aimed at addressing COVID-19 and its effects.⁴ The EC also noted that it 'understands that cooperation between undertakings might help in more efficiently addressing the shortage of essential products and services during the COVID-19 outbreak and, in this context, undertakings might need specific guidance on their cooperation initiatives in order to facilitate their self-assessment'.⁵

Perhaps more interesting were statements by some authorities that measures that otherwise might be subject to scrutiny would exceptionally be accepted. Other authorities seemed willing to potentially go a step further, and not enforce the competition laws in relation to this conduct. For example, in its Temporary Framework, the EC noted that while exchanges of commercially sensitive information between competitors in connection with adaptations to production, stock management and, potentially, distribution, as well as a certain coordination of which sites produce which medicines would 'in normal circumstances [be] problematic under EU competition rules', in view of the 'emergency situation and temporary nature' it would not give rise to an enforcement priority.⁶ The EC furthermore noted that cooperation must be 'designed and objectively necessary to actually increase output in the most efficient way to address or avoid a shortage of supply of essential products' and 'not exceeding what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply'.⁷ The DOJ and FTC also noted that they also would account for exigent circumstances in evaluating efforts to address the spread of COVID-19 and its aftermath.⁸

Comfort letters

A number of comfort letters, exemptions or opinions have...