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Competition Bureau statement regarding the inquiry into alleged anti-competitive conduct by Alcon Canada Inc.

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On March 19, 2014, the Commissioner of Competition (Commissioner) discontinued his inquiry into whether Alcon Canada Inc. (Alcon), a Canadian pharmaceutical company, had engaged in anti‑competitive conduct contrary to the abuse of dominance provision of the Competition Act (Act). The Commissioner’s inquiry was initiated in November 2012 to examine whether Alcon was dominant in a relevant market and, if so, whether it had, among other things, intentionally disrupted the supply of its prescription ocular anti-allergy drug, Patanol, as part of a strategyFootnote 1 to switch patients to a second generation formulation of the drug and hinder meaningful competition from generic drug companies.

The Commissioner’s inquiry sought to determine whether Alcon’s conduct excluded generic drug companies from the relevant market, contrary to the abuse of dominance provision of the Act.

The Competition Bureau (Bureau), as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. The Bureau investigates allegations of anti‑competitive practices and promotes compliance with the Act and other relevant legislation.

Summary of the inquiryFootnote 2

As described in greater detail below, information obtained by the Bureau in the course of the inquiry, which includes records and information obtained from Alcon by court order, suggests that in July 2012, Alcon implemented a strategy that could have limited or prevented future competition from generic versions of Patanol, a prescription drug used to treat allergic conjunctivitis. Among other things, the Bureau’s investigation found that Alcon’s strategy involved suspending the supply of Patanol from the Canadian market to switch prescriptions from Patanol to another product, in most cases Pataday, a second generation formulation with twice the concentration of the medicinal ingredient and protected under patent until 2022.Footnote 3

The Bureau investigated whether driving prescriptions from Patanol to Pataday prior to entry of a generic version of Patanol resulted in any anti‑competitive effects, such as precluding or delaying entry by generic manufacturers. Following the commencement of the Bureau’s examination, Alcon voluntarily resumed supply of Patanol into the Canadian market. Resupplying Patanol, and the subsequent entry by competing generic drug companies, appears to have restored the competitive dynamic in the market and alleviated the Bureau’s concerns.

In the Bureau’s view, product life-cycle management strategies in the pharmaceutical sector are not inherently anti‑competitive. In pro-competitive circumstances, such strategies may bring significant advancements in health care for the benefit of consumers, as well as drug companies. However, life-cycle management strategies that are designed to impede competition from generic drug companies, such as product switching strategies, may cause significant harm to competition.Footnote 4 Strategies that include supply disruptions for the purpose of forcibly switching demand, including terminating, repurchasing or recalling market supply or any other attempt to frustrate supply of a product under patent challenge by potential generic drug competitors, are likely to raise concerns of an abuse of dominance.

Competition in the pharmaceutical industry

The Canadian health care sector is a vital component of the Canadian economy and the well-being of Canadians. Total drug expenditure is a significant portion of Canadian health care costs and is estimated by the Canadian Institute for Health Information to have reached $33 billion in 2012, a $1 billion increase over the previous year.Footnote 5 Generic drugs make an important contribution to controlling rising drug costs by offering lower priced therapeutically equivalent alternatives. In fact, Canada’s drug regulatory framework encourages the timely entry of generic competition to ensure lower priced therapeutically equivalent alternatives are available to consumers.

Before a company can bring a drug to market in Canada, it must first obtain a Notice of Compliance (NOC) from Health Canada. Although the process for obtaining a NOC differs depending on whether a drug is an innovative (brand name) one or a generic one, in both instances data must be provided to Health Canada that establishes the drug meets the safety, efficacy and quality requirements of the Food and Drugs Act and its associated regulations. For a new patented drug, this process requires the pharmaceutical company to provide the results of lengthy and costly clinical trials. In contrast, a generic drug company need only provide data showing that the medicinal ingredient in the generic drug is chemically identical to the approved brand name drug, and that it enters the bloodstream at the same rate and to the same extent.

In Canada, generic drugs generally compete for market share against brand name drugs. Generally priced lower than therapeutically equivalent brand name drugs, a generic drug stands to capture a significant portion of the brand name drug’s market share upon entry. Generic drugs are typically dispensed by pharmacists in accordance with automatic substitution policies. That is, when physicians prescribe brand name drugs to patients, pharmacists can, or must, substitute them for lower priced therapeutically equivalent generics. To establish themselves in the market, generic drugs generally depend on substitution for existing brand name drugs by pharmacists. Without pharmacists substituting a generic drug for the brand name drug, the generic drug company may be significantly impeded in its ability to compete in a market. Generic drugs are often not promoted like brand name drugs because of, among other things, the prohibitively high costs of promotion relative to the generally low prices and profits for generic drugs.

To ensure that generic versions of existing drugs do not enter the Canadian market before patent infringement issues are addressed, the Patented Medicines (Notice of Compliance) Regulations (PM(NOC) Regulations) require the generic drug company to either wait until the patents covering the drug expire or challenge those patents by filing what is referred to as a Notice of Allegation (NOA). In its NOA, the generic drug company must explain why it believes its version of the drug does not infringe the patents in question, why it believes the patents are invalid, or both. Upon being served with a NOA, the brand name drug company holding the patent has 45 days to decide whether it wishes to contest the generic drug company’s arguments in Federal Court. If so, a 24-month stay is triggered that prevents Health Canada from granting a NOC to the generic manufacturer while the infringement issues are considered by the Court.

When a brand name drug company is confronted with the possibility of generic competition, it may be incentivized to implement pro-competitive business strategies, such as developing new innovative drugs that benefit consumers. However, it may also be motivated to engage in anti‑competitive conduct for the purpose of thwarting or limiting such competition. For example, a brand name drug company may adopt a product switching strategy.

Product switching strategies generally work in the following manner: A brand name drug company, responding to potential competition from one or more generic drug companies, introduces a new product with limited or no therapeutic advantages over its original product. After marketing its new product and prior to entry by a generic alternative to the original product, the brand name drug company removes the original product from the market, thus eliminating it as an option for prescribing physicians and consumers. In doing so, physicians are forced to convert the existing prescriptions to prescriptions for an alternative product. Where physicians have limited alternatives, they are likely to prescribe the brand name drug company’s new product. The resulting demand for the new product is therefore not based on the merits of the brand name drug company’s innovation, but rather on the reduction of consumer and physician choice.

Generic versions of the original product cannot be automatically substituted for prescriptions written for the new product. This can have significant effects on the ability of a generic drug to enter the market and compete. Where brand name companies are able to successfully implement a product switching strategy, generic companies may forgo launching their products because it is no longer commercially viable. This is to the detriment of the patients and the Canadian health care system as the strategy artificially maintains or inflates the price consumers pay for treatment of their condition.

Conduct under inquiry

In September 1997, Alcon obtained approval from Health Canada to market Patanol. Patanol is subject to two patents listed on Health Canada’s patent register: one for the medicinal ingredient olopatadine hydrochloride, which expired on November 21, 2012, and the other for its formulation, which expires on May 3, 2016. Alcon began supplying Patanol to the Canadian market in February 1998.

In January 2011, Alcon received a NOC from Health Canada for Pataday, a new olopatadine formulation for once-a-day dosing, and introduced the product into the Canadian market in April 2011. Pataday is under patent protection until 2022.

Alcon continued to supply the Canadian market with Patanol until July 2012 and limited stock of the product remained available until September 2012. While Patanol and Pataday were simultaneously on the market, Pataday sales were increasing but remained low compared to those of Patanol. In July 2012, Alcon suspended the supply of Patanol in Canada and advised the market that Patanol would be on "back order" for the foreseeable future. With the supply disruption, physicians no longer had the option of prescribing Patanol and many began prescribing Pataday. Sales of Pataday replaced the vast majority of sales of Patanol.

In February 2010, Apotex Inc., Canada’s largest generic pharmaceutical company, had sought Health Canada’s approval to market its generic version of Patanol. Pursuant to the PM(NOC) Regulations, Apotex served a NOA on Alcon. Alcon responded by contesting Apotex’s NOA, which triggered a 24-month stay on Health Canada approval of Apotex’s generic drug. As it had challenged only one of Alcon’s two patents, Apotex was prepared to await the expiry of the medicinal ingredient patent on November 21, 2012, before obtaining its NOC from Health Canada. Alcon’s application to the Federal Court contesting Apotex’s allegations was heard in early 2012. On April 13, 2012, pursuant to a settlement that Alcon believed had been reached with Apotex, Alcon discontinued the Federal Court litigation. On November 22, 2012, the day after the patent expired on the medicinal ingredient, Health Canada issued Apotex a NOC for its generic version of Patanol.Footnote 6

As noted above, the Commissioner commenced an inquiry in November 2012 as a result of concerns that Alcon’s behaviour would delay or prevent entry of generic versions of Patanol and result in patients instead buying Pataday at a higher price, resulting in higher health care costs. As also noted above, following the commencement of the inquiry, Alcon resumed supply of Patanol to the Canadian market in January 2013. By May 2013, at the beginning of allergy season, Patanol sales were back in line with sales prior to the supply disruption. Subsequently, competitors entered the market with generic versions ofPatanol and have since captured significant market share from Alcon. The Commissioner has discontinued the inquiry in question as the competitive dynamic appears to have been restored in the market and the temporary conversion strategy does not appear to have delayed generic entry. Consumers and prescribing physicians are now able to choose between Patanol, generic Patanol, Pataday and other treatments.Footnote 7

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.

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