Competition Bureau statement regarding its inquiry into alleged anti-competitive conduct by Otsuka
GATINEAU, April 2, 2020—Today, the Commissioner of Competition announced that he has discontinued an inquiry after two months of active investigation into the conduct of Otsuka Canada Pharmaceutical Inc. ("Otsuka") after Otsuka took action to address the Commissioner's concerns. Specifically, the Competition Bureau's inquiry considered allegations that Otsuka restricted a generic drug manufacturer ("Generic") from accessing samples of its branded product, Jinarc (active ingredient "tolvaptan"), preventing or delaying the entry of competing generic drugs contrary to the abuse of dominance provisions of the Competition Act (the "Act"). This is the second time the Commissioner has found it appropriate to inquire into refusals to supply samples by branded pharmaceutical companies.
The Bureau previously considered refusals of brand samples to Generics as outlined in a position statement published in December 2018Footnote 1, regarding the Bureau's investigation into alleged practices of other brand pharmaceutical manufacturers ("2018 Position Statement"). In the matter described in the 2018 Position Statement, the Bureau investigated policies and practices alleged to restrict Generics from accessing samples of brand name drugs, which are also known as Canadian Reference Products ("CRPs"). The Bureau cautioned that the alleged conduct could raise serious issues under the abuse of dominance provisions of the Act and that it would not hesitate to take immediate action in similar circumstances.
As discussed further in the 2018 Position Statement, without access to brand samples, a Generic cannot conduct bioequivalence testing, and therefore in many cases cannot receive the necessary regulatory approval to market the generic drug. As a result, if a branded drug manufacturer can prevent or delay Generics from accessing these samples, it can limit competition from Generics.
Generics generally rely on the clinical testing that the Brand had conducted to prove the drug was safe and effective, resulting in significant cost savings. This allows Generics to compete with Brand drugs with lower prices. In an effort to balance the incentives of Brand drugs to innovate with the benefits of Generic competition, the Bureau is committed to taking appropriate action to prevent practices by Brand drugs that aim to prevent Generics from competing in the market.
The Bureau re-emphasizes its serious concerns with this conduct and its commitment to addressing these concerns. This matter was ultimately resolved shortly after the Bureau became involved (but approximately one year after the Generic first requested samples). Following Otsuka's supply of Jinarc to the Generic subsequent to the Bureau's intervention and upon being satisfied that the supply had been delivered, the Bureau discontinued its inquiry. Despite this outcome, the Bureau remains very concerned with the course of conduct that is being repeated in the industry.
The Bureau will continue to monitor the pharmaceutical industry for any conduct that prevents or delays the supply of samples of branded drugs to Generics. As this is now the second time the Bureau has provided guidance to the industry on this issue, branded drug manufacturers should be aware that in future even if samples are eventually supplied, the Bureau will take the necessary steps to address past conduct, including seeking administrative monetary penalties, where the evidence establishes the Act is engaged. Given this guidance from the Bureau and the guidance discussed below from Health Canada, branded drug manufacturers should anticipate that the Bureau will treat any explanation for a failure to supply Generics in a timely manner with an extremely high degree of skepticism.
Should Generics face similar issues in the future, the Bureau encourages them to bring any concerns to the Bureau's attention at an early stage.
1. The Inquiry
a. Jinarc and its Risk Management Plan
Jinarc is the only pharmacological therapy approved in Canada for the treatment of autosomal dominant polycystic kidney disease ("ADPKD"), a genetic disease in which numerous cysts develop in both kidneys, enlarging them and impairing their function. Jinarc is indicated as a treatment to slow the progression of kidney enlargement and kidney function decline in patients with ADPKD.
Due to the risk of liver injury as a side effect of the drug's use, Jinarc is subject to a Risk Management Plan ("RMP"). Jinarc's RMP includes a controlled distribution program, known as the hepatic safety monitoring and distribution programme, which was required by Health Canada prior to marketing the drug. As a result, Jinarc is only available in Canada from Otsuka or its authorized third-party distributor ("Otsuka's Distributor").
The Bureau's understanding is that, as of July 25, 2019, no patents or other intellectual property rights applied to Jinarc that would impede the granting of marketing approvals to a generic drug manufacturer.
b. Six-resident applicationFootnote 2
In October 2019, the Bureau received a six-resident application alleging that Otsuka had restricted a Generic's access to samples of Jinarc necessary to secure regulatory approvals, thereby delaying the marketing of a generic equivalent of Jinarc. The Commissioner initiated an inquiry on October 11, 2019.
The Bureau's inquiry related to Otsuka's treatment of the requests for samples of Jinarc by the Generic. Specifically, the Bureau's inquiry focussed on Otsuka's delay and failure to supply the Generic in response to requests first made to Otsuka's distributor, and later to Otsuka itself, as described more fully below.
On December 12, 2019, the Bureau filed an Application under section 11 of the ActFootnote 3 to obtain further information from Otsuka. The Application was adjourned on December 19, 2019, upon condition that Otsuka supply Jinarc to the Generic by end of January 2020, or such later date as the Generic may request. On February 18, 2020, the section 11 application was withdrawn after the Generic confirmed that the supply of Jinarc it had received was sufficient for its purposes, and on March 6, 2020, the Bureau's inquiry was discontinued.
c. Timeline of the alleged conduct
The Bureau's investigation confirmed that, since February 2019, the Generic made numerous attempts to acquire samples of Jinarc from Otsuka's Distributor. The Bureau's understanding is that the Generic's requests were referred to Otsuka by Otsuka's Distributor within a few weeks. Despite these requests, the Generic did not receive the requested samples from Otsuka's Distributor.
The Generic then sought samples of Jinarc from Otsuka directly as of May 2019. Over the course of the summer of 2019, there were various communications between the Generic and Otsuka where Otsuka raised its concerns over supplying Jinarc to the Generic. Otsuka's concerns revolved around the risk minimization measures set out in Jinarc's RMP and whether the supply of samples of Jinarc to the Generic would be in breach of the RMP. Otsuka also indicated that it needed clarification from Health Canada to ensure that the supply of Jinarc complied with Health Canada's guidelines and notice issued on July 4, 2019 (the "July 2019 Notice")Footnote 4, as detailed below.
During the course of events and prior to the Bureau's involvement in this matter, Health Canada issued the July 2019 Notice to drug manufacturers and sponsors concerning RMPs. The July 2019 Notice clarified that "[e]lements of an RMP, such as controlled distribution programs, cannot restrict access to CRPs for generic drug manufacturers that are conducting comparative testing". Even after the July 2019 Notice was issued, Otsuka maintained that it was unsure whether supply of Jinarc samples to a Generic would be in breach of its obligations under the RMP since Jinarc was subject to what Otsuka viewed as a very stringent RMP.
Despite Otsuka's stated ongoing concerns with supplying Jinarc to the Generic, it is the Bureau's understanding that Otsuka did not take any meaningful steps to seek further clarification from Health Canada until November 2019, months after the Generic initially sought supply of Jinarc samples and only after the Bureau's involvement in this matter. Following Otsuka's discussions and correspondence with Health Canada, Health Canada confirmed to Otsuka in December 2019, that it would not consider it a violation of the RMP for the branded drug manufacturer to provide a Generic with samples of the drug product to perform the necessary comparative testing. Otsuka subsequently committed to providing Jinarc samples to the Generic before the end of January 2020, or such later date as the Generic may request.
Consistent with the 2018 Position Statement, the Bureau considered these allegations under the abuse of dominance provisions of the Act. Abuse of dominance occurs when a dominant firm or group of firms in a market engages in a practice of anti-competitive acts, with the result that competition has been or is likely to be prevented or lessened substantially.Footnote 5
As the matter was resolved at an early stage of the investigation, it was not necessary for the Bureau to take further action. However, the facts as understood by the Bureau raised serious concerns under the abuse of dominance provision of the Act.
The Bureau's preliminary view was that the relevant geographic market is national, and the relevant product market is confined to drugs containing tolvaptan for the treatment of ADPKD (i.e., Jinarc and any generic equivalents), consistent with the approach articulated in the Bureau's 2018 Position Statement. In this case, the fact that Jinarc is the only drug approved for the treatment of ADPKD reinforced this product market definition, as there is no pharmaceutical substitute marketed in Canada.
Otsuka is the only drug manufacturer marketing tolvaptan in Canada, and as a result, currently holds a monopoly position in the relevant market. Accordingly, the Bureau's preliminary view is that Otsuka possesses a substantial degree of market power in the relevant market.
b. A practice of anti-competitive acts
The Bureau's preliminary view is that Otsuka appears to have engaged in a practice of anti-competitive acts, in particular given Otsuka's failure to address its stated concerns surrounding supply of Jinarc to a Generic in a timely manner, especially following the issuance of Health Canada's July 2019 Notice.
The Bureau's preliminary view is that it was reasonably foreseeable that Otsuka's delay and failure to supply the Generic would have a negative, exclusionary impact on a competitor. The Bureau considers this indicative of anti-competitive intent, especially as these events occurred after the Bureau made clear that this type of conduct raises concerns under the Act, as detailed in the 2018 Position Statement. Given this evidence of anti-competitive intent, the Bureau considered potential justifications for Otsuka's conduct, taking into account both Otsuka's stated reasons for delay and its failure to supply samples of Jinarc to the Generic, as well as the timeliness of Otsuka's actions to address its concerns relating to supply.
As stated above, one of Otsuka's stated reasons for not supplying the Generic related to Jinarc's RMP. The Bureau does not find this justification persuasive in light of the issuance and clarity of Health Canada's July 2019 Notice. In any event, even if Otsuka required additional clarity beyond what was contained in the Notice, the information gathered suggests that Otsuka waited months before seeking guidance from Health Canada despite the Generic's repeated requests for samples. In the Bureau's view, this further undermines the stated justification for the refusal to supply.
Because the matter was resolved at an early stage of the investigation, the Bureau did not fully consider additional justifications offered by Otsuka in respect of the delay and failure to supply the Generic with Jinarc, including liability concerns. The Bureau will assess the objective basis for liability and reputational risk concerns in light of the fact that bioequivalence testing protocols are typically reviewed and approved in advance by regulatory authorities to ensure proper safety standards are in place.
c. Substantial lessening or prevention of competition
As a general matter, generic drugs are priced substantially lower than branded drugs and take a significant volume of sales away from the branded drug when they are introduced. Typically, the first generic drug introduced to the market is priced at 85% (or less) of the cost of the branded pharmaceutical. The Bureau has no information to suggest that the first generic tolvaptan product on the market would not also have a similar price reduction from the cost of Jinarc.
There is reason to believe that generic entry was delayed by approximately 11 months compared to if the Generic had received samples upon the first request to Otsuka's Distributor, and would have been delayed longer had adequate supply not been provided soon after the Bureau became aware of the conduct and commenced its inquiry. The Bureau has not fully substantiated the likely price effect or magnitude of delay, but if true, these facts would appear to be consistent with a substantial prevention of competition.
The Commissioner has decided to discontinue his inquiry following supply of Jinarc to the Generic by Otsuka. The Bureau notes that the specificity and credible information set out in the six-resident application allowed it to take swift action in this matter, as evidenced by the timely filing of an Application under section 11 to gather further information from Otsuka.
Should another situation arise that suggests evidence of competitive harm resulting from a drug manufacturer's failure to provide access to samples of its branded products to Generics, or any other conduct that excludes competitors, the Bureau will not hesitate to take appropriate action.
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