Parallel Trade in the Pharma Industry Overview Recent Greek Jurisprudence

Michalopoulou & Associates | 40 Ag. Konstantinou st. | “Aithrio” Business Center (Α 16-18) | 15 124 Marousi Athens Greece

T : +30 210 330 52 30 | F : +30 210 330 52 32 | info@lawgroup.gr | www.lawgroup.gr

Parallel Trade : EU Fundamental Freedoms & National Legislation

• Freedom TO OPERATE / TO CONTRACT • FREE MOVEMENT OF GOODS (ART. 28-29 &34-35 TFEU) • ART. 36 EXCEPTION FOR PUBLIC POLICY GROUNDS (eg. Protection of Health) • FREE COMPETITION (ART. 101 TFEU) • ABUSE OF DOMINANT POSITION (ART. 102 TFEU) • EOF Circular 66249/8.11.2005 Producers, importers, representatives and medical warehouses must supply pharmacies and treatment centers of all categories with substance quantities which ensure a 25% security surplus. • Law 4238/17.2.2014 …foresees up-to-€1m penalties for pharmaceutical companies and wholesalers which do not comply with parallel trade legislation or who induce local market deficiencies.

ECJ Jurisprudence

ECJ C53/03: SYFAIT vs. GLAXO GREECE

The ECJ recalled that “the refusal by an undertaking occupying a dominant position on the market of a given product to meet the orders of an existing customer constitutes abuse of that dominant position under Article 102 TFEU where, without any objective justification, that conduct is liable to eliminate a trading party as a competitor”

BUT under which conditions the REFUSAL TO SUPPLY by an undertaking in a DOMINANT POSITION may amount to an abuse? “It is permissible for a company to counter in a reasonable and proportionate way the threat to its commercial interests potentially posed by the activities of a wholesaler which wished to be supplied with significant quantities of products that are essentially destined for parallel exports” (points 69 and 71) The Court further held that a pharmaceutical company must therefore be able to protect itself against orders that are out of the ordinary in terms of quantity (point 70 and 76) This must be assessed in the light of both (i) the previous business relations between the pharmaceuticals company and the wholesalers concerned and (ii) the size of the orders in relation to domestic demand (point 73)

→ a company, even in dominant position, can protect its legitimate commercial interests by refusing orders which are “out of the ordinary” in respect of (i) the history of orders and (ii) the size in relation to domestic demand.

ECJ Jurisprudence

ECJ 2008/12: LELOS & Sia EE and Others vs. GLAXO SMITH KLINE The ECJ ruled that the refusal to supply by a dominant undertaking falls indeed ambit of Article 102 TFEU but it should be examined if the undertaking has objective reasons for this refusal and not as reasonable & proportionate measure in defense of its commercial interests (and not as its primary intent). The ECJ also examined whether GSK conduct was harmful for final customers by abusing its dominant position. An undertaking abuses its dominant position where, in order to restrict parallel exports, it refuses to meet orders which are “out of the ordinary in terms of quantity” and “are out of all proportion to those previously sold by the same wholesaler to meet the needs of the national market”. A manufacturer may refuse an individual order when it either exceeds what the particular wholesaler used to order in the past, or when the total aggregate amount of the orders in the national market already have exceeded the aggregate domestic consumption.

Greek Jurisprudence

Athens High Court 1355/2011 Farmaservis (Pharma Wholesaler) vs. Astra Zeneca

Farnaservis Arguments: AZ didn’t meet its contractual obligations to purchase Farmaservis adequate quantities during 2009 AZ purchased pharmacists DIRECTLY aiming to substitute Farmaservis in the market AZ abused its dominant market position Astra Zeneca Arguments: The company delivered all adequate quantities (based on IMS data) in order for the patients’ needs to be met. AZ delivers specific quantities sufficient to demand and in order to meet both the local needs based on its QMS system calculated on local market needs (IMS data) according last years’ market needs, seasoning, wholesaler’s expansion (calculated on 15% average) always covering expected demand by 25% It does not hold any dominant position in the local market

Greek Jurisprudence

Judgment: The quantities of the drugs sold have been calculated by the objective distribution system (IMS) The non fulfillment of unusual demands does not constitute denial but is justifiable given that AZ’s scope has been to objectively distribute drugs to ALL the wholesalers in Greece The quantities ordered by Farmaservis has been proven that were destinated to be exported A producer is in position to defend his commercial interests given unusual demands, as these are defined by previous claims

Athens High Court 6373/2012 SyfakSynPe (Pharma Wholesalers’ Partnership in Crete) vs. Pfizer

SyfakSynPe Arguments: Pfizer didn’t meet its contractual obligations to purchase adequate quantities during 2010 in comparison with previous years), given a 20% demand increase By this practice, the needs of the pharmacists have NOT been met Pfizer abused its dominant market position Pfizer Arguments: The company delivered all adequate quantities (based on IMS data) in order for the patients’ needs to be met. Pfizer delivers specific quantities sufficient to meet both the local needs and also cover a 25% monthly security surplus It does not hold any dominant position in the local market SyfakSynPe has ordered (without justification) uncommonly high quantities for pharmacies (1,5-2,5 times over the usual orders) and well-above the national demand (up 13% from 2010 figures).

Greek Jurisprudence

Judgment: The quantities of the drugs sold have been calculated by the objective distribution system (IMS) The non fulfillment of unusual demands does not constitute denial but is justifiable given that PZ’s scope has been to objectively distribute drugs to ALL the wholesalers in Greece The quantities ordered by Farmaservis were destinated to be exported A producer is in position to defend his commercial interests given unusual demands, as these are defined by previous claims

Greek Jurisprudence

Some OBJECTIVE FACTS to be taken into account are: THE BUSINESS RATIONALE as long as the supply & distribution system is fair & non-discriminatory and serves the local demand

THE REASONABLE CHARACTER OF THE ENVISIONED SOLUTION along with an objective method for distributing the available quantities to wholesalers THE TEMPORARY CHARACTER OF EXCEPTIONAL MEASURES LINKED TO SHORTAGES BUT: Jurisprudence on the above cases is based on particular & proven facts, relationships, circumstances etc.

Conclusion