UK Life Sciences and Healthcare Newsletter - May 2021: COVID-19 Collaborations and EU Competition Law Compliance

Dechert LLP

Dechert LLP

The European Commission’s antitrust arm, DG COMP, has for the second time publicly confirmed that a COVID-19 initiative among pharmaceutical companies is compliant with EU antitrust laws. It did so by way of a “comfort letter,” an informal and ad hoc procedure that has not been used for 20 years prior to the COVID-19 outbreak. The letter offers important practical reassurance specifically linked to the extraordinary circumstances of the pandemic.

At the start of the global pandemic, in April 2020, DG COMP issued a Temporary Framework for “assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the COVID-19 outbreak.” (Click here to read our OnPoint on this.) One of the mechanisms discussed to provide legal certainty to companies participating in a COVID-19-related initiative with competitors is the possibility to request ad hoc comfort letters for well-defined projects.

DG COMP issued its first comfort letter under this procedure on 8 April 2020 when announcing the Temporary Framework. DG COMP confirmed that members of Medicines for Europe, formerly the European Generics Medicines Association, could lawfully collaborate to address the risk of acute medicine shortages caused by the sudden surge in demand for COVID-19 intensive care medicines. The European Commission had already recognised this risk and even requested pharmaceutical companies to increase their production and work together.

The companies participating in the Medicines for Europe initiative planned to cooperate on modelling demand for medicines to treat hospitalised COVID-19 patients. That also covers the identification of production capacity, existing stocks and adjustment or reallocation of production and stocks based on projected or actual demand. The cooperation goes further and foresees extensive coordination to ensure optimal use of resources, including: (1) cross-supply of active pharmaceutical ingredients; (2) joint identification of where to switch or increase capacity or production to ensure adequate supply of all relevant materials; and (3) measures to rebalance and adapt capacity utilisation, production and supply, and possibly also distribution, where medicines are being over or undersupplied.

Almost a year later, on 25 March 2021, DG COMP issued a second comfort letter for a collaboration project, The Matchmaking Event, organised on 29 and 31 March under the auspices of the European Commission to accelerate COVID-19 vaccine production. The event set out to enable virtual meetings among numerous companies to facilitate discussions between manufacturers of raw materials, companies with relevant production capacities, or other key inputs for COVID-19 vaccines and developers and manufacturers of the vaccines to match their demand with the supply of potentially scarce inputs. The goal was to find complementary available production capacities along the entire value chain to address bottlenecks in COVID-19 vaccine production.

Breaking with the past, both COVID-19 related comfort letters have been published by DG COMP and can thus provide guidance to other companies wanting to set up a specific COVID-19-related collaboration involving competitors. Both letters are short – three and four pages respectively – but they provide at least some insights into how DG COMP might assess future collaborations of this kind. In particular:

  • Both comfort letters explicitly call out that the joint initiatives address acute problems for which the European Commission had called upon the pharmaceutical sector to find solutions. Indeed, the Temporary Framework says that the role of public authorities in encouraging cooperation is a relevant factor in considering the lawfulness of any joint industry initiatives.
  • Both Medicines for Europe and The Matchmaking Event address the types of cooperation covered by the Temporary Framework. Both projects seek to address the risks related with the supply and distribution of essential scarce products during the COVID-19 outbreak. The Temporary Framework explicitly identifies medicines and medical equipment that are either used to treat patients or are necessary to mitigate and overcome the pandemic.
  • In both cases, the initiatives were required to respect certain safeguards:
    • Keeping records of discussions. For the Matchmaking Event, this applied only to discussions involving direct competitors, but the event organisers had to keep a list of all meetings that took place.
    • Exchange of confidential business information had to be limited to what was indispensable to achieving the project’s aim. In the case of The Matchmaking Event, which was mainly focused on bringing together suppliers and buyers rather than competitors, any discussions between direct competitors should not involve the exchange of any confidential business information such as price, discounts, costs, etc. If it was indispensable for direct competitors to exchange such information, they had to seek permission from the relevant unit in DG COMP at least 24 hours beforehand.
  • Both comfort letters also exclude certain types of behaviour and are limited in time:
    • The Medicines for Europe comfort letter prohibits price increases beyond what is justified by possible increases in the underlying products of the COVID-19 medicines.
    • The Matchmaking Event comfort letter excludes any discussions of prices between competitors or any other possible cooperation between them other than exchanging non-confidential information in the context of The Matchmaking Event. Any subsequent cooperation between non-competitors resulting from The Matchmaking Event also falls outside of the comfort letter.
    • The Medicines for Europe comfort letter will cease once the risk of shortage has passed, and The Matchmaking Event letter applied to the one event, not to any cooperation resulting from the event. The parties will need to self-assess compliance of any subsequent cooperation and can seek further guidance from DG COMP if necessary.

These two comfort letters address two very specific collaboration initiatives that were established with government support. In those circumstances, and with sufficient safeguards in place, the European Commission was keen to remove possible doubt in relation to contacts that might in normal times be viewed with caution. So beyond these specific circumstances, the general rule remains that competition law applies even where competitors seek to cooperate to mitigate the impact of the current crisis, and businesses should be sure to put the necessary safeguards in place.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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