The pharmaceutical industry is facing the prospect of an increase in disputes in the coming months. A combination of recent events such as the pandemic, the changes arising from Brexit and the war in Ukraine have all had an impact on supply lines. The energy crisis and other economic conditions are contributing to inflationary pressures across the board.
These factors can result in difficulties in performance of contracts and where a contract might once have been profitable, economic and political conditions might now make them uneconomic, leading parties to seek to terminate, sparking claims of breach and claims for specific performance and damages, potentially leading to insolvency. In the wake of the pandemic, we have seen court decisions on the issue of force majeure. It is a contractual entitlement under English law and its scope depends upon the wording of the contract. Where the contract sets out a procedure, failure to follow it could be fatal.
The international nature of the life sciences sector makes it particularly susceptible to supply issues. Where redress is necessary, urgent action can be taken through the courts and where the parties have chosen international arbitration in their contract, it is now often possible to seek urgent relief via the appointment of an emergency arbitrator, where the rules allow.
CMA antitrust cases and enforcement
In the meantime, the UK’s Competition & Markets Authority (CMA) continues to be vigilant with 10 antitrust cases in the last six years in relation to the supply of pharmaceuticals, imposing record fines in the last year for competition law breaches and with directors being disqualified. In light of the CMA’s promise in its 2022/23 Business Plan to continue its investigations in the pharmaceutical sector, the need for life sciences firms to implement robust compliance programmes to mitigate competition law risks remains as important as ever.
As regards private damages actions in the UK in the area of competition law, apart from the stand-alone claim for damages following the European Commission's decision in Servier that Servier’s "pay for delay" agreements for perindopril were anti-competitive, there have thus far been fewer damages actions relating to life sciences sectors.
However, an interesting development in recent years in relation to the CMA’s civil enforcement and the potential for follow-on damages actions is also that pharmaceutical suppliers found to have breached competition law and who have concluded settlements with the CMA in return for fine reductions, also have been pressured to offer a so-called Ex Gratia Payment to the NHS. For example, in the Fludrocortisone case, the CMA concluded that Aspen Pharma had engaged in market sharing in relation to supply of fludrocortisone and in addition to a settlement with a £2m ($2.5m) fine, Aspen Pharma agreed to pay the National Health Service (NHS) £8m to help resolve the CMA’s competition concerns in relation to fludrocortisone. These payments do not preclude the NHS from seeking further damages from the businesses involved in the infringement. However, the payments would be offset against any further damages award and they would therefore be expected to significantly reduce the risk of follow-on damages actions being lodged.
Outside the pharmaceutical sector, the English courts have seen a variety of class action claims being brought in recent years. Take for example the case brought by Walter Merricks against Mastercard. It is an allegation of breach of competition law, but significantly Mr Merricks has been given permission to bring the claim on behalf of all users of the cards in a defined period. The claim value is put at approximately £14bn, with a class size of 45 million people. The court was told that the claim value per claimant was approximately £155.80, excluding interest. Mastercard is now facing a very substantial piece of litigation that will be costly and time consuming to defend (that is without even considering the cost of any damages and costs it might have to pay). It is unlikely that any consumer would bring a claim of this sort for £155.80 plus interest on their own, but now the opportunity is there to bring such claims as part of a class.
There is a ready supply of money available to litigation funders who are in the market to finance group claims, with specialist claimant law firms ready to pursue claims. Targets are larger corporates and insurers in a variety of sectors. The types of claim where procedures for collective redress have been used include competition claims, data breach claims, shareholder claims, commercial contract, consumer/product liability claims and ESG claims. Life sciences companies could, theoretically at least, face any of these types of claim.
These are challenging times. Early advice will often be key to a successful resolution.
This piece was originally published in The Pharma Letter and can be accessed here.
Michael Frisby
Gustaf Duhs