On May 17, 2022, the Italian Competition Authority (the “ICA”) imposed a fine of €3,501,020 on Leadiant Biosciences Ltd. and Essetfin S.p.A. (jointly “Leadiant”) for violating Article 102 TFEU by charging excessive prices for the sale to the Italian National Health System (the Sistema Sanitario Nazionale or “SSN”) of a drug used for the treatment of Cerebrotendinous xanthomatosis (“CTX”), a rare condition that affects the human body’s ability to metabolize cholesterols.[1]

After a four-year investigation, the ICA found that Leadiant was dominant in the Italian market for the drugs used to treat CTX with its Chenodeoxycholic Acid (the “Leadiant CDCA”), and that it abused its market power by engaging from June 2017 in a complex strategy that was ultimately aimed at creating the most adequate conditions for effectively deploying an excessive pricing policy.

Factual Background

In 2008 Leadiant acquired from another manufacturer a CDCA-based drug (“Xenbilox”), which had initially been registered for the treatment of gallstones, but had later been used almost exclusively off-label for the treatment of CTX. The acquisition made Leadiant the only active player at the European level in the commercialization of the drug. The same year Leadiant also entered into an exclusive supply agreement with the only European supplier of Xenbilox’s active ingredient. In 2014, Leadiant decided to apply for an orphan drug designation[2] and marketing authorization for its CDCA-based drug for the treatment of CTX.

It then started to significantly increase the price of Xenbilox (from €660 to €2,900 per pack).

In 2016, Leadiant entered the Italian market, where, until then, the supply of Xenbilox had been guaranteed by hospital oncology pharmacies, which had been producing the product themselves in order to provide it free of charge to all patients suffering from CTX. Thanks to the abovementioned exclusive supply agreement, Leadiant was able to prevent Italian hospital pharmacies from finding on the market the active ingredient necessary for the production of the drug. This caused CTX patients considerable inconvenience and forced hospitals to purchase Xenbilox, the only CDCA- based drug available on the market. As a result, Leadiant could extend its monopoly position to the Italian CDCA-based drug market.

In June 2017, Leadiant launched in the Italian market the Leadiant CDCA, which was in fact identical to Xenbilox in chemical and pharmaceutical terms, but had a different therapeutic indication. Leadiant started negotiating the price of Leadiant CDCA with the Italian Medicines Agency (the Agenzia italiana del farmaco or “AIFA”), proposing a price of €15,000 per pack. AIFA did not consider this price to be justified in light of: (i) the costs incurred by Leadiant (which did not provide details when so requested by AIFA); (ii) the activities carried out to obtain registration of the orphan drug; and (iii) the absence of any added therapeutic value of the drug.

At the same time, Leadiant engaged in delaying tactics and obstructive behavior, such as failing to meet the deadlines set for the submission of economic proposals for the drug, regardless of AIFA’s repeated reminders. As a result, the length of the negotiating procedure was extended by two and a half years. This worsened AIFA’s negotiating position, which was already weak because of the need for the SSN to provide patients with an essential, irreplaceable and life-saving drug within a reasonable timeframe and at an economically sustainable price.

As a result, Leadiant was able to obtain a price for its orphan drug of €[5,000-7,000] per pack.

The ICA’s Findings

The Decision established that Leadiant applied a complex abusive strategy by: (i) increasing the price of Xenbilox (its cheaper drug with the same active substance as Leadiant CDCA used off-label to treat CTX) even before obtaining the marketing authorization for Leadiant CDCA, as a means of preparing the market for the future sale of the orphan drug at excessive prices; and (ii) artificially differentiating between Xenbilox and Leadiant CDCA, with a view to preventing AIFA from gathering information regarding Xenbilox, which Leadiant considered to be irrelevant since the product was not marketed in Italy and, regardless of its off-label use, was indicated for a different therapeutic use (to dissolve cholesterol gallstones). Leadiant achieved such artificial product differentiation through the withdrawal of the first drug from the market when the second one was introduced and by assigning the ownership of Leadiant CDCA to a company specifically set up for the only purpose of being the owner of the off-label drug.

In the ICA’s view, Leadiant’s abusive strategy allowed it to charge excessively high prices that bore no reasonable relationship to the economic value of Leadiant CDCA, with the aim of gaining an undue economic advantage.

In particular, the ICA concluded that the price agreed with AIFA at the end of the negotiation was (i) disproportionate compared to the overall costs incurred by Leadiant and (ii) not justified by the investment made in research and development, as well as the risk faced in the registration process.

In addition, the ICA found that the infringement was still ongoing at the time of the adoption of the Decision, which led it to order Leadiant to take all necessary measures to set for the product prices that were not unjustifiably high and to refrain in the future from engaging in similar conduct.

Regarding the seriousness of the infringement, the ICA noted that Leadiant had intentionally carried out its conduct, imposing exorbitantly high and unfair prices in relation to a drug with no therapeutic alternatives, intended for the treatment of an extremely rare and deadly disease. The ICA therefore categorized Leadiant’s abuse as “extremely serious”. In particular, to set the amount of the fine, the ICA started from a rather high percentage of the value of CDCA Leadiant’s sales in Italy in 2021 (i.e., [20-25%], against a statutory maximum of 30%) and even added a so-called entry fee of [20-25%] of the abovementioned value in the calculation. All in all, once also the duration of the abuse had been taken into account, the fine imposed on Leadiant resulted to be greater than its sales of CDCA Leadiant in Italy in 2021.

[1]      ICA, Decision of May 17, 2022 No. 30156, A524 – Leadiant Biosciences/Farmaco per la cura della Xantomatosi cerebrotendinea (the “Decision”).

[2]      Orphan drugs are medicines used for the diagnosis, prevention and treatment of rare diseases. Given their importance and the costs incurred to produce them, companies that hold a marketing authorization for an orphan drug enjoy 10 years of commercial exclusivity.