The CNMC imposes €10.25 million fine on Leadiant for excessive pricing

On November 10, 2022, the National Commission for Markets and Competition (CNMC in Spanish) imposed a fine of €10.25 million on Leadiant for abusing its dominant position by applying excessive prices for the only drug available in Spain for the treatment of a rare disease.

Background: CNMC’s investigation

In May 2019, following information received from the Ministry of Health and a complaint from the Consumers and Users Organization (OCU), the CNMC initiated an investigation regarding a possible abuse of a dominant position by the Leadiant laboratory. The sanctioned conduct consisted in the application of excessive prices for the orphan drug^[1] CDCA-Leadiant® used for the treatment of patients with an ultra-rare metabolic disorder called cerebrotendinous xanthomatosis (“XCT”).

The CNMC cooperated with other European competition authorities to gain access to documents seized during inspections of Leadiant group companies in Italy, Germany and the United Kingdom that affected the Spanish market.

The sanctioning proceedings initiated by the CNMC in December 2020 ended with a decision of November 14, 2022. In addition to the total fine of €10.25 million, the CNMC ordered three companies of the Leadiant group (i) to eliminate the exclusive control of the active ingredient—CDCA—in Spain; and (ii) to market CDCA in Spain at the price negotiated with the Ministry of Health.

Leadiant’s dominant position

The CNMC’s decision assesses the supply and demand conditions to determine the relevant product market and Leadiant’s position.

Specifically, in the pharmaceutical sector the approach to defining the relevant market is determined by the therapeutic substitutability of the drugs. In this context, the decision concludes the following:

• Due to the particularities of the CDCA-Leadiant^® medicine, there are no substitute drugs, leading to an absence of competitive pressure.
• CDCA-Leadiant^® is an orphan drug, which means that Leadiant has market exclusivity for at least 10 years (in this case, until 2027).
• Given that the product is specifically supplied for the treatment of an ultra-rare metabolic disorder, its demand is low and, therefore, potential competition is very limited.

Based on the above, the CNMC concludes that CDCA-Leadiant^® is a product market in itself—and hence Leadiant has a 100% share in that market.

The abusive conduct

The CNMC relies on the following facts to reach its conclusions about the abusive nature of the conduct:

• Leadiant’s strategy since at least 2007 sought to eliminate competition in the market (among other things, by creating a new brand to dissociate it from the previous one and to implement a high-price policy).
• The signing of exclusive collaboration agreements with leading XCT research centers was intended to hinder access to clinical data essential for the development of products competing with CDCA-Leadiant^®.
• Additionally, the exclusive supply contract between Leadiant and the only supplier of the active ingredient for its use in Spain restricted third-party access to that active ingredient.

Furthermore, the CNMC considers that Leadiant carried out a series of actions prior to its exclusion strategy consisting of (i) a gradual increase in the price of Xenbilox, a CDCA-based drug; (ii) the withdrawal of the Xenbilox brand from the market; and (iii) the launch of the reformulated drug, now CDCA-Leadiant®, at a high price, prioritizing the Member States where it was easier to raise prices.

The CNMC considers that Leadiant carried out an exploitative abusive conduct (thus abusing its dominant position). This conclusion is based on an economic analysis of the price evolution from June 2017 to the present, according to which:

• Leadiant did not carry out R&D or other investment activities, nor did it incur additional costs that would justify the price increase.
•  There is evidence that would prove that, by withdrawing Xenbilox, Leadiant sought to avoid its use as a benchmark in the CDCA-Leadiant® reference price request.
• The drug was imported into Spain as a foreign drug at a price of €14,618.15 per package (4% VAT included).
• The difference between the revenue from the sale of CDCA-Leadiant® and the total costs incurred, considering a “reasonable profit” (the cost-plus test), shows a significant annual excess (above the reasonable profit) from 2018 onwards, averaging 223% in the period under consideration.
• The comparison of the Internal Rate of Return and the capital cost of the CDCA-Leadiant project, which makes it possible to determine whether there is an excessive gap between price and costs, leads to the conclusion that even in the most favorable economic scenario for Leadiant, the rate of return on investment was between 100-110%—a value well above the cost of capital, which was 15%.
• The selling price of a CDCA container in 2017 was €14,618, 14 times higher than in 2010 (€984). The CNMC considers that the price of CDCA-Leadiant® was not fair in itself and with respect to the price of other competitors, without any rational economic justification for the overprice.

Therefore, the CNMC concludes that the price charged for CDCA-Leadiant® in Spain (€14,618.15 per package) from at least June 23, 2017, until the adoption of the decision, is abusive within the meaning of Article 3 of Law 15/2007, of July 3, on the Defense of Competition and Article 102 TFEU.

Finally, the CNMC considers that Leadiant’s conduct led to an increase in public pharmaceutical expenditure, while the delay in setting the reimbursement price in Spain created supply vulnerability in the national market.

On the other hand, the decision is novel because of CNMC’s assessment on the imposition of a ban on public tenders in the context of a dominant position with a single operator in the relevant market. Despite there being grounds to impose such prohibition in the present case, the CNMC prioritizes the supply of the product in Spain. A ban on public tenders would eliminate the only existing supplier from the market, giving rise to shortages—which would be contrary to the overall purpose of the decision.

Decision S/0038/20 LEADIANT is available here.