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On 26 July 2024 the Serbian Commission for Protection of Competition ("CPC") issued a decision ("Decision") by which it rejected the request to extend a previously granted exemption of an exclusive distribution agreement concluded between Roche doo Beograd ("Roche") and ADOC d.o.o. Beograd ("ADOC").
The Decision marks the second case of the CPC rejecting requests for an individual exemption in the last year (the other one being the rejection to prolong the exemption of an exclusive distribution agreement concluded between also Roche and Phoenix Pharma doo Beograd), which signals a stricter approach of the CPC in this area and is hence worth examining. Roche and ADOC concluded an exclusive distribution agreement ("Agreement") back in March 2022, under which Roche appointed ADOC as its exclusive distributor for pharmaceuticals Kadcyla, Perjeta and Tecentriq ("Pharmaceuticals"). The CPC initially exempted the Agreement, with the exemption period lasting until 10 February 2024 which is why Roche and ADOC requested an extension of the exemption for an additional period of three years.
The Pharmaceuticals are characterized by the fact that they are used exclusively in inpatient healthcare institutions. Their sale in pharmacies is not permitted, and their sole purchaser is the Republic Fund of Health Insurance ("RFHI"). They are hence procured exclusively through public procurement procedures organized by the RFHI as the contracting entity.
In the exemption extension proceedings, the CPC concluded that the Pharmaceuticals are not substitutable at the Anatomical Therapeutic Chemical (ATC) classification system level 4 due to the different characteristics of each of the Pharmaceuticals with other medicines from their respective ATC 4th level class. Therefore, the CPC deemed necessary to define the relevant product markets at the ATC 5th level of classification. Against that background, each of the Pharmaceutical belonged to a separate relevant product market whereas no drugs substitutable with the Pharmaceuticals are registered and sold on the territory of Serbia. Consequently, Roche, as the holder of licenses for each of the Pharmaceuticals in Serbia, was determined to have monopoly on each of the three relevant markets.
Bearing in mind that the Pharmaceuticals, as drugs procured exclusively through public procurement procedures by the RFHI and that there is no inter-brand competition on the three relevant markets, the CPC concluded that the only competition that is possible on these markets is intra-brand competition, in the form of multiple suppliers of the Pharmaceuticals.
The CPC was of the position that the Agreement, setting an exclusive distribution framework for the Pharmaceuticals, undermines intra-brand competition as it deters other wholesalers from acting as suppliers in public procurements for the Pharmaceuticals. ADOC, as Roche’s exclusive distributor, would enjoy advantages in the purchase of the Pharmaceuticals. Contrastingly, in order to participate as suppliers in public procurements for the Pharmaceuticals, other wholesalers would have to procure them from ADOC, and would hence hardly be able to match or place an offer that is better than ADOC’s in the bidding process.
As evidence for its claims, the CPC relied on the data from past public procurements of the Pharmaceuticals which confirmed that ADOC was the selected supplier in all tenders organized during the period of the initial exemption period. Additionally, in tenders where ADOC was the sole bidder, the selected offer was always identical to the maximum estimated value of the procurement; contrastingly, on two occasions when other wholesalers were also involved in the bidding process, the contract was awarded at a price lower than the estimated value of the procurement. The CPC hence concluded that ADOC was influenced by the competitive pressure to lower its prices and that participation of additional bidders should lead to further price reductions, ultimately resulting in economic benefits for the public healthcare system.
Considering that the CPC assessed that Roche and ADOC failed to sufficiently demonstrate that the positive effects of the Agreement outweighed the observed negative effects the Agreement would have on the competition on the relevant markets, the CPC decided to reject the parties request to prolong the exemption of the Agreement.
