Novartis and Roche Face Record €445 Million Antitrust Fine in France Over Misleading Marketing of Eye Drug Lucentis

After six years of public investigation, the French Competition Authority (AFC) has recently imposed a record fine of up to €445 million on pharmaceutical companies Novartis and Roche, penalizing them for abusing their market dominance and illegally selling their high-priced ophthalmic drugs. Driven by the pursuit of substantial profits, international pharmaceutical firms have repeatedly been exposed in recent years for engaging in illicit practices that distort the market. However, factors such as legal penalties and procedural timelines have not significantly impacted these companies’ financial performance, thereby exposing consumers and investors to potential losses.

　　Record Fine Targets Illegal Marketing

The French Competition Authority ruled last week that the two companies had abused their dominant market position through alleged non-compliant marketing practices to maximize pharmaceutical sales revenues, imposing a total fine of €445 million, including a €385 million penalty on Novartis and a €60 million penalty on Roche.

According to Reuters, the case involves two drugs: Roche’s anti-cancer drug Avastin and Roche’s ophthalmic drug Lucentis. Although the two drugs have similar mechanisms of action, Lucentis is significantly more expensive. Currently, the two companies collaborate in their promotion: Novartis markets Lucentis outside the United States, while Roche markets Avastin outside the United States. The AFC stated that the two companies are suspected of using improper means to promote the more expensive Lucentis, and Novartis has also been penalized for “exaggerating” the risks associated with Avastin.

According to the AFC, the marketing practices employed by the two companies have made it difficult for health authorities to compare the relative costs of Lucentis and Avastin. Given that Avastin and Lucentis share similar mechanisms of action and are equally effective in treating ocular diseases, physicians have begun recommending the more affordable Avastin to patients. Reportedly, the cost per injection of Lucentis is €1,161, whereas that of Avastin is €40 or even lower. The two companies’ use of improper marketing tactics to promote the use of Lucentis has significantly increased the burden on France’s social security system.

Novartis stated in a press release that it was “deeply disappointed” and “strongly refuted” the allegations of anti-competitive conduct. Novartis believes that this decision represents a serious misinterpretation of the facts and a distortion of prior case law. The company is planning to appeal. Roche stated in a press release that it believes it has complied with local health regulations and “will assess its next steps.”

This is not the first time that this same drug has been sanctioned by European antitrust authorities.

Previously, Novartis and Roche had already engaged in a dispute with Italian authorities over these two drugs; the two companies were accused of inducing patients to use the expensive drug Lucentis and were fined a total of €180 million in 2014.

At the time, the Italian Competition Authority concluded that the two companies had agreed to jointly market the expensive drug Lucentis for treating vision problems caused by age-related macular degeneration, while ceasing to recommend Roche’s Avastin, a lower-cost alternative that had long been used to treat the same condition.

Novartis and Roche both denied the relevant allegations, stating that they would actively challenge the penalty decisions. Novartis stated, “The company will exercise its legal rights through due process to contest the penalties and will appeal the decision. We firmly deny the allegations that Novartis and Roche engaged in anti-competitive practices in Italy.” Roche also denied in its statement the existence of any agreement with Novartis to restrict competition, arguing that the two drugs contain different active ingredients and are designed to treat entirely different conditions. Although Roche and Novartis filed appeals expressing their dissatisfaction, they ultimately lost the cases. During this period, the European Union also launched an investigation and ruled in 2018 that the two companies had disseminated misleading information about Avastin to steer patients toward using Lucentis, constituting a violation of EU regulations.

　　Novartis Entangled in Lawsuits and Fines

Novartis has been mired in a continuous stream of scandals, lawsuits, and fines this year, extending beyond its ophthalmic drugs to involve health authorities in multiple countries.

French media reported that Novartis has been striving to persuade ophthalmologists to accept its next-generation ophthalmic drug, Beovu, which was approved in the United States last October and in the European Union in February. However, the American Society of Retina Specialists reported 14 cases of retinal vasculitis among patients treated with Beovu, with most adverse events being severe enough to cause vision loss. Analysts at Piper Sandler believe that these serious side-effect cases will significantly reduce Beovu’s market share potential, lowering their August forecast for the drug’s market share from 17% to 8.4%.

U.S. authorities announced this year the conclusion of a multi-year overseas bribery case involving Novartis, stating that Novartis and its former eye care subsidiary, Alcon Pharmaceuticals, agreed to pay a total of $347 million to settle allegations that the two companies had bribed public hospitals and clinics in Greece, Vietnam, and South Korea.

This settlement agreement concludes the investigations by the U.S. Department of Justice and the U.S. Securities and Exchange Commission (SEC) into alleged criminal and civil violations of the Foreign Corrupt Practices Act by the two companies.

This is the second time Novartis has been fined for alleged violations related to overseas bribery.

Novartis and Alcon, accused of misconduct, reached a deferred prosecution agreement with the U.S. Department of Justice to resolve criminal charges filed in the U.S. District Court for the District of New Jersey.

Novartis’s parent company reached a separate settlement with the SEC to resolve the regulator’s civil allegations, which included accusations that the company and its former subsidiary used forged contracts in financing arrangements in China, resulting in a write-down of more than $50 million in bad debts.

According to Novartis, the U.S. authorities’ investigation into the company began in 2016. In 2018, Greek prosecutors submitted a report to parliament alleging that Novartis employees had bribed doctors and politicians with tens of millions of euros to artificially keep the prices of its drugs at high levels.

But Novartis continues to deny the allegations. The company stated in its announcement: “Today’s settlement does not involve any allegations of bribing Greek political figures, which is consistent with the findings of Novartis’ internal investigation.” Alcon expressed satisfaction at having resolved the investigation. Alcon merged with Novartis in 2011 and was spun off from the company last year.

In the second half of this year, Novartis also reached a settlement with the U.S. Department of Justice for $678 million over kickback allegations. The company agreed to pay $678 million to settle civil fraud lawsuits brought by the U.S. government, which accused it of providing kickbacks to physicians. The U.S. Department of Justice stated that Novartis had violated the federal False Claims Act and an anti-kickback statute.

The company has been accused of organizing tens of thousands of sham educational events, providing physicians with hefty speaking fees, lavish dinners, and fine wines to induce them to prescribe and sell its cardiovascular and diabetes medications.

Audrey Strauss, the then-acting U.S. Attorney, described these incentives as “no different from bribery,” stating that federal health insurance programs had paid hundreds of millions of dollars for these prescriptions.

Sky-High Fines Do Not Hinder Performance

In terms of the ratio of fines to the penalized companies’ operating revenues, the punitive impact on the companies is very limited.

The quarterly report as of June 2020 showed that Novartis’s net profit for the quarter reached as high as $1.8 billion. Although the company was hit with a record-breaking hefty fine by French authorities, the impact on its financial statements is negligible when amortized over the several years involved.

Roche, another penalized company, delivered a financial report that outshone its peers, with robust revenue maintaining its position as the world’s largest.

In the first half of 2020, as major international pharmaceutical giants successively released their financial reports, the top five pharmaceutical companies were finalized. Swiss Roche (Roche) remained firmly in first place with strong revenue. Its pharmaceutical revenue reached CHF 23.202 billion (USD 24.991 billion), a year-on-year decrease of 4%, marking the first decline in Roche’s pharmaceutical revenue in recent years. This was due to the combined impact of the “black swan” event and competitive pressure from generic drugs on the sales of its core medications, including Avastin, which is involved in this case and saw an 18% year-on-year decline.

Amid successive penalties for regulatory violations, pharmaceutical giants have experienced limited impact on their financial performance. Industry analysts note that the world’s leading pharmaceutical companies are almost annually embroiled in scandals involving fraudulent marketing, bribery, and monopolistic practices, exhibiting a seemingly cyclical trend.

Among the various violations, bribery of government and health authorities in recent years has been particularly egregious. Registered bribery cases involving international pharmaceutical companies such as Novartis and GlaxoSmithKline have occurred in China, South Korea, Turkey, and the United States, among other countries.

In the pharmaceutical market, demands such as diagnosis and prescription are always determined by physicians or hospital administrators and pharmaceutical suppliers who hold drug procurement authority. Given the asymmetry in information and knowledge backgrounds, patients and consumers find it difficult to make independent decisions and must rely on physicians’ instructions regarding medications. For pharmaceutical companies, securing a firm grip on these suppliers allows their products to easily capture this segment of market share.

The same rules of the game apply in most countries with public health insurance. If pharmaceutical companies can secure regulatory approval for drug launches or gain preference in drug procurement bids, their profits can be substantial.

Under this structure, pharmaceutical manufacturers need only persuade the health officials in charge and healthcare institution operators to monopolize patients’ medication choices when receiving medical services, thereby easily capturing a substantial market share. As expected, they resort to bribery and kickbacks to secure preferential treatment from those at the top of the pyramid in their decision-making.

Since 2015, major pharmaceutical companies have been exposed for bribery cases in various countries, with accumulated fines reaching hundreds of millions of US dollars. This has not only cast a long-lasting negative shadow over the entire industry but also sparked dissatisfaction among some shareholders due to the significant financial costs incurred.

Market participants noted that for investors, when pharmaceutical companies engage in illegal practices over an extended period, they inadvertently expose them to unforeseen investment risks. Groups representing the interests of numerous minority shareholders may initiate claims for compensation.