Israel: Monopoly Fined for Unfair Excessive Price

The Competition Director General has issued a precedent-setting determination against the pharmaceutical marketing company MBI Pharma Ltd. (MBI). The Director General determined that MBI abused its monopolistic position and charged an excessive and unfair price for a drug called Leadiant.

Leadiant is a life-saving drug used to treat CTX (a rare and incurable genetic disease). Currently, about 50 people in Israel suffer from CTX. In the past, these patients were treated with a drug called Xenbilox, manufactured by the British company Leadiant Biosciences. The manufacturer decided to discontinue manufacturing Xenbilox. He decided to manufacture the drug Leadiant instead. Leadiant is based on the same active ingredient, and there is no substantive difference between the two drugs.

After MBI, the drug’s marketer registered Leadiant in Israel in 2018 in a manner that prevented imports of substitute drugs, it spiked the price of the drug by hundreds of percentage points. The price of a box of Xenbilox, which was about ILS 3,500 in 2014, skyrocketed to between ILS 8,000 and ILS 17,000 in 2016. Later, after registering Leadiant, MBI began selling Leadiant at a price of up to ILS 48,000 for a single box).

Complaint and Investigation

The Israel Competition Authority began investigating the price of Leadiant at the request of the Ministry of Health, and after a complaint was submitted to the Competition Authority by a complainant represented by our firm’s Competition and Antitrust Department.

The Director General determined the price of Leadiant was excessive, inter alia, based on the huge difference between the price of Leadiant and the price of Xenbilox, and the radical increase in MBI’s marketing margin and gross profit from the sale of Leadiant relative to the period when it sold Xenbilox. According to the Director General, there was no legitimate justification for these price differences.

Impact on the National Healthcare Services Basket

The Director General rejected MBI’s argument that it did not “set” the price of the drug and had abided by the Competition Law (but rather that the price was reached consensually with the HMOs and the Ministry of Health). She also ruled that the term “set” encompasses all ways in which a monopoly decides on consumer prices and should not be limited to instances when consumers have no bargaining power. The Director General also determined that, due to MBI’s monopolistic power, the HMOs had no choice but to purchase Leadiant.

According to the Director General, the excessive price had a direct impact on the HMOs and on the national healthcare services basket. This, in turn, may have harmed the public as a whole, and especially other patients, whose drugs and treatments did not receive funding under the national healthcare services basket.  

The Director General fined MBI for a sum of ILS 8 million and also fined two company officers for a sum of ILS 614,000 each.

Israel is not the only country that has investigated the prices of this drug. Several competition authorities around the world (in the Netherlands, Italy, and Spain) determined in recent years that the manufacturer itself, Leadiant Biosciences, sold Leadiant at excessive prices. They subsequently imposed fines on the manufacturer totaling millions of euros.

The Gafniel Precedent

An Israeli Supreme Court ruling undoubtedly provided a tailwind to the Director General when exercising her authority to determine that a monopoly charged an excessive and unfair price. In its precedent-setting ruling in the Gafniel case in July 2022, the Supreme Court ruled that the law enables plaintiffs to sue monopolies for charging unfair excessive prices.

As mentioned above, this is the first time the Director General has exercised her authority to determine that a monopoly charged an excessive and unfair price for a monopoly’s product. It is also the first time the Director General has imposed pecuniary sanctions in respect thereof.

Exceptional Violation

By so determining, the Director General indicates she will not hesitate to exercise her authority in appropriate instances and severely punish those who violate the law (including officers). Nevertheless, it is important to keep in mind that this is an exceptional and particularly egregious violation in several respects. Leadiant is a life-saving drug, whose price the company callously spiked by hundreds of percentage points without any justification. Moreover, the offending company implemented a series of measures to fortify its monopolistic position and prevent imports of substitutes into Israel.

Considering the unique circumstances of this incident, one should not assume the Director General will exercise her authority generously from now on and easily accede to every complaint about a monopoly charging excessive prices. On the other hand, one can assume that, in instances in which the Director General does decide to exercise her authority,  she will likely order offenders to pay heavy fines.

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Barnea Jaffa Lande’s Competition and Antitrust Department is at your service to assist you and answer any questions in this regard.

Adv. Gal Rozent heads the Antitrust and Competition Department at Barnea Jaffa Lande.

Adv. Ran Karmi is an associate in the competition and antitrust department.