England and Wales High Court (Technology and Construction Court) Decisions

i)                    The first is the “dummy price mechanism” (“ DPM ”). The DPM operates under the Revenue Capped Model (“ RCM ”) of the Procurement to impute a price to a bidder in respect of a particular HCV genotype/patient group notwithstanding the fact that that bidder does not produce any drugs capable of treating that group. The Claimant contends that the DPM thereby confers an unfair advantage on a bidder unable to supply part of the market as compared to a bidder that can;

ii)                  The second relates to the rules under the Unmetered Access Model (“ UAM ”) of the Procurement. Part of the UAM involves the payment of a fixed fee in return for the treatment of a number of patients which the supplier has committed to treat. The Claimant contends that the relevant rules operate unfairly in that the failure by one bidder to treat the number of patients that it has committed to treat means that other bidders may be required to supply treatments to patients exceeding the number they have committed to treat without additional compensation or remuneration.

Confidentiality

Witnesses

Factual Background

HCV

Treatments for HCV

i)                    those infected by GT1 or GT4 who do not have decompensated cirrhosis.;

ii)                  those infected by GT2, GT3, GT5 or GT6 who do not have decompensated cirrhosis; and

iii)                those infected by any of GT1 to GT6 who have decompensated cirrhosis.

Recent Procurement History

The RCM and the DPM

“1.14 TREATMENT SCOPE ADJUSTMENT FOR RCM – ONE PRICE PER DRUG

1.14.1 In order to equitably compare the Comparison Price between a Bidder whose offered treatments cover the full spectrum of Patient Groups and a Bidder whose offered treatments do not cover the full spectrum of Patient Groups, the Comparison Price must be adjusted for the treatment scope.

1.14.2 The Authority will use a Dummy Price approach to achieve this adjustment.

1.14.3 The Dummy Price approach means that any gaps in one Bidders offering are filled by the best available Comparison Price from another Bidder.

1.14.4 This is explained by the hypothetical example below:

…

·          In this example, the Comparison Price Average Cost (CPAC) for Bidders A and B, is calculated by weighting their Comparison Price per market segment with the size of the market segment (£1030 and £1110 in the example).

·          In order to equitably compare Bidders to each other, the Authority will fill the gap for Bidder C in market segment II with the best available Comparison Price for this market segment. In the example this would lead to an CPAC for Bidder C of £1,200.”

The Legal Framework

Relevant legislative provisions

“This Part [i.e. Part 2] establishes rules on the procedures for procurement by contracting authorities with respect to public contracts”.

“ 18. — Principles of procurement

(1) Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner.

(2) The design of the procurement shall not be made with the intention of excluding it from the scope of this Part or of artificially narrowing competition .

(3) For that purpose, competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators.” (Emphasis Added)

“is actionable by any economic operator which, in consequence, suffers, or risks suffering, loss or damage.”

The margin of appreciation

“ If the authority has not complied with its obligations as to equality, transparency or objectivity, then there is no scope for the authority to have a margin of appreciation as to the extent to which it will or will not comply with its obligations.” (Emphasis Added)

The Issues

i)                    In relation to the RCM:

a)                   the first issue is whether the DPM under the RCM amounts to a breach of the Defendant’s duty of equal treatment contrary to Regulation 18 (1) of the PCR; and

b)                  if there is a breach of that duty, the second issue is whether the DPM is objectively justified for the reasons relied upon by the Defendant.

ii)                  In relation to the UAM,

a)                   the first issue is whether fixed fee provisions breach the Defendant’s duty of equal treatment; and

b)                  if there is a breach of that duty, the second issue is whether the fixed fee provisions are objectively justified for the reasons relied upon by the Defendant.

RCM

Does the application of the DPM amount to a breach of the equal treatment principle?

Submissions

Unequal Treatment - Conclusions

i)                    MSD was not able to supply MS2 as its drug, Zepatier, could only treat MS1 i.e. patients with GT1 or GT 4. The Claimant, on the other hand, was able to supply both MS1 and MS2.

ii)                  That difference is not the result of the assessment mechanism or the procurement design. It was the existing position from the moment that the Claimant’s drug, Maviret, came on the market in September 2017 and MSD ceased its R&D into a pan-genotypic treatment.

iii)                The fact that the Defendant designed the Procurement specifically with these two bidders and Gilead in mind does not, in my judgment, undermine the conclusion that MSD was not in a comparable position to the others for these purposes. The DPM was introduced in order to address a difference in position for the purposes of assessment, but it did not generate or create that difference. That difference, as stated above, was already in existence irrespective of the DPM.

iv)                The Claimant’s submission that the suppliers are in a similar situation because all three meet the qualifying condition of having a DAA in their portfolio and are participating in the same procurement (designed with them in mind) cannot be accepted. If all that is required to render suppliers comparable is participation in the same procurement and/or the satisfaction of a key qualifying condition, then there would be hardly any cases where a relevant difference in position could arise.

v)                  The situation is not wholly dissimilar to that which arises in the incumbent provider cases such as Europaiki Dynamiki v Commission and Amplexor considered above. There, both the incumbent (or, more accurately the supplier intending to use the incumbent as a subcontractor) and the other providers were in the same procurement and satisfied all qualifying conditions. However, treatment (in the form of a requirement to undertake an unpaid “running-in” phase) was permissible notwithstanding the fact that it would be to the disadvantage of the other providers without a connection with the incumbent. Whilst the advantage enjoyed by Gilead in the present case, namely its ability to serve the whole market, is not “inherent” (given that it is an advantage earned through its R&D efforts), it does nonetheless place it in a materially different position for the purposes of comparability.

vi)                It is relevant to note that the design of this whole market procurement, which brings into the analysis a supplier who might otherwise have been excluded as having nothing to offer in MS2, can be said to be consistent with the purpose of equal treatment in this context, which is to ensure the development of effective competition leading to the selection of the best bid. Whilst MSD is unable to offer a specific treatment for MS2, it is able to serve MS1, which comprises a substantial proportion of the whole market, and is able to provide elimination solutions which would potentially be of benefit to the Defendant across all market segments.

Did the Defendant seek intentionally to unduly favour MSD?

“The other point I think I need to ensure we cover is how the tender accommodates MDS [sic] only being able to supply 45% of patients maximum (it might be inferred that they are purely a silver vs bronze candidate no matter how good their response)”

“any criteria that [the Defendant] could use to exclude AbbVie 2D/3D from the procurement that would also not exclude other more attractive treatments?”

i)                    It is clear that whatever might have been suggested by way of a query in this email, it was never acted upon. There is nothing in the remainder of the evidence to suggest that there was at any stage any serious, or indeed any, attempt to exclude any particular product from the Procurement. The inference to be drawn is that in the context of a long development period during which various ideas were considered with a view to achieving the Defendant’s objectives, Mr Perkins made a suggestion that gained no traction whatsoever.

ii)                  Mr Perkins accepted that he asked the question but could not recall the context in which it was raised. He did recall having discussions with the Claimant about the fact that it did not wish to continue providing V&E and preferred only to provide Maviret. Mr Perkins went on to reject the suggestion put to him that the mere fact he was thinking about a criterion to exclude V&E shows a certain hostility towards the Claimant. He pointed out that the Defendant had worked closely with the Claimant to get Maviret on to the market and said that there was no intention to disadvantage the Claimant.

iii)                In my judgment, the evidence does not point to any hostility towards the Claimant. It was not disputed that the Claimant had obtained assistance from the Defendant in getting its new product on to the market sooner than might otherwise have been the case. Had there been any hostility towards or predisposition against the Claimant, it is highly unlikely that the Defendant would have provided such assistance. Indeed, if there had been a desire to keep the Claimant from participating in the Procurement, it could have accelerated the Procurement and left the Claimant to bring its new product to the market in the usual timescales (which might have resulted in Maviret being unavailable for the Procurement).

iv)                Mr Perkins’ inability to recall the context in which he sent the email does not affect the position. It is possible that the Claimant itself was considering the future of its V&E offering once it had a pan-genotypic treatment available and that discussions along those lines with Mr Perkins (which were not disputed) might have provided the backdrop to the sending of the email.

v)                  I consider this email to provide a weak platform from which to mount an attack on the integrity of the Defendant and/or Mr Perkins. There is no express allegation that the Defendant was biased against the Claimant. The evidence clearly suggests that it was not. Not only did the Defendant provide the Claimant with the assistance referred to above, the Procurement itself conferred on the Claimant the benefit of the DPM in relation to the decompensated cirrhosis segment of the market.

vi)                It would be extraordinary if contracting authorities had to guard against even thinking about or testing propositions in the course of designing a tender exercise for fear that any perceived unlawfulness in the propositions were subsequently held against them. In the absence of any allegation of bias, the focus should be on what makes it onto the tender documents; not on isolated emails taken out of context or which are infelicitously worded.

i)                    The Claimant submits that “ The “accommodation” of MSD which PH [Mr Huskinson] wanted to see was to ensure that it could win the gold lot in the first place. ” Mr Huskinson was certainly asked about this email, but it was not put to him that he wanted to ensure that MSD could win the Gold Lot in the first place. 

ii)                  The word “accommodate” or “accommodating” is used no less than three times in this short email. The other contexts in which the word is used suggest that no more is meant by the use of the word than “to include”. It is certainly not conclusive that by using the word “accommodate”, Mr Huskinson was indicating that there should be some special arrangement for MSD to put it in an unduly favourable position.

iii)                The desire to include MSD is entirely consistent with the Defendant’s overall desire to undertake a whole market approach to the Procurement whereby all suppliers are considered across the whole market.

iv)                Mr Huskinson’s evidence in relation to this email was, in keeping with much of his evidence, rather rambling and unfocused. However, he did manage to say that there was a concern that the rules should “ accommodate all bidders ”; that there was a “ more broad structural concern about how do we make this work for the 3 suppliers in the market ”; that the context was “ whether in a price per supplier arrangement, how we accommodate a  situation where all 3 bidders are bidding on a price per supplier and the question is how do we accommodate the fact that MSD in this case can only supply 45% of patients ”. In my judgment, none of these responses is inconsistent with the general case being put forward by the Defendant as to the purpose of the DPM as part of the whole market approach; they certainly do not indicate any more nefarious thinking such as intentional hostility towards the Claimant.

v)                  Mr Huskinson accepted that, as a matter of chronology, the DPM first appeared in the documents a week or so after this email but said as follows:

“MR JUSTICE CHOUDHURY: We can read all that, Mr Huskinson. As a matter of chronology, you make a reference to accommodating MSD the top of page 1339, and what [Counsel] is putting to you is that within a week the dummy price mechanism had been developed. Do you accept that as a matter of chronology that is what happened?

A. My Lord, I think it would be a question for Mr Perkins and Mr Moritz as to the development time of the dummy price. I would be staggered if, off the back of an email on the afternoon of the Friday, that by the Tuesday we had gone from no idea of having a dummy price to full – to developing and talking through the way that a dummy price would work, with slides being made available in advance of the Tuesday session, my Lord. I think it would be for the other witnesses to confirm, but my sense of the likely situation is that actually the dummy price was much, much longer in gestation that in relation to this particular email.”

vi)                In my judgment it is not plausible that the DPM was invented at the 11 ^th hour in response to Mr Huskinson’s email. The tenor of the Claimant’s questions in relation to this correspondence appeared to imply that TWS had colluded with the Defendant to come up with a means of specifically favouring MSD unduly to the detriment of the Claimant and/or Gilead. The Defendant and its witnesses certainly appeared to understand that some sort of collusion was being alleged. However, no allegation of collusion or bias is actually made in the pleadings and therefore, as with Mr Perkins’ email, the relevance of this material to the Claimant’s case is somewhat limited, although I accept it is not irrelevant. Furthermore, Dr Moritz’s evidence was clear that DPM was not invented at the 11 ^th hour and that it is a mechanism that is a well-established means of assessing bids in order to determine the appropriate market share where one or more bidders are unable to supply a segment of the market. The Claimant criticised the Defendant’s failure to adduce evidence of past uses of the DPM in other procurements. However, the Court is faced with a situation where a witness of fact involved in the design of the Procurement gave clear evidence as to the well-established nature of the DPM. This is not an assertion that has only been made in Court. Both Mr Perkins and Mr Huskinson gave unchallenged evidence that TWS had informed them in the course of designing the Procurement that the DPM was well-established and had been used in many procurements before. It is implausible in the extreme that Dr Moritz would lie about the provenance of the DPM to his clients at a stage when there was no litigation in prospect and where TWS would gain no advantage from lying, and for him to then come to Court and repeat the same lie. Far more plausible, in my judgment, is the contention that the DPM is indeed a well-established mechanism; it is, as Dr Moritz described it, “ a conceptual answer to a conceptual question ”, which is how to evaluate bids across the whole market when one or more suppliers is unable to supply a particular segment of that market. I accept that evidence as to the DPM being ‘well-established’ in the sense that it has been used to address similar situations in other procurements.

vii)              Mr Perkins was also asked about Mr Huskinson’s email and it was put to him that the DPM was the means by which the Defendant would ensure that it gave MSD the chance of winning the Gold Lot. Mr Perkins answered as follows:

“A. My Lord, I think we have an obligation to ensure that any of the suppliers could win gold, and that was what we have done in terms of the dummy price mechanism. I don't think it's fair to say that this is - should be interpreted that we are trying to favour MSD; purely that we are trying to make sure that each of the bidders can participate on an equitable basis. The dummy price mechanism, as I have tried to explain previously, does allow us to compare the whole market with different combinations of solutions to determine which of those solutions delivers the overall best value and from that to determine who should be awarded the Gold Lot, who should be awarded the Silver Lot, who should be awarded the Bronze Lot, and then go on to say what the market share should be. And in the event that somebody gets awarded a market share that they cannot deliver, then obviously - to the best of my recollection because I haven't read all the three or four pages that this relates to - we have this rule that scales back their market share.

Q. Mr Perkins, I put it to you that's not what is going on here at all, and you well know it, don't you?

A. I am being truthful, my Lord, in terms of the purpose of what I described to you, in terms of in the event that somebody who cannot deliver part of the market, their market share gets scaled back. And I can tell you hand on heart that we have not tried in any way in this procurement to favour one bidder or another.”

viii)      The Claimant submits that Mr Perkins was wrong to suggest that there was an obligation to ensure that any of the suppliers could win the Gold Lot. That is undoubtedly correct; a contracting authority is not obliged to design a procurement so as to ensure that any bidder, irrespective of capacity, can win the biggest market share. However, the thrust of Mr Perkins’ position was that the DPM allows a fair comparison to be made in circumstances where one of the suppliers cannot supply the whole market, and that by implementing it the Defendant was not seeking to favour one bidder unduly over another. I accept that evidence as to the Defendant’s intention in implementing the DPM.

Does the DPM confer an unfair advantage on MSD?

i)                    The effect of the DPM is that MSD is always credited for the purposes of the evaluation with the lowest price bid in respect of MS2, which represents 50% of the market, and so 50% of MSD’s Final Comparison Price .

The DPM imputes a price to MSD, which is the lowest of the bids for MS2. If MSD had been capable of supplying MS2 then the imputed price would unarguably have put MSD in a very favourable position. However, the reality is that MSD cannot supply MS2. The purpose of imputing a price to MSD is simply so that a comparison can be made between the bids on a like-for-like basis. In this context, the term “dummy” price is particularly apt; as there is no prospect of the price translating to a real transaction price for MS2 treatments from MSD. In the event of MSD winning a market share greater than that which it can deliver, the tender rules require that the excess shall be redistributed amongst the other bidders who can. Thus, whilst the Claimant’s assertion is a factually correct description of what the DPM does, the end result is not unfair as MSD does not win market share that it is unable to service.

ii)                  It is therefore impossible for AbbVie or Gilead to better MSD’s Comparison Price for the purposes of 50% of the assessment that determines the allocation of gold, silver and bronze lots.  They are deprived of the advantage that a bidder would ordinarily obtain, and can legitimately expect to obtain, from lowering its prices.  No matter how low they go, and no matter what the cost to them of reducing their prices, MSD will get the benefit of that price. To put the point another way, in respect of 50% of the assessment (i.e. the part that relates to the MS2 pricing) AbbVie and Gilead each have the opportunity to submit, and be credited with, the lowest priced bid. However, the dummy price mechanism means that MSD always has a 100% guarantee of being credited with the lowest priced bid in respect of that 50% of the assessment.

Insofar as this implies that the Claimant could never win the Gold Lot then it is clearly incorrect. As the analysis in the section dealing with Dr Moritz’s calculations shows (see below), there are many permutations that would result in either the Claimant or Gilead earning a greater market share than MSD. Whether or not they do so will depend on the level of their bids. Whilst the DPM means that they cannot beat the price imputed to MSD in respect of MS2, their bids in respect of MS1 and relative to each other could well result in beating MSD overall and winning the Gold Lot. Indeed, one of the aims of the whole market approach incorporating the DPM, as will be seen below, was to encourage bidders to compete and lower their prices in this way. Dr Moritz explained how, notwithstanding the fact that MSD would be allocated the lowest Comparison Price for MS2, the two suppliers with pan-genotypic drugs would still be incentivised to compete and obtain greater market share overall:

“Q.  I put it to you earlier on that if the dummy price is the lowest price, then AbbVie and Gilead can never beat MSD for market segment two because MSD will always get the lowest prices on offer.

A.  Correct, we established that before, yeah.

Q.  So if you use the average price as the dummy price, then AbbVie is in a position to reduce its price in the market segment to below that of MSD?

A.  But still that is not the incentive that we wanted to create.  We wanted to create an incentive where you have a plain competition across all of the three bidders, and in the example that you described with the minimum dummy, AbbVie and Gilead have at any point in time an incentive to compete.  Let us walk through the three examples because it's so trivial. If I am the second best, yeah, talking AbbVie or Gilead, on the market segment two, that means if I improve my pricing on market segment two it helps me against the one who is leading on market segment two, and it helps me because it is a pan-genotypic drug against the supplier who is currently leading on market segment one.  So, in that case lowering my pan-genotypic drug gets me necessarily into a better position, meaning more market share.  Now, let's say I am leading on market segment number two.  Now, what's the question, and we need to make a distinction how I am positioned with my non pan-genotypic drug in market section one.  If I am leading there, no difference.  What I'm doing probably with my market segment two price but I am willing, against my competitor in market segment two, the distance to the others in market segment one remains the same.  So I'm not worse, but also not better off. If I am not - if my market segment price, market segment one price is higher than my market segment two price, it means again that if I move my pan-genotypic drug I gain market share by being in a better position in market segment one and in market segment two.  That means in whatever situation you are, you have an incentive to move on your market price segment - in market segment two with your pan-genotypic drug - sorry.  So, it's very clear that at any point in that procurement you have an incentive to move.  And therefore, I don't see any disincentive, and let's say lack of incentive to compete just because MSD gets a lower dummy price.  I can't share that.

Q.  Would it not obviously provide an additional incentive to lower prices in market segment two for AbbVie and Gilead if they knew that they could get an advantage over MSD by doing that?

A.  They are getting it, as I just explained, by lowering your price in market segment two, you necessarily gain an advantage, and as soon as you overtake MSD in market segment number one, you have every opportunity to win the Gold Lot.  There is no question about that.”

The evidence that there is every opportunity to win the Gold Lot is not a bare assertion as the calculations below will show and as Mr Pumford, in his evidence, appeared to accept (whilst maintaining that the outcome was still unfair for the Claimant):

Q.  What he says there is right, isn't it, as a matter of strategy.  That is how that would be won?

A.  My Lord, it's correct that if we bid lower for both [V&E] and for Maviret, then that would give us the best opportunity obviously to win gold.

Q.  But again, don't you agree it is entirely within the power of any of the three bidders to offer a lower price, isn't it?

Table A
		Whole market, min dummy							Separated Markets					Effect of dummy price on market shares
Example		MS	AbbVie	Gilead	A+G			MS		AbbVie	Gilead	A+G		MS	AbbVie	Gilead	A+G
1a (PPD)		44.5%	22.5%	33.0%	55.5%			24.5%		14.6%	60.9%	75.5%		Increases	Increases	Decreases	Decreases
1b (PPD)		17.0%	58.0%	25.0%	83.0%			6.7%		32.4%	60.9%	93.3%		Increases	Increases	Decreases	Decreases
1c (PPD)		17.0%	25.0%	58.0%	83.0%			6.7%		21.3%	72.0%	93.3%		Increases	Increases	Decreases	Decreases
1d (PPD)		25.0%	17.0%	58.0%	75.0%			13.4%		14.6%	72.0%	86.6%		Increases	Increases	Decreases	Decreases
2a (PPS)		44.5%	22.5%	33.0%	55.5%			24.5%		14.6%	60.9%	75.5%		Increases	Increases	Decreases	Decreases
2b (PPS)		10.0%	70.0%	20.0%	90.0%			6.7%		69.6%	23.7%	93.3%		Increases	Increases	Decreases	Decreases
2c (PPS)		17.0%	25.0%	58.0%	83.0%			6.7%		21.3%	72.0%	93.3%		Increases	Increases	Decreases	Decreases
2d (PPS)		25.0%	17.0%	58.0%	75.0%			13.4%		14.6%	72.0%	86.6%		Increases	Increases	Decreases	Decreases
3a (PPD)		38.0%	29.0%	33.0%	62.0%			40.1%		5.3%	54.6%	59.9%		Decreases	Increases	Decreases	Increases
4a(PPS)		38.0%	29.0%	33.0%	62.0%			40.1%		5.3%	54.6%	59.9%		Decreases	Increases	Decreases	Increases

“Q.  If we think about the prices in this hypothetical situation, if we look at your GT3 price, which if you go down the left-hand column, GT2, 3, 5, 6 and go across to AbbVie is £100 in this example, if instead of £100 you had bid, say, £91, that would bring your total down to 64, from 73, and you would already be in silver as opposed to bronze position.  So, it just shows, doesn't it, that AbbVie was the master of its own fate.  It could win, or win better, by simply lowering its prices as against its competitors?

A.  My Lord, what I would say is that the arithmetical model that Mr Moser states is almost certainly correct.  However, we would say that - I agree that the difference in price between Epclusa and Maviret and the difference in price between Viekirax and Exviera and Zepatier will overall dictate who gets the silver or bronze in this example.  But I would say that because of the way the lowest price is working, it distorts and creates unfairness to AbbVie in terms of it gives greater chance for MSD to win than it does to AbbVie.  We have to guess where those two prices are, and of course it is a sealed envelope but it is a bid.

Q.  But that is in the nature of competition, isn't it, Mr Pumford?  You have to guess and you have to try and put in the most competitive price.  That is the idea, isn't it?

A.  My Lord, certainly it is the nature of competition that we have been bidding and trying to come up with reasonable prices over the last three years.  It's an ongoing function of the market.

…

MR MOSER:  96.  Yes.  Thank you. (To the witness) It would be better actually if we start at page 514.  It is an email, so it goes backwards.  I am not going to read it out now, although if it is felt more helpful, my Lord, then obviously people will have to pop out for a moment.  There is an email here from Jerome Bouyer, on 514.  For the avoidance of doubt, he is the general manager, UK - yes?

A.  That is correct, my Lord.

Q.  And he says what he says there.  You are copied in on this email.  You see what he says in the last paragraph on page 514?

A.  Yes.

Q.  What he says there is right, isn't it, as a matter of strategy.  That is how that would be won?

A.  My Lord, it's correct that if we bid lower for both Viekirax and Exviera and for Maviret, then that would give us the best opportunity obviously to win gold.

Q.  But again, don't you agree it is entirely within the power of any of the three bidders to offer a lower price, isn't it?

A.  My lord, it's correct that bidders can obviously bid any price that they would like into either model of price per supplier or price per drug.  The table there is to try and illustrate that it was helping MSD versus Gilead in that example.

Q.  As a matter of general observation (it is not really a question) I think we agree that these tables, like most of the tables that have been produced for the price comparison, they don't take into account the effect of the elimination solution - the other aspect of the comparison prices.  That is right, isn't it?

A.  My Lord, that is correct. These are based on drug prices.”

RCM - Objective justification

Does the use of the DPM pursue a legitimate aim?

“Secondly, insofar as the RCM methodology does entail any prima facie discrimination, such discrimination is objectively justified and therefore unlawful.

                                              i)       On the basis of the Defendant’s chosen “whole market” approach, it follows that some mechanism must be found for coping with bidders who supply a substantial part, but not the whole, of the market. An imputed price is an obvious way to solve this problem.

                                            ii)       There is no presumption in favour of an approach restricted to individual Patient Groups or genotypes.

                                          iii)       Alternatively , if there were such presumption, the Defendant is in any event entitled to take a “whole market” approach to the procurement in order to ensure that excessive prices are avoided by facilitating tripartite competition for all Patient Groups, and/or to reflect the fact that elimination initiatives are inherently Patient Group-neutral and that pan-genotypic drugs can treat different Patient Groups: see paragraph 19 above.

                                          iv)       The imputation of the “best available Comparison Price” to a bidder which is unable to supply drugs for all Patient Groups is an appropriate proxy for the consequences of that bidder’s tender for the Defendant’s purchase of drugs for Patient Groups which such a bidder cannot treat. It is rational to assume that, if the Defendant purchases such a bidder’s drugs in order to treat the Patient Group which it is capable of treating, then it will purchase the best value drugs available from other suppliers in order to treat the remaining Patient Groups.

                                            v)       The use of the “best available Comparison Price” in this way is part of the overall mechanism for encouraging lower prices.”

“With the financial commitment on offer from NHS England, the right response to this procurement from industry, and the collective efforts of all stakeholders, England can be the first country in the world to seize this once in a generation opportunity to eliminate a major disease –while improving the lives of hundreds of thousands and saving money for its health system.”

Was the DPM a proportionate means of achieving a legitimate aim?

i)                    Was the DPM suitable for securing the stated aims?

ii)                  Does the DPM go beyond what is necessary to achieve those aims?

iii)                Were other means available to achieve those aims?

Was the DPM suitable for achieving the stated aims?

i)                    The DPM is designed to enable the comparison of bids on a whole market basis.

ii)                  The whole market approach is, in turn, an effective way to enhance competition.

iii)                As a matter of basic economic theory, greater competition should yield superior bids (in the form of lower prices and/or superior elimination solutions).

iv)                Lower prices will enable the Defendant to purchase more treatments in return for its annual budget of £190m.  Superior elimination solutions will enable more individuals with HCV to be identified and treated.

v)                  In these ways, the DPM is therefore well-suited to maximisation of the health benefits of the Procurement, and the avoidance of unnecessary suffering and death.

“…been delighted and overwhelmed at some of the innovation that I’ve seen through these responses in quality, with amazing tools that actually help to flag it in every GP practice in the country, patients who will be needing to be diagnosed in the future, through to partnerships with major high street pharmacy chains, through to partnerships with the major drug treatment services, all put in place with great clarity. So, both qualitatively my Lord and in sheer money terms, I think we have an overwhelming sense, my Lord, that the strategic procurement will do what we aspire to do and go way beyond it…”

“Q.  Dr Moritz, both Mr Huskinson and Mr Perkins have told the court that to their knowledge no detailed analysis was done as to the likely effects of the dummy price mechanism in this procurement before the procurement started.  Can you confirm that, please?

A.  My Lord, I can't confirm that statement because the dummy price has been used by us before in a number of occasions and would even consider to be part of the core expertise of TWS.  We have used it in hundreds of procurements before for large organisations in Europe.  So, the answer is clearly no, it was not invented at the 11th hour, as suggested before when I listened to the evidence of Mark Perkins and Peter Huskinson earlier.

…

A. So, we haven't done any specific modelling but there are two reasons why it was not required.  The dummy price is the conceptual question of how the ensure comparability when it comes to the awarding of the gold lot and this was conceptually explained to Mark Perkins.  It was not personally me but I reconfirmed that with my colleague, Dr Christian Paul.  So, there was no need of modelling something which is obvious and is the conceptual answer to a conceptual question.”

“Q: Now, the Claimant’s assumptions for its calculation, they actually reflect what has happened in the procurement more closely than yours, do they not?

A. It is suggesting that, but in my view as an economist and someone who specialises in game theory market design, it is a completely flawed argumentation because if there is one conclusion of market design, my Lord, then it is the question that there is not the one market and the one model, and whenever you are trying to copy and paste something from an existing market into another environment you will necessarily not get the ideal result because it must be tailored to a specific situation. So just by saying a model worked in a different environment under different circumstances makes it a good, perfect or excellent fit for another environment is a completely flawed argument, it is not supported by anything that research does in the market design sphere ” (Emphasis added)

“Q. Well, that is very interesting, Dr Moritz, but I am sure you understand the point of my question, which is that these two options (separate market/whole market with dummy price) were said to virtually achieve the same goals?”

A.  They would achieve both the procurement and the awarding of business to suppliers, but achieving fundamentally different objectives.  The option 1 here is looking at separate markets and ask the question, how do we deal with the problem that we can't directly compare suppliers?  The same thing we do in option 2.  So, they achieve the same thing, answering the question, how we deal with the problem that suppliers are not directly comparable?  To that extent they are virtually comparable, but they are not comparable when it comes to solving the problem under a whole market approach because option 1 is fundamentally contradicting the philosophy of the strategic procurement.

Q.  So, where this advice says that these two models can virtually achieve the same goals, your position is, what it meant was that these two models achieve fundamentally different objectives?  I thought you just said to me that these two options achieve fundamentally different objectives?

A.  They achieve the same goal to the extent that I need to establish comparability across suppliers which are not directly comparable.  To that extent, absolutely correct, these two things do exactly the same, but in the broader context of the strategic procurement, option 1 needs to be disregarded because it's fundamentally contradicting the objective of the strategic procurement.  And then only one option is actually left, and we wanted to have an open discussion with NHS England at that point in time to say, "Anything changed?  Do we still go for a full-blown whole market approach?  And, if so, we need to discuss what we are doing, but only option 2 leads itself to a solution of the problem."

i)                    lose out to the other (by failing to beat the other’s MS2 price);

ii)                  and lose out to MSD (because, by failing to beat the other’s MS2 price, it will have offered a worse price for the MS2 market than that which is attributed to MSD).

Did the DPM go beyond what was necessary to achieve those aims?

“A.  Absolutely, yes.  My Lord, you want me to give a bit of the background first on what we tried to do with the strategic procurement, which was designed, as it were, from Peter Huskinson and Mark Perkins, to design a population based approach that ensures that we have a level playing field for all of the suppliers competing in that procurement, proper tri party procurement, and awarding market shares to those three suppliers across the entire market.  That was the overall intention. 

Now, the Bridging Tender features certain elements of that and we heard that before.  It awarded market shares across the entire market to the three bidders.  That is correct and that is a feature of the whole market approach.  Actually, the reverse order, it was actually the case that this was backwards integrated into the Bridging Tender, as we heard before, but the characteristics would identify it as a whole market approach. 

However, what it doesn't identify as a whole market approach is the way how the competition worked in the Bridging Tender.  In the Bridging Tender it was not a proper tri party competition and a level playing field for all of the suppliers.  Why?  Because in the Bridging Tender the performance of suppliers was measured against historic weighted prices per market segment.  So, suppliers were measured by the contribution of absent savings that they contribute to the outcome of that procurement, which was for the Bridging Tender absolutely fine to try to level the playing field and provide an incentive to suppliers to get prices closer to each other. 

But for a procurement, a strategic procurement, which was designed as an end of life procurement, as I would call it, meaning the last major procurement for a specific demand in a market, it does not help it look at relative improvements compared to what we have seen in the past.  I should make that decision on the basis on the right absolute level and if I want to compare bidders on the absolute level I have the necessity that I need to be able to compare them and that necessitates the need it for a mechanism that ensures comparability and the dummy price is doing that and this is why the dummy price was not needed in the Bridging Tender but was one means to establish a ranking of suppliers in the strategic procurement.”

“Q.  But what you've done with your dummy price mechanism is you have added MSD to the market, but MSD isn't truly competing in market segment two, is it?  You are just giving it the lowest price?”

A.  I'm not saying that they're competing on market segment two.  What I'm saying is they're competing, as anyone else in the competition, for a share of the overall elimination of hepatitis C in the UK, and this is the definition of our market.  We are not talking about market shares.  That they are limited to market share number one is absolutely natural because of the product portfolio, but this is not what they are bidding for.  They are bidding for a share of elimination.  Peter Huskinson explained at length why it is worthwhile to having them in there because it's much broader than the drugs that they are providing.  They are providing elimination initiatives which also help the other bidders, and therefore it's not limited to a pack of drugs that relate to genotypes 1 and 4. It has to do with their contribution to the elimination of hepatitis C.”

“Q.  But using an average or higher dummy price does not imply that NHS England will be buying drugs at a higher price once the market shares are allocated, does it?

A.  It does, of course, because the risk that you are giving someone not the Gold or not the Silver Lot (whatever it is) at the expense of using a higher average price, which implies that the value that you place on their offer is lower compared to other bidders, everything else being equal.  And because you do that, you give someone who is able to contribute more to the elimination of hepatitis C a smaller share, and therefore it is illogical.

Q.  But using average or higher dummy price does not necessarily give MSD the higher share, does it?  I am sorry.  It does not necessarily give MSD a lower market share, does it?

A.  Of course not, but you have shown in the example yourself that it can change the lot and how they are awarded, absolutely.  So, it can have an impact and I don't see any logical reason why we should go for anything else than the lowest dummy price.”

i)                    The Claimant was not thereby prevented from winning the Gold Lot or beating MSD;

ii)                  The Claimant is still likely (at least on the basis of the calculations produced) to win a larger market share through the RCM/DPM than it did under the Bridging Tender;

iii)                Whether or not the Claimant did beat MSD or win the Gold Lot would depend on the bids which the Claimant chooses to offer;

iv)                Any advantage that MSD gains from the DPM does not translate to a market share (in terms of drug sales) within MS2 and does not thereby significantly diminish the Claimant’s share of that segment.

Were other less restrictive means available?

Conclusion on Objective Justification

Manifest Error / Breach of Regulation 18(2) and (3), PCR

UAM

Does the UAM claim fall within the PCR?

i)                    Whilst Regulation 3(1) does provide that Part 2 of PCR establishes rules on the “procedures for the procurement”, there is nothing to indicate that proposed contractual terms are thereby excluded;

ii)                  A “procurement document” for the purposes of the PCR means “any document produced or referred to by the contracting authority to describe or determine elements of the procurement or the procedure, including… proposed conditions of contract …”: Regulation 2 (Emphasis Added). The express inclusion of the conditions of contract as a procurement document suggests, in my judgment, that the duties and obligations under the PCR apply in respect of such conditions;

iii)                If that were not the case then, as the Claimant submits, a contracting authority could circumvent its obligations by, for example, ensuring that the contractual terms are designed to produce unequal outcomes;

iv)                As stated by the ECJ in Succhi di Frutta :

“120 If, when the contract was being performed, the contracting authority was authorised to amend at will the very conditions of the invitation to tender, where there was no express authorisation to that effect in the relevant provisions, the terms governing the award of the contract, as originally laid down, would be distorted.”

Do the fixed fee provisions result in unequal treatment of the Claimant?

“… To characterise distinctions based on differences in competitive position as prima facie prohibited and requiring justification is inappropriate given that the very objective of national procurement procedures is to choose the most competitive bid – it would be odd to characterise the selection of one tenderer above another based on price, for example, as involving different treatment of comparable situations and needing justification.”

The Claimant’s ‘Value Understanding’

Question: “Can the Authority please specify the conditions under which a proposal could be deemed “non-competitive”?”

Response: “A proposal is considered competitive if it delivers greater value than the current arrangements.”

i)                    Paragraph 1.18.1 of the ITPD contains the following condition (which is repeated a number of times throughout the document) applicable to both models:

“Subject to receipt of compliant and competitive offers that deliver greater value than current arrangements, the Authority intends to award up to 3 contracts…”

ii)                  That reference to competitive offers (plural) delivering greater value than current arrangements indicates that it is the overall position with which the Defendant is concerned rather than whether each individual bid delivered greater value. That interpretation appears to be supported by the following section of the ITPD, which explained that the “value of current arrangements” means “the outcome of the Bridging Tender” and that for the purposes of comparing value the authority will use the “average value per cure”. The average value per cure (which is based on the Comparison Price, i.e. a figure which takes account of elimination solutions) is clearly one derived from an overall assessment of all the bids. It seems to me that these provisions make it abundantly clear that the Defendant’s concern was to ensure that the overall value of the bids provided greater value than the existing arrangements.

iii)                The question then is whether the response to the clarification question upends that interpretation as far as the RWIND tenderer is concerned. In my view it does not. In the first place, it is to be noted that there are no express terms anywhere in the rest of the procurement documentation which would support the Claimant’s value understanding. Secondly, the response to the clarification question talks of a proposal being competitive if it delivers “greater value than current arrangements”. It does not state specifically that proposals had to provide a lower price than those under the Bridging Tender. The Bridging Tender did contain some limited provision for elimination initiatives and was not based on price alone. Of course, the emphasis on elimination solutions was greatly increased under the Procurement meaning that the Defendant might consider the bids to deliver greater value overall even if the raw prices were not lower in every case. Thirdly, read in that context, the response to the clarification question cannot be taken to mean that, contrary to what is said elsewhere, each individual bid had to commit to a lower price than that in the Bridging Tender.

iv)                The Claimant accepts that the ITPD did appear to refer to the overall value having to be better than current arrangements. However, it points out that the ISFT did not include the detailed references to the “average value per cure” contained in the ITPD, and notes that the ISFT was issued following the issuing of the response to the clarification question. The combined effect of these developments, submits the Claimant, is that any previous intended meaning in the ITPD as to what amounted to a competitive bid, no longer applied. I do not accept that submission. If the intention had been to revise the hitherto clear meaning of a competitive bid, then the RWIND tenderer would expect that to be done in a clear and express way and not by way of a clarification response. More fundamentally, the ISFT retains the reference to “the value of current arrangements”. If the intention had been to change what was meant by “value” in that context as between the ITPD and ISFT, the RWIND tenderer could legitimately expect the fresh definition to be set out in the ISFT and would not expect to have to infer, from a response to one of many clarification questions, that something had changed.

v)                  Mr Pumford gave evidence as to the value understanding. However, he did not suggest that that understanding was influenced by the changes to the ITPD document. Mr Pumford made clear that he considered better value to mean primarily better price:

“Q.  But the clarification you refer to at 109, the clarification question, only talks about a proposal having better value than the current arrangements.  It does not say, "Each respective price has to be better", does it?

A.    Better value, my Lord, is a combination, as we have discussed, of price and elimination initiatives and actions, but price is the single thing that drives it more than anything else.  So, I would read that as being - competitive is better value and, therefore, competitive is better price.”

The Claimant’s evident determination to view value through the prism of price does not match the Defendant’s emphasis on elimination solutions.

i)                    The UAM reimbursement rule: This provides that any supplier that fails to cure at least 90% of the number of patients which it has committed to cure must reimburse a sum of money proportionate to the shortfall (not including the first 10% of the shortfall). Any supplier finding itself in this position is credited for the actual value of any elimination investment it has made. The aim of this is to incentivise greater elimination investment. The Defendant has submitted a calculation using hypothetical figures to demonstrate how an excessive bid would be likely to result in a bidder receiving only a small proportion of the fixed fee. In the example, a bidder that managed to treat 16% of its committed patient numbers would receive only 26% (16% + 10%) of the fixed fee for that lot. For the Gold Lot, that would amount to £9.6 million. By comparison a more realistic bid, based on the bidder’s knowledge and expectation of prescribing rates for its product, might result in it winning the fee for the Bronze Lot – £14 million – without any reimbursement. The Defendant submits that a bidder is therefore incentivised by the reimbursement rule to bid realistically. Although this rough and ready calculation does not take account of elimination investments, I accept that it is a reasonable illustration of how the reimbursement rule works. In my judgment, the rule renders it highly unlikely that any reasonable bidder would make unrealistic treatment commitments.

ii)                  The UAM disqualification rule: This entitles the Defendant to disqualify a bidder in various defined circumstances, including where the prices are deemed to be “unsustainable/unrealistic” and where the bid is considered to be “implausible”. The Claimant contends that the requirement that UAM bids be realistic was only introduced at the ISFT stage. Whilst it is correct that the provisions as to disqualification were enhanced at the ISFT stage, I do not accept that the rule against unrealistic bids did not exist from the outset in respect of both RCM and UAM. Mr Perkins’ unchallenged evidence was that the reference to unrealistic “prices” at the ITPD stage meant patient numbers in the UAM context. In any case, it seems to me to be somewhat surprising to suggest that a power to disqualify bids as being unrealistic should apply only to one model and not to another.

Is the claim actionable?

UAM - Objective justification

i)                    The fixed fee system pursues the legitimate aim of encouraging greater investment in elimination solutions. It has not seriously been contended that this is not a legitimate aim. In my judgment, it clearly is.

ii)                  There is a rational connection between fixed fees and the legitimate aim in that the fixed fee system addresses concerns expressed by suppliers as to the unpredictability of revenue, which in turn acted as a disincentive for suppliers to commit to substantial investment in elimination solutions. The fixed fees create greater financial certainty and encourage investment in elimination solutions. Mr Pumford accepted that, in earlier HCV procurements, fluctuating revenues had made it “ very difficult to therefore decide on what to invest in England ”. He further agreed that the fixed fee model under UAM was intended in part to meet that concern:

“Q.  In previous exchanges, AbbVie has complained, has it not, of fluctuating revenues being bad for investment in the UK - the winner takes it all model?  That is something that AbbVie has in the past said to the NHS is not good for its business, is that not right?

A.  My Lord, I agree that the previous tender system which allowed somebody to have 90 plus percent or zero percent was very difficult to therefore decide on what to invest in England, so AbbVie did not think that that allowed us to plan and project what we had to spend in the market.

Q.  But do we at least agree that the NHS' fixed fee model is intended in part to meet that concern because everybody will get something?

A.  My Lord, I can agree that, if you have three fixed fees, keeping three suppliers on the market, there is an element that allows the three companies to continue to invest within the market. That makes sense.”

It is notable that Mr Pumford agreed that keeping three players in the market so that they may all continue to invest, “ makes sense ”. In my judgment, the Defendant was entitled to consider that it did make sense to design the Procurement in such a way that it enabled all three suppliers to remain in the market; the combined effect of their elimination investments potentially had the effect of accelerating elimination. The evidence, as discussed above, shows that the Defendant has received elimination solutions that are a very considerable improvement on those received in previous exercises.

iii)                The fixed fees are a proportionate means of achieving the legitimate aim:

a)                   Any discriminatory effect would be modest and therefore relatively easy to justify. The Defendant’s submission in this regard is based upon its understanding (based on publicly available research) of the likely manufacturing costs of DAAs. As I have said above, I do not make any findings on the actual manufacturing costs in question; the evidence was simply not there for me to be able to do so. However, I am able to conclude that these costs are likely to be very considerably lower than the price per treatment obtained by each supplier. I see no reason why a reasonable authority cannot rely upon credible, publicly available estimates of likely manufacturing cost in order to analyse the potential impact on suppliers of the fixed fee system. Based on that material, Mr Huskinson’s view was that if a supplier were required to treat a larger number of patients than it had committed to treat, the scale of additional cost incurred would be relatively limited in comparison to the size of the fixed fee. The Claimant did not adduce any evidence to discredit the estimate contained in the research. Instead, the Claimant simply claimed not to know what its own manufacturing costs were. Based on this evidence, or the lack of it, it is my judgment that the conclusion reached by Mr Huskinson as to the likely limited financial impact of having to treat more patients is not unreasonable. That limited impact is relevant to the question of proportionality.  It is of course entirely open to the supplier to consider that the commercial risks associated with a particular tender are too great for it to be involved; but the fact that a supplier might regard the diminution of profitability as too great does not mean that the tender is inherently unfair. The supplier in these circumstances can simply choose not to participate.

b)                  On the other side of the scales, one has the importance of the elimination solutions to the achievement of the Defendant’s objective of eliminating HCV in England within a few years.

c)                   In my judgment, the latter clearly outweighs the former.

d)                  Accordingly, the unequal treatment, if that is what it is, does amount to a proportionate means of achieving a legitimate aim and is objectively justified.

 “As to paragraph 13, UAM market share allocations are not capped according to the ceiling of patients a bidder can treat, and there is accordingly no “ remunerated distribution ” of market shares. However:

(a)       bidders should be able to estimate reliably the number of patients they are able to treat based on their knowledge of the size of each Patient Group and their awareness from past experience of physicians’ treatment preferences;

(b)      it is reasonable to expect that, when bidding, bidders will not “ commit ” to treat more patients than they are able to treat; and

(c)       if they do commit to treat more patients than they actually treat, they are liable to have to make repayments under the UAM reimbursement rule, which incentivises them to make realistic commitments”

Conclusion

i)                    In relation to the RCM:

a)                   Does the DPM under the RCM amount to a breach of the Defendant’s duty of equal treatment contrary to Regulation 18 (1), PCR? No .

b)                  If so, is the DPM objectively justified for the reasons relied upon by the Defendant? Yes .

ii)                  In relation to the UAM:

a)                   Do the fixed fee provisions breach the Defendant’s duty of equal treatment? No .

b)                  If so, are the fixed fee provisions objectively justified for the reasons relied upon by the Defendant? Yes .