French Supreme Court’s Alexion case represents turnaround for financial regulation of pharmaceutical firms

Following our victories in relation to VAT and C3S to have the “product clawbacks” deducted from the taxable turnover of pharmaceutical companies, the contributions on turnover referred to in Article L.245-6 of the Social Security Code, which form part of the financial regulation of the sector in the same way as the safeguard clause, will follow the same line.

In this case, Alexion Pharma France appealed a reassessment notified by the social security authorities, which resulted from the reintegration into the basis of assessment for the contribution on turnover (“Contribution on Sales”) of the “product clawback” that Alexion Pharma France had paid to the health insurance on its turnover in 2011 and 2012. 

After noting that the “product clawbacks” paid to the health insurance by Alexion Pharma France (in this case under a “price-volume” agreement concluded with the CEPS) constitute ”granted rebates” within the meaning of Article L.245-6 of the Social Security Code, the FR Supreme Court ruled that these clawbacks should indeed be deducted from the basis for calculating the Contribution on Sales paid by Alexion Pharma France. 

Consequently, the FR Supreme Court rejected the appeal lodged by the social security authorities against the judgement of the Paris Court of Appeal (14 October 2022, no. 16/15838), which had ordered the cancellation of the reassessment notified to Alexion Pharma France.

This is a long-awaited reversal of case law by the FR Supreme Court, following the first pitfalls of a Roche decision of 6 November 2014 (no. 13-26.568), in which the FR Supreme Court had based its rejection on a legal, economic, and factual confusion between the clawbacks paid in lieu of the safeguard clause (known as “M clawbacks”) and the “product clawbacks” negotiated with the CEPS, embodied in clauses that can take various forms (rebates at the first box, cappings, etc.), in the price agreements of pharmaceutical products. This confusion led the FR Supreme Court to describe the clawbacks as “financial penalties,” even though the “product clawbacks” are retroactive reductions of pharmaceutical products’ price negotiated with the CEPS.

Following perseverance in advocacy for the de facto nature of the clawbacks (e.g., rebates at the first box, cappings) that we negotiate on a daily basis in price agreements as outpayments to health insurers, the FR Supreme Court has now restored "product clawbacks" to their proper categorization as granted rebates. 

It remains an open question whether other types of clawback (e.g., "early access clawbacks" and "M clawbacks") can be treated in the same way.  We have significant experience in this arena and can provide additional insights for parties considering further action, such as claims or declarations.

Authored by Charlotte Damiano.