The Competition and Markets Authority (“CMA”) has fined pharmaceutical manufacturer Pfizer and pharmaceutical distributor Flynn Pharma a combined total of nearly £90m for abuse of their dominant market positions. CMA found that the pair has charged “excessive and unfair” prices for anti-epilepsy medication and took action accordingly.
CMA – PFIZER/FLYNN INVESTIGATION
The competition concerns in the Pfizer/Flynn investigation relate to the charging of excessive and unfair prices in the UK for phenytoin sodium capsules. These capsules are prescribed as an anti-epilepsy drug and, until September 2012, were marketed under the brand ‘Epanutin’. The CMA published a statement of objections in August 2015, noting their preliminary concerns and we blogged about it at the time.
Pfizer were manufacturing and distributing Epanutin in the UK, until the distribution rights were sold to Flynn Pharma in September 2012. Flynn de-branded (or in shop-talk, “genericised”) the drug and began distributing it wholesale. Normally, the process of genericisation lowers drug prices for consumers. However, Epanutin’s price was regulated, the generic drug was not. The NHS was paying around £2.83 for 100mg packs. Post-genericisation, this skyrocketed to £67.50 before settling at £54.00 in May 2014. In one year, NHS spending rose from around £2m in 2012 to £50m in 2013.
ABUSE OF A DOMINANT POSITION
The CMA has the power to impose fines of up to 10% of a business’ annual worldwide group turnover for breaches of Chapter II of the Competition Act 1998 or Article 102 of the Treaty of the Functioning of the EU (TFEU). Chapter II prohibits businesses with dominant position from abusing that position in a manner which may affect trade within the UK. Article 102 TFEU similarly prohibits abuse that may affect trade between EU member states.
The CMA considered that by Pfizer increasing their manufacturer’s price of phenytoin sodium capsules by between 780% and 1,600% and then Flynn increasing their distribution price by between 2,300% and 2,600%, the pair had abused their dominant market position. A key consideration was the fact that the drug was used by many of the UK’s 48,000 epilepsy sufferers to control seizures and patients are not recommended to switch products due to the potential loss of seizure control. The NHS was therefore bound to continue buying phenytoin sodium capsules from Pfizer and Flynn, no matter the price.
Flynn was fined £5.2m, while Pfizer was fined £84.2m. Although Pfizer’s fine is a new record for the CMA for such an investigation, it represents a fraction of the group’s worldwide revenue. Flynn, on the other hand, received the maximum possible fine.
In response, Pfizer noted that their product was still 25% to 40% cheaper than similar rival products that the NHS was purchasing. It appears that an appeal to the Competition Appeals Tribunal is likely. In the meantime, the Health Service Medical Supplies (Costs) Bill recently passed its Third Reading in the House of Commons. This Bill aims to tighten the regulation on future genericised price hikes.
If you would like to discuss any of the issues covered in this article or require any advice about competition law issues, please contact Rod Lambert, or Charles Livingstone in Brodies’ Public Law and Regulatory Team.
On December 12, 2016