On 15 May 2017 the EU Commission announced that it has opened a formal investigation into the pricing practices of South African pharmaceutical company Aspen Pharma. The Commission has concerns that the company may have abused its dominant position by charging excessively high prices for some of its cancer drugs, in breach of Article 102 TFEU.Other competition regulators have also started to investigate similar conduct. In September last year the Italian competition authority imposed a fine of €5 million on Aspen for increasing prices of its cancer drugs by up to 1,500%. In the UK, in December last year the Competition and Markets Authority (CMA) imposed a record fine of £84.2 million on pharma manufacturer Pfizer and a fine of £5.2 million on distributor Flynn Pharma for charging excessive and unfair prices for the anti-epilepsy drug phenytoin sodium. The CMA is also investigation Actavis UK for charging excessive prices to the NHS for hydrocortisone tablets.Although excessive pricing cases are rather unusual under competition law as competition authorities typically do not wish to be seen as price regulators, there seems to be a recent trend for a more interventionist approach to excessive pricing cases in the pharma sector. Pharma companies should therefore remain vigilant as regards their pricing strategies, particularly in respect of drugs which are out of patent and are no longer subject to national price regulation schemes.

1. The Aspen Pharma investigation

This is the first EU competition investigation into excessive pricing practices in the pharmaceutical sector. Announcing the investigation, Competition Commissioner Vestager stated that:

"When we get sick we may depend on specific drugs to save or prolong our lives. Companies should be rewarded for producing these pharmaceuticals to ensure that they keep making them in future. But when the price of a drug suddenly goes up by several hundred percent, this is something the Commission may look at. More specifically, in this case we will be assessing whether Aspen is breaking EU competition rules by charging excessive prices for a number of medicines".

The investigation concerns Aspen's pricing practices for a range of cancer treating medicines containing the same active ingredients and which it acquired after their patents had expired. Whereas the pricing of original medicines that are protected by patents is usually highly regulated by the various price regulation schemes of the Member States, the price for out of patent drugs is often no longer regulated but left to free competition to achieve lower prices. The Commission is investigating information which indicates that Aspen imposed very significant and unjustified price increases of up to several hundred percent, enforced by threats to withdraw the medicines in question from the market in some Member States. The investigation relates to the whole of the EU but excludes Italy, where the national competition authority had already adopted an infringement decision against Aspen.

2. Investigations by the national competition authorities

Italy

In September 2016 the Italian competition authority imposed a fine of more than €5million on Aspen for a breach of Article 102 TFEU by setting unfairly high prices for life saving cancer drugs. Having purchased the package of drugs from GlaxoSmithKline, whose patents expired many years ago, Aspen started aggressive negotiations with the Italian Medicines Agency, which involved threats of withdrawal of the products from the Italian market, in order to secure a high increase in prices ranging between 300% and 1,500% of the initial prices. The Italian investigation is understood to have alerted the Commission to Aspen's EU-wide conduct in this matter.

UK

In the UK, the CMA imposed record fines on Pfizer and Flynn Pharma in December last year for charging excessive and unfair prices for the anti-epilepsy drug phenytoin sodium. The companies were found to have deliberately exploited the opportunity offered by de-branding of the drug (which meant that it was no longer subject to price regulation) in order to increase the prices by up to 2.600%. The CMA could not find a justification for such increases as the phenytoin sodium capsules are an old drug for which there had been no recent innovation or significant investment.

The CMA is currently investigating similar conduct by Actavis UK which allegedly increased the price for hydrocortisone tablets by more than 12,000% compared to the branded version of the drug which was sold by a different company before April 2008.

3. Excessive pricing as an abuse

Excessive pricing cases are unusual under competition law as competition authorities do not wish to be seen as price regulators and it is notoriously difficult to prove that a price is "excessive". In the United Brands case the Court of Justice of the EU (CJEU) established the test for an excessive price as a price which has no reasonable relation to the economic value of the product concerned. This involves a cost/price analysis, and where the difference between them is excessive, a further consideration as to whether the price charged is unfair in itself or when compared to other competing products.

In the Pfizer and Flynn investigation the CMA used the NHS's pharmaceutical price regulation scheme which accepts a profitability level of 6% as the relevant benchmark and concluded that the prices charged did in no way bear a reasonable relation to their economic value. It will be interesting to see how the Commission approaches the difficult issue of determining the economic value and relevant benchmark. In a recent case referred to the CJEU by the Latvian courts (Case C-177/16) which looks at the methodology for determining excessive prices, Advocate General Wahl accepts that there is no single method, test or set of criteria to determine excessive pricing but that a benchmark price is to be calculated according to the most appropriate method for the particular case.