The Competition and Markets Authority (“CMA”) has recently opened a new investigation into product discounts in the pharmaceutical sector. This news follows hard on the heels of the CMA’s closure of a year-long investigation into a similar issue with another (unnamed) pharmaceutical company. The CMA intends to conduct an initial information-gathering phase, with a view taking a decision on whether to proceed with the investigation by May 2016.
As we discussed here, the CMA’s previous investigation into pharmaceutical discounts was closed in accordance with the CMA’s Prioritisation Principles. The CMA decided on ‘administrative priority grounds, not to continue its investigation because it longer fitted within the CMA’s casework priorities’. The CMA did, however, offer some guidance on potential competition concerns arising from the offering of discounts or rebates, an indication that it was taking these potential abuses of competition seriously even though such offerings tend, in the short term, to result in lower prices for the NHS. It also noted that the “decision to close this investigation should not be taken to imply that the CMA would not prioritise investigations into suspected loyalty-inducing discount schemes in the future”, a comment which appears to be borne out by the new investigation.
In comparison to investigations against excessive pricing (the CMA issued a Statement of Objections against Pfizer and Flynn Pharma in relation to such allegations back in August), the CMA’s decision to investigate low prices can seem counter-intuitive. After all, one of the primary aims of competition law is to ensure that prices are competitive.
The danger is of course that if a dominant company keeps prices artificially low through discounts, it can prevent a newcomer from entering the market. In order to compete on price to win sales from the dominant company, the newcomer would essentially have to compensate the customer for the loss of the discount it would otherwise have received. Restricting new players’ access to the market in this manner can stifle innovation, and may mean that the end-user is worse off in the long run. Loyalty discounts can make it particularly difficult for third parties to access the market, depending on how they are structured, as recently confirmed by the CJEU in Post Danmark II (available in English here). In that case, the Court rejected the requirement of a de minimis threshold that would have to be met before a finding of abuse of dominance could be reached. This may assist competition authorities to meet the threshold for a case to be brought.
However, despite this decision, a case of this kind is unlikely to be straightforward for the CMA. In addition to proving the dominance of the pharmaceutical company in question, the discount scheme must be shown to be capable of restricting competition. And of course, as in its previous investigation, the CMA will have to consider its Prioritisation Principles, including whether it has sufficient resources and whether the discount scheme has a significant enough impact to warrant seeing the investigation through to a conclusion.