On 7th December 2016, the Competition and Markets Authority (“the CMA”) announced that it has imposed a record £84.2 million fine on Pfizer and a £5.2 million fine on Pfizer’s distributor, Flynn Pharma having found that they had both charged excessive and unfair prices for phenytoin sodium capsules, a drug used in the treatment of epilepsy. The fine imposed on Flynn Pharma represents 10% of its worldwide turnover, which is the statutory maximum that the CMA can impose for a competition infringement. Additionally, both parties have been ordered to reduce their prices.
Key points in the CMA’s statement
- Prior to September 2012, Pfizer sold phenytoin sodium capsules under the brand name Epanutin but when Pfizer sold the UK distribution rights for Epanutin to Flynn Pharma, which de-branded the drug, it was no longer subject to price regulation. Prices increased by up to 2,600% overnight and NHS expenditure on the drug increased from £2 million in 2012 to £50 million in 2013.
- The NHS had no alternative to paying the price increase for the drug, as patients should not generally be switched onto other products due to the risk of loss of seizure control.
- The CMA found that Pfizer and Flynn Pharma held a dominant position in the markets for the manufacture and supply of phenytoin sodium capsules respectively and this position had been abused by the excessive and unfair prices charged.
- Philip Marsden, the Chairman of the Case Decision Group for the CMA investigation said that there was “no justification for such rises when phenytoin sodium capsules are a very old drug for which there has been no recent innovation or significant investment” and even though Pfizer claimed that the drug was loss making before the de-branding, any such losses would have been recouped within two months of the price increases.
- The message to be taken from this record fine is that the CMA is “determined to crack down on such behaviour and to protect consumers, including the NHS, and taxpayers from being exploited”.
- Pfizer and Flynn Pharma have been given between 30 days and 4 months to reduce their prices, in order to ensure that the supply of the drug to patients will not be at risk.
Pfizer and Flynn Pharma appeals
- Pfizer has announced that it will appeal the fine, maintaining that the CMA’s findings are “wrong in fact and law” as the transaction with Flynn enabled them to secure the supply of an important drug which was a loss making product, and a price was set which was between 25% and 40% less than that of an equivalent drug from another supplier to the NHS that seemed to have been accepted by the Department of Health.
- Pfizer have also stated that they will “seek clarity” on the roles of the Department of Health and the CMA in price regulation as part of the appeal.
- Flynn Pharma has also issued a statement stating that it will appeal the decision, as it is based on “a wholly flawed understanding of the UK pharmaceutical market” which they believe “may have unintended consequences on future investment in, and availability of, generics”.
- Flynn Pharma believes that the CMA has ignored the fact that there are alternatives to phenytoin sodium capsules, many of which are more expensive than phenytoin sodium capsules, and has made reference to a theory, which has never been discussed or agreed with the pharmaceutical industry, on the level of margin that can be achieved by a generics company.
- The CMA has been very active in the pharmaceutical sector. According to the CMA’s website, it has 4 other ongoing investigations into the pharmaceutical sector.
- In February this year the CMA fined a number of pharmaceutical companies a total of £45 million for anti-competitive agreements and conduct in relation to the supply of the anti-depressant drug Paroxetine.
- In 2011, the UK competition authority found that Reckitt Benckiser had abused its dominant position in the market for the NHS supply of alginate and antacid heartburn medicines by withdrawing and de-listing Gaviscon Original Liquid from the NHS prescription channel in 2005. (More information seen here) Subsequently, the Department for Health in England, as well as the health ministries of Scotland, Wales and Northern Ireland sued Reckitt Benckiser for damages but settled for an undisclosed sums. We expect similar actions for damages to be made against Pfizer and Flynn Pharma.