The abuse under investigation consists in the charging of excessive and unfair prices – which is usually a difficult abuse to establish because of the challenges around establishing what a price “should” be in a free market economy.
So when does a price become “excessive”? This is an area with limited case law (but some theory), and generally we look first to bananas for guidance – but the bananas test is far from definitive and there are a number of ways to assess excessive prices (as the Court of Appeal pointed out when it went to the races and considered the right way to assess prices for media deals). A factor which is usually relevant is the profit margin, but – unlike for predatory (unfairly low) pricing - there’s no bright line test. And after all, the opportunity to make large profits is what attracts companies into business, a factor which is particularly relevant in industries built on complex inventions yet where the actual costs of production may not be that high.
The OFT did record an early success in the pharma/excessive pricing arena, but that case focussed on price differentials between hospital and community segments of the market, and was also able to rely on data from certain sufficiently comparable third party products. The Court of Appeal’s wrestle with excessive pricing produced a decision that shows how difficult it is to estimate economic value – especially in industries where production costs are not a good guide. Here, with no obvious comparator and only a steep price increase to go on (which Flynn Pharma has stated was necessary in order to maintain the drug on the market), it’s difficult to judge whether the price of Epanutin is excessive and unfair in a competition law sense. Of course NHS funds are stretched and price increases are often unwelcome, but the CMA will need to be wary of a decision that may limit companies’ abilities to make profits.
Finding the balance between prohibiting excessive prices and sufficiently rewarding innovation is a tricky area that is usually avoided by regulators. In the end, we hope any decision manages the complexities in a way that gives those manufacturing generic drugs some clarity on pricing in the UK market and when risks may arise.