This blog recently covered the CMA’s decision to fine Pfizer and Flynn Pharma for abusing their dominant market positions in order to massively increase the price of an anti-epilepsy drug. This final decision followed an interim statement of objections back in August 2015. Now the CMA has issued a statement of objections to Actavis UK concerning increases in price of between 9500% and 12,000% for hydrocortisone tablets.
The statement of objections alleges “excessive and unfair” pricing for 10mg and 20mg hydrocortisone tablets. Prior to April 2008, when the tablets were sold by another firm, the NHS was spending around £0.70 per pack for 10mg tablets. This had risen to £88.00 per pack by March 2016.
The price rises follow the same process of de-branding (or “genericisation”) that was seen in the Pfizer/Flynn case. The branded drugs are subject to strict price controls; the genericised drugs are not.
The hydrocortisone tablets in question are used as the primary replacement therapy for people with the potentially life threatening condition of adrenal insufficiency, where their adrenal glands do not produce sufficient amounts of natural steroid hormones (such as sufferers of Addison’s disease). Approximately 943,000 packs of hydrocortisone tablets were dispensed in the UK in 2015, at a cost of around £70 million. Prior to 2008, the spend was just over £500,000 per year.
Another noteworthy aspect of this statement of objections is how the CMA uses the concept of “economic successor” to fix liability. This means that although a corporate entity may have been taken over, its liability for competition law breaches can remain live and transfer to the new parent or successor company.
When the price rises for hydrocortisone began in 2008, the business selling the drug was Auden McKenzie. Actavis UK only entered the picture in May 2015, having acquired Auden McKenzie for £306m at the start of 2015. However, the CMA takes the view that Actavis UK is the “economic successor” to Auden McKenzie, on account of that takeover. This allows the CMA to potentially hold Actavis liable for actions dating back to 2008, seven years before they took the firm over. Allergan plc is also potentially liable, on a joint and several basis, as the ultimate parent company of Actavis UK. This concept demonstrates why competition law issues can be a major risk factor in any take-over deal. Proper consideration of possible competition law liabilities should therefore be a key part of any due diligence exercise.
At this stage the CMA has not definitively found that anti-competitive behaviour has taken place and Actavis UK and Allergan may yet avoid sanction. However, the maximum level of fines available in these cases is 10% of the annual worldwide group turnover of the business involved. Given that Allergan plc had a 2015 turnover of around US $15 billion, the maximum level of fine could be as much as $1.5 billion (which would dwarf the price paid for Auden McKenzie).
The Pfizer/Flynn fines may prove instructive, if the CMA decides against Actavis UK. Flynn was fined £5.2 million, which was the maximum 10% of their worldwide annual revenue. On the other hand Pfizer was fined £84.2m, less than 0.2% of its global revenue. If Actavis/Allergan are eventually found liable and fined, they will be hoping to be treated like Pfizer (which would result in a fine of around $30 million) rather than Flynn.