The Competition and Markets Authority (“CMA”) has now published its full non-confidential decision in relation to the record fines imposed on Pfizer and Flynn Pharma last December. The investigation was the most significant of those undertaken by the CMA as part of its recent focus on the pharmaceutical industry. The initial fines, which were previously covered by this blog, noted that the pair had breached competition law by abusing their dominant market positions and charging excessive and unfair prices for an anti-epilepsy medication. The 500 page report details the breadth of the CMA investigation in full.
The CMA investigation related to the supply of phenytoin sodium capsules to the NHS. The drug is prescribed to an estimated 48,000 patients in the United Kingdom. The capsules had been marketed by Pfizer under the brand name Epanutin until September 2012. Epanutin was subject to the NHS Pharmaceutical Price Regulation Scheme. Although demand for the drug has been in decline for a number of years, due to the clinical effect of phenytoin sodium which means patients are stable on a particular manufacturer’s brand, there is a reluctance among practitioners to switch brands.
In September 2012 Pfizer transferred the Marketing Authorisations for Epanutin to Flynn and provided them with exclusive supply of the capsules. Thereafter Flynn genericised Epanutin meaning that it was no longer subject to NHS price regulation. In the period that followed the retail price of genericised Epanutin rose by over 2000%. For the NHS this translated as the cost for the capsules jumping from £2 million in 2012 to over £50 million in 2013.
The CMA concluded that Pfizer and Flynn had held a dominant market position over the relevant period. The captive consumer base in terms of patients stable on the drug and a lack of alternate suppliers, deterred by a declining volume of customers, were material in making this finding.
The CMA held that both Pfizer and Flynn had used this dominant position to charge excessive prices to the NHS. Pricing will be excessive and an abuse of position where the supplier has used its dominance to extract benefits which it would not normally receive under genuine competition. A touchstone test will be whether there is no reasonable correlation between “the costs actually incurred and the price actually charged” taking into account a reasonable rate of return.
Perhaps unsurprisingly the CMA found that the increased prices Pfizer and Flynn were charging to public sector suppliers were indeed unreasonable. The CMA noted that the price rises had persisted for over four years and were more substantial than those found in other abuse of dominance investigations.
Pharma companies have been the biggest scalps claimed by CMA investigations over the recent period. The Pfizer/Flynn investigation is one of a number of abuse of dominance cases against pharmaceutical companies which have been covered on this blog. Various CMA investigations have now found that genericisation, a process which is generally expected to significantly reduce costs, has been used to abuse a dominant market position. For Pfizer and Flynn this long running dispute remains far from concluded as both have lodged appeals against the decision with the Competition Appeal Tribunal. That hearing is due to start on 30 October 2017.