Court Ruling On Pfizer Price Hikes Could Delay Other Investigations, Warns UK Competition Authority
Executive Summary
Ongoing Investigations into drug price increases could be at risk following a tribunal ruling in the UK phenytoin sodium case, according to the Competition and Markets Authority, which is considering an appeal against the judgment.
The UK’s Competition Appeal Tribunal has ruled against a decision by the Competition and Markets Authority that Pfizer and Flynn Pharma breached competition law by charging excessive prices for phenytoin sodium capsules for epilepsy. Disappointed with the judgement, the CMA has warned that active investigations into alleged price gouging may be “severely delayed” as a result.
But Pfizer which appealed against the CMA’s 2016 ruling and record fines, has welcomed the tribunal’s findings. “We are pleased that the Competition Appeal Tribunal has overturned the Competition and Markets Authority's finding that Pfizer abused its dominant position – along with the associated fine. Our priority has always been to ensure a sustainable supply of our medicines to UK patients and this was at the heart of our decision to divest this medicine,” it said in a statement.
The CMA “has several active investigations which may now be severely delayed, potentially meaning that the NHS is paying more than it should” – UK Competition and Markets Authority
Pfizer originally manufactured and sold phenytoin as Epanutin, and its prices were regulated. However, in September 2012 the company sold distribution rights to Flynn Pharma, which de-branded the drug. This meant that price regulations no longer applied. Large increases in the price of the drug followed, and NHS expenditure on the product rose from around £2m a year in 2012 to about £50m in 2013. For example, the cost of a 100mg pack of the drug increased from £2.83 to £67.50, the CMA noted.
In 2016 the CMA ruled that the two companies had breached competition law by abusing a dominant position by charging unfair prices. It imposed a record fine of £84.2m on Pfizer and £5.2m on Flynn Pharma. (Also see "UK Fine For Pfizer/Flynn’s ‘Excessive And Unfair’ Pricing Sends Clear Message To Others" - Scrip, 7 Dec, 2016.).
The two companies appealed against the CMA’s ruling and sought an annulment of the fines. (Also see "UK Competition Body Backs Up Claim That Pfizer & Flynn Abused Dominant Position With ‘Excessive’ Prices" - Pink Sheet, 16 Jun, 2017.)
In its judgment, published on June 7, the appeals tribunal said that it agreed with the CMA on many points, such as market definition and dominance. It said that both Pfizer and Flynn held dominant positions because both were able to set and maintain high prices for phenytoin capsules, without facing “sufficient competitive pressure” that would constrain their behaviour. Nor did it find that their conduct was constrained by buyer power.
Nevertheless, the tribunal said that the CMA’s findings on abuse of dominance “were in error”. It argued that the CMA had failed to correctly apply the legal test for finding that prices were unfair, as set out in the United Brands Case. This used a two-stage test to determine whether a price had a reasonable relation to the economic value of the product supplied.
“It did not appropriately consider what was the right economic value for Pfizer-Flynn Capsules; and it did not take sufficient account of the situation of other, comparable products, in particular of the phenytoin sodium tablet. This means that the CMA’s overall findings on abuse of dominance are not well founded as a matter of law and assessment and cannot be upheld. For these reasons, we come to the conclusion that the Decision must be set aside in part,” said the tribunal.
The tribunal’s provisional view is to send the matter back to the CMA for further consideration, but first it will invite written submissions on whether to do so.
Other Cases At Risk?
The CMA said in a statement that it had conducted an in-depth investigation and carefully considered the applicable law and evidence from various sources. “The legal test used has recently been applied in similar cases involving unfairly high pharmaceutical prices in other countries applying the same EU law,” it said.
It said the Tribunal’s judgment “makes it clear that a finding of abuse remains possible given the size of the price increase that occurred. It is regrettable that the Tribunal chose not to make its own finding as to whether Pfizer and/or Flynn Pharma had committed an abuse, which was within its powers.”
“Serious concerns remain about the very big increases that have occurred for phenytoin sodium capsules and other generics that have cost the NHS tens of millions of pounds,” it added. The CMA “has several active investigations which may now be severely delayed, potentially meaning that the NHS is paying more than it should for some drugs and also creating a risk that it might not be able to recover the extra money spent on these drugs,” it warned.
The CMA said it was considering whether to appeal against the tribunal’s judgment, given the potential implications for other cases.
From the editors of Scrip Regulatory Affairs