The Competition and Markets Authority (“CMA”) has fined pharmaceutical company Pfizer and distributor Flynn Pharma almost £90 million in total (Pfizer received a record fine of £84.2 million and Flynn Pharma was fined £5.2 million) for charging excessive and unfair prices to the NHS for phenytoin sodium capsules, used in the treatment of epilepsy.
Although businesses are generally free to set prices as they see fit, dominant companies have a special responsibility under competition law not to abuse their dominant position. The CMA has found that Pfizer and Flynn Pharma have each held a dominant position in the markets for the manufacture and supply of phenytoin sodium capsules and abused that dominant position by charging excessive prices, in breach of Chapter II of the Competition Act 1998 and Article 102 of the Treaty on the Functioning of the European Union.
The increase in price occurred after September 2012, when Pfizer sold the distribution rights for the drug to Flynn Pharma, which de-branded it, thereby releasing it from price regulation. Since September 2012, Pfizer has continued to manufacture the drug and supplied it to Flynn Pharma at higher prices than those it previously charged for the branded version of the drug. Flynn Pharma has distributed the drug to wholesalers and pharmacies in the UK at what the CMA has described as excessive and unfair prices. The CMA claims that the price of the drug increased very dramatically by up to 2,600% and as a result NHS spend on the drug rose from about £2.3 million in 2012 to just over £50 million in 2013.
It is very rare for competition regulators to take action in respect of excessive prices because it is very hard to define when a price becomes excessive, and because in a competitive market excessive prices are unsustainable (an increase in price will lead to a loss in market share).
One of the interesting features of the case is that Pfizer and Flynn Pharma have been directed to reduce prices to levels that are not excessive and unfair. Simultaneously the case is likely to give the NHS and any other parties that may have suffered loss or damage the right to sue without having to prove that Pfizer and Flynn are liable. Damages are likely to be any provable overcharge. Both Pfizer and Flynn Pharma have appealed the CMA’s decision to the Competition Appeal Tribunal, but if the appeal is unsuccessful, Pfizer and Flynn Pharma therefore have a difficult dilemma in setting prices going forward – a price that is too high may breach the CMA’s direction, but a low price could potentially increase the level of any damages that need to be paid to third parties.
This is the second significant infringement decision that the CMA has taken in the pharmaceutical sector this year, and the CMA has stated that it has 4 other investigations ongoing. This emphasises both the importance of the sector to the UK economy, and the significant degree of regulatory scrutiny that it is subject to.