CMA imposes fines of almost £90 million for excessive pricing

On 7 December 2016, the Competition and Markets Authority (CMA) announced that it had imposed a record fine of £84.2 million on pharmaceutical manufacturer Pfizer, and a related £5.2 million fine on drug distributor Flynn Pharma, following a finding that their pricing practices amounted to abuse of a dominant position in the market for a particular anti-epilepsy drug.

The abusive conduct which the CMA identified concerned the anti-epilepsy drug phenytoin sodium, which is used by around 48,000 people in the UK to control seizures. Prior to September 2012, the drug was sold as a branded medicine by Pfizer and was subject to standard pricing controls agreed between the Department of Health and the pharmaceuticals industry. However, in September 2012, Pfizer sold distribution rights to Flynn Pharma and de-branded the drug, meaning that phenytoin sodium would be considered a ‘generic’ non-branded medicine and therefore fall outside of the pricing control mechanism. The CMA found that, since patients who had started taking the drug could not be safely switched to an alternative product, or even the same product produced by an alternative manufacturer due to particular sensitivities of the drug, Pfizer and Flynn Pharma were the only companies which could supply the drug and therefore held dominant positions in the respective markets of the production of phenytoin sodium and its supply. This de-branding of the drug allowed them, according to the CMA, to raise the prices charged for the drug by up to 2,600% overnight.

The CMA commented that the level of fines imposed reflected what it characterised as behaviour which “deliberately exploited the opportunity” to circumvent the pricing controls and that the prices charged bore no relation to the value of the product as there had been “no recent innovation or significant investment” in the product. Both companies have also been required to reduce the prices at which the drug is offered to a level which is no longer excessive or unfair.

Comment

Previously, in the enforcement of both EU and UK competition law, very few cases have involved excessive pricing as a principal abuse, arguably due to the difficulty of establishing a precise economic benchmark above which a high price can be considered unfairly excessive. The implications of today’s decision are of course critical for the pharmaceutical industry, above all given the new and complex crossover with price regulatory legislation. However, the decision could be described as breaking new ground generally in competition law and may lead to increased scrutiny by competition law watchdogs of premium pricing strategies in all sectors. The full decision is yet to be published, but when it is (likely to be in the next two months) pharmaceutical companies will need to scrutinise carefully the CMA’s approach and conduct their own risk assessments.

Since both Pfizer and Flynn Pharma have stated their intentions to appeal the CMA’s findings, today’s decision does not mark the end of this matter and this will be one to watch. A link to the CMA case page can be found here.