The Competition and Markets Authority (CMA), the UK’s principal competition regulator, has imposed a record £84.2 million fine on the pharmaceutical manufacturer Pfizer, and a £5.2 million fine on distributor Flynn Pharma, after finding that each broke competition law by charging excessive and unfair prices in the UK for phenytoin sodium capsules, an anti-epilepsy drug.
Background to the investigation
Phenytoin sodium capsules are used in the treatment of epilepsy to prevent and control seizures, and are an important drug for an estimated 48,000 patients in the UK. The CMA found that, prior to September 2012, Pfizer manufactured and sold these capsules in the UK under the brand name Epanutin and the prices of the drug were regulated. In September 2012, Pfizer sold the UK distribution rights for Epanutin to Flynn Pharma, which de-branded (or “genericised”) the drug, meaning that it was no longer subject to price regulation.
Accordingly, since the de-branding in September 2012, Pfizer supplied the capsules to Flynn Pharma at prices that were significantly higher than those at which it previously sold Epanutin in the UK – between 780% and 1,600% higher than Pfizer’s previous prices. Flynn Pharma then sold on the products to UK wholesalers and pharmacies charging them prices which have been between 2,300% and 2,600% higher than those they had previously paid for the same drug.
The ultimate impact of these price rises was felt by the NHS. For example, the amount that the NHS was charged for 100mg packs of the capsules of the drug increased from £2.83 up to £67.50. In total, NHS expenditure increased from about £2 million a year in 2012 to about £50 million in 2013.
The CMA’s sanctions
In addition to imposing these record fines, the CMA has also ordered Pfizer and Flynn Pharma to reduce their prices. In order to ensure that there should be no risk to the ongoing supply of the capsules to those patients who rely on them, the CMA has given the parties between 30 working days and four months to reduce their respective prices. Both companies will continue to be able to charge prices which are profitable, but their prices must not be excessive and unfair. It is also likely that the NHS will initiate private litigation to recover the specific losses incurred.
In conclusion, Philip Marsden, the Chairman of this investigation by the CMA, commented: “The companies deliberately exploited the opportunity offered by de-branding to hike up the price for a drug which is relied upon by many thousands of patients. These extraordinary price rises have cost the NHS and the taxpayer tens of millions of pounds … This is the highest fine the CMA has imposed and it sends out a clear message to the sector that we are determined to crack down on such behaviour and to protect customers, including the NHS, and taxpayers from being exploited.”
Wider implications and next steps
The CMA’s focus at this time is clear. Indeed, it has four other ongoing investigations into the pharmaceutical sector in addition to this decision and a £45 million fine imposed on several pharmaceutical companies relating to the delayed generic entry of the drug paroxetine.
In response to the decision, both Pfizer and Flynn Pharma have already announced their intention to appeal to the Competition Appeals Tribunal (CAT). In particular, Pfizer has claimed that, despite its price rises, its products remain cheaper than the cost of an equivalent medicine by another supplier to the NHS. Assuming the appeal proceeds all the way to a final ruling, it may be another 18 months before we have the CAT’s ruling on the validity of the CMA’s decision and level of fines imposed.
Finally, in a separate but connected development, the government is actively seeking to tighten up the regulation of generic drugs price rises through new legislation. The Health Service Medical Supplies (Costs) Bill is current before the House of Commons and could, assuming it enters into force in substantially its current form, prevent the sorts of sudden and severe price increases that the CMA has identified in this case.