UK: Investigation Leading To CMA's Largest Fine Being Imposed On Pfizer Leads UK Government To Legislate To Allow Them To Intervene In The Market For Pharmaceuticals, Medical Devices And Medical Services
On 7 December 2016 the Competition and Markets Authority (UK
regulator for anti-trust) ("CMA")
published its decision to impose a fine of nearly £90M on
Pfizer and its distributor, Flynn Pharma in relation to huge price
inflation in the UK market.
From the publicly available information, the facts of this case
are fairly stark: In September 2012 Pfizer's product,
phenytoin sodium capsules to prevent and control seizures, were
de-branded (from Epanutin). This took the product out of the
PPRS, which imposes limits on profit margins for companies which
are members of the ABPI or who have separately sign-up to
participate in the PPRS for branded products. This meant that
pricing for this product should theoretically have been subject to
the effects of generic competition. However, for this
particular product (used to treat around 48,000 patients in the
UK), patient switching is apparently considered not to be possible
because such a switch can affect the control of seizures and
consequently to be seriously detrimental to health.
Following the change from branded to un-branded name, the price
charged by Pfizer to its distributor, Flynn Pharma, rose by between
780% and 1,600%. The prices charged by Flynn Pharma to UK
wholesalers and pharmacies rose by between 2,300% and 2,600%.
The CMA found that both Pfizer and Flynn Pharma had a dominant
position and that they abused that dominant position by charging
excessive and unfair prices. The CMA imposed its highest fine
ever, and the fine on Flynn Pharma amounted to 10% of its worldwide
turnover. The CMA also ordered the companies to reduce their
prices to ones which are not excessive and unfair within between 30
working days and four months of the decision.
Pfizer have said that they are appealing "all aspects of
the decision". We don't have the benefit of seeing
Pfizer's arguments that their activities did not breach
competition law. In any appeal they will have to succeed in
arguing either they did not have a dominant position, or that if
they did have a dominant position, that they did not abuse
it. Pfizer have said that they were previously making the
drug at a loss. That must have been a pretty substantial loss
if in order to achieve a margin that was neither excessive or
unfair it was necessary to increase prices by the eye-watering
proportions in this case. The CMA have calculated from
figures provided by Pfizer that the losses sustained at previous
prices would have been recovered within two months of the new
The price rises in this case of themselves indicate the
potential presence of a dominant position and would not generally
be expected to be found in a normally operating and genuinely
competitive market. It will therefore be particularly
interesting to see Pfizer's explanation for these very
substantial price rises when this goes to appeal.
The government's reaction to this investigation, which was
opened in May 2013, is to put through the legislative process the
Health Service Medical Supplies Bill ("the
Bill"). That Bill is currently on its
way through the House of Lords, having progressed at speed through
all readings in the House of Commons. It is therefore highly
likely to make it onto the statute book. That Bill and its
associated regulations essentially amend the provisions of the
National Health Service Act 2006 and amongst other things provide
the government with more extensive powers to demand information
about pricing, revenue and profits and to allow the government to
implement a claw-back of monies from manufacturers of products sold
under the statutory scheme.
The government had previously trusted that the PPRS would
control profits for branded medicinal products and that competition
in the market for generics would control prices for products under
the statutory scheme. Following the investigation, the faith
of the government in the operation of the free market to act as a
break on excessive pricing under the statutory scheme has been
broken. Once the Bill and the related secondary regulation
are on the statute book, should any case with similar facts arise,
the government is likely to use its broader powers to more quickly
investigate significant price rises and to order a repayment of
profits rather than to wait more than three years as in this case,
for the CMA to reach a decision. It is unfortunate, although
perhaps not surprising, that the lack of trust which has arisen as
a result of this case has meant that the government has also
strengthened similar provisions for the medical device industry and
the industry for the provision of health services, even though
market forces are likely not to operate in exactly the same way for
those industries. It is a case of the whole class being
punished for the misdemeanours of one or two students.
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The UK Competition and Markets Authority ("CMA") has a duty to refer a transaction for an "in depth" phase 2 investigation in instances where it believes that there is a realistic prospect of a transaction resulting in a "substantial lessening of competition", subject to certain exceptions.
The UK's Competition and Markets Authority (CMA) is consulting on changes to the UK merger regime proposed to reduce the burden of investigations into mergers where the parties operate in small markets.
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