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United Kingdom: Record-Breaking Multi-Million Dollar Fine Imposed on Drug Companies for Charging Excessive Prices

(Dec. 23, 2016) The Competition and Markets Authority (CMA) of the United Kingdom, an independent non-ministerial department responsible for promoting competition, has fined pharmaceutical companies Pfizer and Flynn Pharma a record-breaking £90 million (about US$113 million) for charging excessive and unfair prices in the UK for an anti-epilepsy drug known as phenytoin sodium.  (Press Release, Competition and Markets Authority, CMA Fines Pfizer and Flynn £90 Million for Drug Price Hike to NHS (Dec. 7, 2016).)

The case was brought under chapter II of the Competition Act 1998, which contains the provisions on the abuse of a dominant position.  (Competition Act 1998, c. 41, LEGISLATION.GOV.UK.)  Pfizer was fined £84.2 million (about US$110 million), and Flynn Pharma was fined £5.2 million (about US$6.5 million).  The fine for Flynn Pharma is 10% of the company’s worldwide turnover, which is the maximum penalty that can be imposed under the Competition Act 1998. (Id. § 36; CMA Fines Pfizer and Flynn £90 Million for Drug Price Hike to NHS, supra.)

Background

The CMA started an investigation into the companies after the price of phenytoin sodium capsules increased overnight by 2,600%, rising from £2.83 (about US$3.58) to £67.50 (about US$85.35) for a package of 100mg of the drug, following its September 2012 de-branding (also known as genericization).  When the drug was de-branded, it was subsequently not subject to price regulation through the UK’s Pharmaceutical Price Regulatory Scheme, a voluntary agreement between the Department of Health and the pharmaceutical industry that regulates the profits companies can make from selling drugs to the National Health Service (NHS).  (Parliamentary Office of Science and Technology, Drug Pricing, POSTNOTE, No. 364 (Oct. 2010), Houses of Parliament website.)

Pfizer sold the distribution rights in the UK for the drug in 2012 to Flynn Pharma, which de-branded it.  Pfizer continued to manufacture it and supplied it to Flynn Pharma at a higher price than it had previously sold the drug in the UK.  Flynn Pharma then sold the drugs to the NHS, at a significantly higher price than had been asked, from 2013 onward.  (CMA Fines Pfizer and Flynn £90 Million for Drug Price Hike to NHS, supra.)

The increase resulted in a rapid rise in the drug’s cost for the publicly funded NHS , from £2 million  per year in 2012 to £50 million  in 2013 (about US$2.5 million to US$63 million).  The drug helps to prevent and control seizures in an estimated 48,000 patients across the UK, and those individuals cannot be easily switched to another version of the medication.  (Id. )

The CMA Ruling

The CMA found that both companies had a dominant position in their market for the supply and manufacture of phenytoin sodium capsules and that both companies had abused that position by “charging excessive and unfair prices.”  It found that there was no justification for the increase in price as it was an older drug that had seen “no recent innovation or significant investment.” (Id.)  The CMA specifically noted:

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.  (Id.)

Pfizer argued that the drug had not been making a profit prior to being de-branded, but the CMA found that the losses would have been recovered within two months of the price increase.  The two drug companies have between 30 business days and four months to reduce the prices of the drugs to a value that is profitable but not “excessive and unfair.”  (Id.)

The NHS also has the ability to bring a case in a court for an award of damages against the companies and may rely upon the infringement decision from the CMA when making any claim.  (Id.)