Competition watchdog fines big pharma duo £70m

The pair are rapped for overcharging the NHS | Unfair prices for an epilepsy drug lasted four years | Costs leapt from £2m to £50m in one year after the companies' “illegal exploitation” of market position.

The UK’s antitrust watchdog has fined pharmaceutical companies Pfizer and Flynn Pharma a total of £70 million ($84 million) for overcharging the NHS for an epilepsy drug.

The Competition and Markets Authority (CMA) fined Pfizer and Flynn fined £63 million and £6.7 million respectively, following an in-depth investigation which concluded that the pair had “charged unfairly high prices for phenytoin sodium capsules for over 4 years, ultimately paid for by the NHS”.

Pfizer and Flynn had de-branded the drug, previously known as Epanutin, and sold it as a generic. As a generic, the epilepsy drug was no longer subject to price regulation and so the companies could set prices at their discretion.

“Given Pfizer and Flynn were the dominant suppliers of the drug in the UK at the time, the NHS had no choice but to pay the inflated final price for this important anti-epilepsy medicine,” said the CMA.

Over the following four years, Pfizer charged prices between 780% and 1,600% higher than previously. Pfizer supplied the drug to Flynn, which then sold the capsules to wholesalers and pharmacies at a price between 2,300% and 2,600% higher than the prices previously charged by Pfizer.

According to the CMA, this illegal behaviour led to NHS annual costs for phenytoin capsules increasing from £2 million in 2012 to approximately £50 million the following year.

Andrea Coscelli, chief executive of the CMA, said: “Phenytoin is an essential drug relied on daily by thousands of people throughout the UK to prevent life-threatening epileptic seizures. These firms illegally exploited their dominant positions to charge the NHS excessive prices and make more money for themselves—meaning patients and taxpayers lost out.”

In December 2016, the CMA issued an infringement decision, finding that the companies’ behaviour violated competition law.

Pfizer and Flynn challenged this decision at the Competition Appeal Tribunal (CAT). While the CAT upheld the CMA’s findings on market definition and dominance, it set aside the CMA's conclusion that the companies’ prices were an unlawful “abuse” of dominance. The CAT also made an order that the CMA pay the appellants a proportion of those costs.

The matter was referred back to the CMA for further consideration.

Flynn and the CMA then appealed to the English Court of Appeal. In March 2020, the court upheld aspects of the CMA’s appeal relating to the application of the legal test for unfair pricing, while dismissing Flynn’s appeal in its entirety.

At the same time, the court found that the CAT had erred in ordering the CMA to pay the appellants’ costs. However, the UK Supreme Court has since reversed this decision.

The CMA decided to re-investigate the matters remitted by the CAT, opening its current investigation in June 2020.

Now, the CMA has determined that the companies’ behaviour was an abuse of their dominant positions in their respective markets, with both Pfizer and Flynn charging unfair prices for phenytoin capsules.

Coscelli added: “Such behaviour will not be tolerated, and the companies must now face the consequences of their illegal action.”

Flynn: original case was ‘fundamentally flawed’

Flynn Pharma said in a statement that the company was “surprised and disappointed” at the second finding of an abuse of competition law.

“This investigation started under the CMA’s predecessor, the OFT, over nine years ago and their first Statement of Objections was issued seven years ago. Throughout this period, the CMA position on key aspects has materially changed in efforts to establish and validate a novel theory of harm and establish ‘new law’.

“In our view the original CMA case was fundamentally flawed, and that view is unchanged regarding the second decision.”

Flynn said the first decision, which was issued over five years ago, was successfully appealed by Flynn to the CAT in June 2018—a decision which was upheld by the Court of Appeal nearly two-and-a-half years ago.

“Notwithstanding all of this and the burden this has placed on Flynn as a small pharma company with limited resources, Flynn has continued to operate throughout serving the needs of UK epilepsy patients as well as patients across a range of other therapy areas.”

The company, which Flynn intends to again appeal the latest CMA decision, said the “protracted nature” of the case had outlived two changes in senior leadership at the CMA and “is indicative of a lack of clarity and consistency in the alleged theory(ies) of harm and more fundamentally, an absence of wrongdoing.”

It added: “We believe that once the matter is fully tested in a full merits review, Flynn will again be vindicated.”

Pfizer said it disagrees with the CMA’s decision and will be appealing against it.

"As we have consistently stated throughout this process, ensuring a sustainable supply of our products to UK patients is of paramount importance to us and was at the heart of our decision to divest phenytoin capsules to Flynn Pharma in 2012," said Pfizer in a statement.

"The Competition Appeal Tribunal and the Court of Appeal both ultimately found in Pfizer’s favour in respect of the CMA’s original decision, which was set aside together with the associated fine.

"We maintain that we approached this divestment, as with all our business operations, with integrity and believe it fully complies with established competition law."

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