Pfizer fined a record amount for abuse of dominant position involving excessive pricing

Introduction

On 07 December 2016, the UK Competition and Markets Authority (CMA) imposed a record £82.4m fine on Pfizer, and a £5.2m fine on Flynn Pharma, after finding that both companies had abused a dominant position by charging excessive and unfair prices for phenytoin sodium capsules.

Background

The CMA opened its investigation into the unfair pricing of phenytoin sodium capsules in the UK, in breach of the Chapter II prohibition in the UK Competition Act 1998 and Article 102 TFEU, in May 2013. On 12 April 2016, the CMA fined Pfizer £10,000 for failure to comply with an information request during the investigation. The CMA issued a statement of objections (SO) to Pfizer and Flynn Pharma in August 2015 setting out its preliminary view that Pfizer and Flynn Pharma had abused a dominant position.

Written representations were submitted by the parties in response to the SO between November and December 2015, and oral hearings took place in January 2016. The CMA then considered the written and oral representations, gathered further evidence, issued letters of facts (which set out supplementary concerns beyond those in the SO) and considered the parties’ responses to these letters, between February and November 2016. The CMA imposed fines in the case on 07 December 2016, with the amount of the fine imposed on Pfizer representing the largest fine imposed by the CMA to date.

The CMA’s decision

In its press release, the CMA states its finding that before September 2012 Pfizer manufactured and sold phenytoin sodium capsules to wholesalers and pharmacies in the UK, under the brand name Epanutin, which meant the price of the drug was regulated. In September 2012, Pfizer sold the UK distribution rights for Epanutin to Flynn Pharma. Flynn Pharma proceeded to de-brand/genericise Epanutin, which meant that it was no longer subject to price regulation. Pfizer then continued to manufacture phenytoin sodium capsules and supply them to Flynn Pharma, but at prices between 780% and 1,600% higher than it was previously charging to distributors in the UK. The CMA notes that these prices were significantly higher than Pfizer’s prices for the same drug in other European countries. Flynn Pharma then sold the capsules to pharmacies and wholesalers in the UK at prices between 2,300% and 2,600% higher than previously.

Phenytoin sodium capsules are used in the treatment of epilepsy to prevent and control seizures, and are taken by an estimated 48,000 patients in the UK. The CMA found that both Pfizer and Flynn Pharma held a dominant position in their respective markets for the manufacture and distribution of phenytoin sodium capsules, and that both had abused their dominant position in charging excessive and unfair prices. Phenytoin sodium capsules are sold in four different strengths in the UK: 25mg, 50mg, 100mg and 300mg capsules; the CMA’s decision concerns the prices that Pfizer and Flynn Pharma charged for each of these strength capsules.

According to the CMA’s press release, Pfizer raised the point that the branded Epanutin was loss-making before it was de-branded/genericised in September 2012. However, the CMA found that, using the numbers provided by Pfizer to the CMA, all of its losses would have been recovered in the first two months after the prices were raised. The CMA also notes in its press release that phenytoin sodium capsules are a late life pharmaceutical product that involves no recent innovation or significant investment.

As well as imposing fines in this case, the CMA has given Pfizer and Flynn Pharma between 30 working days and four months to reduce their prices for the capsules. The CMA is keen to ensure that there is no risk to the ongoing supply of phenytoin sodium capsules in the UK. The CMA makes clear that the parties will still be able to charge prices that are profitable, but not prices that are excessive and unfair.

Commentary

The fact that the CMA has imposed its largest fine to date on Pfizer for abuse of a dominant position involving excessive and unfair pricing is interesting given the rarity of such cases in UK or EU enforcement of competition rules and the complex issues involved, both in terms of market definition and the identification of precisely when prices are illegally high.

The CMA appears to have defined the relevant market at a molecular level as opposed to at an ATC therapeutic category classification level in this case. This may be attributable to some extent to the factual finding that patients who are already taking phenytoin sodium capsules should not be changed onto other products, including another manufacturer’s version of the same drug. This is due to the risk of loss of seizure control, which can have serious health consequences. The CMA found that this meant that the NHS had no alternative to paying the increased prices for phenytoin sodium capsules. It is also notable that Pfizer’s apparent defensive argument that phenytoin sodium capsules were previously loss making before being de-branded/genericised appears to have been dismissed by the CMA.

We understand that Pfizer and Flynn Pharma both intend to appeal the CMA’s decision. It will be interesting to see how aggressively the parties argue against the CMA’s approach to market definition and the calculations concerning the finding of abuse. According to public sources, the parties intend to raise the UK Department of Health’s “Pharmaceutical price regulation scheme 2014” in any appeal. We will follow the appeals with great interest and also await the publication of the decision of the CMA which should shed further light on the CMA’s approach to market definition and to the finding of an excessive and unfair price in this case.

The CMA currently has four other investigations on-going into the pharmaceutical sector suggesting that the pharmaceutical sector is an area of focus for the regulator at present. There is also considerable interest internationally in alleged cases of excessive pricing in pharmaceuticals and medical devices, and this decision and its appeals will be an important contribution to the law in this area.