12 March 2020
In a key competition case in the pharmaceutical sector, the Court of Appeal has upheld the Competition Appeal Tribunal's (the "CAT") decision to quash the £90 million fines imposed in 2016 by the UK regulator, the Competition and Markets Authority ("CMA") on Pfizer Inc. ("Pfizer) and Flynn Pharma ("Flynn"). The Judgment also clarifies the analysis required to determine whether the prices a dominant company charges for its products are excessive and therefore abusive under competition law.
Phenytoin sodium capsules are an anti-epilepsy drug which was sold under the brand name "Epanutin" by Pfizer. After selling Flynn the right to market Phenytoin capsules in the UK in 2012, Pfizer continued to manufacture and supply the product to Flynn who sold it largely to the NHS.
Shortly after acquiring the rights, Flynn de-branded Epanutin and continued to sell it as a generic medicine in the UK. This meant that it was no longer price regulated and so Flynn significantly increased the price of Phenytoin virtually overnight. The price for 100mg packs went from £2.21 as "Epanutin" to £54.87 on average as a generic – a price increase of 2,400%.
The UK Department of Health complained to the CMA's predecessor, the Office of Fair Trading, which launched an investigation into potential abuse of dominance. In 2016, the CMA found that both Pfizer and Flynn had infringed competition law by charging excessive and unfair prices in the UK for phenytoin sodium capsules. A record fine of £90 million was imposed on the two pharmaceutical companies (£84.2 million on Pfizer and £5.2 million on Flynn). The CMA also issued directions ordering both companies to reduce their prices, which they have done.
The CMA's decision was then appealed by Pfizer and Flynn and in June 2018, the CAT upheld the CMA's finding that Pfizer and Flynn were dominant but quashed the imposition of fines as it considered that the CMA's conclusion on abuse were in error. In short, the CAT found that:
Flynn, Pfizer and the CMA subsequently appealed the CAT's ruling and, in its Judgment handed down on 10 March 2020, the Court of Appeal largely upheld the CAT's findings. While the Court rejected the CMA's claim that the fines imposed against Pfizer and Flynn should be reinstated, it also referred elements of the decision back to the CMA for further analysis.
Particularly, the Court found that:
With this Judgment, the Court of Appeal provides guidance on the methodology expected from the CMA to determine whether prices are unfair and excessive in the pharmaceutical sector. Almost seven years after the launch of the investigation, it is now for the CMA to review elements referred back by the Court of Appeal and to decide on whether fines should be imposed to Pfizer and Flynn and their amount.
Cases of unfair prices are rare in competition law and the Phenytoin case is one of the leading cases in the UK. This is demonstrated by the intervention by the European Commission in the proceedings, which is unusual in national cases. While Pfizer and Flynn have escaped financial penalties for their conduct at this stage, that may change in due course. With the referral back to the CMA for further determination of the case, the Court of Appeal has ensured that the case will continue to be closely scrutinised by both competition authorities and pharmaceutical companies in the EU for the foreseeable future.
Paolo Palmigiano and Louisa Penny explored the impact of competition law on the pharmaceutical sector on 26 March 2020, watch a recording of the webinar here.