The Competition and Markets Authority (CMA) has imposed a record £84.2 million fine on the pharmaceutical manufacturer Pfizer, and a £5.2 million fine on the distributor Flynn Pharma after finding that each broke competition law by charging excessive and unfair prices in the UK for phenytoin sodium capsules, an anti-epilepsy drug. The CMA has also ordered the companies to reduce their prices.
The fines follow prices increasing by up to 2,600% overnight after the drug was deliberately de-branded in September 2012. For example, the amount the NHS was charged for 100mg packs of the drug rocketed from £2.83 to £67.50, before reducing to £54.00 from May 2014. As a result of the price increases, NHS expenditure on phenytoin sodium capsules increased from about £2 million a year in 2012 to about £50 million in 2013. The prices of the drug in the UK have also been many times higher than Pfizer’s prices for the same drug in any other European country.
Phenytoin sodium capsules are used in the treatment of epilepsy to prevent and control seizures, and are an important drug for an estimated 48,000 patients in the UK. Epilepsy patients who are already taking phenytoin sodium capsules should not usually be switched to other products, including another manufacturer’s version of the product, due to the risk of loss of seizure control which can have serious health consequences. As a result, the NHS had no alternative to paying the increased prices for the drug.
Prior to September 2012, Pfizer manufactured and sold phenytoin sodium capsules to UK wholesalers and pharmacies under the brand name Epanutin and the prices of the drug were regulated. In September 2012, Pfizer sold the UK distribution rights for Epanutin to Flynn Pharma, which de-branded (or ‘genericised’) the drug, meaning that it was no longer subject to price regulation.
Since September 2012, Pfizer has continued to manufacture phenytoin sodium capsules and has supplied them to Flynn Pharma at prices that were significantly higher than those at which it previously sold Epanutin in the UK – between 780% and 1,600% higher than Pfizer’s previous prices. Flynn Pharma then sells on the products to UK wholesalers and pharmacies charging them prices which have been between 2,300% and 2,600% higher than those they had previously paid for the drug.
The final decision and fines relate to both the prices that Pfizer has charged to Flynn Pharma and the prices that Flynn Pharma has charged to its customers, since September 2012. The CMA has found that both companies have held a dominant position in their respective markets for the manufacture and supply of phenytoin sodium capsules and each has abused that dominant position by charging excessive and unfair prices.
Philip Marsden, Chairman of the Case Decision Group for the CMA’s investigation, said:
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.
Businesses are generally free to set prices as they see fit but those holding a dominant position should not abuse this situation and set prices that are excessive and unfair. There is no justification for such rises when phenytoin sodium capsules are a very old drug for which there has been no recent innovation or significant investment.
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.
Although Pfizer has claimed that Epanutin was loss-making before it was de-branded, the CMA has calculated that, according to Pfizer’s figures, all such losses would have been recovered within 2 months of the price rises.
In order to ensure that there should be no risk to the ongoing supply of phenytoin sodium capsules to those patients who rely on it, the CMA has given Pfizer and Flynn between 30 working days and 4 months to reduce their respective prices. Both companies will continue to be able to charge prices which are profitable, but their prices must not be excessive and unfair.
For more details on the investigation see the case page.
The CMA has 4 other ongoing investigations into the pharmaceutical sector. In February this year the CMA fined a number of pharmaceutical companies a total of £45 million for anti-competitive agreements and conduct in relation to the supply of the anti-depressant drug paroxetine.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and certain consumer law.
- The Chapter II prohibition of the Competition Act 1998 prohibits the abuse of a dominant position by one or more undertakings which may affect trade within the UK or a part of it. Similarly, Article 102 of the Treaty on the Functioning of the European Union prohibits the abuse of a dominant position which may affect trade between EU member states.
- The CMA may impose a financial penalty on any business found to have infringed the Chapter II prohibition or Article 102 (or both) of up to 10% of its annual worldwide group turnover. In calculating financial penalties, the CMA takes into account a number of factors including seriousness and duration of the infringement(s), turnover in the relevant market and any mitigating and/or aggravating factors.
- The financial penalty which the CMA has imposed on Flynn represents 10% of Flynn’s worldwide turnover, which is the statutory maximum that the CMA can impose for an infringement of competition law.
- The NHS can rely on the CMA’s infringement decision if making a claim in the courts for damages against the companies concerned. It will be for the court to determine the level of any damages.
- Phenytoin sodium capsules are sold in 4 different strengths in the UK: 25mg, 50mg, 100mg and 300mg capsules. The decision concerns the prices that each of Pfizer and Flynn Pharma charged for each of those capsule strengths.
- The fine has been imposed on the following companies, which were directly involved in the alleged infringements:
* Pfizer Limited
* Flynn Pharma Limited.
- The fine is also imposed on the following companies, which the CMA has found are jointly and severally liable as parent companies of the companies directly involved in the infringements:
* Pfizer Inc
* Flynn Pharma (Holdings) Limited.
- Following publication of the statement of objections in August 2015, the final decision has been taken by a Case Decision Group, the members of which are separate from the case investigation team and who were not involved in the decision to issue the statement of objections.
- For more information on the CMA see our homepage and follow us on Twitter @CMAgovuk, Flickr and LinkedIn and like our Facebook page. Sign up to our email alerts to receive updates on Competition Act 1998 and cartels cases.
- Enquiries should be directed to Rory Taylor (firstname.lastname@example.org) on 020 3738 6798.