*** On 21 July 2022, the UK Competition and Markets Authority (CMA) fined pharmaceutical companies Pfizer Inc. and Flynn Pharma Limited £63 million and £6 million respectively.
The fines imposed on these companies are the result of abusing their market position as a means of overcharging the UK’s National Health Service (NHS) for phenytoin sodium, a vital and life-saving anti-epileptic drug. Overnight, the two companies raised the price of the drug by 2,600%, raising the cost of 100mg packs from £2.83 to £67.50, before dropping it to £54.87. As a result of the price increases, NHS spending on phenytoin sodium capsules has increased from around £2 million a year in 2012 to around £50 million in 2013.
As a result of the price increase, NHS spending on phenytoin sodium capsules has increased from around £2 million a year in 2012 to around £50 million in 2013. 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”. Critically, Pfizer and Flynn have not raised the price of the drug in the international market, instead targeting the UK in arguably exploitative behaviour. This indicates that the price increases are less related to the material cost of manufacturing the drug, rather, this indicates a particular loophole that the companies believed they could abuse within the UK market at the expense of millions of pounds of government money. UK taxpayers and significant risk to life.
The drug Phenytoin Sodium, formerly known as Epanutin, has been classified as one of the Model Essential Medicines by the World Health Organization (WHO). As the name suggests, the WHO Model List of Essential Medicines is a list of medicines required for any primary health care system. The WHO Model List imparts no legal requirement to regulate the prices of these drugs, however, reflecting their necessity, it can be argued that there is a moral argument that a drug listed here should be priced at the cost of manufacturing and distribution.
The Competition and Markets Authority (CMA), which is a UK public body charged with investigating companies suspected of infringing competition law and sanctioning those who have committed it, said: “Although Pfizer said Epanutin was in loss before it was de-branded, the CMA calculated that, according to Pfizer data, all of these losses would be recovered within 2 months of the price increase.
The exploitative behavior began in 2012 when Epanutin was de-branded by the companies to sell the drug at a discretionary rate unaffected by the UK’s Pharmaceutical Price Regulation Scheme (PPRS). The PPRS is a voluntary scheme between the UK Government and the Association of the British Pharmaceutical Industry (ABPI) which, among other objectives, aimed to reduce the cost of branded medicines through a range of price regulation measures, however, since the PPRS does not apply to generic drugs the de-branding of these drugs has become a business practice which allows companies to avoid being subject to its pricing regulations. The CMA argued that Pfizer and Flynn’s de-branding of Phenytoin Sodium was a direct attempt to drive down NHS prices through subversion of the PPRS cost regulatory provisions, which is why the CMA imposed the fines.
The CMA started its investigation in May 2013 and only took an infringement decision in December 2016 when it fined Pfizer and Flynn £90 million for breach of the Competition Act 1998 in relation to the supply of medicines for the prescription epilepsy, citing that the increase in the price of the drug qualified for unfair pricing.
The two companies appealed the fine imposed and the case went to the Competition Appeal Tribunal (CAT). In 2018, the CAT adopted its decision, upholding the appeal in part, upholding the CMA’s arguments that Pfizer and Flynn maintain market position and dominance, however, rejected the CMA’s arguments that they abused that position dominant. The case was referred to the CMA for further consideration.
In the Court of Appeals, the CMA appealed on four counts and Flynn appealed on one. Upholding the CMA’s appeal in part and also dismissing Flynn’s appeal in full, the Court of Appeals’ ruling found that the CAT made several legal errors in its ruling. First, it found that the CAT erred in its interpretation of the CMA’s duty to assess the relevant comparators when it determined that the CMA had to go beyond a cost-plus calculation to determine an excessive price, i.e. if there was a “benefit to the patient” that could affect the price of the drug. Cost plus in this context refers to: “(a) the costs that Pfizer and Flynn each incurred in connection with each of their capsule products (to include direct costs and an appropriate allocation of indirect or common costs); and (b) a reasonable rate of return for each of Pfizer and Flynn with respect to each of their capsule products” (Para. 256). Ultimately, the Court of Appeal confirmed the CAT’s decision on the postponement by partially issuing new guidelines (Paragraph 189). As a result, the CMA re-evaluated the case and on 21 July 2022 imposed a reduced fine on Pfizer and Flynn of £63m and £6m respectively.
CONCLUSION
The problem stemmed from this core issue: there was a regulatory vulnerability that led to a loophole in UK competition law policy that Pfizer and Flynn took advantage of in 2012. The resulting costs that the NHS and, by extension , the taxpayer had to bear the purchase of the same medicine has resulted in millions of pounds of additional burden. The CMA began its proceedings in 2016, four years after the drug companies started, which resulted in what was a very long case.
Pfizer and Flynn are extremely wealthy pharmaceutical companies with ample resources at their disposal in manufacturing and supply chain within the industry, granting them a close market monopoly on certain drugs. This has allowed them to dictate the prices of critical and life-saving drugs for their own financial benefit at great cost to taxpayers, with few alternatives available. The eight years during which the NHS had no choice but to pay whatever price it asked for phenytoin were unethical and the damage done can be understood to be far greater than in strictly economic terms. Healthcare systems have budgetary constraints and are required to prioritize and allocate spending. By raising the price of these essential treatments, money that could have been used for other life-saving purposes by the NHS was instead used to line the pockets of Pfizer and Flynn, which was then used to appeal fines imposed by the CMA.
Importantly, through the appeals process, it became apparent that Pfizer and Flynn’s only motivation was economics when it was revealed that no substantive discussions had been undertaken regarding the health implications or the pressures placed on healthcare professionals. The central arguments upon which it rested were not that there was no negative health impact of the decision, or that the decision was focused on patient care, but rather, on a firm understanding that through de-branding drugs that increased price were not prima facie contrary to the regulations, and therefore should not be challenged. It seems hard to disagree that such approaches and practices have been exploitative and morally reprehensible.
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