The Competition Appeal Tribunal (CAT) has upheld appeals by Pfizer Limited and Flynn Pharma Limited in relation to significant fines imposed by the Competition and Markets Authority (CMA) for charging allegedly unfair prices for genericised phenytoin sodium capsules in breach of Chapter II of the Competition Act. The CAT's Judgment is released against the background of an upsurge in CMA investigations into alleged excessive pricing by pharmaceutical companies over the past year, including investigations into Actavis UK and Concordia. Subject to any appeal by the CMA to the Court of Appeal, the CAT has provisionally decided to remit the case to the CMA for re-examination to determine whether there has been abuse of a dominant position.
Background
Phenytoin is a drug used in the treatment of epilepsy to prevent and control seizures, and was previously sold under the brand name of Epanutin (the drug was de-branded in September 2012). The CMA began its investigation into Pfizer and Flynn's pricing of phenytoin in May 2013, and sent a Statement of Objections to the pharmaceutical companies in August 2015. In December 2016, the CMA announced its finding that Pfizer and Flynn held dominant positions in their respective markets for the manufacture and supply of phenytoin, and had abused these positions by imposing price increases of up to 1600% (by Pfizer) and 2600% (by Flynn) from September 2012 onwards. Pfizer and Flynn were issued with record-breaking fines of £84.2 million and £5.2 million respectively. We discussed the CMA's decision in the April 2017 and July 2017 editions.
CAT decision
In its recent Judgment, the CAT decided that, whilst it agreed with the CMA's finding that Pfizer and Flynn were both dominant in their respective (narrow) markets, the methodology used by the CMA in determining whether there had been an abuse by Pfizer and Flynn was incorrect. However, the CAT made no finding as to whether Pfizer and Flynn could be guilty of a breach of competition law. The CMA's finding of excessive pricing was based on an abstract analysis which compared the price of the drug imposed by Pfizer and Flynn with what the CMA deemed was a suitable cost-plus benchmark (in this case "cost plus 6%"). The CMA's decision also relied on the fact that the drug was old, the fact that the price was only increased when Pfizer sold the marketing authorisation to Flynn, the impact on the NHS, and the fact that the drug was available elsewhere in the EU for a cheaper price.
The CAT made it clear that, while an abuse finding was possible given the size of the price increases, the CMA had relied on an incorrect approach in deciding that the prices were excessive. The CAT specifically criticised the fact that the CMA had relied on a theoretical concept of idealised or near perfect competition in their cost-plus benchmark approach, and had failed to adequately assess the possible impact of meaningful comparators. Given its decision, the CAT expressed no conclusions on whether the levels of fine would have been appropriate. However, it did note that it would likely have decided that the very substantial deterrence uplift applied to Pfizer was difficult to justify and not required by the CMA's own guidance.
The CAT will now consider whether the case should be remitted back to the CMA for further consideration. The CMA has confirmed that it will seek permission to appeal to the Court of Appeal because of the Judgment's implications for future excessive drug pricing cases. The case will likely cause delays and have wide reaching implications for the CMA’s current portfolio of pharmaceutical investigations.