How much is too much – risk of excessive pricing investigations for the pharmaceutical industry?
5 September 2016
Although it is generally a matter for companies to decide how much they wish to charge for their products, those that hold a dominant position are subject to competition law requirements that their prices must not be excessive. In the past, there have been relatively few cases where competition authorities have taken action against excessive pricing, but recent developments suggest that this is changing, at least in the pharmaceutical sector.
Perhaps the most significant recent development has been the ongoing case being pursued by the UK competition authority (the CMA) against Pfizer and Flynn Pharma in relation to the pricing of phenytoin sodium capsules, which are used to treat epilepsy. The CMA’s concerns centre around a significant increase in the price of these capsules after September 2012, when Pfizer sold its UK distribution rights to Flynn. According to the CMA, the prices charged by Pfizer to Flynn were between 8 and 17 times higher than Pfizer’s historic prices – and the prices charged by Flynn to customers were between 25 and 27 times higher than those historically charged by Pfizer.
The CMA issued a statement of objections to Pfizer and Flynn in August last year, setting out its provisional view that Pfizer and Flynn had each abused a dominant position by charging excessive and unfair prices. The CMA’s final decision is expected later this month – and will be closely scrutinised by those within the industry that might be at risk of being considered to be dominant.
More generally, there appears to be a growing focus on the pricing of pharmaceutical products. One noteworthy example is the recent announcement by Mylan that it is launching in the US a generic alternative to its patent protected branded EpiPen product, at a list price which is more than 50% below the branded product. Mylan has said that the generic version will be identical to the branded product, including device functionality and drug formulation, and that the move is a response to concerns associated with the cost of the branded product to the patient.
Excessive pricing cases can be complex cases to pursue. Not only must dominance be established, the competition authority must also seek to establish a fair price for the product. Where a company introduces a generic version of its own branded product, it might be argued that this could assist a competition authority in assessing this latter issue. However, on the other hand, given the research and development costs associated with developing a drug, pricing across both the branded and generic versions, as well as the lifecycle of the drug, may be relevant to the assessment, which could complicate the analysis.
Whatever the outcome of the CMA’s case against Pfizer and Flynn, pricing in the pharmaceutical sector is likely to remain a hot topic – and on the radar of many competition authorities around the world.