Phenytoin – was it worth it?

On 21 July 2022 the CMA imposed fines of £63m on Pfizer and £6.7m on Flynn in relation to the excessive pricing of the generic drug phenytoin, an anti-epilepsy drug.

This comes nearly six years on from the CMA’s first infringement decision in relation to the conduct. That first decision imposed fines of £84.2m on Pfizer and £5.2m on Flynn and directed both companies to reduce their prices. The CMA’s 2016 decision was overturned by the CAT in 2018 and the CMA’s appeal to the Court of Appeal of the CAT judgment was upheld in part in 2020. In short it has been quite the saga for all involved.

My colleague Stijn Huijts posted about the cost consequences of the CMA’s appeal to the Court of Appeal in a blog post in May. The prospect of adverse cost risk stymieing the enforcer’s ability to bring cases was very much at issue in that case. The Supreme Court concluded the CMA did need to pay adverse costs.

And here we are a couple of months later. The CMA has reassessed the conduct (pursuant to a few pointers from the CAT) and arrived at the same place as before – albeit with Pfizer slightly better off and Flynn slightly worse off this time round.

Pfizer and Flynn are apparently considering appeals. That is a decision for them.  But the CMA’s dogged pursuit of this case seems unlikely to recede.

What’s it all about?

Back in 2016, the CMA’s £89m infringement decision was the biggest fine the CMA had imposed. It was considered bold and innovative. In many ways it signalled the new-found assertiveness of the CMA after a period where its predecessor the OFT had seemed to shy away from big antitrust cases.

While “excessive pricing” was established as unlawful under European abuse of dominance laws, this tended to be in combination with exclusionary abuses rather than as a standalone abuse, and this area of law was not often prioritised by competition authorities. US law by contrast does not recognise this kind of exploitative abuse as unlawful at all.

The case concerned a decision by Pfizer to de-brand the drug Epanutin so that it became a generic (named phenytoin) and then increase the price. This was (and is) a life-saving drug for epilepsy. De-branding meant it fell outside rules on the sale of branded drugs. Pfizer was the only provider, and many patients were stabilised on the drug, so it felt able to increase the price. Pfizer introduced Flynn as an intermediary in the supply chain and the drug was sold for between 2,300% and 2,600% more than it had been before. NHS spending on the drug went from £2m in 2012 to £50m the following year (see here).

In the first appeal the CAT got itself into a bit of a muddle on the correct legal test for excessive pricing. This was tidied up at the Court of Appeal where the old, recognised test for excessive pricing was essentially reinstated. But where the CAT (and by extension the parties) were found to have been correct was in highlighting that the CMA had failed to give enough consideration to a comparator that might have justified the price increases.

The new infringement decision has not been published yet so we can rely only on the CMA press release. But it is safe to assume that the CMA will have conducted more of an analysis of phenytoin tablets (the comparator they were accused of having failed to consider first time round) and come to the conclusion that the price of this comparator did not justify the huge price increases imposed for phenytoin capsules.

Where does that leave us?

The Court of Appeal’s 2020 judgment should mean the legal test for excessive pricing is now fixed.

But Phenytoin was only the first of a wave of investigations that the CMA then conducted in the UK generics pharmaceuticals sector. Many of these investigations have included excessive pricing theories of harm. The Liothyronine and Hydrocortisone decisions both involved excessive pricing findings. Appeals of these cases are due to be heard at the CAT in September and November 2022. Given the Court of Appeal’s 2020 judgment, you might expect the CAT to be reluctant to meddle with the excessive pricing test again.

Although it may be tempting for Pfizer and Flynn to appeal and so delay their need to pay these fines, one does wonder quite how much they will gain by doing so. Appealing the cases might have made sense when you were the only companies the UK had ever pursued for this kind of conduct. But six years on, a whole host of generic pharma companies (and their private equity owners), have been found to have acted in similarly unlawful ways.

Winning the battle but not the war?

The defendants may have felt some schadenfreude back in May when the Supreme Court found the CMA liable to pay adverse costs for its partially unsuccessful appeal to the Court of Appeal. But the size of last week’s fines appears to show that the CMA’s overall approach here has been economically rational.

While overturning a CMA decision on a technicality may feel satisfying, last week’s decision confirms that the CMA will not simply give up on a case because it was found to have failed on a specific procedural aspect. If a case needs to be remitted, then the CMA has shown that it is willing to go back into investigation mode – with all the expensive information requests and procedural processes that such further investigation entails for defendants.

The point has wider relevance. The Facebook/Giphy merger decision (discussed in a blog by my colleague Tom Smith) has recently been remitted to the CMA following a finding that certain sensitive evidence had not been made available to Facebook. This may feel like a small win for Facebook. But whether the CMA will actually change its conclusions as a result of its new investigation remains to be seen.

For the defendants in Phenytoin, and for good administration of the law, there are no doubt benefits to these cases having been appealed in the first place. The excessive pricing case law has been given a thorough examination in the last six years. This will improve the quality of CMA decisions going forward and is also helpful for private standalone cases alleging excessive pricing at the CAT (Le Patourel v BT, Dr Kent v Apple and Coll v Google all include excessive pricing theories of harm).

It is unfortunate for the CMA that the payment of the fines has been delayed by six years. But the CMA’s aim of deterring similar conduct by others must have had an impact. It would nowadays be a brave pharma company who de-brands a drug and increases its price by several thousand percent. The multiple dawn raids that took place in 2017 and 2018 will also have played a role in discouraging anticompetitive conduct in the pharma sector.

We will find out in the next two months whether Pfizer and Flynn do in fact decide to appeal this.

[Disclosure: the author previously worked at the CMA but did not work on the Phenytoin case]

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