Pfizer, Flynn pricing trial set to test UK reputation of drug industry

White Pill Bottle

27 October 2017. By Simon Zekaria.

Pfizer and Flynn Pharma’s trial next week against a record antitrust fine over epilepsy-drug pricing will test the drug industry’s reputation in the UK.

The month-long trial at the UK’s specialized competition court, the Competition Appeal Tribunal, will be marked by intense cross-examination of witnesses and economic experts. The focus will be on analyzing the impact of longstanding drug licensing and pricing strategies on competition policy, consumer rights and state healthcare.

But the trial and outcome of the case will also be a litmus test for the Competition and Markets Authority’s antitrust fight against drugmakers, which has accelerated in recent months with multiple new investigations.

From Monday, the CMA will be defending its landmark fine of 84.2 million pounds ($110.2 million) against Pfizer last year for charging "excessive and unfair prices" for phenytoin sodium capsules since September 2012. It is the highest fine ever levied under UK competition law.

Flynn, a UK distributor for Pfizer, was fined 5.2 million pounds: a more modest sum, but still equivalent to 10 percent of the company’s worldwide sales — the maximum possible penalty under the rules.

Pfizer manufactured and sold the capsules — used by about 48,000 people in the UK to treat seizures — to UK wholesalers and drug stores under the brand name Epanutin, which was price regulated. In September 2012, Pfizer transferred distribution rights to Flynn, which sold the medicine by its generic name, phenytoin sodium.

Regulatory caution

It is no surprise that the CMA is in court defending its decision. The charges against Pfizer and Flynn represented the first UK competition decision over excessive pharmaceutical pricing since 2001.

Competition authorities, both in the UK and Europe, have traditionally shown a reluctance to act as price regulators.

They are wary of taking the place of normal market mechanisms, including pricing, which often fairly reflect consumer demand for products and therefore business success. This makes it hard to determine when prices are deemed anticompetitive.

There are also high barriers of evidence to overcome to prove pricing abuse, given data-collection requirements.

Thirdly, an antitrust investigation into pricing normally flows from complicated inquiries into the legality of drug patents, which are at the center of drugmakers’ aggressive competition.

The CMA is currently investigating other cases of suspected excessive pricing for drugs treating autoimmune disorders and inflammation.

Pharmaceutical rebranding and dominance

While branded drugs are price-controlled, a drugmaker can work with a distribution partner to rebrand — or genericize — a medicine out of patent and, if it so wishes, increase its price.

Pfizer's price to Flynn and Flynn's price to customers of the capsules were excessively hiked, and the companies abused their dominant position in the drug’s manufacture and supply, according to the CMA.

The CMA said Pfizer’s supply price of the capsules to Flynn was between 780 and 1,600 percent higher than for Epanutin after the drug was debranded in September 2012. This resulted in Flynn’s price of the generic drug sold to UK wholesalers and pharmacies, climbing by as much as 2,600 percent.

Forced by the CMA to reduce their prices, the drugmakers appealed the fines to the CAT. They argued they weren’t dominant in the market and challenged the CMA's reasoning in finding the drug excessively priced.

Impact and profit

The case is a touchstone for critics of “Big Pharma” that claim the drugmakers gouge prices by exploiting their market clout and the non-regulated price freedom of genericizing drugs.

Critics say this practice has an impact on both citizens and the state, worsened at a time of austerity cuts in the UK which has squeezed resources of Britain's state-funded health service.

The National Health Service spent about 50 million pounds on the capsules in 2013, up from 2 million pounds a year earlier, the CMA said in its decision. The amount the NHS paid for 100-milligram packs "rocketed" from 2.83 pounds to 67.50 pounds, before dropping to 54 pounds from May 2014, the authority said.

These "extraordinary price rises" cost the NHS and the taxpayer tens of millions of pounds, said the CMA. Pfizer’s drug prices in the UK have been “many times higher” than for any other European country, it added.

Pfizer has previously said the drug has been loss-making and the deal with Flynn secured "ongoing supply" for epilepsy patients. It also claimed the capsules are cheaper than in tablet form and less expensive than alternative drugs in the UK.

"When Flynn launched its product, it set a retail price that was between 25 and 40 percent less than the price of the equivalent medicine from another supplier to the NHS," Pfizer said in a statement today. Flynn wasn't immediately available to comment.

This pricing question will be carefully explored during the trial. The CMA has said patients using the capsules wouldn’t usually switch to other products due to risk of seizures, meaning the NHS had no option but to pay inflated prices for the drug.

The CMA also said Pfizer’s losses would have been recovered within two months of the price rises.
Flynn has previously said that the CMA’s understanding of the UK pharmaceutical market is "flawed" and that it came up with an "entirely novel theory" on a generic company’s profit margin.

Investment

The case also brings up knotty links between prices and investment at a time of tension between drugmakers, policymakers and health authorities over medicine costs, prioritization of health services and patient access to therapies.

The CMA says there is no reason for the price hikes as phenytoin sodium capsules are a very old drug that hasn’t seen innovation or required significant investment.

For the drugmakers, antitrust punishments often come with a warning that fines stunt investment in generics, eventually leading to a reduction in supply and less choice for doctors and patients.

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