The Price is Not Right: Competition authorities continue to address excessive pricing in the pharmaceutical sector


Pricing issues remain a hot topic for the competition authorities, as arguably now more than ever there is a pressing need to crack down on unduly high prices.

UK developments

In the UK, the CMA is pursuing a number of investigations into pharmaceutical companies over excessive and unfair pricing in breach of Chapter II of the Competition Act 1998 (CA98).  This falls against the backdrop of the Court of Appeal’s ruling in the Phenytoin Sodium case in March, in which the court clarified the correct application of the legal test in United Brands to determine whether prices set by Pfizer and Flynn were excessive and unfair (see our article on this here).  In line with this judgment, the CMA will need to adjust its approach in both the Phenytoin investigation and in other ongoing excessive pricing investigations in the pharmaceutical sector.

One such case is the CMA’s investigation into Advanz Pharma’s Liothyronine, a treatment for hypothyroidism.  The investigation was launched over the alleged excessive and unfair pricing of Liothyronine tablets supplied to the NHS while Advanz remained the only supplier.  In its original Statement of Objections (SO), issued nearly 3 years ago, the CMA provisionally found that Advanz held a dominant position and that, through its prices, it had abused that position, contrary to Chapter II of the CA98. The CMA’s press release states that the supplementary SO (the second in this case) is intended to address issues which arose from the Court of Appeal’s Phenytoin judgment on the correct application of the United Brands test.  That judgment required the CMA to address arguments raised by the party under investigation as to the price of other products which may suggest that the price of the product under investigation is fair.  This second SO is likely to address any such arguments made by Advanz Pharma (and its private equity owners, which are also subject to the CMA’s allegations) in its previous responses to the CMA’s charge sheets.

First pricing commitments offered by Aspen

Competition authorities outside the UK are also cracking down on price increases.  On 14 July 2020, the European Commission announced that it is seeking comments on commitments offered by the pharmaceutical company Aspen.  An investigation was launched in 2017 to address concerns over the excessive pricing of cancer drugs (see our previous post on this here).  In its preliminary analysis,  the Commission found that Aspen earned consistently high profits on its cancer drugs after its price increases between 2013 and 2019, which were disproportionate to the increase in unit costs over this period. Aspen has offered commitments to reduce the prices for six off-patent cancer medicines by (on average) 73%, and to ensure the continued supply of these medicines for a guaranteed minimum period of five years.  The revised prices would be maximum prices, and Aspen would remain free to negotiate lower prices with individual health authorities, as well as to seek an increase to the price ceiling if its input prices increase by over 20%.  While the proposed price reduction seems relatively modest compared to the earlier findings in Italy that prices had been increased by between 300 and 1,500%, information published by the Commission suggests that the revised prices will be below the levels applicable as at 2012, before Aspen started to increase its prices.

Nevertheless, although Aspen will rebate prices above the price cap on sums paid by health authorities in the relevant countries since October 2019 (when commitments were first proposed), there is currently no proposal for any payment back to health authorities for the period 2013-2019.  This contrasts with the £8 million payment to the NHS secured by the CMA from Aspen last year, in connection with Aspen’s acquisition of a marketing authorisation for the only directly competing presentation of fludrocortisone acetate tablets.  This case, together with the related ‘pay-for-delay’ case between Aspen, Amilco and Tiofarma, also involved price increases of up to 1,800%, according to the CMA.

Although the CMA fludrocortisone case involved a commitment by Aspen to ensure that there would be at least two competing suppliers of fludrocortisone in the UK, the EU Aspen case is the first occasion on which commitments have been (provisionally) accepted in a case focussed directly on excessive pricing, and may prove to be a way for other companies under investigation to close down antitrust investigations.  The competition authorities will be alive to the risk that having this option may perversely encourage companies to risk pricing at a high level for a period in the hope that they will later be able to resolve things with the regulator by reducing prices.  (Experience to date at the national level in the UK, Italy and other countries suggests this would be an unwise strategy.)  Perhaps more importantly, it maintains the Commission’s general approach of avoiding acting as a price regulator (particularly difficult in the pharmaceutical context where pricing regulation varies so significantly from country to country), and saves it from the legal challenges that would inevitably come with an appeal.

 A high price to pay for hand sanitiser?

At a very different end of the pricing spectrum, the CMA has also been active in consumer markets, directly in consequence of Covid-19.  Between 10 March and 28 June 2020, the CMA received over 80,000 complaints about coronavirus-related issues, many of which were in response to companies charging excessive prices for essential products such as face masks and hand sanitiser during the pandemic.  Despite the CMA (reportedly) having called in May 2020 for emergency pricing legislation which would have given it a more direct power to control prices of key healthcare products, no such legislation has been passed to date.  The CMA has therefore sought to use its existing competition powers, launching an investigation on 18 June 2020 under Chapter II of the CA into four pharmacies and convenience stores suspected of charging excessive and unfair prices for hand sanitiser, a price increase that attracted quite a bit of news coverage.  However, on 13 July 2020 the CMA announced its decision to close three of the four investigations on the grounds that it considers the retailers’ prices do not, or are unlikely to, infringe competition law.  This is unsurprising, given the likely difficulty of proving that any individual pharmacies or even local chains hold a dominant position.  However, the investigation into the fourth retailer remains on foot, so it remains to be seen whether this will similarly be closed in due course.

The recent increase in prices for essential products during the pandemic has also prompted the CMA and the General Pharmaceutical Council (GPhC) to send a joint warning letter to pharmacy owners and superintendent pharmacists on 29 June 2020.  The letter specifically raised concerns over the pricing of hand sanitiser, face masks and paracetamol, which saw a sharp spike in the early months of the pandemic.  For the price of hand sanitiser alone, the CMA reported a median rise of almost 400%.  While the warning letter acknowledged that wholesaler costs may have increased for high-demand products during the pandemic, it made clear that this is not a justification for pharmacies to increase their own percentage mark-up on the wholesale price.  Nevertheless, except where Chapter II CA98 applies, it is unclear what legal route the CMA or the GPhC have to tackle high prices, however desirable that may be.

Where next?

 The economic implications of the current crisis make it unlikely that the spate of enforcement against high prices of pharmaceuticals will end any time soon.  However, excessive pricing cases remain difficult and time-consuming for competition authorities to pursue.  It is likely to be several years before the Pfizer / Flynn case – which requires a new CMA decision, likely followed by further rounds of appeal – is complete, and any further developments in the legal principles will need to flow through to the following cases.  UK health authorities also now have enhanced powers to control prices, which might signal a reduced need for the CMA to pursue pure excessive pricing cases in future.

All of this may signal a move away from pure exploitation cases (such as those concerning excessive and unfair pricing) to cases focussed on anti-competitive foreclosure.  The latter has traditionally been the focus of authorities’ cases over the years.  A recent Danish case suggests an interesting combination of these concepts, with the exploitative prices imposed by CD Pharma being held to have also contributed to an exclusionary abuse due to the reduced willingness of CD Pharma’s competitors to compete to supply drugs to Danish hospitals given the risk of having to pay for CD Pharma’s product in the event of an inability to supply.  (We reported on the Danish competition authority decision here; for more information about the recent confirmatory judgment of the Danish Commercial and Maritime Court, see this report (account needed).)

In reality, high prices are already often the primary motivating aspect behind cases of abusive foreclosure.  For example, this was true of the CMA’s investigation into possible abuses by MSD in relation to Remicade, which centred on the possibility that Merck’s discount scheme slowed uptake of more cost-effective biosimilars, although on the facts the CMA found that it had no grounds for action).  Delayed access to lower cost products is also key to ‘pay-for-delay’ cases and most CMA press releases relating to investigations in this sector emphasise the impact of the anti-competitive practices on prices.

Equally, not all cases of apparently high pricing result from abuse or collusion, and the competition authorities will need to be careful to distinguish cases where pricing outcomes are driven by other factors, such as the commercial environment or the regulatory framework.