UK Competition Appeal Tribunal Annuls In Part Excessive Medicine Price Decision of Competition and Markets Authority Against Pfizer and Flynn Pharma

• 11/06/2018
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On 7 June 2018, the UK Competition Appeal Tribunal (“CAT”) annulled in part a decision of the UK Competition and Markets Authority (“CMA”) of 7 December 2016 which had fined Pfizer and medicines distributor Flynn Pharma on account of excessive pricing for phenytoin sodium capsules which are indicated for the treatment of epilepsy.
 
The prices which the CMA considered to be excessive resulted from significant price increases, according to the CMA by up to 2,600% in the case of Flynn Pharma, following a decision by Flynn Pharma to “de-brand” (or “genericise”) the medicine which was previously sold under the brand name Epanutin. The “de-branding” caused the medicine no longer to be subject to price regulation.
 
Pfizer and Flynn Pharma appealed the decision of the CMA to the CAT which confirmed the CMA’s narrow market definition and also agreed that Pfizer and Flynn each held dominant positions over the period under scrutiny. The relevant market at issue was that for the treatment of epilepsy with the capsule form of phenytoin sodium manufactured by Pfizer, but supplied by Flynn since September 2012 and available in four different capsule strengths. Pfizer was active in the manufacturing of such capsules, while Flynn took care of their distribution. Both the CMA and the CAT held that there was no scope for a broader market definition to include other anti-epileptic medicines or even phenytoin sodium capsules manufactured by a rival.
 
By contrast, the CAT parted ways with the CMA when assessing the allegedly abusive pricing behaviour of Pfizer and Flynn. According to the CAT, the CMA misapplied the two-limb test for excessive pricing established back in 1978 by the Court of Justice of the European Union in United Brands. Under that test and pursuant to the first limb which the CAT calls the Excessive Limb, the competition authority has to establish a benchmark price or range of prices and must then determine whether the prices charged were actually excessive.
 
If the pricing differential is found to be excessive, the CAT will then proceed to consider whether the excessive prices are also unfair under the Unfair Limb of the test. According to the CAT, there are two alternatives to apply the Unfair Limb of the test by either: (i) determining the prices as unfair in themselves; or (ii) reaching a finding that these prices are unfair relative to competing products. The CAT adds that in this part of the test there should be room for assessing the economic value of the product and for considering any objective justification for the prices charged.
 
The CAT found the CMA’s pricing analysis wanting and therefore annulled that part of the decision. However, it reserved judgment on whether or not to deal with the abuse itself or to remit the matter to the CMA for further consideration. The parties will be invited to submit their views on that issue.
 
In reaching its verdict, the CAT took pains to explain that a finding of excessive pricing is still possible; that formulating a generally applicable framework for abuse by unfair pricing is difficult; and that the two-limb test set out in United Brands is not the only way to gauge excessive pricing.
 
Giving its reaction, the CMA said it was disappointed with the judgment and was considering filing an appeal “in light of [the judgment’s] importance to the [National Health Service] and the potential implications for similar cases”. The CMA specified that it has several active investigations that now risk being delayed.    ​
 
The non-confidential version of the decision of the CMA can be retrieved here.
 
Yesterday’s judgment of the CAT can be consulted here.