Out-Law News | 12 Mar 2020 | 10:23 am | 3 min. read
The Competition and Markets Authority (CMA) previously determined that pharmaceutical manufacturer Pfizer and distributor Flynn Pharma were responsible for charging "excessive and unfair prices" for phenytoin sodium capsules sold to the NHS.
The regulator fined the companies almost £90 million between them in 2016 – £84.2m for Pfizer, and £5.2m for Flynn – after determining that a price increase they oversaw constituted an abuse of market dominance under competition rules.
However, that decision was subsequently appealed to the Competition Appeals Tribunal (CAT), which found fault with the way the CMA had reached its decision. Aspects of the CAT ruling were subsequently appealed to the Court of Appeal, which has now ruled on the case – upholding the CAT decision albeit overturning different parts of the CAT ruling in doing so.
The Court of Appeal's judgment is a landmark ruling and provides clarity on the steps the CMA must go to when seeking to demonstrate that there has been an abuse of dominance by unfair pricing, as well as options open to businesses that find themselves subject to CMA scrutiny in such cases. It builds on a judgment of the Court of Justice of the EU (CJEU) from 1978 which is the seminal piece of case law on the topic.
The CMA must "give some consideration to prima facie valid comparators advanced evidentially" by businesses it accuses of unfair and excessive pricing to determine whether the pricing is in fact unfair or excessive
According to the Court of Appeal, the CMA must "give some consideration to prima facie valid comparators advanced evidentially" by businesses it accuses of unfair and excessive pricing to determine whether the pricing is in fact unfair or excessive in light of those comparators. This consideration, the court said, forms part of the CMA's "duty of good administration".
The Court of Appeal has sent the case back to the CMA to start its case again on the correct basis.
The court said, though, that it is open to the CMA to reject the comparators if it provides reasons for doing so, and that the regulator is not obliged "actively to investigate in every case, in the sense of obtaining evidence about, any comparators put forward by the undertakings", though it may be desirable or necessary for it to do so in some cases.
The court further confirmed that it is open to the CMA to conclude that a price is unfair "by itself", without reference to comparators, at the end of its assessment.
In the Pfizer and Flynn case, the CMA had concluded that the price charged for phenytoin sodium capsules was unfair "by itself" on the basis of a so-called "cost plus calculation". The 'cost plus' approach entails assessing the costs it takes to make a product and adding what is considered to be a reasonable profit relative to those costs so as to determine the economic value for that product. The CMA considered that a 6% rate of return was reasonable for the companies to achieve in the case of phenytoin sodium capsules as that rate was equivalent to the rate of return medicine manufacturers could expect to obtain through an NHS price reimbursement framework.
In its ruling, the Court of Appeal said that the CMA was not obliged to establish a benchmark price or a range of prices, beyond a 'cost plus' calculation, so as to determine whether the prices charged by Pfizer and Flynn were excessive.
However, in addition to reconsidering the comparators that Pfizer and Flynn has said are relevant to its pricing for phenytoin sodium capsules, the CMA must – at the order of the Court of Appeal – reconsider the "patient benefit" the product offers when determining the product's economic value.
In a statement, CMA chief executive Andrea Coscelli described the Court of Appeal's judgment as "a good result" that justified its decision to appeal the CAT ruling in the case.
"We will now get on with the elements of the case against Pfizer and Flynn Pharma that the court has decided to refer back to us," Coscelli said.
Flynn Pharma said the Court of Appeal's findings reflect the position it has expressed since the outset of the CMA's investigation and "vindicate" its view that the CMA's decision in the case was "fundamentally flawed". It also said: "The lengthy investigation and appeal processes have been a significant distraction causing irreparable harm to Flynn. Whilst we recognise and appreciate the important public interest that the CMA seeks to serve, we submit that the CMA was wrong to use this case to push and test the boundaries of the law."
Pfizer said it was pleased with the Court of Appeal's judgment and that its priority "has always been to ensure a sustainable supply of medicines to UK patients", according to the Financial Times.
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