Pharmaceutical sector under increased antitrust scrutiny in the UK

Recent years have witnessed wide-ranging enforcement action by regulators against anti-competitive behaviour in the pharmaceutical sector, with the UK’s Competition and Markets Authority (the “CMA”) at the forefront of such activity, taking a leading international role. There is no sign that it is likely to take its focus off the sector in the near future either; in its Annual Plan for 2020/2021, the CMA has said it will continue to have a “strong focus” on the UK pharmaceutical sector and ensure that the “NHS does not pay significantly more than it should for essential medicines and treatments, and that consumers who depend upon these drugs and treatments do not lose out.”

Consistent with these aims (which have been part of its strategy since 2016), the CMA has pursued a number of significant investigations in the sector, in some instances resulting in significant fines and director disqualification orders. Indeed, the fines levied against Pfizer and Flynn remain the CMA’s largest; and in some of the cases discussed below, the CMA fined participants at the maximum level permitted. However, in a number of high-profile cases the CMA has been successfully challenged on appeal, which has undoubtedly impacted its approach in relation to its current cases and will likely inform its future enforcement priorities and strategy.

We summarise below some of the recent CMA investigations and UK court cases in the sector. These cases relate to infringements of the Competition Act 1998 (“CA98”), either under Chapter I (i.e. the equivalent of Article 101 under the EU Treaty) which prohibits anti-competitive agreements, and/or Chapter II (i.e. the equivalent of Article 102 under the EU Treaty) which prohibits abusive conduct by dominant firms.

1. Anti-competitive agreements

‘Pay-for delay’
'Pay-for-delay' cases have been in the spotlight of competition authorities for over a decade. In such agreements, the originator manufacturer pays the generic to stay out of the market or delay its entry. Competition authorities have considered 'pay-for-delay' deals as akin to market sharing agreements that benefit the parties to the agreement at the expense of healthcare systems and patients. The anti-competitive nature of pay-for-delay agreements does not depend on the form in which they are concluded. Such arrangements are often entered into in the context of patent disputes between originator and generic companies but they can also take the form of any other commercial arrangement. Over the last few years, the CMA has pursued a number of pay-for-delay cases and in certain cases imposed high fines.

Fludrocortisone (case 50455)
In October 2017, the CMA launched an investigation into suspected breaches of competition law by Aspen and other parties. In August 2019, the CMA announced that Aspen had admitted to participating in an anti-competitive agreement in relation to the supply of fludrocortisone acetate 0.1mg tablets (used to treat Addison’s disease) in the UK. Aspen admitted to having entered into arrangements with two competitors to keep them out of the market in 2016; this allowed Aspen to increase prices by up to 1,800%. In addition to admitting liability, as part of a settlement agreement with the CMA, Aspen agreed to pay a maximum fine of £2.1m. More unusually, Aspen committed to ensuring that there would be two suppliers of fludrocortisone in the UK and that it would provide £8m compensation to the NHS for the higher prices it had to pay (and to avoid the UK Government having to launch court proceedings for damages).

In October 2019, the CMA issued a statement of objections (“SO”) in which it alleged that the two companies paid by Aspen not to enter the UK market (Amilco and Tiofarma) colluded in market sharing with Aspen in return for the former receiving a 30% share of the increased prices charged by Aspen and the latter becoming the sole manufacturer of fludrocortisone for direct sale in the UK. In January 2020, Tiofarma admitted its participation in the anti-competitive agreement and agreed to pay a maximum fine of £186,442. Amilco subsequently also admitted its participation and one of its directors provided a legally binding disqualification undertaking not to act as a director of any UK company for 5 years.

On 9 July 2020, the CMA issued its infringement decision setting out the now admitted anti-competitive agreement reached between the parties in 2016.

Hydrocortisone tablets (case 50277-2)
In March 2017, the CMA issued a SO alleging that Concordia (formerly Amdipharm) and Actavis UK (formerly Auden Mckenzie) entered into agreements under which Actavis UK incentivised Concordia not to enter the market with its own competing version of 10mg hydrocortisone tablets (which are used for adrenal insufficiency). According to the CMA, Actavis UK supplied Concordia with a fixed supply of its own tablets for a very low price for Concordia to resell the product to customers in the UK. Thus, Actavis UK remained the sole supplier of the tablets in the UK for a certain time period when the cost of the drug to the NHS rose from £49 to £88 per pack. The CMA is also alleging that Actavis UK abused its dominant position by inducing Concordia to delay its independent entry into the market. The investigation is ongoing.

Hydrocortisone tablets (case 50277-3)
In February 2019, the CMA issued a SO alleging that Auden Mckenzie and Waymade entered into anti-competitive agreements with regard to the supply of hydrocortisone tablets in the UK. According to the CMA, Waymade was ready to enter the market for 20mg hydrocortisone tablets but froze its own stock and agreed a deal with Auden Mckenzie under which it received monthly payments aimed at delaying its market entry. The CMA is also alleging that Auden Mckenzie abused its dominant position by offering monthly payments to Waymade to stay out of the market. According to the CMA, during the period Auden Mckenzie remained the sole supplier of the 20mg tablets, charges to the NHS rose from around £46 to £90 for a pack of 30 tablets. The investigation is ongoing.

Paroxetine – European Court of Justice ruling
In February 2016, the CMA fined GSK and two generics £45m for entering into anti-competitive agreements in relation to the supply of paroxetine. The CMA found that GSK had concluded agreements with various generics to settle disputes relating to the anti-depressant medication paroxetine. The disputes related to GSK’s secondary patents for the drug and arose after GSK's main patent expired and the generics planned to enter the UK market. Under the settlement agreements, the generics essentially agreed to abstain from entering the market for a certain period in exchange for payments by GSK. The CMA concluded that the settlement agreements constituted (i) anti-competitive agreements; and (ii) an abuse by GSK of its dominant position on the relevant market.

GSK and the generics appealed the CMA decision to the UK Competition Appeal Tribunal (“CAT”), which in March 2018 decided to seek guidance from the European Court of Justice (“ECJ”) by way of a reference for a preliminary ruling on how to apply EU competition law rules in the context of pay-for-delay agreements. The ECJ issued its preliminary ruling in January 2020 holding that the agreements at issue may constitute a restriction of competition "by object” (i.e. they may be anti-competitive by their very nature) or “by effect”, and may also amount to an abuse of dominant position (see our blog post here).

The case has now been remitted to the CAT for a final judgment based on the ECJ's guidance. The CMA (as well as the European Commission) has welcomed the ECJ judgment, noting that it “has clarified a number of important questions and will help competition authorities, including the CMA, in their work to tackle this harmful behaviour by pharmaceutical companies”.

Market sharing and information exchanges
As well as pay-for-delay, the CMA is currently looking into a number of cases involving information exchange and market sharing arrangements in the pharmaceutical sector. Its focus in so doing appears to be on combatting the use by companies of market sharing arrangements to maintain higher prices or to forestall entry by a potential competitor.

Nortriptyline tablets (case 50507.2)
In June 2019, the CMA issued a SO alleging that Auden Mckenzie, King Pharmaceuticals, Lexon and Alissa Healthcare Research breached UK and EU competition law in relation to the supply of 10mg and 25mg nortriptyline tablets (used in the treatment of depression) in the UK. In September 2019, the CMA announced that King and Alissa had admitted infringing competition law by exchanging commercially sensitive information in relation to the supply of 10mg and 25mg nortriptyline tablets.

On 4 March 2020, the CMA issued two separate infringement decisions. Firstly, the CMA found in its first decision that between September 2014 and May 2015, King and Auden Mckenzie shared out between them the supply of nortriptyline tablets to a large pharmaceutical wholesaler. After the infringement, Accord-UK Ltd took control of Auden Mckenzie’s nortriptyline business, and hence it was held liable for the infringement, along with King. The CMA fined King £75,573 and Accord-UK, £1,882,238, with both companies handed reduced fines for admitting the infringement. Accord-UK and Auden Mckenzie also agreed to make a £1 million payment to the NHS in connection with the case. This was only the second time that the CMA had secured such a payment for the NHS (the first was in Fludrocortisone, discussed above); although the NHS may seek further amounts from the parties, potential awards would have to take this payment into account.

Second, in a separate decision, the CMA found that between 2015 and 2017, King, Lexon and Alissa exchanged commercially sensitive information about prices for nortriptyline, the volumes they were supplying and Alissa’s plans to enter the market. The CMA fined King £75,573 and Alissa £174,912, with both companies handed reduced fines for admitting the infringement. Lexon, which did not admit the infringement, was fined £1,220,383 and it has appealed the decision.

In the context of this case, the CMA secured legally binding disqualification undertakings from several of the companies’ directors not to act as directors of any UK company for a number of years.

Nitrofurantoin tablets (case 50511-1)
In July 2019, the CMA issued a SO alleging that AMCo (now Advanz Pharma), Alliance Healthcare and Morningside participated in anti-competitive agreements and practices in relation to the supply of nitrofurantoin 50mg and 100mg capsules (an antibiotic used to treat urinary tract infections). The CMA alleged that AMCo, Morningside and Alliance (a wholesaler) entered into a market sharing agreements under which, from 2014 to 2017, Alliance would buy equal volumes of nitrofurantoin from each of the two suppliers so they would not need to compete on price. During 2015 and 2016, AMCo and Morningside also agreed to supply nitrofurantoin exclusively to Alliance. The CMA also alleged that in 2014 AMCo disclosed pricing information to Morningside with the aim of reducing competition on price. The investigation is ongoing and a decision is expected in spring 2021.

Prochlorperazine tablets (case 50511-2)
In May 2019, the CMA issued a SO alleging that Focus Pharmaceuticals, Medreich, Alliance Pharmaceuticals and Lexon entered into anti-competitive agreements in relation to the supply of prescription-only prochlorperazine 3mg buccal tablets (which are used to treat nausea and dizziness). The CMA alleged that the companies entered into an overarching agreement that was implemented through two separate agreements – one between Alliance and Focus, and one between Focus, Lexon and Medreich. Under these agreements, Alliance supplied prochlorperazine exclusively to Focus. Focus then paid Lexon a share of the profits it earned on the onward sales of Alliance’s product; and Lexon, in turn, shared these payments with Medreich. The investigation is ongoing and a decision is expected in spring 2021.

2. Abuse of dominance

Excessive pricing
Although competition authorities have traditionally been wary of investigating excessive pricing cases (as such cases involve difficult issues of what price is “excessive” and authorities are reluctant to act as price regulators), the pharmaceutical sector has seen an increasing number of excessive or unfair pricing investigations over the last few years. The CMA in particular has been very active in this area – although its investigation into suspected unfair pricing by Pfizer and Flynn Pharma has attracted the most attention, it still has two other ongoing excessive pricing cases.

Phenytoin litigation
In December 2016, the CMA imposed record fines totalling £89.4m on Pfizer and Flynn Pharma for abuse of a dominant position through excessive and unfair pricing in relation to the capsule form of an anti-epilepsy drug, phenytoin sodium. Pfizer had transferred UK distribution rights for the drug – then branded as Epanutin – to Flynn Pharma in September 2012. Flynn Pharma immediately de-branded the drug (also known as “genericising”), thereby avoiding price controls which apply to branded drugs in the UK. Pfizer then continued to manufacture and supply the capsules to Flynn Pharma, but charged significantly higher prices (780% - 1600% increase). Flynn sold the drug on to UK wholesalers and pharmacies, charging between 2,300% and 2,600% more than the pre-September 2012 price. Clinical guidance recommended against switching patients to a different manufacturer or different drugs, and National Health Service (NHS) expenditure on phenytoin sodium capsules rose from approximately £2m a year in 2012 to approximately £50m in 2013.

On appeal, the CAT upheld the CMA’s definition of the relevant markets and its conclusion that Pfizer and Flynn each held a dominant position. However, it set aside the CMA’s conclusions on abuse (and therefore also on penalties). In particular, the CAT held that the CMA had not applied the correct legal test when concluding that the prices charged by Pfizer and Flynn Pharma were unfair, that it had not established the right economic value of the drug, and that it had failed to sufficiently take into account comparable products.

That decision was subsequently appealed by the CMA to the UK Court of Appeal, with a cross-appeal by Flynn Pharma. On 10 March 2020, the Court of Appeal dismissed all but one of the CMA’s grounds of appeal, and upheld the CAT’s judgment, including the order made by the CAT for remittal of the issues of abuse and penalties. It also dismissed Flynn’s cross-appeal, which related to concerns that the CMA would treat various ostensible findings by the CAT as definitive and binding upon remittal. However, the Court did not uphold the CAT’s approach in its entirety, and set out a number of important clarifications as to the principles which should be applied by the CMA on remittal, in particular in relation to the use of benchmarks and evidence of comparator products. It also confirmed that there is no single method for establishing unfair pricing and – significantly – emphasised that the CMA has a “margin of manoeuvre” in deciding which methodology to use and which evidence to rely upon (for a more detailed analysis, see our blog post here). The case has now been remitted to the CMA for it to reassess whether the pricing of phenytoin by Pfizer and Flynn did, in fact, constitute excessive pricing.

Hydrocortisone tablets (case 50277-1)
In December 2016, the CMA issued a SO to Actavis UK (formerly Auden Mckenzie) alleging that it has charged excessive and unfair prices in the UK for hydrocortisone tablets. In particular, Actavis UK allegedly increased the price of 10mg hydrocortisone tablets by over 12,000% compared to the branded version of the drug which was sold by a different company prior to April 2008; and the price of 20mg hydrocortisone tablets by nearly 9,500% compared to the previous branded price. In August 2017, the CMA issued a SO to Intas Pharmaceuticals and Accord Healthcare Limited, which acquired Actavis UK in January 2017, proposing to find them jointly and severally liable for Actavis’ infringements from their period of ownership. The investigation is ongoing.

Note: In February 2020, the CMA consolidated the three investigations in relation to the supply of hydrocortisone tablets in the UK (i.e. cases 50277-1,50277-2, 50277-3) in view of the interrelationship of the facts and allegations in these cases.

Liothyronine tablets
In November 2017, the CMA issued a SO to Concordia International (now Advanz Pharma) and Cinven and HgCapital (the former private equity owners of Concordia) alleging that Concordia has charged excessive and unfair prices in relation to the supply of liothyronine tablets (used in the treatment of hyperthyroidism) in the UK.

In January 2019, the CMA issued a supplementary SO alleging that Concordia infringed competition law from at least 1 January 2009 to 31 July 2017. According to the CMA, during the period when Concordia was the only UK supplier of liothyronine tablets, the price paid by the NHS for liothyronine tablets rose from £15.15 to £258.19 (which constitutes a rise of 1,605%), while production costs remained broadly stable. In July 2020, the CMA issued a further supplementary SO addressing issues arising from the Court of Appeal’s judgment in the Phenytoin case (discussed above). The investigation is ongoing.

Product withdrawal and switch of patients to more expensive alternatives

Lithium-based medicines
In October 2020, the CMA opened an investigation into Essential Pharma alleging that the company has abused a dominant position in relation to lithium-based medicines (used for treating bipolar disorder), which it sells under the brand names Priadel and Camcolit. According to the CMA, Essential Pharma proposed to withdraw the supply of Priadel to UK patients, which would mean that patients would need to switch to more expensive alternative treatments, such as Camcolit. The proposed removal of Priadel, on which the vast majority of UK patients taking a lithium-based drug rely, prompted serious concerns from medical bodies. It was argued in particular that switching bipolar medication can be a difficult process for patients and may cause health complications, while it also raises significantly costs.

The UK Department of Health and Social Care (“DHSC”) asked the CMA to impose interim measures on Essential Pharma to stop the withdrawal of Priadel while the investigation is ongoing. Following the initiation of the investigation, Essential Pharma agreed to continue to supply Priadel while its discussions on pricing with DHSC continue, thereby removing the immediate threat to patients.

Comment

As the above makes clear, the pharma sector is and will remain a central focus for the CMA. This is all the more the case in light of the COVID-19 pandemic, as the pharmaceutical sector is one of the strategic industries on which the CMA (and other competition authorities worldwide) has placed increasing scrutiny (see our previous blog post on this topic here). In particular, in late March 2020, the CMA issued an open letter warning pharma companies against attempting to profit from the pandemic, including by engaging in price gouging. Although the CMA does not intend to take enforcement action against certain types of business coordination aimed at avoiding shortages in the context of the pandemic (see CMA guidance here), it will nonetheless ensure that this approach is not used as a cover for non-essential coordination that may harm consumers.

Pharma companies active in the UK should be particularly cautious and put in place effective compliance programmes to ensure their conduct does not raise red flags; otherwise, they might face lengthy investigations, heavy fines and/or damages actions. This is true not just in the UK but in the EU as well. Indeed, in its communication concerning permitted cooperation in the context of COVID-19, the European Commission stated emphatically that it: "…will not tolerate conduct by undertakings that opportunistically seek to exploit the crisis as a cover for anti-competitive collusion or abuses of their dominant position […] by, for example, exploiting customers and consumers (e.g. by charging prices above normal competitive levels) […].”

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