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Strengthening business competition and reducing anti-competitive practices

How the CMA is tackling high prices for essential drugs

Drug pricing and competition

The Competition and Markets Authority (CMA) is tasked with strengthening business competition and reducing anti-competitive practices for the benefit of consumers both domestically and internationally.

Since its inception on 1 October 2013 (as the successor to the Office of Fair Trading), the CMA has opened 2,028 investigations and inquiries, including into a number of household names. For example, earlier this summer Amazon’s potential merger with Deliveroo was put on hold while the CMA investigates the deal. JD Sports, Abellio, Viagogo, Sainsburys, Asda, Rentokil, Visa and Paypal have also been subject to CMA investigations/inquiries in recent years.

The pharmaceutical sector is far from immune to scrutiny. In recent years, the CMA has been inundated with a steady and increasing influx
of pharmaceutical-related cases. Presently, the CMA has 75 open cases, 12 of these (or just over 16%) involve the pharmaceutical sector and this number only looks set to increase.

The investigations cover a myriad of allegations including excessive and unfair pricing, anti-competitive agreements and abusive conduct.

In a July 2018 statement regarding its investigations into the pharmaceutical sector, the CMA said: ‘The weight of work we are undertaking in this area demonstrates the priority we are giving to tackling high prices for essential drugs in order to protect the NHS and taxpayers from being exploited.’

These investigations have yielded results. On 23 May 2019, the CMA provisionally found that between June 2013 and July 2018, Alliance Pharmaceuticals, Focus, Lexon and Medreich agreed not to compete for the supply of prescription-only Prochlorperazine 3mg dissolvable or ‘buccal’ tablets to the NHS.

More recently, in August 2019, drug company Aspen offered to pay the NHS £8m as part of a wider package to resolve competition concerns following an investigation into suspected anti- competitive arrangements regarding the supply of fludrocortisone acetate 0.1 mg tablets.

A firm pharma focus

The CMA’s focus on the pharmaceutical industry is not surprising. This appears to be a global trend, not least (from a European perspective) since the European Commission (EC) published its final report in its pharmaceutical sector inquiry in July 2009.

Sparked by the Commission’s concern that the market entry of generic drugs was being delayed and that fewer innovative products were reaching the market, the inquiry was launched to gain a holistic insight into the pharmaceutical industry and identify the sector-specific problems that
were hampering healthy competition.

The report focused on targeting practices used by companies to impede or block entry of generic products or the development of competing originator products. The most prolific practices included: the use of settlement agreements between originator companies and generic companies to block market entry; interventions in national marketing authorisations regarding the approval of generics (which on average delayed market entry for generic drugs by four months); and attempts to discredit and disrupt the supply of generics by endeavouring to influence wholesalers or manufacturers.

As a result, the Commission resolved to find a workable solution to curtail such practices. One of the main suggestions required all member states to promote stronger coordination between different national agencies to avoid differing applications of the legal framework. National authorities were also pushed to take firmer action in the aftermath of discovering a competition infringement.

And it seems to have worked. In the ten years following the publication of the report, national authorities across the EU have imposed fines amounting to over €1bn. In addition to disputes where fines or penalties have been imposed, national authorities have investigated over 100 other cases and reviewed over 80 merger transactions, ultimately flagging 19 of these transactions for anti-competitive concerns.

Settling the score

While the level of financial penalties imposed by the CMA has not reached the levels imposed by the EC, they have nevertheless been substantial. One of the largest was the £84.2m fine against Pfizer in 2016 for its 2,600% price increase on an anti-epilepsy drug supplied to the NHS.

Consistent with section 36(7A) of the Competition Act 1998, the twin objectives of the CMA’s policy on financial penalties are: (i) to impose penalties on undertakings which reflect the seriousness of the infringement; and (ii) to ensure that the threat of penalties will deter both the infringing undertakings and other undertakings that may be considered anti- competitive activities from engaging in them.

With this in mind, the CMA’s stated intention is, where appropriate, to impose financial penalties, in particular in respect of agreements between undertakings which fix prices or share markets, other cartel activities and serious abuses of a dominant position, which the CMA categorises
as ‘among the most serious infringements of competition law’.

This is, of course, subject to the statutory restriction that the financial penalty may not in any event exceed the maximum penalty of 10% of the worldwide turnover of the undertaking.

Set against this backdrop, the CMA encourages companies to come forward, for example, with information relating to any cartel activity in which they are involved, and will, where appropriate, give lenient treatment to such companies.

All of this means that Aspen’s recent offer to pay £8m to the NHS as part of a wider package may be a sign of things to come.

According to the CMA’s August 2019 press statement, the inquiry relates to arrangements made by Aspen in 2016, to two rival firms,
based on the allegation that Aspen had paid these competitors to not enter the market.

As a result, Aspen is alleged to have been the sole and unchallenged supplier of Fludrocortisone (a drug used to treat Addison’s disease) to the NHS. In a landmark move, and as the direct product of the investigation, Aspen approached the CMA with an unprecedented settlement offer.

As part of a broader package, Aspen has been required to admit that it was party to an illegal, anti- competitive arrangement, alongside committing to making a payment of £8m to the NHS.

The CMA has reacted positively to Aspen’s approach. Chief executive of the CMA, Andrea Conscelli, stated that it ‘welcome[d] Aspen approaching us to find a new way of addressing the CMA’s concerns. We believe this resolution will benefit the NHS, patients and taxpayers’.

It is little wonder, therefore, that the CMA and Aspen have taken this innovative approach to seek to reach agreement swiftly and practically. Court proceedings, investigations and inquiries are typically drawn out and expensive for all the parties involved.

It makes business sense to move with the tide of practical change, mitigating the impact of excessive expenditure of both time and money. The fiscally prudent and reputationally attractive option of an early settlement allows all parties to move on at pace.

On that basis, settlement deals such as the one struck by Aspen are likely to be not just a one- off, but an option worthy of serious consideration moving forward.

Time is money

There are some real and considerable commercial benefits to pharma companies in reaching a settlement with the CMA (and potentially the NHS) at an early stage:

  1. Cost: both in terms of reduced fines (settling companies can and commonly do achieve a maximum discount on potential penalty of 20%) and saving/better utilising resources (settling with the CMA means committing to a streamlined administrative process rather than protracted and complex proceedings, which will significantly reduce the costs associated with facing a CMA investigation).
  2. Brand image: settlement can be the best way to preserve brand image and market confidence through:
    1. Saving time: by dealing with the problem quickly it minimises the amount of time that the public is aware of the issue.
    2. Affording some degree of privacy:settlement discussions in commercial litigation are typically confidential. While the position is slightly different in respect of the CMA, settling at an early stage minimises the amount of information that makes it into the public arena (through a statement of objections in the case of the CMA, and the particulars of the claim in respect of civil proceedings).
  3. Increased certainty and stability going forward: settlement allows a company to plan its way through this difficult time with greater certainty, both as to its financial exposure, but also more generally. Of course, settlement does not bring finality (as an infringement decision will be published regardless, which is the basis for follow-on damages action in the CAT or High Court). However, it does allow the company to have a clearer idea of its maximum exposure to a final penalty throughout the process.
  4. Future public procurement work: a less considered benefit, settlement may dissuade relevant entities from excluding the company from future public contracts. Under EU law, the public authorities responsible for granting public contracts have a discretion to exclude from procurement procedures any company ‘where the contracting authority has sufficiently plausible indications to conclude that the economic operatorhas entered into agreements with other economic operators aimed at distorting competition’.

Jonathan Tickner is a Partner and Hannah Howlett is an Associate, both at Peters & Peters Solicitors LLP (and assisted by Amalia Neenan, Legal Researcher)

By Jonathan Tickner and Hannah Howlett

14th November 2019

By Jonathan Tickner and Hannah Howlett

14th November 2019

From: Regulatory

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