UK watchdog cracks down on competition law breaches - Colin MIller

The Competition and Markets Authority (CMA), the UK competition watchdog, has recently issued record fines against a number of pharma companies for breaching competition law.

Colin Miller, Partner, Burness Paull

Advanz Pharma and its former owners have been fined more than £100 million for abusing their market power by charging excessive prices to the NHS for medicines to treat thyroid conditions. Prices increased by over 1,000 per cent over eight years, with the price for a packet of tablets increasing from £20 to £248.

Record fines of £155m have also been imposed on Auden McKenzie and parent company Actavis (now Accord UK) for overcharging the NHS for life-saving hydrocortisone tablets – with prices rising by over 10,000 per cent. It was reported that NHS annual expenditure increased from about £500,000 to over £80m within a period of eight years; in practical terms. the price paid by the NHS for a packet of tablets increased from about 70p to £88. The CMA has emphasised the fines reflect both the adverse effect this behaviour has had on the NHS, already under severe financial strain, but also on patients who have found it more difficult to access vital medication.

These decisions are the latest developments in the recent period of increased focus on the pharma sector. Despite being regulated, the sector will not escape the clutches of the competition authorities.

Pharma companies should take steps to ensure their contracts and other market activities do not fall foul of the rules.

In 2019, the European Commission published a report highlighting the actions it had taken in the pharma sector to address anti-competitive behaviour and emphasised that pharma would remain under close scrutiny for the foreseeable future. This was followed by a report in 2020 in which the European Commission outlined its strategy for tackling anti-competitive behaviour. Notwithstanding Brexit, UK companies will still be subject to the scrutiny of the European Commission to the extent that their activities have effect within the EU.

The UK authorities have adopted a similarly tough approach, stating in its annual plan for 20/21 that it would ensure that “the NHS does not pay significantly more than it should on essential medicines and treatments, and that consumers who depend upon these drugs and treatments do not lose out.”.

This echoes the warning given to the health sector last year by the CMA when it announced it would take swift action against anyone trying to profit from the pandemic by hiking prices or making it difficult for patients to access vital medicines or equipment.

Whilst recent fines focussed on excessive pricing, the CMA is also looking at alleged market sharing agreements and illegal exchanges of commercially sensitive information between suppliers. Another area of interest is Pay for delay agreements between an existing originator of a drug who holds the underlying IP and a company intending to introduce a generic version to the market.

Under such an agreement, the generic manufacturer agrees to postpone entry to the market in exchange for some kind of compensation. The CMA views these arrangements as market sharing and dislikes them on the basis that they take advantage of the consumer..

The recent fine imposed on Auden McKenzie was not only for excessive pricing but also for its participation in an illegal pay for delay deal with Waymade and Advanz Pharma. Under the agreement Auden McKenzie paid Waymade and Advanz Pharma not to enter the market with their own generic versions of hydrocortisone tablets. The parties were fined a total of £66 million for their involvement (in addition to the £155 million fine for excessive pricing imposed on Auden McKenzie).

In view of the CMA’s recent declared interest in this sector, pharma companies should take steps to ensure their contracts and other market activities do not fall foul of the rules. Extra care should be taken in a number of areas, particularly if formulating strategies on pricing and supply, in contract negotiations with suppliers or customers and especially in any discussions with competitors. Less obvious aspects of day to day operations such as R&D and technology transfer agreements should not be overlooked – both are subject to competition law.

With the attention of the CMA looking set to be focussed on pharma for some time, it is down to companies in the sector to have compliance programmes in place to help identify and tackle any competition law issues from an early stage and avoid becoming another example of this current crackdown.

Colin Miller, Partner, Burness Paull