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Pharma disputes, fines, and the work of the CMA

Published on 25/08/21 at 10:32am

Several pharmaceutical firms have lately been fined for unfairly hiking prices over the years, meaning that patients and the NHS have suffered. Lilly Subbotin spoke with Andrew Groves, Director for Antitrust at the Competition and Markets Authority (CMA), and pharma disputes lawyer, Emma Ruane, to see how the CMA will be cracking down and why pharma firms should be on high alert

There is immense pressure on governments and/or healthcare systems to cover the costs of drug bills. In the UK market, NICE plays a pivotal role in deciding whether or not new treatments are cost effective.For pharma companies to ensure that their products are reimbursed by the NHS at the best price possible, they have to convince NICE using data around the health/economic impact and cost effectiveness of their product.

Market access has a specific and somewhat convoluted meaning. According to Carrot Recruitment, “Market access is the complex and protracted process that pharma and biotech companies have to go through in order to ensure that their medicines are made available in as many countries as possible, while ensuring these medicines are reimbursed and made available to the patients who need them.”

PRMA Consulting has a bare bones definition that describes market access in its simplest terms as “about getting the right treatment to the right patient at the right time, and possibly even at the right price.”

But, what happens when companies have access to the market, but they’re not helping patients receive the best possible price? Or, perhaps, will they take advantage of the demand and send prices soaring? Unfortunately, this practice is not uncommon.

In recent months, a number of fines have been issued in the UK in a crackdown against drug price hikes. The CMA charged the company Advanz Pharma more than £100 million for overpricing its thyroid drug. Between 2007 and 2017, the price paid by the NHS for liothyronine tablets rose from £4.46 to £258.19, a rise of almost 6,000%, while production costs remained broadly stable – both the NHS and, subsequently, patients lost out.

In July, the CMA issued its biggest ever total fine of £260 million against Auden Mckenzie and Actavis UK – now known as Accord-UK – alongside other companies after an investigation into the price of hydrocortisone tablets, which saw prices rise by 10,000% over a 10-year period.

In light of these recent fines and what it means for patients, accessing drugs, and the NHS, Pharmafocus spoke to Andrew Groves, Director for Antitrust at the CMA and specialist in pharma disputes Emma Ruane, Counsel at Peters & Peters, to find out more. 

The CMA acts against misbehaving firms

I sat down with Andrew Groves, Director for Antitrust at the CMA, to discuss the body's work in relation to pharma.

Groves said: “We have a duty to promote competition for the benefit of consumers. This includes stepping in to prevent businesses from agreeing with one another to not enter markets, which denies people the benefits of competition, such as lower prices, more choice, and better-quality products.

“We take a six-step approach when calculating a fine. This includes considering how serious the behaviour in question is, how long it lasted, and whether there are any other factors to consider, which might increase or decrease the size of the fine.”

Following the fines issued to Auden Mckenzie and Actavis UK, Groves commented: “We are clear that these firms committed serious breaches of competition law that led to artificially inflated costs for the NHS and reduced the money available for patient care.

“The fines imposed reflect the seriousness of the firms’ behaviour and are intended to serve as a deterrent against similar conduct in the future. I should note that the companies may appeal our decision in which case the appeal tribunal would have the final say in this matter.

“Auden Mckenzie’s price increases made the market more attractive to other pharmaceutical firms, who began preparing to enter with their own versions of hydrocortisone, once they knew they could charge more for the drug.

“However, Auden Mckenzie bought some of them off – it paid its potential competitors Waymade and AMCo, and in exchange they agreed not to enter the market. This allowed Auden Mckenzie to fend off competition and the price falls this would create.

“After Actavis UK took over sales of hydrocortisone in 2015, it continued to buy off AMCo. Competitors eventually began to enter from 2015 onwards. However, Actavis UK was able to continue charging higher prices than its competitors because of its position in the market.”

A specialist in pharma disputes, Emma Ruane, said of the CMA ruling: “The fine was a lot larger than previous fines. I know that relates primarily to turnover, so, in some respects, it's not surprising, but obviously the CMA has a discretion within the turnover caps as to what deductions it makes for things like cooperation and settlement.

“It still seems quite a high fine to me, which suggests that these are without doubt some of the most serious abuses, and the fine tallies with that. From what the CMA has said, we're looking at about a 10-year infringement, and a huge uplift in prices. I would say it is going to be quite serious and the infringement decision should make interesting reading.”

But, how were the companies concerned able to get away with hiking prices for so long. Ruane said: “I think the department and pharmaceutical companies have to have a partnership, they have to have some measure of trust.

“There is trust and confidence in pharmaceutical companies to do the right thing and I think some of them have exploited that.”

Common practice 

So, how often does this happen, and is it common practice for pharma companies to buy off competitors and hike prices? Ruane continued: “I don't want to tarnish all companies with the same brush, because I think a lot of pharmaceutical companies have very good compliance. I think they have very good in-house legal teams that brief their sales teams, particularly on their obligations under competition law.

“But, you look at the companies that keep getting caught by the CMA, there is a problem, and the debranding strategy that appears to have been used by a few people. It's quite good in a way that the CMA have been challenged on thelaw on excessive pricing because you see them applying the learning that they have gained in the sector in all those cases, and they're applying them to all of these other ones.

“It's interesting because it just seems that whenever the way reimbursement works is changed, it just kind of opens the door for people to try and exploit it.

According to the Pharmaceutical Services Negotiating committee, “Category M is used to set the reimbursement prices of over 500 medicines.

“It is the principal price adjustment mechanism to ensure delivery of the retained margin guaranteed as part of the contractual framework.

“It uses information gathered from manufacturers on volumes and prices of products sold plus information from the pricing authority on dispensing volumes to set prices each quarter.”

Ruane continued: “They've used that to their advantage. You look at why Category M was introduced and there were preceding issues in respect of companies fixing prices, which meant that the reimbursement scheme as it stood at that time wasn't suitable. It seems, whatever measure the department takes. There are going to be companies that seek to get around it – and it seems very easy to try and take advantage of that.”

Groves said of this common practice in pharma: “Companies paying potential rivals to stop them from entering the market does occur. Two recent examples are the CMA’s investigation into paroxetine and the European Commission’s Lundbeck case.

“While we can’t speculate over which cases we may or may not investigate in the future, we have two ongoing investigations in this sector. These are at a provisional stage and no conclusion has been drawn as to whether the law has been broken.”

How can this be avoided?

For pharma companies to escape the fines from the CMA, it’s vital that they stay organised and diligently track the drug’s prices. Ruane said: “I think for any in house team, you look at the excessive pricing as a very good example. If there is behaviour within the company that is outside of the norm – if you're pricing a drug in one way and overnight it goes up by 200% – it should be a trigger for somebody within the business to look at what's going on, and to find out why those decisions have been made.

“I have no doubt that there are some pharmaceutical companies that have those mechanisms in place already.”

Groves added: “Of course, companies need to cover their costs, including the research and development expenditure that leads to innovative treatments, and to make a reasonable return.

“This is to the benefit of all of us. But, in our most recent investigations, we have found that pharmaceutical companies who were the sole suppliers in the market, made excessive profits in relation to very old, long off-patent drugs.

“These firms have often pursued specific strategies, and, in some cases, paid other firms to stay out of the relevant market in order to do so.

“Price increases were not driven by any meaningful innovation or investment and the cost of producing the medication did not increase significantly.

“We have published a collection of information and guidance on our website and recommend that, as a first step, businesses look at this to ensure they are fully complying with competition law.”

What to expect from the future

As pharma companies recover from fines and adjust to the pricing authority guidelines, the future poses a number of questions. Ruane said: “I think it's unfortunate that when you look at the history of pharmaceutical infringements of competition law and the duration of decisions that have been made, both by the CMA and the [European] Commission, I just don't think it's possible to say that this sort of behaviour is dying out.

“You look at that history and you can't possibly say that, there must be other instances of this behaviour, and perhaps it just hasn't been captured yet. There probably are further cases out there for the CMA and/or the commission to investigate, but it [comes down to] resources.

“I think the CMA, in particular, will be stunned by that, because they have the unfortunate combination of the pandemic and Brexit, which is no doubt taking its toll.

“If you look at the figures, there was a recent report suggesting that actually there's been a massive uptick in M&A activity. And that's off the back of people seeing opportunities during the pandemic either because company values have gone down, or they've had time to think about where to position their strategy.”

Groves summarised: “We will continue our work on cases in the UK pharmaceutical sector to ensure that the NHS does not pay significantly more than they should for essential medicines and treatments, and that those who depend on these drugs and treatments do not lose out.”

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