12 October 2015
It seems that the CMA's opening of an investigation into Pfizer / Flynn (which we discussed here) may not be the only pending competition case on excessive pricing of pharmaceuticals. A possible investigation into Turing Pharmaceuticals is being mooted in the US, following the company's decision to increase the price of Daraprim (an anti-parasitic) from $13.50 to $750, according to reports.
Pricing, in particular excessive pricing, is a notoriously difficult area for competition authorities. The legal test does not lend itself well to markets where intellectual property rights may apply. There may also be many reasons why a company might seek to introduce above-inflation price increases: to reflect increased input / manufacturing costs, to improve the margin, to reflect changed competitive dynamics, to compensate for financial problems elsewhere in its business, and so on. None of these are in themselves contrary to competition law.
Nevertheless, price increases of the type introduced by Turing at least seem to indicate a lack of effective competition on the relevant market. The drug is long off patent, yet prices are evidently unconstrained by generic competition. This may be due to low sales of the drug, or manufacturing cost/complexity that third parties may find difficult to replicate without the originator's know-how. The regulatory framework almost certainly plays a role in raising barriers to entry and also – in countries where free pricing is an option – in failing to constrain the price at which such drugs are sold. The enormous differences in wealth and living standards across the globe also lead to difficult questions for pharmaceutical companies – high prices in one country may in fact facilitate lower prices being made available to health services in countries which are less able to afford such drugs.
These complex dynamics certainly contribute to the dearth of excessive pricing cases in this sector. Competition law seems an unlikely panacea. But pharmaceutical companies considering their pricing strategy should nevertheless be aware of the tools potentially available to competition authorities and private claimants.
The message to business seems to be:
- Don’t forget the possibility of competition law scrutiny when increasing prices;
- Document the objective basis for any price increases and be particularly cautious when increasing prices to captive parts of the market.