U.K. watchdog smacks Pfizer with record fine, citing a 2,600% price hike

British authorities smacked Pfizer and Flynn Pharma with price-hike fines as part of an ongoing competition probe into the pharma industry.

The U.K. government slapped Pfizer with a record fine for an epilepsy drug licensing deal that triggered a 2,600% price increase.

The Competition and Markets Authority says Pfizer dodged price controls by licensing out an unprofitable drug, then marketed under the brand name Epanutin, to a U.K. distributor that “debranded” the med and jacked up the price. The agency fined Pfizer £85 million, or about $108 million.

The company said it “refutes the findings” and plans to appeal. “Pfizer believes the CMA's findings are wrong in fact and law and will be appealing all aspects of the decision,” the company said in a statement posted on its U.K. website.

According to the CMA, the branded drug Epanutin had been subject to price restrictions. As an unbranded med, phenytoin sodium was not. Previously sold to the National Health Service for £2.83 per pack, the drug went up to £67.50 after Flynn Pharma bought the marketing rights, the CMA said in a Wednesday statement. The price decreased to £54 two years later.

Though Flynn marketed phenytoin sodium, Pfizer manufactured it under a supply deal. The prices Flynn paid to Pfizer for the drug were “significantly higher” than those Pfizer had been able to charge the NHS for the brand under government price controls. “[B]etween 780% and 1,600% higher than Pfizer’s previous prices,” the agency said.

The companies “deliberately exploited” the debranding mechanism to raise the drug’s price, said Philip Marsden, who headed up the investigation at the CMA. In addition to Pfizer’s £85 million fine, the agency levied an additional £5.2 million fine on Flynn Pharma. The companies have been under investigation in this case for more than a year, and the CMA says it has several other pharma probes underway.

The enormous price increase on an older drug echoes U.S. hikes that put a slate of smaller pharmas under fire. Turing, Valeant, Horizon, Condordia and others have been castigated—and investigated—for buying older products and hiking prices dramatically. In Turing’s case, which started a public outcry last year, it was a 1,600% hike on the long-off-patent toxoplasmosis drug Daraprim.

The U.S. pricing debate has surged with each new revelation of an out-of-the-ordinary price increase, tarring the industry’s reputation with a public that has historically been skeptical in any case, despite pharma’s big spending on research and new treatments it produces. Pharma and biotech industry leaders have tried to fight back with marketing campaigns that highlight biopharma’s lifesaving treatments and the cost savings drugs can offer.

Two companies—Allergan, and now, Novo Nordisk—have gone so far as to promise to limit their own price increases to single-digit margins annually. Pfizer itself rolled out an image campaign that focuses on the long scientific journey each new drug makes from idea to market.

Pfizer said its arrangement with Flynn was a chance to “secure ongoing supply” of an important medicine, and maintain “continuity of manufacture.” It had been selling the drug at a loss. After licensing the drug, Flynn set a price 25% to 40% less than the price of an equivalent medicine from another supplier, “which had long been regulated, and appeared to be acceptable to, the Department of Health,” Pfizer said in its statement.

The CMA says the health service was stuck using phenytoin sodium rather than an alternate drug because of the risks posed by moving stable patients onto a different med, including another manufacturer’s version of the product. “As a result, the NHS had no alternative to paying the increased prices for the drug,” the CMA said.

The U.S. FDA has said that epilepsy patients can be particularly sensitive to medication switches, from brand to generic, or from one manufacturer’s generic to another.

Warwick Smith, director general of the British Generic Manufacturers Association, called Pfizer’s deal with Flynn “cynical.”  It disrupts the “virtuous circle” between the companies that spend billions to develop new drugs and the generics makers that sell cheap versions after patents expire, “massively” reducing costs to the healthcare system.

“When originators put their resources into artificially increasing the commercial value of their older products by extending their monopoly, they not only cost the NHS more money, but fail to live up to their promise to society to deliver much needed new medicines,” Smith said in an emailed statement.

In its own broad view of the situation, Pfizer said the CMA’s ruling highights “real policy and legal issues” about the respective roles of the Department of Health and the CMA in regulating U.K. drug prices. “Pfizer will seek clarity on these issues as part of the appeal process,” the company said.