‘Abused dominant position': Appeal sees liothyronine manufacturer fined £41m

In a “landmark judgment”, the CAT has ruled in favour of the Competition and Markets Authority’s (CMA) July 2021 decision to fine Advanz Pharma and its owners at the time for “excessive pricing” related to liothyronine tablets, the CMA announced this week (August 8).

It dismissed an appeal against the CMA’s decision that the manufacturer “abused its dominant position by charging excessive and unfair prices for liothyronine tablets”, according to the judgment.

Advanz and its former owners HgCapital and Cinven are liable for fines totalling £84.2 million – and of this, Advanz must pay £40.9m, Cinven £37.1m and HgCapital £6.2m – it said.

In November 2017, C+D reported that a CMA investigation had revealed evidence that Advanz – known as Concordia International until November 2018 – had abused its market position and overcharged the NHS for thyroid hormone deficiency treatment liothyronine.

The watchdog “provisionally” found that the pharmaceutical company had charged the NHS more than £34m for liothyronine tablets in 2016 – an increase from “around £600,000" spent in 2006.

In July 2021, C+D reported that the CMA had completed its investigation and had hit the three companies with fines totalling over £100m.

At the time, the watchdog found that Advanz charged an excessive price for liothyronine and that price increases were “not driven by any meaningful innovation or investment, volumes remained broadly stable and the cost of producing the tablets did not increase significantly”.

Though a generic medication, the CMA ruled that Advanz could hike prices because it “faced limited or no competition".

“Unanimous”

Advanz, HgCapital and Cinven decided to appeal the CMA’s findings to the CAT, disputing that the prices charged were “excessive and unfair” and seeking to overturn the fines imposed, the CMA said this week.

The appeal was heard by Andrew Lenon KC, Tim Frazer and Professor Michael Waterson at Salisbury Square House in London between September 27 and October 14 2022.

Michael Grenfell, executive director of enforcement at the CMA, said that the watchdog was “delighted” by the CAT’s decision to “unanimously” uphold the CMA’s findings.

Mr Grenfell said that it “paves the way for the NHS to seek compensation”, adding that the CMA would continue to “crack down” on companies that “abuse their market power”.

Cinven and Advanz Pharma both declined to comment, while no response was received from HgCapital at the time of publication.

“Below the radar”

Between 2007 and 2017, a “single undertaking” that was owned at different times by Advanz, HgCapital and Cinven was the “sole supplier” of 20mcg liothyronine sodium tablets to the NHS, according to the judgment.

Liothyronine tablets were developed in the UK in the 1950s and branded Tertroxin and in 1992, Advanz bought Tertroxin among 22 products acquired for £1m. It continued to sell the drug under the Tertroxin brand until 2007, when it decided to supply the drug, long off-patent, as a generic, the judgment said.

The motivation for this move to “de-brand” was “part of a strategy by Advanz to drive an increase in profitability through price increases” of the drug, it claimed.

Advanz’s UK business plan for branded pharmaceuticals in April 2007, referenced in the judgment, explicitly noted that “products can be moved from branded to generic resulting in their removal from…price regulation [and] prices on these products can be increased”.

“In order to drive price increases there is a strategy to move to the generic name and increase prices,” the judgement said.

Liothyronine tablets were only produced by Advanz and were an important life-saving medication – but as it is a “niche” drug, its price hikes could fly “below the radar” of the NHS, the government and would-be competitors, as noted by one-time owner Cinven in 2012 minutes and consultants’ reports of the same year referenced in the judgment.

History of hikes

From 2007 to 2017, the price of liothyronine was increased 63 times, according to the judgment.

These price hikes, which the CMA found had “no relationship to the economic value” of liothyronine tablets, were possible because of a “lack of regulatory constraint, high demand inelasticity and high barriers to entry”, it said.

Indeed, a number of internal reports and presentations, referenced in the judgment, considered the difficulty that a generics competitor would face starting production on liothyronine as “scope for further significant price increases with no negative effect on volumes”.

In 2007, a pack of liothyronine cost the NHS £4.05, rising to £20.48 by January 2009, according to the judgment.

In 2009, the business was bought by HgCapital for £179m and prices continued to rise – to £34.65 in August 2010 and £46 by August 2012 – when the business was sold to Cinven for £465m, it said.

Price rises continued: liothyronine cost £63.08 in September 2013, £152.18 by March 2015 and by the end of 2015, it cost £191, it added.

Then in October 2015, Concordia Health Corporation – later renamed to Advanz Pharma Corp – bought the business that produced liothyronine for £2.3 billion, it said.

By March 2016, the cost of a pack was £258.20 – an increase of over 6,000% from 2007, according to the judgment.

Investigation

But the strategy of increasing prices while evading the attention of the media, competitors and the NHS faltered.

Following the 2015 hikes, an NHS-funded not-for-profit group PrescQIPP recommended that liothyronine was “poor value for money” and proposed levothyroxine as an alternative, the judgement said.

In June 2016, The Times reported that doctors had been “encouraged to stop” prescribing the medication, noting that the price-per-tablet had risen from 16p to £9.22, it added.

This “adverse scrutiny in the press” prompted then-health secretary Jeremy Hunt to ask the CMA to investigate whether there had been excessive pricing, the judgment noted.

The CMA’s investigation revealed that the differential between the costs to produce and the selling price rose from 300% in 2009 to “almost 2,000% by 2017”, according to the judgement.

The CAT upheld the CMA’s findings that Advanz’s prices were “excessive” and “unfair in themselves”, taking note that the prices had “a significant adverse impact on the NHS”.

It found that the DH and NHS had “no effective constraint” on Advanz’s ability to hike prices.

However, it reduced the fines for Cinven and HgCapital from £51.9m and £8.6m respectively.

The CAT ruled that the “deterrence uplift” imposed on them, which accounted for the difference and which is used if “there is any greater risk of further breaches”, was not needed.