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Band-Aids Don't Fix Bullet Holes: Consumer Protection in Life Sciences - Timothy Ang


"Pfizer or Moderna?" So goes the worst conversation starter of all time. But beyond its ubiquity around, and utility to, the world, the life sciences (or pharmaceutical) industry has been subject to intense regulatory scrutiny in the past decade, most prominently for abuses of market dominance at the expense of the consumer. Governmental efforts to mitigate this have to grapple with a fundamental economic paradox: on the one hand, companies holding a drug patent are awarded a patent monopoly, in order to provide an incentive for, and enabling the companies to recoup the costs of, developing the drug. On the other, the existence of such monopolies threatens (and has been shown) to result in runaway price increases, which in turn contravene the principles of consumer protection and ‘fair’ pricing.

This article explores the development of three consumer protection mechanisms used by regulators and their implications on both the pharmaceutical industry and consumers: excessive pricing and pay-for-delay regulation, which are both enforced by antitrust authorities, and pricing agreements between national healthcare providers and the pharmaceutical industry.

Excessive pricing

The legal test in Europe (and the UK) for finding excessive pricing is known as the United Brands, or UB test, named after the 1978 case. The European Court of Justice (‘ECJ’) defined a price as excessive when it bore ‘no reasonable relation to the economic value of the product’, and this was evaluated along a two-limb test:

1) The excessive limb: ‘whether the difference between the costs actually incurred and the price actually charged is excessive’, and

2) The unfairness limb: ‘If so, whether a price has been imposed that is either unfair in itself or when compared to competing products.'

Excessive pricing was successfully enforced in the pharmaceutical industry only once in Europe prior to 2016, when an Italian case marked an increase in regulatory scrutiny. Also in 2016, the UK’s Competition and Markets Authority (‘CMA’) fined pharmaceutical companies Pfizer and Flynn Pharma and ordered a reduction of prices for the drug phenytoin, after the price of the drug rose by 2500% in one year. The CMA applied a ‘cost-plus’ method to determine excessiveness along the first limb of the UB test, comparing the price charged with a benchmark of 6% as a reasonable rate of return. The Competition Appeal Tribunal (‘CAT’) overturned this decision on appeal on the basis that the CMA should have gone beyond a simple cost-plus calculation to determine excessiveness.

Upon further appeal, however, the Court of Appeal disagreed: the CMA could choose which benchmark - though if the defendant were to choose another well-reasoned method of calculation and furnish prima facie evidence that the pricing was fair, the CMA would be bound to evaluate it 'fairly and impartially' as well. Consequently, the Court of Appeal remitted the decision to the CMA, who fined Pfizer and Flynn £63 million and £6.7 million respectively.

According to George Zacharodimos, an antitrust and competition associate at Skadden, in the vast majority of cases a finding of excessive pricing has been related to an implementation of a price increase. In turn, said price increase usually followed an acquisition, re-branding agreement, or other transactional action which changes ‘the product’s brand, profile or owner’. Hence, excessive pricing would usually be looked at by regulators in conjunction with other potential antitrust concerns, such as merger control.


Enforcement on so-called pay-for-delay agreements, while nascent, is starting to show its teeth. A pay-for-delay agreement is said to take place between a company that has developed an original, branded drug, and a manufacturer of either an identical generic (having an identical composition of active substances and the same pharmaceutical form as the reference original drug) or biosimilar (being similar not identical due to the inherent variability of biological substances) drug, where the latter agrees to delay the market entry of its drug in return for payment.

In the US, after pharmaceutical company Endo’s Opana ER (oxymorphone) drug was removed by the Food and Drug Administration in 2017, Federal Trade Commission (‘FTC’) regulators alleged that Endo made an agreement with competitor Impax, whereby Impax would pay Endo not to re-enter the oxymorphone market. At the time, Impax was the sole supplier of oxymorphone. However, in March 2022 a Washington DC district court dismissed the case on the basis that Endo had a valid right to licence its patent to another company, instead of competing itself in the market. Although this decision did not set an encouraging precedent for pay-for-delay enforcement, commentators from Goodwin Procter argue that due to a 3-2 Democratic party majority in the FTC, the life sciences sector can expect that “the agency will pursue more aggressive enforcement generally”, and test economic theories of competitive harm beyond the traditional means.

In the EU, the first notable pay-for-delay cases were Generics (UK) in 2020 and Lundbeck in 2021, where the direction and definition of European enforcement action was established. The particularly spiky issue of defining a ‘potential competitor’ to which payment for non-competition would be prohibited was addressed, with the Court of Justice of the EU (‘CJEU’) setting out two conditions for a company to be a ‘potential competitor’: first, a firm intention and an inherent ability to enter the market, and second, a lack of insurmountable barriers to entering the market. According to lawyers from Stevens & Bolton, the UK is ‘likely to continue to followthis EU definition despite Brexit and has applied it this year in fining four pharmaceutical firms a total of £35 million for Alliance Pharma’s pay-for-delay agreement to delay competition over prochlorperazine.

As this field of antitrust is being fleshed out, further developments in the law on pay-for-delay cases are expected, especially given the current appeals in the Cephalon and Servier cases.

Pricing rules

The third main category of regulation involves governmental, rather than legal, provisions to limit the price national healthcare bodies have to pay for drugs. In the UK, the Voluntary Scheme for Branded Medicines Pricing and Access limits the growth of the NHS budget for branded medicines to 2% per annum; over the cap, drug manufacturers pay the government back a percentage of revenues to make up the difference. According to the Financial Times, this percentage, and the absolute amount, has ballooned from 5% and £500 million in 2020 to 15% and £1.8 billion in 2022. In 2023, the percentage is expected to increase to 30%.

The pharmaceutical industry has mounted significant resistance to the scheme. The CEO of pharmaceutical company Bristol Myers Squibb, Giovanni Caforio, stated that the company could divert investment since ‘the environment is not actually supporting continued investment in the UK’ even though the UK government wants life sciences to be a priority for the country. Furthermore, the scheme includes branded generic medicines and biosimilar drugs. Manufacturers argue that since these off-patent drugs have a lower profit margin due to pressures from market competition, they are harder hit by the scheme. Generics manufacturer Celltrion has stated that it would pull out of supplying the NHS with biosimilar medicines ‘as a direct consequence of this scheme’, while another unnamed company has informed the NHS that it would significantly cut its allocation of biosimilar drugs to the UK. The British Generic Manufacturers Association (‘BGMA’) argues that the scheme is pushing companies to stop supplying the NHS, which would give more pricing power to those still in the market, thus raising overall costs in the long term. They estimate that the scheme could impose between £3 and £7.8 billion of additional costs on the NHS between 2024 and 2028 due to reduced competition. However, the UK Department of Health and Social Care contends that there is ‘no evidence’ that the NHS will face increased costs as a result of the scheme.

Stateside, the Inflation Reduction Act 2022 has given the federal government the power to negotiate prices for some of the most expensive drugs purchased by Medicare (the country’s taxpayer-funded healthcare scheme for retirees) between nine and thirteen years after their launch. According to the Financial Times, this Act constitutes the ‘biggest shake-up of drug pricing regulation in decades.'

As in the UK, the Act has met with strong pushback from industry. Caforio stated that some drug candidates would no longer be funded. Cuttingly, he argues that the Act enables the government to ‘set the price’ of drugs, rather than engage in true negotiation, and this in turn makes it more difficult for companies such as his to justify continuing to invest in developing existing drugs. Specifically, cancer drugs would be hardest hit as development after launch to ‘expand their indication to target different diseases’ is most common in this niche. More broadly, the Financial Times states that the pharmaceutical industry has warned that the Act threatens to ‘cripple innovation and stymie development of life-saving medicines'. Again, the government sees things differently, with the nonpartisan Congressional Budget Office projecting that the law would decrease the number of new drugs over the next 30 years by just over 1% yet could save the US government up to £100 billion over the next decade.


It must be noted that many conflicting interests are at play here. For example, the short term interests of consumers are best met with low prices for drugs, but in the long term, low prices could disincentivise innovation and mitigate against the development of future drugs. Also, in some countries, national healthcare organisations could constitute virtual monopsonies with dominant price-setting power over drug companies. Who determines what price is ‘excessive’ and ‘unfair’ could, at the end of the day, be a function of who has the biggest say on the price itself.


Case 27/76, United Brands Co. v. Commission, 1978 E.C.R. 209

Competition and Markets Authority v Flynn Pharma Ltd and Pfizer Inc [2020] EWCA Civ 339

Generics (UK) Ltd and Others v. CMA, 30 January 2020

Judgment of 25 March 2021, Case C-591/16 P, Lundbeck v. Commission, EU:C:2021:543.

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