The Competition and Markets Authority (CMA) has discovered a rich seam for inquiries – pharmaceutical companies allegedly gouging the National Health Service.
Pfizer, together with a small UK company called Flynn Pharma, was fined £90m last December for “excessive and unfair” pricing of an anti-epilepsy drug. GlaxoSmithKline and two small firms were later hit for £45m for conspiring to delay competition on an anti-depressant. Now comes an accusation that Canadian firm Concordia Healthcare abused its dominant position to overcharge the NHS on a thyroid treatment; the price of the drug rose by almost 6,000% while production costs remained “broadly stable,” says the CMA.
The Concordia case is similar to the Pfizer one in that the price hikes followed the de-branding of a medicine. De-branding takes a drug into an unregulated pricing regime where competition from generic manufacturers is supposed to act as a brake on prices. In practice, competition doesn’t always arrive – thus a pack of Concordia’s liothyronine tablets rose from £4.46 before de-branding in 2007 to £258 by July this year.
The government has tried to address the problem by creating powers to control prices of generic medicines. But the open question is how severely the system has been abused. The CMA says its investigators are pursuing another seven cases involving several companies, which may suggest a pricing loophole has been quietly exploited for years.
The CMA is doing its bit, but there is a strong case for a wider investigation that looks beyond the narrow application of competition and consumer-protection laws. As it is, NHS England’s response felt limp – the CMA’s action “sends an important enforcement signal … that taxpayers and the NHS will not tolerate market abuses,” it said.
Well, yes, signals are important. But taxpayers and patients also want to know if the NHS has been taken for a ride on generics, whether officials are wiser to pricing games and whether the new law is up to the job. There is scope for a parliamentary inquiry. And, since the companies all shout about their ethical codes of conduct, they would surely be happy to be questioned in detail about how they deal with the NHS.
McCall will face more turbulence at ITV than easyJet
Dame Carolyn McCall, chief executive of easyJet, won’t regret her decision to quit to become ITV’s boss in the new year. She’s had seven mostly successful years at the airline and few executives get to lead two FTSE 100 household names. All the same, the medium-term job looks easier at the firm she’s leaving than the one she’s joining.
EasyJet’s full-year profits were knocked, as they were bound to be, by a £101m hit from the fall of sterling. But £408m, down from £494m, was a decent result. The European short-haul airline market was going through one its regular bouts of over-expansion and ticket prices fell. The position is now reversing – and quickly. Monarch and Air Berlin have gone bust, Alitalia is on its knees and Ryanair has cancelled a few winter flights while it hunts for pilots. Fares will rise for the first time in almost two years.
Air Berlin’s downfall has also allowed easyJet to bag 25 A320s plus landing slots in Tegel airport in Berlin on the cheap. The reorganisation costs are more severe – £60m of losses in year one plus £100m in one-off costs – but enhancement to earnings is promised in year two. In time, it’s possible that a similar attractive slice could be carved out of Alitalia. In short, the competitive landscape looks clearer than it has done in ages. McCall always boasted that easyJet is a “structural winner” – it rings true.
It’s harder to say the same about ITV on current form. The broadcaster has a near-monopoly on free-to-air commercial TV advertising slots in the UK – a useful structural advantage – but it is completing a second year of falling advertising revenues and the spectre of Netflix looms. ITV, even after a 25% fall in its share price this year, is still the bigger company in stock market terms – £6bn versus easyJet’s £5bn – but McCall will have done well if there’s still a £1bn gap seven years from now.
Did TCI go too far in its feud over Rolet?
The Children’s Investment Fund (TCI), the hedge fund seeking to oust Donald Brydon as chairman of the London Stock Exchange, should be careful not to overplay its hand. It asked a fair question – why is LSE chief executive Xavier Rolet leaving? And it called an meeting of shareholders to vote on Brydon’s survival, as is its right as a 5% shareholder.
But to accuse the LSE of threatening a character assassination of Rolet is bizarre. TCI called the meeting and the company has to issue a circular to shareholders. Brydon & co should have spoken up at the outset, of course, but they’re still allowed to give their side of the story.