This article is more than 7 years old

This article is more than 7 years old

GlaxoSmithKline could face a multimillion-pound fine over allegations it paid other drug companies to slow down production of cheaper versions of its most profitable antidepressant, burdening taxpayers with inflated costs for NHS medicines.

The Office of Fair Trading has launched an investigation into GSK, alleging it abused its market dominance by agreeing so-called "pay for delay" agreements between 2001 and 2004 to protect the position of its drug Seroxat.

The regulator claims Alpharma, Genetics UK and Norton Healthcare were paid by GSK to delay production of cheaper copycat versions of the drug which could have saved the NHS millions.

GSK, the UK's largest pharmaceutical company, admitted agreements were reached but said they did not lead to delays in the generic versions coming to market.

If the OFT proves its case, it could hit GSK with a fine worth 30% of its UK turnover during 2001-04, which averaged £1.4bn per year.

This is the first time the OFT has launched a "pay to delay" case, but the regulator imposed a record-breaking £10.2m fine on Reckitt Benckiser in 2010 after the household products firm admitted it had abused its market dominance in the supply of heartburn medicines to the NHS.

"These are very serious allegations," said Farasat Bokhari, a health economist at the University of East Anglia. "Pay to delay is a problem in the immediate future for the NHS and in the long run for taxpayers. That is the bottom line."

In January 2013, the US Federal Trade Commission estimated that overpriced drugs resulting from such deals cost American taxpayers $3.5bn (£2.3bn) each year.

Bokhari said he would not be surprising if there were a proportionate hit to UK taxpayers – taking into account the smaller size of the economy. Medicine prices dropped by about 70% to 80% once a generic version came on the market, he said. In 2001 alone, the NHS spent £100m on the drug, paroxetine, branded by GSK as Seroxat.

The OFT investigation comes as regulators on both sides of the Atlantic focus on accusations that pharmaceutical companies are clinging to monopolies in bestselling drugs. The European commission recently launched inquiries into Johnson and Johnson and Novartis over alleged market abuse between their Dutch subsidiaries.

GSK said the OFT was covering ground already investigated by EU competition authorities, but a spokesman for Joaquín Almunia, the European competition commissioner, said: "The commission's GSK investigation was not focused on the matters pursued by the OFT."

Seroxat, which is still available on the NHS, was launched in the early 1990s and became one of the world's biggest-selling drugs, overtaking Prozac. However, the patent came to an end in 2004 and generic, cheaper versions flooded the market, hitting GSK's profits.

In 2000, global sales of Seroxat, which is marketed as Paxil in the US, were valued at £1.5bn, falling off to £374m by 2012.

The OFT would not disclose how much money it alleges GSK paid to delay the entry of generic copies on to the market, but the sums under investigation are thought to run into millions of pounds.

Ann Pope, senior director of services, infrastructure and public markets at the OFT, said: "The introduction of generic medicines can lead to strong competition on price, which can drive savings for the NHS, to the benefit of patients and, ultimately, taxpayers. It is therefore particularly important that the OFT fully investigates concerns that independent generic entry may have been delayed in this case."

A GSK spokesman said: "GSK supports fair competition and we very strongly believe that we acted within the law, as the holder of valid patents for paroxetine, in entering the agreements under investigation.

"These arrangements actually resulted in generic versions of paroxetine entering the market before GSK's patents had expired."

A spokeswoman for Pfizer, owners of Alpharma, said: "We are reviewing the statement of objections as it relates to a business Alpharma divested years before its acquisition by King. Pfizer, which subsequently acquired King, did not have any knowledge about this agreement, which dates to 2002. We will fully co-operate with the Office of Fair Trading regarding this matter."

Spokespeople for Teva, which bought Norton Healthcare, and Generics UK were unavailable for comment.