US pharma giant Pfizer and a partnering distributor have been slapped with a record fine for hiking UK drug prices by 2,600% overnight.

In September 2012, the amount the National Health Service (NHS) was charged for 100mg packs of anti-epilepsy drug phenytoin sodium went from £2.83 to £67.50 ($3.56 to $84.98), according to the UK's Competition and Markets Authority (CMA). As a result of the price increase, NHS expenditure on the drug increased from about £2 million ($2.52M) a year in 2012 to around £50 million ($62.95M) in 2013.

The CMA has ordered the two companies involved, the US pharma giant Pfizer and UK-based distributor Flynn Pharma, to pay record fines of £84.2 million ($106.01M) and £5.2 million ($6.55M) respectively, and to reduce their prices for phenytoin sodium. Both have said that they will be taking legal action to overturn the decision.

Before September 2012, Pfizer sold the drug in capsule form to UK wholesalers and pharmacies under the brand name Epanutin, and the prices of the drug were regulated. That month, Pfizer sold the UK distribution rights for Epanutin to Flynn Pharma, which "de-branded" the drug. A spokesperson for the CMA explained in an e-mail to Ars what this meant in practice:

Prior to de-branding, Pfizer's prices were governed by the Pharmaceutical Price Regulation Scheme (PPRS) which prevented any large prices increases. The PPRS applies only to branded products. After Flynn purchased the UK distribution rights from Pfizer, it de-branded the products. As de-branded (or genericised) products, the PPRS price controls did not apply, which allowed Flynn to charge whatever prices it wanted. De-branding did not have the consequence of increasing prices; rather it removed the PPRS restriction on Flynn increasing the prices. Normally, we would expect competition to lead to the price of a generic product to fall. However, the characteristics of this drug—i.e. the constraints on switching patients to other drugs—mean that did not occur.

Pfizer continued to manufacture the phenytoin sodium capsules and sold them to Flynn Pharma, but at increased prices. The CMA says they were "between 780 percent and 1600 percent higher than Pfizer’s previous prices." According to the CMA, Flynn Pharma increased the prices yet further when it sold them to UK wholesalers and pharmacies: "between 2300 percent and 2600 percent higher than those they had previously paid for the drug."

In its statement, Pfizer said it "refutes" the findings and "believes the CMA's findings are wrong in fact and law."

According to Flynn Pharma, phenytoin sodium capsules are less expensive than the alternative equivalent drugs in the UK market. David Fakes, CEO of Flynn said: "It beggars belief that the CMA seeks to punish Flynn for selling phenytoin capsules at a significant discount to phenytoin tablets. Phenytoin tablets are used for an identical purpose and for the last nine years have been sold at a price negotiated and accepted by the Department of Health."

In response to this, the CMA spokesperson told Ars: "the fact that other companies may have been charging high prices does not entitle Pfizer and Flynn to charge excessive and unfair prices."