A bitter pill: Court of Appeal restores CMA’s Phenytoin excessive pricing decision

On 19 June 2026, the Court of Appeal (CoA) issued its judgment in Pfizer/Flynn v CMA, drawing a line under the long-running UK phenytoin litigation. The CoA set aside the Competition Appeal Tribunal’s (CAT’s) November 2024 judgment in its entirety, holding that the CAT had “misread, or mischaracterised” the CMA’s 2022 decision “on critical issues”, and was “wrong” to set it aside.

Background

Phenytoin sodium is an anti-epileptic drug that has long been off-patent. Pfizer sold phenytoin capsules in the UK until 2012, when it transferred its marketing authorisations to Flynn under a new distribution arrangement. Flynn then de-branded the drug and increased the prices dramatically (by up to 2,600%). The cost of phenytoin sodium to the NHS rocketed from £2.3m in 2012 to £50m in 2013. 

The tortuous procedural history of the case is summarised below:

The CoA’s judgment

The CoA’s role in the latest appeal was a narrow one: it could only interfere with the CAT’s November 2024 judgment on points of law. The key legal question was whether the CAT had misread or mischaracterised the CMA’s 2022 decision which found (for a second time) that Pfizer and Flynn had charged excessive and unfair prices. In a damning judgment, the CoA held that the CAT had done so on various bases.

The CoA did not conduct its own assessment of whether the prices imposed by Pfizer and Flynn were abusive, nor did it modify the basic legal framework for excessive and unfair pricing. The judgment does, however, provide some helpful clarifications on this complex area of competition law: 

1. Endorsement of two-stage approach in Le Patourel v BT. The CoA expressly endorsed the “simplified” two-stage analytical approach adopted by the CAT in Le Patourel v BT:

• “Limb 1” is an “accountancy led evidential exercise”: it involves the computation of (a) “Cost Plus” (the cost of providing the product plus a reasonable rate of return) and (b) the differential between Cost Plus and the selling price. 

• “Limb 2” is a more “evaluative exercise”, focusing on the justification for the differential and determining whether there is a reasonable relationship between the price charged and the economic value of the product in question.

2. Confirmation that prices above “Cost Plus” are not presumed abusive. The CoA also endorsed the CMA’s formal confirmation during the appeal hearing that prices above Cost Plus are not per se illegal or even presumed to be so. The CoA made clear that “not every price above Cost Plus is abusive; otherwise, there would be no point in assessing whether the increment or excess above Cost Plus was justified” ([37]).
3. Approach to assessing comparables.  It is well established that in analysing whether a price is unfair, a competition authority may look at evidence relating to comparable products. The CoA held that “[t]he value of evidence of comparables is affected by the degree of equivalence between the index and comparator products and markets” ([249]). There will normally be three issues to consider:

(1) Product characteristics – it is important to ensure that “apples are compared with apples, and prices for cods’ roe or mushrooms are not compared with those for caviar or truffles”.

(2) Whether prices in the comparator market arise from “workably competitive” market conditions. If the comparator market is highly concentrated and surrounded by entry barriers, price evidence from that market may be of little probative value. 

(3) If the comparator price is affected by market power (i.e. it is inflated and supra-competitive), is there any evidence available which enables the inflated price to be adjusted so that it forms a proper basis for comparison? 

4. The Drug Tariff price is not necessarily evidence of a fair price. Pfizer argued that the Department of Health’s willingness to pay a Drug Tariff price of £30 for phenytoin tablets indicated that Pfizer’s price for phenytoin capsules was fair. The CoA endorsed the CMA’s rejection of this argument, holding that “the fact that a buyer pays for something is not an indication that the price paid is fair; it could simply reflect the exercise of compulsive market power by the seller” ([286]).
5. Intent and business strategy as admissible evidence of abuse. The CoA confirmed that whilst a dominant firm’s subjective intention does not make otherwise acceptable conduct abusive, evidence of intent or business strategy “can still be admissible as part of the matrix of inculpatory factual evidence which goes to abuse” ([314]). 

Broader implications

The CoA’s judgment returns the case to its starting point after nearly a decade of litigation. For the pharmaceutical sector, the message is clear: dominant companies that exploit their market power to impose dramatic, unjustified price increases on the NHS do so at significant legal and financial risk, with the CMA’s approach to challenging such conduct now endorsed by the CoA. 

This judgment is not the final word on the UK approach to excessive pricing in the pharma sector, however. The CoA’s pending judgment in Hydrocortisone is likely to shed further light on the appropriate test(s) to be applied in cases of this kind.