The Competition Commission Appeal Tribunal ruling on 15 January in Napp v DGFT is a significant victory for the OFT. Having lost the very first case to be appealed to the tribunal (GISC), a second defeat before the tribunal would have been a major embarrassment. In the event, although Napp succeeded in having its fine reduced from £3.21m to £2.2m, the tribunal supported the OFT on nearly all points of substance.
Napp, a small pharmaceutical company, had developed a sustained-release morphine product – MST – used to treat cancer patients. It supplied MST to hospitals and community pharmacies, but its prices to pharmacies were much higher than its prices to hospitals. Napp’s market share was around 95%. This, coupled with significant barriers to market entry, led the OFT to conclude that Napp was dominant. In pricing to hospitals at discounts of more than 90% below its list price, the OFT found that Napp had engaged in predation by pricing below its direct manufacturing costs (a proxy for average variable cost). Further, the OFT found that in pricing to the community segment at levels typically 40% higher than its competitors and many times higher than its prices to hospitals, Napp had engaged in excessive pricing.
