Pfizer arrangements with Unichem

By Richard Eccles


The High Court dismissed an application for an interim injunction by AAH Pharmaceuticals Limited and seven other pharmaceutical wholesalers to restrain the implementation of Pfizer Limited’s new single “direct to pharmacy” distribution arrangements for its prescription drugs in the UK. These arrangements involve Unichem as a sole logistics services provider in place of wholesalers.

The claimants claimed that the arrangements infringe both UK and EC competition law. Unichem Limited, a pharmaceutical wholesaler, which now has an agreement to deliver Pfizer’s products to pharmacies and dispensing doctors, was joined as a party to the proceedings.

The relevant agreement is between Pfizer and Unichem according to which Unichem is appointed as a sole logistics services provider through which Pfizer will supply retail pharmacies and dispensing doctors with its prescription drugs. The arrangement was due to commence on Monday, 5 March 2007.

Pfizer decided to implement its direct to pharmacy scheme in order to provide a guaranteed source of genuine, correctly packaged and labelled Pfizer prescription medicines for the benefit of patients in the UK, to ensure there is better traceability of Pfizer’s prescription medicines in the UK, and to improve the management of stock in the UK.

Pfizer has supplied the claimants for many years, and the claimants in turn as full-line wholesalers have been supplying Pfizer products to pharmacies and dispensing doctors. Pfizer has informed the claimants well in advance, in 2005, about the new arrangement with Unichem and the proposed termination of existing arrangements with wholesalers.

In April 2005 Pfizer announced its intention to supply the market through one or more logistics service providers to the exclusion of wholesalers and Unichem emerged as the preferred bidder. On 28 September 2006 Pfizer announced its arrangements with Unichem, and on the same day it sent letters to wholesalers informing them of its intention to terminate supplies to them in March 2007. Pfizer stated in its letters that it would not accept orders placed by wholesalers after 23 February 2007. On 19 October 2006, Pfizer submitted a briefing paper in relation to these arrangements to the Office of Fair Trading. The claimants and others promptly lodged complaints with the OFT, but after reviewing the available evidence, the OFT indicated by letter of 27th February 2007 that it had taken no firm view on whether to open an investigation, i.e. whether or not there were reasonable grounds for suspecting an infringement of EC or UK competition law.

The High Court heard the application on 2 March 2007. The applicant alleged that the exclusivity of supply arrangements infringed Article 81 EC/Chapter I of the Competition Act and that Pfizer’s refusal to supply other wholesalers infringed Article 82 EC/Chapter II of the Competition Act. The Court gave an immediate decision refusing the application on the same day, but handed down the reasons for its decision on 5 March 2007.

The court established that the test for granting an injunction in this case is whether there is a seriously arguable case and whether, overall, the grant of an injunction should be granted in the short term until there can be an effective hearing of the application if the matter proceeds. The court was prepared to assume that the claimants have a seriously arguable case. However, the court noted that the OFT had not been convinced that the wholesalers would suffer irreparable harm. The Court’s judgment stated that there was insufficient evidence to support the applicants’ claims that small pharmacies would switch all their purchases to the Unichem channel in order to be able to purchase all their required products (Pfizer’s and others) from a single source and that other wholesalers would therefore suffer a foreclosure effect.

The court firstly noted that the claimants had relied on the sequence of dealings with the OFT for the delay in bringing this application. However, while accepting that the wholesalers were waiting for a decision from the OFT, the court did not consider that this course of action was appropriate since justice could not properly be served by delaying a complex application to the High Court until the last minute. The defendants did not have sufficient time to respond fully to the very substantial evidence put forward and the court did not have time to digest fully the factual and legal issues.

The court further noted failures on the part of the claimants in not submitting to the OFT in due time evidence to the effects of the switching on small pharmacies and dispensing doctors. The court expressed concern that it was now being asked to consider evidence which should have been put before the OFT at an earlier time.

The court considered that the grant of the injunction would have been seriously disruptive to Pfizer’s distribution arrangements. By depriving the defendants and the court of the proper opportunity of dealing with this application, the delay greatly increased the risk of injustice if an injunction were granted. The court, for the above reasons, concluded that the refusal of an injunction would be likely to involve less risk of injustice to the applicant than the degree of risk of injustice to Pfizer of granting the injunction and therefore dismissed the application.

Source: AAH Pharmaceuticals Ltd & Ors v Pfizer Ltd & Anor ([2007] EWHC 565 (Ch)