Advanz Pharma and former private equity owners were fined £100m by markets watchdog
Last modified on Fri 30 Jul 2021 11.17 EDT
A pharmaceuticals firm that inflated thyroid drug prices by up to 6,000% over a decade paid out more than £400m to shareholders and directors during the same period.
London-based Advanz Pharma – and its former private equity owners HgCapital and Cinven – were fined a combined £100m by the Competition and Markets Authority (CMA) on Thursday.
Advanz and its subsidiaries were found to have charged “excessive and unfair prices” between 2009 and 2017 for liothyronine tablets, primarily used to treat hypothyroidism, which affects at least two in every 100 people and can lead to depression, tiredness and weight gain.
Patients have told how they were left with no option but to pay private doctors for prescriptions, and forced to hunt for cheaper tablets over the internet, buying the medication from online pharmacies and foreign suppliers without knowing whether the tablets being sold were genuine.
At the same time, Guardian analysis has found, the company rewarded investors and directors handsomely via a complex system of dividend payments and intra-company loans involving offshore entities.
During the period that the CMA found that drug prices were inflated, Companies House filings show that dividends were paid to entities controlled either from Luxembourg or Jersey.
The company sells a range of drugs, meaning revenues were likely generated by a variety of products, including but not limited to liothyronine, during the period.
The shareholder payouts were channelled through Mercury Pharma Group, part of the Advanz Pharma network of companies and one the firms fined in the CMA’s crackdown.
Between 2009 and 2012, Mercury Pharma Group paid £44.4m in dividends while under the ultimate ownership of Hg Capital, via a Luxembourg-based entity called Midas.
In 2012, fellow private equity group Cinven bought Mercury from Hg and merged it with Amdipharm, which it had purchased that year, combining them under the control of a Jersey-based entity called Amdipharm Mercury.
Under the ownership of this new entity, Mercury paid a £12.8m dividend.
Cinven sold Amdipharm Mercury to Canadian drugs company Concordia Healthcare in a £2.3bn deal in 2015, but the Jersey-based structure remained in place.
Now under Concordia’s control, Mercury paid dividends of £240.3m in 2016 and £85.4m in 2017, both to the Canadian firm’s London-based subsidiary Concordia Investment Holdings (UK) Limited.
This firm paid no income tax over the period, instead claiming tax credits worth a combined £42m.
It was able to do so in part because it made significant losses over the three years, partly due to £344m in debt interest that it paid on £1.47bn in loans that carried an interest rate of 10.5%.
As well as paying the Jersey entity hundreds of millions of pounds in interest, Concordia Investment Holdings (UK) also paid it dividends worth a combined £65m.
Concordia Healthcare changed its name to Advanz Pharma in 2018.
Over the eight-year period covered by the CMA’s fine for inflating drug prices, Advanz Pharma also handed significant payouts to senior managers.
A subsidiary paid directors, who never numbered more than three people, about £21m over the period of the drug price inflation.
A spokesperson for Advanz said: “We are committed to the principles of openness and transparency in all our dealings with all applicable authorities, including all tax authorities.
“The payment of dividends by a UK company to a Jersey company does not carry a tax benefit for any party since dividends are not tax deductible for the UK payer in any circumstances. Under UK tax law, no tax is required to be withheld from dividends paid by a UK company regardless of who receives the dividend and dividends are not taxable on receipt in both the UK and Jersey. Given this, the dividends did not create a tax benefit.
“The level of interest deducted by CIHUKL [Concordia Investment Holdings (UK)] for UK tax purposes is in accordance with the law and HMRC has agreed our taxes for the periods.”
On Thursday, the CMA said it had fined Advanz, its subsidiaries, Cinven and Hg a combined £100m. Advanz was fined almost £41m, while Hg and Cinven will pay penalties of £8.6m and £51.9m respectively.
The CMA found in 2017 that Advanz had taken advantage of limited competition in the market to bring in sustained price hikes for liothyronine of more than 6,000% in the space of 10 years.
The repeated price increases led NHS spending on the tablets to soar from £600,000 in 2006, before the price increase strategy was implemented, to more than £2.3m by 2009 and as much as £30m by 2016.
The liothyronine tablets were placed on the NHS “drop list” in July 2015, causing many people who relied on the drug to face the prospect of stopping treatment, paying for the drug themselves or relying on inferior treatments.
Hg declined to comment.
The Guardian approached Cinven for comment.
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