Reckitt could face £80m fine over Gaviscon 'market abuse'

OFT accuses drugmaker of restricting competition

The household goods giant Reckitt Benckiser has been accused by the competition watchdog of deliberately manipulating its "dominant market position" to stop NHS doctors from supplying generic versions of its Gaviscon heartburn and indigestion medicine.

If it is found to have abused its power, the Office of Fair Trading could fine Reckitt – which makes the painkiller Nurofen and the dishwasher powder Finish – up to 10 per cent of its annual sales, which came in at £7.78bn in 2009.

The notice by the OFT is significant because Gaviscon is a major contributor to Reckitt's revenues, although analysts said that any potential fine is likely to be less than the maximum the OFT could levy.

The competition watchdog alleges that Reckitt sought to "restrict" competition to the heartburn brand by withdrawing and delisting its packs of Gaviscon Original from the NHS prescription database just before a generic name had been assigned.

According to the OFT, this meant that when doctors used prescribing software to search for the product and its generic equivalents by using the Gaviscon brand name they could only find – and recommend to patients – Gaviscon Advance Liquid, which is patent-protected until 2016.

Simon Williams, the OFT's senior director for goods, said: "This case raises significant and complex competition issues relating to the supply of prescription drugs to the NHS. Reckitt Benckiser will now have a full opportunity to respond to our proposed findings before we decide whether competition law has in fact been infringed."

But the OFT said no assumption should yet be made that an infringement of competition law had occurred.

Graham Jones, an analyst at Panmure Gordon, said: "While Gaviscon Original is still available as an over-the-counter product, Reckitt has previously commented that it is the second largest prescribed brand on the NHS. The maximum fine, if found guilty, could be 10 per cent of group worldwide turnover but we do not expect a fine to be anywhere near this level."

Reckitt said: "RB believes it competes fairly and within the letter and spirit of the law in all of our operations, and has co-operated fully with the OFT throughout its inquiry. Gaviscon Advance is a second generation product, superior to Gaviscon Original."

The inquiry began in November 2008, following a BBC Newsnight interview with a whistleblower who claimed that generic copies of Gaviscon could have saved the NHS about £40m since 1999, when Gaviscon's patent expired. Reckitt, however, objected to attempts to approve a generic name for Gaviscon, delaying the process until 2007.

This month, Reckitt warned about the impact on revenues of another patent expiry. It said that up to 80 per cent of its pharmaceutical arm's revenues and profits could be lost this year – and further erosion thereafter – after the launch of generic competitors to its methadone substitute, Suboxone, in the US.

Fear factor: The OFT gets tough

The Office of Fair Trading's foray into the medicines market is the latest example of its increasingly aggressive interventions under combative chief executive John Fingleton. Since arriving at the OFT in 2006, Mr Fingleton has stepped up the regulator's activities, launching a string of investigations into industries ranging from housebuilding to supermarkets to banking. He made headlines around the world last month in an interview with The Independent, accusing the low-cost Irish airline Ryanair of being "childish" and "puerile" in its charging practices. Ryanair played "silly games", Mr Fingleton said, accusing the airline of "taunting customers".

There have been some failures on Mr Fingleton's watch: notably, his attempt to bring the banks to book over refunds of unauthorised overdraft fees came a cropper when the High Court ruled that the charges were beyond the jurisdiction of the OFT. However, a string of investigations are continuing, into both market abuse cases and more straightforward competition matters.

The OFT is seeking, for example, the right to consider the merger of T-Mobile and Orange in the UK, rather than leaving the decision to Europe's competition watchdogs.