* Pfizer, Flynn Pharma accused of breaching competition law
* Phenytoin sodium capsule price hiked as much as 2,600 pct
* Pfizer says drug had previously been unprofitable (Adds Pfizer comment on drug's profitability)
By Ben Hirschler
LONDON, Aug 6 (Reuters) - Britain's competition watchdog has accused Pfizer and Flynn Pharma of breaching UK and European law by ramping up the cost of an epilepsy drug, given to more than 50,000 British patients, by as much as 2,600 percent.
The Competition and Markets Authority (CMA) said its provisional view was that Pfizer and Flynn Pharma each abused a dominant position by charging "excessive and unfair" prices for phenytoin sodium capsules.
Pfizer and Flynn said they were cooperating fully with the CMA and noted a final decision on any infringement of the law had not yet been made.
The CMA can fine companies up to 10 percent of annual worldwide sales if they are found to have breached competition law.
U.S.-based Pfizer, which was in politicians' crosshairs last year after trying to buy British rival AstraZeneca, manufactures the drug and Flynn distributes it.
The U.S. group used to market the medicine itself, under the brand name Epanutin, but sold the rights to Flynn in September 2012, since when the price has surged.
Pfizer said in a statement the drug had been loss-making and it was therefore forced to consider whether it could continue supplying it at all.
The CMA said Pfizer sold the drug at between 8 and 17 times its historic price to Flynn, which then sold it on at between 25 to 27 times more than the prices previously charged by Pfizer.
As a result, the state-run National Health Service (NHS), which used to spend around 2.3 million pounds ($3.6 million) on phenytoin sodium capsules annually, saw its bill jump to more than 50 million pounds in 2013 and more than 40 million in 2014.
"While businesses are generally free to set prices as they see fit, those that hold a dominant position have a special responsibility to ensure that their conduct does not impair genuine competition and that their prices are not excessive and unfair," said Ann Pope, the CMA's senior director of antitrust enforcement.
"The prices that the CMA is concerned about in this case are very high compared to those prices previously charged and have led to a big increase in the total NHS drug bill, for what is a very important drug for tens of thousands of patients."
Pfizer said selling the medicine to Flynn had made it profitable and ensured there would be a sustainable supply, which was of "paramount importance".
David Fakes, a director at Flynn, based in Stevenage near London, said his company would defend itself vigorously against the allegations, adding its product was priced competitively against rivals, including a tablet version of phenytoin.
The CMA said it would consider any representations from the two companies before deciding whether the law had been infringed.
($1 = 0.6401 pounds) (Editing by David Holmes and Mark Potter)