Per editor: Huang Sheng
Just now, Grand Pharmaceutical, a Hong Kong listed company (0512. HK) issued an announcement that the subsidiary attaches great importance to and actively cooperates with the investigation of the State Administration for Market Regulation, accepts penalties and organizes rectification according to requirements, has terminated the relevant monopoly agreement, and supplied relevant raw materials to the market in accordance with the law.
The company also stated that the penalty amount accounted for about 3.48% and 15.85% of the group's audited consolidated operating income and profit attributable to the company's holders in the latest financial year, respectively, and was not expected to have a continuous impact on the group's production and operation. The Group will also continue to strengthen the study of laws and regulations and related normative systems, and further improve the Group's governance level in accordance with the requirements of relevant laws and regulations.
On May 28, the State Administration for Market Regulation imposed administrative penalties on Grand Pharma (China) Co., Ltd. and Wuhan Huihai Pharmaceutical Co., Ltd. for reaching and implementing a monopoly agreement and abusing a dominant market position, ordering Grand Pharma and Wuhan Huihai to stop their illegal acts, confiscating 149 million yuan of Grand Pharma's illegal gains and imposing a fine of 136 million yuan, confiscating 30.9248 million yuan of illegal gains of Wuhan Huihai and imposing a fine of 4.1268 million yuan.
The two pharmaceutical companies were fined more than 320 million yuan in total.
Two pharmaceutical companies monopolize the emergency medicine market
According to the penalty decision, from June 2016 to July 2019, Grand Pharma and Wuhan Huihai reached and implemented a monopoly agreement on the sale of norepinephrine bitartrate (hereinafter referred to as norepinephrine) API and epinephrine API.
From May 2010 to April 2021, Grand Pharma abused its dominant position in the Chinese norepinephrine API and epinephrine API markets by requiring preparation companies to accept unreasonable trading conditions such as selling norepinephrine injection and epinephrine hydrochloride injection at a low price, rebates to them, and selling the preparation according to the region and price required by it.
According to the investigation of the State Administration for Market Regulation, since 2010, the only enterprises in China with the production qualifications of norepinephrine API and epinephrine API are Grand Pharmaceutical and Shanxi Zhendong Taisheng Pharmaceutical Co., Ltd. (hereinafter referred to as Shanxi Zhendong Taisheng). Wuhan Huihai actually controls the sales of Shanxi Zhendong Taisheng norepinephrine APIs and epinephrine APIs through underwriting.
Therefore, in the sales of norepinephrine API and epinephrine API, Grand Pharma and Wuhan Huihai are competing operators.
Image source: Visual China - VCG21gic6332800
How did they join forces to monopolize the market, which should have been a mutually restricting relationship?
It turned out that after communicating with Wuhan Huihai many times, Grand Pharma reached a verbal agreement in June 2016, stipulating that Wuhan Huihai would stop selling norepinephrine APIs and epinephrine APIs.
Grand Pharma compensated Wuhan Huihai in two ways: first, it sold norepinephrine injection and epinephrine hydrochloride injection to Wuhan Huihai at a low price, and then repurchased it at a high price; The second is to require relevant preparation companies to sell norepinephrine injection and epinephrine hydrochloride injection to Wuhan Huihai at a low price, and then resell them at a high price from Wuhan Huihai.
Through the above agreement, Grand Pharma has long been the sole supplier of two APIs in the Chinese market, resulting in the inability of relevant preparation enterprises to purchase APIs of this variety from channels other than the parties, and the supply and sales of APIs are also controlled by Grand Pharma, which has pushed up the price of emergency rescue drugs norepinephrine injection and epinephrine hydrochloride injection, increased the cost of medication for patients and national medical insurance expenditure, and harmed the interests of patients and the public interest.
In November 2020, the State Administration for Market Regulation opened an investigation into Grand Pharmaceutical (China) Co., Ltd. and Wuhan Huihai Pharmaceutical Co., Ltd. for suspected monopolistic conduct. In May this year, the State Administration for Market Regulation made an administrative penalty decision on the case in accordance with the law.
The stock price rose by 616% during the monopoly! Net profit maintained an increase of more than 50%.
Historically, Grand Pharma's share price rose steadily from HK$1.2 in July 2016 (the period of the agreement) to an all-time high of HK$8.6 in August 2020, during which the share price rose by 616%.
During its monopoly period, Grand Pharma's net profit maintained a growth rate of more than 50%. After being placed on file for investigation in November 2020, the net profit took a sharp turn for the worse, and there was even a negative growth of 13.45% in 2022.
As of May 25, Grand Pharma's share price was HK$4.83, down 2.23%, with a market value of HK$17.1 billion.