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Four pharmaceutical companies were fined 1.219 billion yuan for monopoly, the cost was less than 15 yuan, why can the drug price be sold for 3,000 yuan?

Four pharmaceutical companies were fined 1.219 billion yuan for monopoly, the cost was less than 15 yuan, why can the drug price be sold for 3,000 yuan?

Reporter: Xu Libo Editor: Zhang Haini

Anti-monopoly in the pharmaceutical field reproduces a typical case: under the collusion of four companies, a drug with a cost price of less than 15 yuan per piece was sold to a maximum of nearly 3,000 yuan per piece.

On December 22, the Shanghai Municipal Administration for Market Regulation issued the "Administrative Penalty Decision" on its official WeChat account, imposing penalties on Shanghai Shanghai Pharmaceutical First Biochemical Pharmaceutical Co., Ltd. (hereinafter referred to as Shenghua), Wuhan Huihai Pharmaceutical Co., Ltd., Wuhan Kede Pharmaceutical Co., Ltd., Hubei Minkang Pharmaceutical Co., Ltd. (hereinafter collectively referred to as the three companies as Huihaifang) abused its dominant position in China's polymyxin sulfate B market for injection and made an administrative penalty decision to sell preparations at unfairly high prices, ordered to stop the illegal acts, confiscated illegal gains, and imposed fines of 3% and 8% of the sales of the previous year respectively, with a total fine of about 1.219 billion yuan.

Among them, Yihua is a wholly-owned subsidiary of Shanghai Pharmaceutical (SH601607, share price 16.63 yuan, market value 61.586 billion yuan). Previously, Shanghai Pharmaceutical had made an announcement on the receipt of the administrative penalty decision by the subsidiary.

The reporter of "Daily Economic News" noticed that the actual controlling shareholder of Huihaifang is the same and has an affiliated relationship, and the three companies have mixed personnel and office locations. Based on unified decision-making, division of labor and cooperation, the three companies jointly carried out the acts involved in the case.

The "Administrative Penalty Decision" released by the Shanghai Municipal Administration for Market Regulation revealed the inside story, and disclosed in detail the illegal process of the four companies closely cooperating to control the supply of APIs, implementing unfair high-price sales, and sharing monopoly profits.

Four pharmaceutical companies were fined 1.219 billion yuan for monopoly, the cost was less than 15 yuan, why can the drug price be sold for 3,000 yuan?

Data sources: Frost & Sullivan, PDB (Protein Database), Southwest Securities collation of Yang Jing mapping, Visual China map

How is a drug monopoly formed?

According to the "Administrative Penalty Decision", the product involved in this case, polymyxin B sulfate for injection, was marketed in the 50s of the 20th century, mainly used for the treatment of drug-resistant Pseudomonas aeruginosa infection, and then gradually faded out of clinical practice due to obvious nephrotoxicity and neurotoxicity.

In fact, in 1986, Shenghua obtained the production approval of polymyxin sulfate B for injection, but it was discontinued at the end of the 80s of the last century. Due to the long period of non-production, the re-registration after the expiration of the lifetime approval document has not been approved.

However, polymyxin B sulfate for injection has not completely disappeared. In recent years, with the increase in the detection rate of carbapenem-resistant gram-negative bacteria, especially the emergence and epidemic of carbapenem-resistant Enterobacteriaceae, carbapenem-resistant Acinetobacter baumannii, and carbapenem-resistant Pseudomonas aeruginosa, clinical drugs are often in the dilemma of no antimicrobial drugs available. In the face of the severe drug resistance situation and limited treatment options, polymyxin B sulfate for injection, which is effective against almost all carbapenem-resistant gram-negative bacteria, has been able to return to the clinic and be used for first-line treatment.

Perhaps seeing the "business opportunity", Huihaifang began to enter the market of polymyxin sulfate B for injection, first of all, from controlling the supply of raw materials for this drug: for a long time, there have been no enterprises in China to produce polymyxin B sulfate for injection, and they can only import from abroad. In order to introduce APIs, in April 2010, Wuhan Huihai Pharmaceutical Co., Ltd. signed the API Supply Agreement with A.C.A.Celli of Denmark and became the agent of A.C.A.Celli in the Chinese market. In November 2013, Aceris of Denmark obtained the "Import Drug Registration Certificate" for APIs. In order to monopolize the supply of the API in China, since 2016, Huihaifang has also given the sales director of Danish Acerli in China a benefit fee, requiring him to use his authority not to sell polymyxin B sulfate API to other enterprises.

According to statistics, since 2015, 98% of the total amount of polymyxin B sulfate APIs exported to China has been sold to Huihaifang or enterprises designated by Huihaifang, and the remaining 2% has been sold to medical device R&D companies, which are not used to produce polymyxin B sulfate for injection.

So far, Huihaifang has completely controlled the supply of polymyxin B sulfate APIs in China. The next step is to produce raw materials into drugs and sell them to the market: for this reason, around 2015, Huihaifang began to contact Shenghua to communicate about the re-listing cooperation of polymyxin sulfate B for injection. In June 2015, Huihaifang signed a "Cooperation Agreement" with Shenghua, stipulating that Huihai would supply polymyxin B sulfate APIs to Shenghua, and Shenghua would be responsible for the declaration and drug production of the "Drug Re-registration Approval" of polymyxin sulfate B for injection, and grant Huihaifang the exclusive distribution right of preparations, from which Shenghua would collect processing fees. The two parties also agreed that when bidding for preparations, the two parties would negotiate and communicate on the bidding price, distributor and other matters, and jointly agree on the bidding matters. In January 2017, Shenghua obtained the re-registration approval of polymyxin sulfate B for injection. During the period involved in the case, Shenghua was the only polymyxin B sulfate manufacturer for injection in China.

In the process of jointly selling polymyxin sulfate B for injection at a high price, Shenghua cooperated with Huihaifang in the division of labor and cooperated closely to jointly determine the sales price. Huihaifang is located behind the scenes, and through the cooperation of provincial agents, it carries out academic promotion and hospital development nationwide, and coordinates the sales of polymyxin B sulfate for injection. As a manufacturer of polymyxin sulfate B for injection, Shenghua is the marketing authorization holder, bidding subject and direct sales entity of the product. In the process of product sales, Lifetime connects with the drug procurement departments of various provinces, makes online quotations, and invoices and sells them to circulation enterprises according to the instructions of Huihaifang to obtain the sales revenue of preparations.

The API is less than 100 yuan per gram

In 2016, the state began to implement the "two-invoice system", and implemented the issuance of an invoice for drugs from the manufacturer to the circulation enterprise, and an invoice from the circulation enterprise to the medical institution, with the aim of reducing the drug circulation link and reducing the price of drugs.

The conduct involved in this case occurred after the implementation of the "two-invoice system". Restricted by the "two-invoice system", Huihaifang cannot directly obtain monopoly profits from the sales of preparations by buying low and selling high. To this end, with the cooperation of a lifetime, Huihaifang obtains monopoly profits from the API link through the inflated sales price of APIs.

Huihaifang will gradually increase the API purchased from 73 yuan/g to 94 yuan/g from Yacelli in Denmark to 18,000 yuan/g to 35,000 yuan/g and sell it to Lifetime for the production of preparations, resulting in the false impression that the high price of polymyxin sulfate B for injection is caused by the high price of APIs.

Specifically, after receiving the sales revenue of the preparation, Shenghua calculates the amount to be returned to Huihaifang after deducting the agreed processing fee, and prepares a Settlement Memorandum, and after Huihaifang checks the above-mentioned Settlement Memorandum and confirms that it is correct, Shenghua will pay the corresponding amount to Huihaifang by purchasing APIs at a high price according to Huihaifang's instructions. Due to the large amount of payment for APIs, Huihaifang arranged 38 pharmaceutical companies in Hubei, Jiangxi, Shandong, Guangdong, Hunan and other places to "turn left and right" and increase prices layer by layer to obtain profits.

Lifetime shares monopoly profits by charging processing fees. According to the agreement between the two parties, the preparation processing fee will be charged for life, and the rest of the preparation sales revenue will be returned to Haifang. As the only polymyxin sulfate B manufacturer for injection, Shenghua has a certain bargaining power in the process of cooperation with Huihaifang, and has repeatedly asked for an increase in processing fees and shared monopoly profits. For example, in 2019, Yishenghua requested that the processing fee be increased from 140.4 yuan per piece (including tax) to 200 yuan per piece. In January 2023, Lifetime once again requested that the processing fee be increased from 200 yuan per branch to 230 yuan per branch.

According to the Administrative Penalty Decision, whether Shenghua and Huihaifang had a dominant position in the Chinese polymyxin sulfate B market for injection and abused their dominant market position were the two key factors in this case.

The first is the identification of the dominant market position of Shenghua and Huihaifang: after investigation, Shenghua and Huihaifang exclusively sell polymyxin B sulfate for injection in China, occupying 100% of the market share in China.

In addition, due to the important role of polymyxin B sulfate for injection in treatment, hospitals and patients have a high degree of dependence on it, and Shenghua and Huihaifang, as the only operators selling polymyxin sulfate B for injection, have the ability to influence and determine key transaction conditions such as sales price and sales quantity. At the same time, Huihaifang controlled the supply of polymyxin B sulfate API by signing an agreement with Aceris of Denmark.

Finally, there are three major difficulties for other operators to enter the relevant market: First, it is difficult to obtain APIs, because Huihaifang controls the supply of polymyxin B sulfate APIs in China. Second, it is difficult to obtain the approval for the production of preparations, and as an enterprise with approval, Lifetime started to resume production in 2015, and did not obtain the "Drug Re-registration Approval" until 2017. Other operators need to invest more money and take longer to enter the market. Third, it is difficult to obtain the approval for the import of preparations. In order to enter the Chinese market, polymyxin sulfate B for injection produced abroad also needs to meet relevant regulatory requirements and obtain the "Import Drug Registration Certificate", which is difficult to complete in a short period of time.

Taking into account factors such as market share, ability to control the market, and ease of entry of other operators into the relevant market, the regulatory authorities determined that Yihua and Huihaifang have a dominant position in China's polymyxin sulfate B market for injection.

Abuse of a dominant market position

In addition to having a dominant market position, another key factor is whether there is any abuse of its dominant market position by Lifetime and Huihaifang.

In 2017, before polymyxin B sulfate for injection was put on sale, Huihaifang carried out market promotion nationwide through cooperative provincial agents. In March 2017, polymyxin B sulfate for injection entered the Fujian Provincial Medical Insurance Listing Directory, and the price of the network was 2,303 yuan/branch. In August 2017, polymyxin B sulfate for injection was listed in Shanghai, and the price reached 2,918 yuan/piece. Since then, polymyxin B sulfate for injection has been put on the net in various provinces, and the price mostly ranges from 2303 yuan/piece to 2918 yuan/piece. In December 2017, polymyxin B sulfate for injection was officially put on sale, and Lifetime supplied to circulation enterprises according to the instructions of Huihaifang, according to the price of the network, after deducting the distribution fee.

The regulatory authorities determined that the above-mentioned acts of Yishenghua and Huihaifang constituted an abuse of market dominance and the sale of goods at unfairly high prices. There are three main reasons for this:

First, the ratio of the price of polymyxin sulfate B for injection to the production cost is significantly higher than that of other preparations produced in the same production line. In this case, the total production cost of polymyxin B sulfate for injection was about 8.6 yuan/piece to 14.6 yuan/piece, and the ratio of the net price to the production cost reached 157~339 to 1. However, the average annual ratio of the price of other lyophilized powder injection products in the same production line to the production cost is only about 7~29 to 1.

Second, with the cooperation of Lifetime, Huihaifang arranged 38 pharmaceutical distribution companies to circulate tickets and increase prices layer by layer in the API sales process, and gradually pushed the API purchased from 73 yuan/g to 94 yuan/g from Yacelli in Denmark to 18,000 yuan/g to 35,000 yuan/g and sold it to Lifetime for the production of preparations, resulting in the false impression that the high price of polymyxin sulfate B for injection was caused by the high price of APIs, and covering up the implementation of unfair high prices in the market of polymyxin sulfate B for injection.

Thirdly, the domestic sales price of polymyxin sulfate B for injection was significantly higher than that of other countries and regions in the same period. According to third-party statistics, the weighted average price of polymyxin B sulfate for injection in other countries and regions in 2022 is 65 yuan per piece, and the price in the Chinese market is 35 to 44 times that of this price.

The Shanghai Municipal Administration for Market Regulation determined that Yishenghua and Huihaifang abused their dominant market position to sell polymyxin sulfate B for injection at unfairly high prices, causing its price to seriously deviate from the normal level, eliminating and restricting market competition, increasing the cost of medication for patients, seriously harming the interests of patients, and increasing the expenditure of the national medical insurance fund, seriously harming the public interest.

According to the relevant regulations, the Shanghai Municipal Administration for Market Regulation decided to order the four pharmaceutical companies to stop their illegal acts, and fined 462 million yuan, 58.6894 million yuan, 689 million yuan and 9.4856 million yuan respectively to Yishenghua, Wuhan Huihai, Wuhan Kede and Minkang Pharmaceutical, with a total fine of about 1.219 billion yuan.

National Business Daily

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