The joint monopoly of the three enterprises "camphor" was punished, why do anti-monopoly cases in the pharmaceutical industry occur frequently?

Since the beginning of this year, anti-monopoly fines in the pharmaceutical field have been frequently issued.

Following the april fine of 764 million yuan for the implementation of the monopoly agreement by Yangtze River Pharmaceutical Co., Ltd. and the fine of 44.02 million yuan for the monopoly case of "fluocinolone acetate API", on July 16, the State Administration for Market Regulation issued an administrative penalty decision on the case of Wuzhou Huangpu Chemical Pharmaceutical Co., Ltd., Suzhou Youhe Technology Co., Ltd., and Jiangsu Jiafu Pharmaceutical Co., Ltd. for reaching and implementing a monopoly agreement CP camphor (that is, the Chinese Pharmacopoeia standard camphor, referred to as CP camphor).

In September 2020, a case was filed and investigated into the monopoly agreements reached and implemented by three enterprises. In June 2021, the Jiangsu Provincial Market Supervision Bureau made an administrative penalty decision on the case: Wuzhou Huangpu Chemical Pharmaceutical Co., Ltd., and fined 8.77 million yuan; Suzhou Youhe Technology Co., Ltd., fined 4.12 million yuan; and Jiangsu Jiafu Pharmaceutical Co., Ltd., was fined 3.99 million yuan. The above three companies fined a total of 16.88 million.

In recent years, the state has strictly supervised the monopoly of the pharmaceutical industry, and has repeatedly punished monopoly enterprises and imposed heavy penalties. However, monopoly problems in the pharmaceutical industry are still common, especially in the field of APIs. In the future, the country's anti-monopoly law enforcement in the pharmaceutical industry will show a normalized trend.

<h4>The price of camphor was jointly negotiated, and three companies were punished</h4>

According to the investigation of the Jiangsu Provincial Market Supervision Bureau, Wuzhou Huangpu, Suzhou Youhe and Jiangsu Jiafu are three business operators with competitive relations, and the three enterprises ask each other about the market situation through meetings, WeChat, telephone, etc., and negotiate the sales price of CP camphor.

On March 1, 2018, Wuzhou Huangpu and Suzhou Youhe signed a relevant agreement to stipulate market share and sales price. In April 2018, Wuzhou Huangpu, Suzhou Youhe and Jiangsu Jiafu communicated and contacted during the Shanghai Pharmaceutical Exhibition, agreeing to maintain the price stability of the CP camphor market and not to compete in price wars and other methods.

In 2018, Jiangsu Jiafu signed an annual CP camphor purchase and sale contract with a customer, agreeing that the market price would rise and fall by 10% and the two sides would adjust the price, during which the customer inquired about the price from 3 companies by telephone from time to time. In order to reflect its own price advantage, Jiangsu Jiafu maintained long-term cooperation with the customer, so that Wuzhou Huangpu and Suzhou Youhe cooperated to increase the quotation. In 2018, the chairman of Suzhou Youhe proposed to maintain price stability between each other during the Shanghai Pharmaceutical Exhibition, and required the company to notify Wuzhou Huangpu in advance when selling inventory camphor at a low price. In April 2019, Suzhou Youhe will inform Wuzhou Huangpu in advance of its intention to sell inventory camphor to a customer at a low price.

In May 2019, Wuzhou Huangpu, Suzhou Youhe and Jiangsu Jiafu learned about the price of camphor during the Hangzhou Pharmaceutical Exhibition, and negotiated quotations with each other in the face of customer inquiries, and the trend and magnitude of quotations given by the three companies to the customer in the past two years were basically the same.

Wuzhou Huangpu, Suzhou Youhe and Jiangsu Jiafu negotiated to reach an intention to maintain the price level of CP camphor and not to engage in price wars, and communicated on the price of specific businesses in the actual transaction process. The sales price of CP camphor in 3 enterprises has risen continuously, and the time and magnitude of price increases have shown strong consistency. After the implementation of monopolistic behavior by the 3 companies, the sales price of their CP camphor can no longer reflect the real market competition price.

Article 13 of the Anti-Monopoly Law of the People's Republic of China prohibits business operators with competitive relationships from entering into the following monopoly agreements, including: fixing or changing the price of commodities; restricting the quantity of production or sales of commodities; and dividing the sales market or raw material procurement market. The three enterprises with competitive relations have violated the Anti-Monopoly Law by fixing or changing commodity prices and dividing the sales market or raw material procurement market.

Paragraph 1 of Article 46 of the Anti-Monopoly Law states that "where a business operator violates the provisions of this Law by concluding and implementing a monopoly agreement, the Anti-Monopoly Law Enforcement Agency shall order it to stop the illegal conduct, confiscate the illegal gains, and impose a fine of not less than one percent but not more than ten percent of the previous year's sales." In accordance with this regulation, the Market Supervision Bureau imposed corresponding fines on 3 institutions.

<h4>In response to the heavy blows of monopoly, the amount of fines has repeatedly reached new highs</h4>

In recent years, the state's anti-monopoly action against the pharmaceutical industry has never stopped. On April 14, 2020, the State Administration for Market Regulation imposed administrative penalties on the monopolistic behavior of three calcium gluconate API distribution enterprises of Shandong Kanghui Pharmaceutical, Weifang Helios Pharmaceutical and Weifang Puyunhui Pharmaceutical, with a total of 325.5 million yuan in fines and forfeitures. This was the largest fine for anti-monopoly cases in the field of APIs until the implementation of the Anti-Monopoly Law.

At the beginning of the new year in 2021, the state will point the anti-monopoly sword at Simcere Pharmaceutical in the field of APIs. On January 29, the State Administration for Market Regulation issued a decision on administrative penalties in the case of Simcere Pharmaceutical Group Co., Ltd. abusing its dominant market position. According to the decision, Simcere Pharmaceutical was punished for abusing its dominant market position, ordering the parties to stop the illegal acts and fining the parties a total of 100.7 million yuan.

According to the investigation, Simcere Pharmaceutical abused its dominant position in the sales market of ApIS of Batroxase Concentrate in China, implemented the act of refusing to trade with the transaction counterpart without a legitimate reason, forcing downstream preparation enterprises to stop production, sell equity and withdraw from the market, eliminating market competition and harming the interests of consumers.

Later, on April 15, 2021, the State Administration for Market Regulation (SAMR) announced that Yangzijiang Pharmaceutical Group Co., Ltd. (hereinafter referred to as Yangzijiang Pharmaceutical) was fined 3% of its 2018 annual sales for violating the Anti-Monopoly Law and implementing a monopoly agreement, totaling 764 million yuan.

As a leading domestic pharmaceutical production enterprise, Yangzijiang Pharmaceutical has reached a fixed and limited price monopoly agreement with distributors at all levels, and adopted a variety of penalties for breach of contract to strengthen the implementation of the agreement, increase the retail price of pharmacies and increase the quotation of hospital procurement links. According to the investigation, from 2015 to 2019, the group and dealers at all levels reached a fixed and limited price monopoly agreement by signing cooperation agreements, issuing price adjustment letters, oral notices, etc., and strengthened the implementation of the agreement by formulating rules, strengthening assessment supervision, punishing dealers with chaotic prices, and entrusting intermediary agencies to maintain prices.

This penalty has become the first case of violation of the Anti-Monopoly Law in the sale of proprietary Chinese medicine preparations or finished drugs, which also means that the anti-monopoly of the pharmaceutical industry has entered the field of preparations from APIs, which has great warning significance for the entire industry. The fine of 764 million yuan is the highest anti-monopoly fine issued in the pharmaceutical field since the implementation of the anti-monopoly law.

<h4>Monopoly phenomena have been repeatedly prohibited, and the approval of APIs needs to be reformed</h4>

Shi Lichen, founder of Beijing Dingchen Pharmaceutical Management Consulting Company, told the 21st Century Business Herald that the monopoly situation in the pharmaceutical industry, especially in raw materials, is relatively common. This has led to a significant increase in the cost of producing many drugs. Some tender products are supplied to hospitals because the raw materials have risen sharply and the cost of production has also risen. "At this time, a batch of losses will be produced, resulting in many enterprises cutting off work, reversing the situation of work interruption, looking upstream, and often finding out that the API is monopolized." Shi Lichen said.

Shi Lichen said that this situation has become more and more serious since 2017. Regarding the reasons for the formation of monopolies, he said that China began to pay attention to environmental protection in 2017, when many companies wanted to pass the environmental impact assessment, purchased a large number of software and hardware equipment, and the training of talents, at which time many enterprises lacked funds. "The closure of a large number of small and medium-sized enterprises has led to a significant reduction in the number of production enterprises, and it is easiest to form a monopoly at this time." The above monopoly situation is a typical raw material monopoly, and the monopoly of Simcere Pharmaceutical belongs to this type.

In addition, Shi Lichen introduced that there is another type of monopoly, which is a monopoly at the sales end, and Yangzijiang Pharmaceutical was punished because of this monopoly. "These five products have signed a lot of agreements on the sales side, such as price limitation and channel limitation." He said. This is the monopoly on the sales side.

At the national level, in fact, from the raw material end to the sales end, the national market supervision department is cracking down on monopoly, Shi Lichen said. Therefore, anti-monopoly is a norm and is difficult to solve in the short term.

At present, the key point of the country's anti-monopoly in the pharmaceutical industry, Shi Lichen believes that the real solution to the problem is still from the raw material level. If the state considers the implementation of the raw material filing system, it can change in nature, and the monopoly situation will be greatly reduced.

There are many problems in the current approval system, Shi Lichen said, the approval is mainly for enterprises with raw material certificates in the market. Some products have few raw material certificates and are prone to monopoly. If the filing system is implemented, the production enterprise will produce raw materials for the record in the Food and Drug Administration, the enterprise can produce, the enterprise's own production cost is low, and it will not form a monopoly due to the lack of qualification certificates. Shi Lichen believes that it is reasonable to control the quality of drugs in the final preparation, and the RAW Materials should not be controlled and approved as much as possible. Shi Lichen believes that many APIs are actually not high in technical content, but because of the small number of qualification certificates, the scarcity of raw material approvals leads to the formation of monopolies.

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