In July 2023, polymyxin B sulfate, an exclusive drug for injection produced by a subsidiary of Shanghai Pharmaceutical Group, suddenly announced that it would be reduced from 2,303 yuan/tube to 270 yuan/tube, a drop of nearly 90%, which attracted industry attention.
Reporters learned from the official website of the State Administration for Market Regulation that the administrative penalty decision on the abuse of market dominance by four companies including Shanghai Shanghai Pharmaceuticals First Biochemical Co., Ltd. (referred to as Shanghai Pharmaceuticals Biochemical) was recently released. The decision letter shows that in July 2023, the Shanghai Municipal Administration for Market Regulation launched an investigation into four companies including Shanghai Pharmaceuticals Biochemical for abusing their market dominance. In December 2023, the Shanghai Municipal Administration for Market Regulation made an administrative penalty decision on this case in accordance with the law. The penalty decision shows that between December 2017 and June 2023, four pharmaceutical companies abused their dominant position in the Chinese injection polymyxin B sulfate market and implemented the behavior of selling preparations at unfairly high prices, excluding and restricting It disrupts market competition and harms the interests of patients and the public interest of society.
A well-known anti-monopoly law expert pointed out in an interview with reporters that the above four companies were fined 1.219 billion yuan for violating the Anti-Monopoly Law of the People’s Republic of China, which is currently the largest anti-monopoly penalty case in the pharmaceutical field.
Monopolizing the API market
Injectable polymyxin B sulfate plays an important role in the treatment of carbapenem-resistant gram-negative bacterial infections. Hospitals and patients are highly dependent on it and it is difficult to replace it with other drugs. Before 2017, no domestic company produced its raw materials and drugs, and they had to import them from abroad.
According to a notification from the State Administration for Market Regulation, three private pharmaceutical companies, Wuhan Huihai Pharmaceutical Co., Ltd., Wuhan Kede Pharmaceutical Co., Ltd., and Hubei Minkang Pharmaceutical Co., Ltd., and the state-owned pharmaceutical company Shanghai Pharmaceutical Group Shanghai No. 1 Biochemical Pharmaceutical Co., Ltd. , abusing its dominant position in China’s injection polymyxin B sulfate market and selling preparations at unfairly high prices.
The three companies of Wuhan Huihai, Wuhan Kede and Minkang Pharmaceutical (collectively referred to as Wuhan Huihai) have the same actual controlling shareholders, mixed personnel and office locations, unified decision-making, division of labor and collaboration, jointly carried out the acts involved in the case, and shared monopoly profits.
In order to introduce and control its API, Wuhan Huihai signed an agreement with the Danish Yasserli company in 2010 and became the Chinese market agent of the Danish Yasserli company. Starting in 2016, Wuhan Huihai paid benefits to the sales manager of Denmark’s Yasserli in China, requiring him not to sell the API to other companies, thus controlling the entire supply of APIs in the Chinese market.
On the other side, Wuhan Huihai is busy looking for manufacturers. Since only Shanghai Pharmaceuticals Biochemical Co., Ltd. has the production qualification in the country, it has not yet put into production the drug. Wuhan Huihai then reached a cooperation intention with Shanghai Pharmaceutical Biochemical, supplying APIs to Shanghai Pharmaceutical Biochemical. Shanghai Pharmaceutical Biochemical was responsible for drug declaration and production, and granted exclusive distribution rights to its preparations, from which Shanghai Pharmaceutical Biochemical collected processing fees. Shanghai Pharmaceuticals Biochemical applied for production qualifications and received the production approval from the Food and Drug Administration in 2017, becoming the only manufacturer in China.
The Shanghai Municipal Administration for Market Regulation stated that operators entering the market must first have APIs for R&D and production, and Wuhan Huihai controls the supply of APIs in the Chinese market, making it difficult for other operators to obtain APIs. It is reported that this is the second time Wuhan Huihai has been punished by pharmaceutical antitrust in 2023. In May 2023, the State Administration for Market Regulation fined him 4.1268 million yuan. Wuhan Huihai Pharmaceutical Co., Ltd. was established in 2003 with a registered capital of 3 million yuan and its legal representative is Li Meilin.
Collusion to earn excess profits
Shanghai Pharmaceuticals Biochemical is affiliated to Shanghai Pharmaceutical Group. The company has total assets of 800 million yuan and a registered capital of 225 million yuan.
When Wuhan Huihai signed a cooperation agreement with Shanghai Pharmaceuticals Biochemical, it was stipulated that when bidding for preparations, the two parties would negotiate and communicate on bidding prices, distributors and other matters, and jointly decide on bidding matters. In accordance with the rules of drug sales, Shanghai Pharmaceuticals Biochemical came forward to connect with the drug recruitment and procurement departments of various provinces across the country, make online quotations, and invoice and sell to distribution companies according to the instructions of Wuhan Huihai to obtain preparation sales revenue.
As the only operator selling the drug, Shanghai Pharmaceuticals Biochemical has the ability to influence and determine key transaction conditions such as sales price and sales quantity. The first online price of this drug in Fujian Province was 2,303 yuan/tube, and later the online price in Shanghai reached 2,918 yuan/tube. Since then, various provinces have successively connected the network, with prices ranging from 2,303 yuan/piece to 2,918 yuan/piece. According to the instructions of Wuhan Huihai, Shanghai Pharmaceuticals Biochemical supplies products to circulation companies according to the price listed on the Internet, after deducting the distribution fee.
In 2016, the country began to implement the “two-invoice system” policy, that is, one invoice is issued for drugs from the production enterprise to the circulation enterprise, and one invoice is issued from the circulation enterprise to the medical institution. The purpose is to reduce the circulation links of drugs and reduce drug prices. Due to the restrictions of the “two-invoice system”, Wuhan Huihai cannot directly obtain monopoly profits from the sales of preparations by buying low and selling high. To this end, Wuhan Huihai, with the cooperation of Shanghai Pharmaceuticals Biochemical, obtained monopoly profits from the raw material drug link by inflating the sales price of raw materials.
Due to the large amount of payment for raw materials, Wuhan Huihai arranged for 38 pharmaceutical companies in Hubei, Jiangxi and other places to “change hands” and increase prices layer by layer. The import price from Danish Yaselli Company will be 73 yuan/g to 94 yuan/g. The purchased raw materials are gradually pushed up to 18,000 yuan/gram to 35,000 yuan/gram and sold to Shangyao Biochemical for the production of preparations, making profits from it. This creates the illusion that the high price of the drug is due to the high price of raw materials.
Drug prices have been driven up for nearly six consecutive years
The Shanghai Municipal Administration for Market Regulation disclosed that in 2022 alone, Wuhan Huihai’s illegal gains were 610 million yuan, and Shanghai Pharmaceuticals Biochemical’s was 330 million yuan. The actions of Wuhan Huihai and Shangyao Biochemical constituted an abuse of market dominance to sell goods at unfairly high prices.
It is reported that the cost of drug production mainly consists of two parts: the cost of raw materials and the cost of Shanghai Pharmaceuticals’ biochemical workshop. According to Shanghai Pharmaceuticals Biochemical’s financial data, the total production cost of the drug is approximately 8.6 yuan/tube to 14.6 yuan/tube, and Shanghai Pharmaceuticals Biochemical charges processing fees ranging from 140.4 yuan/tube to 230 yuan/tube. Finally, the online price of the drug is as high as 2,303 yuan/tube to 2,918 yuan/tube.
In addition, the domestic sales price of polymyxin B sulfate for injection is significantly higher than the sales price in other countries and regions during the same period, approximately 35 to 44 times that of overseas products.
“The serious handling of this case corrected the illegal behavior in a timely manner, and drug prices dropped by nearly 90%. This safeguarded the interests of consumers and the public interest of society.” Member of the Expert Advisory Group of the Anti-Monopoly Committee of the State Council and Vice President of the Economic Law Research Society of the China Law Society In an interview, Wang Xianlin pointed out that the party involved in this case abused its market dominance to sell drugs at unfairly high prices. On the one hand, it distorted the market price formation mechanism of this type of drug, causing its price to seriously deviate from normal levels, eliminating and limiting market competition. On the other hand, it also forces patients to pay higher prices, increases patients’ medication costs, and seriously harms the interests of patients; it also increases the expenditure of the national medical insurance fund, seriously damaging public interests.
The reporter learned that after the above-mentioned case was opened for investigation in July 2023, six senior executives of Shanghai Pharmaceutical Group were investigated. In September 2023, four people including Pan Deqing, the former vice president of Shanghai Pharmaceuticals, Li Ping, the general manager of Shanghai Shanghai Ke Pharmaceutical, Chen Binhua, the former general manager of Shanghai Pharmaceuticals Biochemicals, and Huang Zhenhui, the former deputy general manager of Shanghai Pharmaceuticals Biochemicals, were investigated. In November, Zhou Jun, chairman of Shanghai Pharmaceuticals, and Gu Haoliang, former vice president of Shanghai Pharmaceuticals, were investigated.