In 2023, a total of 27 cases of monopolistic agreements and abuse of market dominance were investigated and dealt with nationwide, with a combined penalty and confiscation amount of 2.163 billion yuan. Among them, one-fourth (7 cases) occurred in the pharmaceutical industry, with the amount of penalty and confiscation involved (approximately 1.772 billion yuan) accounting for about 82% of the total penalty and confiscation for the year.
Recently, the State Administration for Market Regulation (National Anti-Monopoly Bureau) released the "China Anti-Monopoly Law Enforcement Annual Report (2023)" (hereinafter referred to as the "Report"), which shows the above information.
According to the Report, market supervision departments have made anti-monopoly law enforcement actions in the field of people's livelihood a top priority. In the field of people's livelihood, pharmaceutical monopolies can lead to artificially high drug prices, which not only disrupt market order but also increase the cost of medication for patients and national medical insurance fund expenditures, and even threaten the lives of patients. In recent years, anti-monopoly law enforcement authorities have maintained a high-pressure stance on market monopolistic behavior in the pharmaceutical industry, especially for the frequent abuse of market dominance in the raw material medicine field, showing a trend towards stricter regulation.
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"Organize and carry out special actions for anti-monopoly law enforcement, and legally investigate and deal with a batch of monopolistic agreements and abuse of market dominance cases in the pharmaceutical field, which not only maintains fair competition but also effectively reduces the cost of medication for the general public and national medical insurance expenditures," the Report stated.
To further deepen the supervision of competitive behavior in the pharmaceutical field, the State Administration for Market Regulation plans to study and formulate the "Anti-Monopoly Guidelines on the Pharmaceutical Field" and promote the revision of laws and regulations such as the "Regulations on the Implementation of the Drug Administration Law" to truly improve the level of supervision.
All 7 cases are in the field of pharmaceuticals.
"Last year set multiple new records for anti-monopoly law enforcement in the pharmaceutical field," said Du Guangpu, a senior partner at Beijing Weibo Law Firm, in an interview with First Financial Daily.
In 2022, the total amount of penalty and confiscation involved in monopolistic cases in the pharmaceutical industry was 43.7091 million yuan, while in 2023, this figure has approached 1.8 billion. Anti-monopoly in the pharmaceutical industry involves two types of products: drugs and medical devices. The 7 cases concluded last year were all in the field of pharmaceuticals, covering several sub-markets such as antimicrobial drugs, cancer treatment, and over-the-counter (OTC) drugs.
The reporter further sorted out that, based on the total sales of all products in China in the previous year as the base for the fine, in 2023, the fine ratio for many companies involved in the case was 2% to 4%, and even 8%. The penalty strength of 8% of the annual sales is relatively rare in past pharmaceutical monopoly cases. In addition, some companies involved in the case were also confiscated of illegal income.
Looking at the types of cases, Du Guangpu analyzed that the 7 cases cover all major types of economic monopoly cases, including horizontal monopoly agreements (such as joint price increases, market division), vertical monopoly agreements (mainly manifested as restrictions on the resale price of distributors), and abuse of market dominance (such as monopolistic high prices).As for the behavioral patterns in monopoly cases, he also observed that many cases reflect the characteristic of "integrated control of upstream and downstream" by pharmaceutical companies. "This is also a new feature of monopolistic behavior in the pharmaceutical field in recent years. Such cases are mainly characterized by controlling the market of raw materials with only one or a few suppliers through exclusive agency, consignment sales, and other means, and then further controlling the downstream preparation market, obtaining monopoly profits by significantly raising prices."
The "Shanghai Xuhaidianpu and Tianjin Tianyao Technology suspected of reaching and implementing a monopoly agreement to divide the sales market" mentioned in the report involves the drug fluorouracil injection, which is the longest-used antimetabolite anticancer drug. The two companies involved divided the Chinese market for this drug in advance, controlled the sales volume of each other's sales markets, communicated bids with each other, implemented price linkage, and then agreed to raise prices, constituting "horizontal monopoly."
According to the administrative penalty decision issued by the market supervision and management department before, during the period when the parties involved implemented monopolistic behavior, there were fewer fluorouracil preparation companies, and the market competition was not sufficient. The monopolistic behavior of the two parties not only significantly increased the sales price of fluorouracil injection, increased the treatment costs for patients, but also caused a tight supply of the fluorouracil injection market. Some provinces included it in the list of scarce drugs, forcing doctors to change their medication habits. In addition, since the fluorouracil injection is paid for entirely or mostly by medical insurance, this monopolistic behavior also increased the expenditure of the national medical insurance fund.
In addition to cases involving monopoly agreements, there were also 5 pharmaceutical monopoly cases involving the abuse of market dominance last year. The monopolistic behavior in these cases is mainly characterized by raising the sales price of related raw materials and preparations several times, even dozens of times, in a short period, constituting the abuse of market dominance and selling goods at unfair high prices.
In addition to market monopolies, the pharmaceutical field is also prone to administrative monopolies. According to the report, administrative monopoly cases in the medical and health field mainly involve industries such as health check-ups and medical material distribution, with the implementation of designated transaction behavior being the most typical. For example, the Gansu Provincial Market Supervision Bureau corrected the illegal acts of the Baiyin City Health Committee and others in designating local government and institution staff and workers' health check-up designated medical institutions according to the law.
The behavior of raw material pharmaceutical companies "forcing prices up by shortages" has been severely cracked down on.
It is particularly worth mentioning that in the anti-monopoly work in the livelihood field in 2023, the law enforcement department issued three penalty notices exceeding 100 million, all of which occurred in the field of raw materials. These three penalty notices involved 7 companies including Northeast Pharmaceutical, Yuanda Pharmaceutical, and Shanghai Pharmaceutical Biochemical, and the reason for the penalty was the abuse of market dominance by the companies.
Among them, the "Shanghai Pharmaceutical Biochemical and four other companies abusing market dominance case" resulted in a fine and confiscation amounting to more than 1.2 billion yuan. According to industry insiders interviewed, this is also the case with the highest penalty amount in the anti-monopoly law enforcement field, the highest penalty amount for state-owned enterprises, and the highest amount of illegal income confiscated in the pharmaceutical industry.
"From the first raw material monopoly case in 2011 to 2023, the raw material industry still frequently reports monopoly cases, and the amount of fines and confiscations continues to set new highs. This not only reflects the tenacity of monopolies in the raw material industry but also shows the limited deterrent power of anti-monopoly law enforcement, which is difficult to fundamentally solve the problem of raw material monopolies." Zhou Wei, an associate professor at the Law School of Wuhan University, said to the reporter.
The frequent occurrence of raw material monopoly cases is related to the highly concentrated market structure of the relevant segmented markets. The demand elasticity of raw materials is small, and from the existing cases, the supply chain of the involved raw materials is often controlled by a few companies or even one company, forming a market oligopoly or monopoly.Further analysis by Zhou indicates that on the production side, the number of manufacturers who have obtained the production license for active pharmaceutical ingredients (APIs) is scarce, often only one to three, and some of those who have obtained the production license do not actually start production. At the same time, some APIs are not produced domestically and can only rely on imported supplies, with importers often being a single entity. On the sales side, API manufacturers/importers often adopt direct sales or exclusive business models (including exclusive distribution and exclusive agency), thus the distribution channels for APIs in the domestic market are also highly concentrated.
In short, if unfair high pricing occurs in the API sector, it will create a "chain reaction" of price increases for downstream companies, ultimately raising the cost of medication for patients and the cost of medical insurance payments. In recent years, due to the implementation of the "two-invoice system," the phenomenon of successive price increases in the drug distribution process has been somewhat curbed, and drug price regulation is increasingly focusing on the API sector.
Moreover, Zhou believes that the recent strengthening of API law enforcement by market regulators is related to the "repeated failure to reform" of related companies. On one hand, there is the phenomenon of "recidivism" where the same company is suspected of monopolistic behavior in the API market on multiple occasions. Taking Wuhan Huihai Pharmaceutical as an example, in May 2023, the company was fined 35.0516 million yuan for reaching and implementing a monopoly agreement with Yuanda Pharmaceutical, which constituted an abuse of market dominance. The products involved in the case were norepinephrine API and epinephrine API, which are used to produce norepinephrine injection for treating acute myocardial infarction and hydrochloric epinephrine injection for resuscitating cardiac arrest, respectively. In December of the same year, the company was again implicated in the aforementioned "Shangyao Biochemistry and three other companies' abuse of market dominance case." For participating in the artificial inflation of the listed drug injection of polymyxin B sulfate's online price, the company was confiscated of illegal gains of 47.5802 million yuan and fined 11.1092 million yuan, which is 8% of its sales in 2022.
On the other hand, monopolistic behavior may also occur multiple times in a specific API field. For instance, phenol API has been involved in cases of both producers and agents abusing market dominance. "At its core, the API market is characterized by long investment cycles and high risks, making it difficult for API operators to profit, thus fostering a strong mentality of illegal profit-seeking. Even with multiple anti-monopoly enforcements, it is difficult to completely eliminate this opportunistic psychology among operators," says Zhou.
In Zhou's view, anti-monopoly enforcement has a lag and is stringent, while drugs have a significant impact on public health. Post-facto regulation of drug monopolies is difficult to timely remedy the industrial damage and public health damage caused by high drug prices or supply disruptions. Therefore, in addition to anti-monopoly enforcement, it is also necessary to conduct joint law enforcement with industry regulators to achieve pre-emptive prevention of monopolies and timely intervention during the process.
Currently, the "Market Supervision Department's Key Measures to Optimize the Business Environment (2024 Edition)," which is open for public comment, proposes to accelerate the improvement of fair competition system rules and mentions "studying and formulating the 'Anti-Monopoly Guidelines for the Pharmaceutical Field'" in the specific content.
However, Zhou points out that the improvement of the fair competition system does not mean that the lower the market concentration in the pharmaceutical industry, the better. Instead, the goal should be to achieve a market concentration level that is most conducive to economic efficiency and social welfare, and to coordinate the relationship between economies of scale and market competition efficiency. Different types of APIs have different market demands, and their requirements for the competitive environment are also different. Therefore, it is necessary to make optimized arrangements in conjunction with market structure and supply and demand conditions, and to manage the relationship between the government and the market.
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