First Chinese Price Cartel Case in Pharmaceutical Sector
On 28 January 2016, five Chinese pharmaceutical companies were fined a combined total of 4 million yuan (USD608,000) for price fixing by the National Development and Reform Commission (NDRC), which is responsible for price-related anti-competitive agreements and abuses of dominance under China's Antimonopoly Law (AML).
Background
The drug, allopurinol, is listed as an essential medicine in China and is widely used to treat gout and hyperuricemia, or abnormally high levels of uric acid in the blood and its complications, including chronic gout. It is on the World Health Organization's List of Essential Medicines, a list of the most important medication needed in a basic health system. In China, at least 80 million patients with gout depend on this drug.
Since 2014 Chongqing Qingyang, Jiangsu Shimaotianjie and Shanghai Xinyi have been the only pharmaceutical companies which still manufacture this drug in China.
Investigation
Division Two of NDRC's Price Supervision and Antimonopoly Bureau investigated Chongqing Qingyang, Chongqing Datong[1], Jiangsu Shimaotianjie, Shanghai Xinyi and Shangqiu Huajie[2] for potential violation of the AML. Chongqing Qingyang, Jiangsu Shimaotianjie and Shanghai Xinyi had reached monopoly agreements with two distributors, Chongqing Datong and Shangqiu Huajie over the drug.
After investigation, NDRC found that the price of allopurinol was increased almost four fold between 2014 and 2015. In addition to this price increase, these companies were also found to have divided the Chinese market for the drug between them. For example, Chongqing Qingyang was responsible for the markets in 12 provinces including Sichuan, Guangdong and Yunnan. Other companies were not allowed to enter these provinces and sell allopurinol.
Fines
These five companies were fined 4 million yuan (USD608,000) in total. Chongqing Qingyang and its affiliated company Chongqing Datong were fined an amount equal to 8% of their previous year's turnover, while the other three companies were fined amounts equal to 5% of their previous year's turnovers.
Impact
The first fines issued by the NDRC against members of the pharmaceutical sector were in 2011, when two companies abused their dominant position by increasing prices without any justification and were ordered to pay a total of 7 million yuan (USD1.06 million). However, this is the first price cartel case in the pharmaceutical sector in China.
This case follows the appointment last year, of Mr Handong Zhang as Director General of NDRC's antitrust bureau. Mr. Zhang was previously in charge of the medical reform department. In April 2014, China lifted the restriction on the maximum resale price of drugs. Against this background, we anticipate that there will be more NDRC investigations into the pharmaceutical sector this year. This increased focus on the pharmaceutical sector means that it is increasingly important for pharmaceutical companies to establish effective competition law compliance programs and to make sure that their business models comply with the AML.
