Bulk drugs refer to the active pharmaceutical ingredients used to formulate drugs. Bulk drugs cannot be used until they are processed into pharmaceutical preparations.
According to the SAMR statement, on the Chinese mainland, only Beijing-based Grand Pharmaceutical and Shanxi Zhendong Health Industry Group are licensed to manufacture norepinephrine and epinephrine. Wuhan Healthcare entered into an exclusive sales arrangement with Shanxi Zhendong to compete with Grand Pharmaceutical which had been licensed to produce the two drugs since 2002 and had already received EU approval for its products. The illegality arose when Wuhan Healthcare came to a verbal agreement with Grand Pharmaceutical in June 2016 to make the latter the sole provider of active ingredients for norepinephrine and epinephrine injections on the Chinese mainland.
After Wuhan Healthcare agreed to stop sales of the two bulk drugs, in exchange Grand Pharmaceutical sold the injections to Wuhan Healthcare at below-market prices, and then bought them back at higher prices. Grand Pharmaceutical also encouraged other preparation companies to sell the same injections to Wuhan Healthcare at a low price so it could sell them for higher prices too. In this way, Grand Pharmaceutical was an ingredient supplier and injection seller, and that allowed it to use its leverage to control sales territories and the supply of ingredients to other drug manufacturers. It bought low-priced injections but forced hospitals to pay high prices, the SAMR said.
This arrangement lasted three years and one month, during which preparation makers were deprived of any other access to the two bulk drugs.
“That’s how Grand Pharmaceutical removed competition and abused their dominance, destroying fair competition by locking down the sales of the two bulk drugs,” Meng Yanbei, a professor at the Renmin University of China in Beijing and a member of the State Council’s anti-monopoly committee, wrote for the China Economic Network on May 28. There is a high level of market concentration among bulk drug producers in China, and this encourages monopolistic behaviors, Meng said.
The SAMR statement revealed that Grand Pharmaceutical forced preparation makers to sell their products at a low price by cutting off or delaying the supply of norepinephrine and epinephrine since 2010. The company forced all related enterprises to enter into an unfair oral or written agreement with them.
“The victim enterprises couldn’t shift to produce the bulk drugs themselves in the short term,” Sun Jin, a law professor at Wuhan University, told NewsChina. He said that in China, each bulk drug has a separate market where there are only 1-3 suppliers who often reach monopoly agreements to pursue windfall profits.
These unfair practices were largely halted in 2016 when the government ordered transparency in the procurement of medications for public hospitals. This meant preparation sellers had to show invoices for all their purchases when they resold medications to public hospitals.
While it had an effect on keeping prices down for drugs, Grand Pharmaceutical changed its tactics, forcing companies to funnel profits to them in the name of promotional or R&D fees. It controlled where preparation makers sold their products and at what price.
“Monopolists have been refining how they misbehave, but Grand Pharmaceutical’s misconduct has really hit the ceiling,” Sun said. “Their monopoly imposed a negative influence on the upstream and downstream of the industry, as well as on patients and the medical insurance system,” he said.
After Grand Pharmaceutical cornered the market for the two bulk drugs, other preparation makers found it hard to profit and decided not to produce them, leading to supply shortages. Healthcare authorities in many cities, including Shanghai, listed norepinephrine and epinephrine injections as being in short supply on medical databases.
The SAMR confiscated Grand Pharmaceutical’s illegal gains of 149 million yuan (US$20.6m), and fined it 3 percent of its 2019 sales on the Chinese mainland, 136 million yuan (US$18.8m). Wuhan Healthcare had to hand over its illegal gains of 30.9 million yuan (US$4.3m) plus a fine of 4.1 million yuan (US$600,000), 2 percent of its 2019 sales volume on the mainland.