Chilean pharmaceutical companies busted for price-fixing

Chilean pharmaceutical companies SalcoBrand, Ahumada and Cruz Verde, which account for 92% of pharmacy sales in Chile, have been charged with collusion to fix prices of at least 222 pharmaceutical products, including medicines for diabetes, epilepsy and anti-conceptives.

The investigation by the Tribunal de Defensa de Libre Comercio was described in a 51-page document found here. Follow the story at El Mostrador. Soon, you will be able to follow the story at CNN Chile, which i think will change the Chilean mediascape.

Anyone who has spent time in Chile will understand the importance of this to Chileans. First of all, Chileans love their pills. Common cold, take a pill. Depressed, take a harmonyl. Pills cure what ails Chileans, without a doubt, part of a synthetic culture that surely took hold once the Chileans abandoned the British ideals and went with the Ford Foundation and Milton Friedman, lets say, of America the beautiful. Within the last ten years antibiotics could be purchased without a prescription. Secondly, consumers are bombarded with advertisements for discounts throughout the cityscape.

Now, three companies aimed to guarantee their profits on drugs including prescription drugs, for which, alas, there was no other substitute.

A “Guerra de Precios” waged in 2007  decimated profit margins among the pharmacies. Consumers were highly elastic and responded immediately to discounts or rebates on common drugs. Competition was ugly, according to the Tribunal investigation:

Ahora bien, los efectos de esta guerra se tornaban en extremo preocupantes
para sus tres actores, pues los márgenes seguían reduciéndose e incluso
comenzaban a ser negativos respecto de muchos productos, poniendo en
duda los reales beneficios de esta situación para un eventual vencedor, en
comparación, claro está, con los beneficios de la colaboración.

In the meantime, Salcobrand undergoes a corporate reorganization, newly purchased by Empresas Juan Yarur SAC, and a repositioning of their brand name. They recruit executives from other companies, including Cruz Verde.

Salcobrand then set up a distribution deal with a company owned by Cruz Verde for distribution of generic pharmaceuticals as of October 1 2007. In November the three companies hold a meeting and declare the price war to be over, and make a truce, recognizing that the battle has cut too deep and profits are suffering across the board.

They decide to raise prices again in unison. Why coordinate their price increase? Because any difference in prices would send Chileans running to the cheaper pharmacy.

Para ello, sería necesario alzar los precios significativamente, desde luego,
en los productos que más bajaron durante la guerra. Pero había que
coordinarse muy bien, porque esos productos eran los denominados notorios
y éticos, como se señaló, de modo que si una de las Cadenas de Farmacias
alzaba su precio y no lo hacían al unísono las otras, la demanda se desviaría
hacia éstas.

According to the complaint, the three companies listed the pharmaceuticals they were losing money on and coordinated a schedule of coordinated price increases.

In December 2007, the price increases began on 62 pharmaceuticals, including among them 15 anti-conceptives. I do not know whether this is a reflection of the fact that anti-conceptives were previously very cheap as a result of price competition, or some sort of cynical religious conservative agenda to deny anticonceptives to all but the rich.

One anticonceptive, “Marvelon-20”, a pack of 21, went up on average 94%, in all three chains, on the same day, December 28th, 2007

And with that the chains raised prices on groups of pharmaceutical products together in a systematic stages, 72 in January, 31 in February, and 40 in March.

The groups of products with the greatest frequency of increases:

A mayor abundamiento, las categorías de medicamentos más afectadas por
el acuerdo, en términos de número de productos, fueron: “G3. Hormonas
sexuales y productos con efectos deseados similares, solo acción sistémica6”
(25 productos), “N3. Antiepilépticos” (20 productos), “N6. Psicoanalépticos
excluyendo preparados antiobesidad” (18 productos), “N5. Psicolépticos” (16
productos) y “C9. Agentes activos en el sistema en angiotensinas y renina
(15 productos)”.

Diabetes and antianemic drugs were those which increased most drastically in price, on average, according to the complaint, rising by 100% and 88%.

The costs of these actions? Fines of $12 million dollars on each company.

Chances that the pharmaceuticals will wrangle a better deal? We shall wait and see.