IHS Global Insight Perspective | |
Significance | As part of a long-running controversy, the public prosecution in the northern zone of Santiago has formalised alleged price-collusion charges against 17 executives of five pharmaceutical companies and three chain pharmacies. |
Implications | After the formalisation of charges, the public prosecution has 180 days to complete its investigation as part of the trial. Meanwhile, 15 out of the 17 executives will be obliged to sign in at the police station on a monthly basis during the investigation period. |
Outlook | Even though a company such as SalcoBrand has supported the innocence of its executives, it is highly likely that the final outcome will be adverse for the involved managers. Today, public confidence regarding pharmacies and drug prices is at its lowest level, and future changes to regulations have not yet been outlined by the government. |
In an auditorium at the seventh court of Santiago, Chile's capital, the public prosecution of the northern zone of Santiago (Fiscalia Centro Norte) formalised charges against 17 executives from three pharmacies and five pharmaceutical companies for the crime of illegal price tampering, in the form of price collusion, between December 2007 and April 2008. Out of 18 executives involved in the initial process, 15 will be obliged to sign in monthly from the first five days of April, and throughout the investigation, which could last 180 days. The executives involved are accused of intervening in the artificial increase of drug prices by authorising, reporting, or implementing such changes, explained the prosecutor.
The decision came after the legal investigation carried out by the public prosecution concluded that there is enough evidence to impose charges on the alleged perpetrators and carry out the trial. The executives were part of the three main drug stores—SalcoBrand, Cruz Verde, and Farmacias Ahumada (FASA)—and five Chilean pharmaceutical companies (Laboratorio Chile, Garden House, Medipharm, Recalcine, and Grünental), as part of the long controversy that commenced in December 2008 about alleged price fixing in the Chilean retail drug sector.
Indeed, the controversy started in December 2008 when Chile's competition watchdog, the National Economic Prosecutor (Fiscalia Nacional Económica: FNE), presented a lawsuit before the Free Competition Defence Court alleging that between December 2007 and April 2008, the three pharmacy chains—SalcoBrand, Cruz Verde, and FASA—had collaborated in raising the prices of more than 222 medicines, including contraceptives and drugs for treating diabetes and epilepsy. At that time, the FNE's petition claimed that the three companies "have been guilty of the most serious crime that it is possible to conceive within the Free Competition Law: namely anti-competitive collusion. Together [the companies] fixed retail prices that they could not have fixed without collusion, thereby cheating the competition, defrauding consumers and acting against the public interest" (see Chile: 12 December 2008: Chile's Competition Watchdog Accuses Pharmacies of Price Fixing).
According to the public prosecutor, the participants in the crime from Salcobrand were the general manager Roberto Belloni, commercial manager Ramon Avila, head of the pricing department Mehilin Velázquez, and category managers Judith Carmona and Claudia Carreño. FASA's involvement would have included former general manager Sergio Purcell, former business manager Ricardo Ewertz, and former sub-director Paula Mazzachiodi. They are also joined by the former category managers Alejandra Araya and Lissette Carrasco. Meanwhile, those participating from Cruz Verde would have been the pharmacy area manager Ricardo Valdivia, and category manager Cristián Catalán.
Outlook and Implications
The formalisation of charges made by the public prosecution confirms what has been outlined during the past month (see Chile: 10 February 2011: Pharma Executives May Risk Jail As Chilean Public Prosecutor Presents Charges in Pharmacy Price Collusion Case). The public prosecution now has 180 days to prove that the executives of these pharmaceutical companies and retailers agreed on price rises in order to avoid the fierce price competition the sector had been experiencing for a few years, and risking their profits. Even though SalcoBrand has released a statement supporting its former executives and ensuring their innocence, it is highly likely that the e-mails and statements from the executives—along with other proof that could come to light during the new period of investigation—will determine a negative outcome for those involved. What is already known is that Chilean consumers' image of the retail drug sector and prices is at its lowest level. At the moment, the government has not disclosed any important changes, either regarding drug price regulation (currently prices are not capped or discounted) or in terms of market concentration (the three pharmacy chains together hold 80% of the market share). Although the scandal is shaking patient confidence in the drug sector, the formal trial combined with the government's regulatory efforts represents a chance for Chilean patients to recover their trust in the system, especially regarding the price of drugs.