A cartel on breathing

What the state was purchasing

Lot No. 16 of Auction No. 091127/001550/312 concerned dornase alfa, an inhalation solution of 2.5 mg/2.5 ml, pack of 6, marketed as Pulmozyme. According to the FAS case materials, the medicine was intended for the federal procurement of medicines for patients with cystic fibrosis under the high-cost nosologies programme. It breaks down extracellular DNA in sputum and helps improve lung function; the manufacturer’s official prescribing information expressly covers treatment in both children and adults.

On 27 November 2009, the Ministry of Health and Social Development announced a procurement of 80,448 packs at an initial maximum price of RUB 671,270,983.68. Delivery was divided into two parts: 32,180 packs, or 40%, and 48,268 packs, or 60%. On 13 January 2010, the contract was awarded to Pharmstandard at the same maximum price — with no reduction at auction.

How competition was switched off

The FAS reconstructed not a single act but a sequence of coordinated steps. Even before the auction was published, ROSTA arranged the purchase of Pulmozyme and then documented its resale to Pharmstandard in quantities that matched, down to the last pack, the future state order and its two delivery stages. Both companies subsequently submitted applications and were admitted, but ROSTA did not appear at the auction.

In the absence of a second bidder, the auction was declared unsuccessful and Pharmstandard became entitled to conclude the contract at the initial maximum price. The FAS Commission characterised the combined documentary record, the exact matching quantities, the submission of two applications without a genuine intention to compete, and one bidder’s non-appearance as an agreement aimed at maintaining the price in order to obtain maximum profit.

ROSTA explained the sale of the entire consignment by Pharmstandard’s more favourable 20% prepayment and maintained that it had submitted an application to avoid disruption of supplies. The FAS considered these explanations but found them insufficient in light of the earlier documents, the exact matching quantities and the parties’ conduct at the auction; the courts did not alter that outcome. The resale of the goods is not itself characterised as unlawful — the legal conclusion rests on the conduct taken as a whole.

1. 17 September 2009 — ROSTA arranged the import of 104,053 packs of Pulmozyme
2. 1 October 2009 — ROSTA and Pharmstandard concluded Sale and Purchase Agreement No. 129-P
3. 1 November 2009 — a specification for 32,180 packs was signed 27 days before the auction was announced
4. 18–23 December 2009 — both companies submitted applications and were admitted
5. 25 December 2009 — ROSTA did not appear; the price remained RUB 671,270,983.68
6. 19 April 2010 — the second specification, for 48,268 packs, completed the exact match with the lot

What the FAS and the courts established

On 25 May 2012, the FAS found that ZAO ROSTA and OAO Pharmstandard had infringed Article 11(1)(2) of the Law on Protection of Competition: their agreement resulted in maintaining the price at auction. The FAS identified income of RUB 670,828,519.68 for ROSTA and RUB 671,270,983.68 for Pharmstandard. These figures are the income stated by the regulator, not an automatically proven amount of overpayment from the public budget.

A turnover-based fine of RUB 201,381,295.10 was imposed on Pharmstandard. After the first judicial decisions were set aside and the matter was reconsidered, the company lost at first instance, on appeal and in cassation. On 18 February 2016, in Case No. 305-AD14-3104, the Supreme Court left those judgments unchanged and dismissed the complaint. The public materials establish the obligation arising from the fine, but do not by themselves prove that it was actually paid. Nor do they establish the criminal guilt of any person.

ROSTA: from national distributor to bankruptcy

ROSTA was not a chance technical bidder. Industry accounts trace its creation in 2002 to the combination of the distributors Farm Tamda 77, Rossib Pharmacia and ArthroMed. The official history of the Finnish company Tamro confirms that in 2002 it acquired a stake in a new nationwide Russian wholesale distributor; Tamro’s holding increased to 42.5% in 2006 and was sold in 2010.

Even after the FAS case, the group remained a major market participant: in RNC Pharma’s rankings for 2014 and 2015, ROSTA was Russia’s third-largest pharmaceutical distributor, with shares of direct supplies of 13.1% and 12.0%, respectively. In 2017, the group sold the Raduga and Pervaya Pomoshch pharmacy chains to Erkapharm.

On 23 January 2018, in Case No. A41-79022/2017, supervision proceedings were commenced against the same legal entity (Primary State Registration Number, OGRN 1027726007561); on 31 January 2019, AO ROSTA was declared bankrupt and liquidation proceedings were opened. Fedresurs continues to show its bankruptcy status. These later events matter to the company’s corporate history, but it has not been established that the bankruptcy resulted from the cartel case; this article draws no such causal connection.

Moral assessment: when margin takes precedence over public duty

A cartel in an ordinary procurement already deprives the contracting authority of a genuine choice. A cartel concerning a medicine for a serious hereditary disease adds a different moral dimension: competition here should convert a limited budget into the greatest possible amount of treatment for vulnerable patients, a substantial proportion of whom were children.

We do not claim that a particular child failed to receive the medicine because of this agreement: the public materials do not prove that, and the competitive price that would have emerged without collusion is unknown. But the economic logic is clear and is expressly identified as an inference: when the price is held at the maximum, the state loses the opportunity to direct any potential saving towards additional treatment courses, diagnostics or other patient needs.

The moral problem therefore cannot be reduced to the amount of the fine. As the FAS established, the participants created the appearance of two independent bids where the state expected genuine competition. Turning publicly guaranteed assistance for patients — predominantly children — into a source of maximum profit insulated from price competition is an abuse of public trust. This is an editorial assessment based on the established mechanism and context, not a separate finding of the court.