Chinese court favors J&J in distribution fight

Johnson & Johnson ($JNJ) has won a lawsuit against a long-time distribution partner in China. While the amount of money involved may seem puny, it appears to be a big victory in a country that is terribly protective of its domestic drug distributors.

According to the People's Daily, J&J and Ruibangyonghe Trading Co. had a 15-year relationship when it signed a new distribution deal in 2008. The contract set out Ruibangyonghe's territories and established a floor for prices on J&J products. But a few months later, the drug manufacturer claimed that it discovered that its Chinese partner was underselling its products and so it cut off supplies.

Ruibangyonghe sued, claiming that the minimum prices set by J&J violated Chinese monopoly laws. It said it could set prices where it wanted. It demanded 14 million yuan ($2.2 million) in damages. But the Shanghai No. 1 Intermediate People's Court sided with J&J, saying the minimum prices were not monopolistic, the newspaper says.

With a growing economy and rising demand for Western drugs, China has huge potential for drugmakers. But its protective laws make the mathematics of Western pricing less applicable. In March, when Eli Lilly ($LLY) CEO John Lechleiter announced that his company was seeking to invest in Chinese distribution companies to better control supply chain costs, Frank Guo, of Ipsos, explained the difficulties faced. "So far, China's pharmaceutical distribution network has been dominated by a group of domestic large companies, such as Shanghai Pharmaceuticals and China National Pharmaceutical Group, whose profit margins exceed 10%, while in developed markets, such as the United States and Europe, it's usually no more than 1%," the research director said.

- here's the People's Daily story