China's First Unwinding Order: SAMR Blocks Completed Below-Threshold Pharma Deal

On 23 July 2025, China's State Administration for Market Regulation (SAMR) issued a prohibition decision against Wuhan Yongtong Pharmaceutical's (YT Pharma) acquisition of Shandong PKU High Tech Huatai Pharmaceutical (HT Pharma), which completed in 2019 (the Acquisition).

Whilst this case is SAMR's fourth prohibition decision, it is notably SAMR's first prohibition of a transaction that was proactively called in for a review by SAMR as well as SAMR's first unwinding order of a completed transaction. It is another example of the pharmaceutical sector being an enforcement focus for SAMR.

Case Overview

YT Pharma signed an agreement in November 2018 to acquire a 50% stake in, and control over, HT Pharma. The shareholding change was registered in March 2019.

SAMR reportedly issued a written notice on 3 January 2025 requiring YT Pharma and its ultimate controller, Mr. Guo, to submit a merger control notification for the transaction (which was duly made on 18 February 2025). Notably, SAMR's decision indicated that neither of the two companies' 2017 revenues in China met the notification thresholds (namely, the first limb of turnover in China of RMB 800m (approx. USD 111.7m)). However, SAMR's decision did not indicate whether the parties' 2017 revenues would have met the then prevailing threshold of RMB 400m (the increase to RMB 800m having taken effect at the beginning of 2024). For further details on China increases its merger filing thresholds, please see our earlier blog post here.

YT Pharma is active in the supply of pharmaceutical products, including the papaverine hydrochloride active pharmaceutical ingredient (the API), while HT Pharma produces papaverine hydrochloride injections, a downstream product of the API. SAMR identified two relevant markets in its review, namely the Chinese markets for:

• distributing the API (upstream); and
• hydrochloride injections (downstream).

SAMR concluded that the Acquisition (which had created a vertically integrated business) had the effect of excluding or restricting competition in the downstream market. This was based on the following findings:

1. Control Over Essential Raw Materials and Market Power

• YT Pharma gained control over the critical raw material, the API, through a 15-year exclusive distribution agreement with Qinghai Pharmaceutical Factory Co., Ltd. (Qinghai Pharma), signed in September 2016. Under this agreement, Qinghai Pharma is prohibited from selling to third parties without YT Pharma's written consent.
• In 2018, YT Pharma became the only market source for the API (excluding one self-supplying manufacturer), holding a dominant position. From 2019 to 2022, YT Pharma supplied 80%–95% of the API used by injection manufacturers in China, indicating strong market control and high dependency.

2. Motivation and Actual Effects of Restricting Competition

• Leveraging YT Pharma's control over the API, HT Pharma's share in the downstream injection market rose sharply following the Acquisition from 25%–30% in 2018 to:
  • 50%–55% in 2019
  • 50%–55% in 2020
  • 40%–45% in 2021
  • 40%–45% in 2022
• After YT Pharma became the exclusive distributor of the API in September 2016, the price of the API product surged. This was followed by a sharp increase in the price of the downstream injection product, specifically:
  • when compared with 2017, the average ex-factory price of papaverine hydrochloride injections rose in 2018 by over 400%.
  • Following the Acquisition in 2019, the average ex-factory price further increased by 60%–65%.
  • From 2020 to 2022, prices remained consistently higher than in 2018.
  • HT Pharma's online listing price for the injection product remained at a high level, which SAMR found to have seriously harmed patients' interests.

The unwinding order

On 23 July 2025, SAMR ordered YT Pharma and Mr. Guo to implement the following measures:

• Transfer their indirectly held shares in HT Pharma to an unaffiliated third party by 22 January 2026. This remedy effectively constitutes a complete unwinding of the transaction, as YT Pharma and Mr. Guo are prohibited from participating in the management or operations of HT Pharma in any manner until the equity transfer is completed. If no buyer can be found, a divestiture trustee is to be appointed.
• Terminate the papaverine hydrochloride API agency agreements with Qinghai Pharmaceutical and other parties by 30 September 2025
• Promptly report to SAMR on the progress of the equity transfer and the termination of the API agency agreements.

In addition, Mr. Guo voluntarily committed not to participate in any future concentrations of undertakings involving the API or injection products.

SAMR aims to thoroughly resolve competition concerns through various tools

Alongside its detailed formal decision, SAMR also released a shorter announcement via its official social media account. The announcement stated that

"......SAMR found this deal has or may have an effect of excluding or restricting competition, ...... this prohibition decision could effectively address YT Pharma's control over papaverine hydrochloride injections from the perspectives of both market structure and corporate governance, achieving a thorough rectification......"

It is likely that SAMR identified this problematic share acquisition during its investigation into the high pricing of papaverine hydrochloride injections. The prohibition and unwinding decision appear to be part of a broader effort to address competition concerns in this market. There also remains a possibility that SAMR may also issue a separate penalty decision against YT Pharma for alleged abuse of market dominance due to its excessive pricing practices.

Pharma sector remains SAMR's enforcement focus

These developments are part of a broader trend which sees the pharmaceutical sector subject to heightened scrutiny in China.

In May and June 2025, the Tianjin Administration for Market Regulation (Tianjin AMR) imposed penalties totalling approximately RMB 350 million (approximately USD 50m) on four manufacturers of dexamethasone sodium phosphate (DSP) APIs and their senior executives for participating in a horizontal monopoly agreement. Notably, this marks the second instance in which Chinese competition authorities have applied dual liability, holding both enterprises and responsible individual executives accountable. For further details on China's first penalty against an individual in a cartel case, please see our earlier blog post here.

Additionally, an individual business operator, identified as the key organizer of this price-fixing cartel, was fined RMB 5 million (approximately USD 700,000), representing the largest known antitrust fine ever imposed on an individual in China.

Since the Anti-Monopoly Guidelines for the Pharmaceutical Sector came into effect in January 2025, SAMR has issued multiple penalties targeting different stages of the supply chain. Notable recent enforcement actions are summarised in the table below:

Key takeaways

This case marks the first time SAMR has ordered an unwinding of a completed transaction and demonstrates SAMR's flexibility and willingness to take novel approaches to addressing competition concerns.

It also shows that SAMR will consistently exercises its power to "call in" transactions falling below the thresholds – namely, only in cases where there is evidence that the transaction may exclude or restrict competition. While SAMR has not published clear guidance on what might constitute such evidence, it often responds to complaints from upstream or downstream stakeholders, particularly in sensitive sectors such as pharmaceuticals, utilities, semiconductors, AI, data, and the platform economy.

Companies should be aware of the heightened scrutiny by SAMR, particularly with regards to sensitive sectors which includes the pharma sector. This example shows that even long-closed deals are not immune from scrutiny if competition concerns arise later. This underscores the importance of ongoing competition compliance monitoring, especially in such sensitive sectors. It remains to be seen whether other below threshold deals that have closed (particularly in the AI, data, and semiconductor sectors) could be called in for further scrutiny if SAMR receives third party complaints.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.