China Signals Enforcement against Antitrust Violation in Pharmaceutical Sector

Posted by Wang, Yi on August 28, 2020

China signals potential enforcement against antitrust violations concerning imported pharmaceutical products and domestic companies doing APIs for big pharm. This policy signal is in tandem with the finalization of amendment to the current Anti-Monopoly Law (AML) with criminal liabilities and up to 1% revenue penalties.  On July 23, 2020, the State Council released the Notice for Priorities in 2H 2020 in Deepening the Reform in Healthcare Sector (国务院办公厅关于印发深化医药卫生体制改2020年下半年重点工作任务的通知) (“Document 25 (2020)”).

Document 25 (2020) mandates task-force-specific reforms in the healthcare sector.  These measures will be in place from supply chain safety, traditional Chinese medicine, public health system, to state-funded hospital.

We focus on and highlight the antitrust enforcement as one of the key priorities of Document 25 (2020) as follows:

• Ensure oversight for medicines under shortage with stable supply and pricing;
• Promote multi-source e-platform for drugs under shortage with aligned monitoring by regulators;
• Execute reporting procedures and entity lists for drugs with production stoppages;
• Enhance transparency and tracking of drug pricing, especially tracing (inflated) domestic prices with those of the like products overseas.
• Strengthen enforcement against monopolistic and illegal acts in the areas such as raw materials for drugs and imported drugs.

做好短缺药品保供稳价工作。推进短缺药品多源信息采集平台和部门协同监测机制建设。实施短缺药品停产报告制度和清单管理制度。建立健全药品耗材价格常态化监测预警机制，加强国内采购价格动态监测和国外价格追踪。加大对原料药、进口药等垄断违法行为的执法力度。

In January, China released draft amendment to the current Anti-Monopoly Law (AML) effective since August 1, 2008. The amended AML will raise the administrative penalties (up to 1% of the revenue of previous year) and impose criminal liabilities against obstruction of investigation, once enacted.  Moreover, under the to-be-amended AML, the State Administration for Market Regulation (SAMR), China’s uniformed antitrust regulator and its provincial subordinates may request local public security bureau to assist enforcement “when necessary.”

International pharmaceutical companies must be vigilant in the following fronts with higher antitrust risks from 1% to 3% of sale revenue forfeiture to criminal exposure:

• Price cartel: blatant price fixing or bid-rigging are per se illegal;

• Resale price maintenance (RPM): infringement precedents in auto sector against conducts attempting to set price floors with minimum resale price may find new application in healthcare/pharmaceutical sector going forward;

• Abuse of dominance: conducts such as exclusive dealing/licensing, restricting customers from free choices of ancillary equipment/services, or restricting supply of active pharmaceutical ingredients (APIs) to downstream drug manufacturers may constitute antitrust violation.

• Gun-jumping without solid antitrust clearance: depending on the relevant market and competitive landscape of the transactions, cross-border mergers & acquisitions triggering Chinese merger review must avoid premature closing without solid regulatory clearance.

With China’s antitrust regime with greater sophistication, deterrence and aggressive enforcement, SAMR also stresses enforcement priority in sectors “closely related to the people’s livelihood.” SAMR specifically names APIs and generic drugs, as the prioritized areas its enforcement would like to focus on.

International pharmaceutical companies must closely and effective monitor the antitrust legislation and enforcement in 2020 to avoid pitfalls in their operations and growth in China. 

We continue to closely monitor trade/anti-corruption-related developments and the impacts of the Chinese. government’s potential crackdown on Chinese and international businesses in regulated sector. Should you have any questions, please do not hesitate to contact us.