context: On 9 August, the State Administration for Market Regulation released draft anti-monopoly guidelines for the pharmaceutical sector, aiming to address monopolistic behaviours across all sectors including TCM (traditional Chinese medicine), chemical drugs and biological products. They are an expansion of guidelines for anti-monopoly practices in active pharmaceutical ingredient sector issued in 2021. Monopolistic behaviours are more frequently observed in finished drugs and TCM, necessitating more comprehensive guidelines for clearer enforcement and business operation.
In 2023, the pharmaceutical industry accounted for a quarter of the 27 nationwide monopoly cases, with fines totaling C¥1.772 bn, 82 percent of the year's total fines. SAMR (State Administration for Market Regulation) has addressed over 20 cases of monopoly agreements and abuse of market dominance, targeting major firms like YRPG (Yangtze River Pharmaceutical Group) and Shanghai Pharma.
To further restrict monopoly, the new guidelines will
- impose regulations on upstream and downstream enterprises involved in raw materials and finished drugs that collaborate to abuse market dominance
- enforce stricter penalties for practices that cause drug shortages or significant losses to the healthcare insurance fund
The new guidelines focuse on balancing the protection of pharmaceutical innovation with promoting competition and innovation in generic drugs, introducing administrative regulation over
- ‘reverse payment agreement’
- the patent holder of a drug agrees to provide direct or indirect compensation (including disguised compensation such as reducing disadvantages) to a generic drug applicant, who in turn agrees not to challenge the validity of the relevant patent or to delay market entry
- ‘product hopping’ (pseudo-innovation)
- redesigning existing patented products to obtain new patents and then halts sales or repurchases to transition from the old patented product to the new one, hindering effective competition from generic drug companies
- restricting competition through mergers
- business development (BD) activities like licensing, joint development, and M&A can impose clauses that restrict competition and the concept of ‘global market’ is introduced to assess monopoly in pharmaceutical R&D in cross-national pharmaceutical companies
Since the 2018 restructuring of the anti-monopoly enforcement agency, most cases have been penalised based on the full sales revenue of all products within China during the previous year. In 2023, some pharmaceutical companies faced fines as high as 8 percent of their annual sales, with confiscation of illegal gains also applied in some cases.
Du Guangpu 杜广普 Beijing Weibo Law Firm deputy director acknowledges that accurately calculating illegal gains in monopoly cases is challenging due to technical difficulties and efficiency issues. However, the confiscation of illegal gains is expected to become more common as it increases the deterrent effect of penalties.