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21st Century Business Herald reporter Han Liming reports from Shanghai

In order to prevent and stop monopolistic behavior in the pharmaceutical field, guide operators to strengthen anti-monopoly compliance, and maintain a fair competition market order in the pharmaceutical field, the State Administration for Market Regulation recently solicited public opinions on the "Anti-monopoly Guidelines for the Pharmaceutical Field" (hereinafter referred to as the "Pharmaceutical Guidelines").

According to the "Drafting Instructions" jointly issued by the State Administration for Market Regulation, in 2021, in response to the frequent occurrence of monopolistic behaviors in the raw material pharmaceutical field, the former Anti-Monopoly Committee of the State Council formulated and issued the "Anti-Monopoly Guidelines for the Raw Material Pharmaceutical Field" (hereinafter referred to as the "raw material pharmaceutical guideline"), which played an important role in regulating monopolistic behaviors in the raw material pharmaceutical field.

With the deepening of anti-monopoly law enforcement in recent years, more than 20 cases such as monopoly agreements, abuse of market dominance, concentration of operators, and abuse of administrative power to exclude in the pharmaceutical field, including Yuanda Pharmaceutical and Yangtze River Pharmaceutical, have been investigated and dealt with in accordance with the law. Monopoly behavior in the pharmaceutical field, including raw materials, has become more hidden and complex. It is necessary to formulate special anti-monopoly guidelines covering all types of drugs based on the "Guidelines on Raw Materials".

The scope of application of the Drug Guide has been further expanded to include all pharmaceutical operators and their production and business activities, including all types of traditional Chinese medicine, chemical medicine and biological medicine, as well as pharmaceutical excipients, pharmaceutical packaging materials, pharmaceutical intermediates and pharmaceutical related services. In addition, some provisions of the Drug Guide also involve medical devices, such as the bundling of drugs and pharmaceutical excipients, packaging materials and medical devices.

Professor Deng Yong, director of the Health and Healthcare Legal Research and Innovation Transformation Center of Beijing University of Chinese Medicine, analyzed to 21st Century Business Herald: "The Drug Guide has many important significances. First, expanding the scope of application can more comprehensively regulate the drug market, ensure a fair competition environment in the market, and promote the healthy development of the entire drug industry. Second, emphasizing 'stimulating the vitality of innovation and development' will help encourage companies to invest more resources in R&D and innovation, and promote technological progress and product upgrades in the pharmaceutical field."

From APIs to full range of products

On November 18, 2021, the day when the "API Guidelines" were released, the Shanghai Municipal Market Supervision Administration announced that Nanjing Ningwei Pharmaceutical was administratively punished for abusing its market dominance, engaging in monopolistic behavior of selling pralidoxime chloride APIs at unfairly high prices and attaching unreasonable trading conditions, with fines and confiscations of approximately RMB 6.58 million.

The country's antitrust law enforcement in the field of raw materials is also gradually strengthening. In 2022, the total amount of fines and confiscations involved in monopoly cases in the pharmaceutical industry was 43.7091 million yuan, and in 2023, this amount was close to 1.8 billion yuan. Among them, the law enforcement department issued a total of three fines of over 100 million yuan, all in the field of raw materials, involving seven companies including Northeast Pharmaceutical, Yuanda Pharmaceutical, and Shanghai Pharmaceuticals Biochemical, all for abusing their market dominance.

Monopoly in the raw material drug market is a "chronic disease" in the pharmaceutical industry. Monopoly cases occur frequently and the amount of fines and confiscations continues to set new highs. In some monopoly cases, tickets are circulated through distribution companies, and prices are increased at each level, resulting in inflated prices of raw materials, thereby pushing up the prices of preparations to obtain monopoly profits.

Why is it that price increases are rampant despite the ban under the two-invoice system? Professor Deng Yong analyzed the reasons, including the complexity of drug circulation, the existence of multiple intermediate links and stakeholders, which makes it difficult to completely monitor and eliminate price increases; some medical institutions and distributors are profit-driven and try to obtain higher profits by increasing prices; the supervision mechanism is not perfect, there are supervision loopholes and law enforcement difficulties, making it difficult to promptly and effectively investigate and deal with all price increases.

"The difficulty in supervision lies in the fact that the drug distribution chain is long, involving many companies and institutions, and the supervision cost is high; the price increase behavior may be more hidden, and it is difficult to accurately identify and collect evidence; the situations in different regions and medical institutions vary, and it is difficult to unify the supervision standards and implement them; local protectionism exists in some places, which affects the fairness and effectiveness of supervision." Professor Deng Yong added.

There are many business entities in the pharmaceutical field, the industrial chain is long, and antitrust supervision is difficult. The existing "Guidelines for Active Pharmaceutical Ingredients" obviously cannot meet the actual needs of investigating and handling pharmaceutical monopoly cases. It is imperative to formulate a "Drug Guidelines" that conduct supervision in all areas, all links, and the entire process.

Ni Yixin, an expert at Kant Think Tank and a lawyer at Beijing Jingshi (Shanghai) Law Firm, told 21st Century Business Herald that "this marks an important step forward in my country's antitrust supervision in the pharmaceutical field. By soliciting public opinions and widely listening to opinions and suggestions from all sides, we will further improve and optimize the content of the Drug Guide to ensure that it is more in line with actual conditions and market demand. In addition, soliciting public opinions will also help improve the transparency and credibility of antitrust enforcement and enhance the understanding and support of all sectors of society for antitrust work."

Stimulate the vitality of innovation and development

Judging from the public drug monopoly cases in my country, they are more concentrated in the fields of APIs and generic drugs. Compared with the API Guidelines, the Drug Guidelines emphasize "stimulating the vitality of innovation and development", which designs antitrust systems closely related to intellectual property rights, such as reverse payment agreements and product switching behaviors.

Professor Deng Yong introduced that "reverse payment agreement" usually refers to the original research drug company paying a certain fee to the generic drug company in exchange for the generic drug company delaying the time for its generic drug to enter the market. "Product hopping" refers to companies with market dominance circumventing antitrust supervision or maintaining their monopoly position by changing product forms or specifications.

"The purpose of these regulations is to regulate market behavior and ensure fairness and transparency in market competition. For generic drugs, reasonable supervision can promote their timely entry into the market, increase drug accessibility and reduce medical costs; at the same time, for innovative drugs, antitrust constraints can also be used to prevent monopoly companies from abusing their market dominance to hinder innovation." Professor Deng Yong emphasized.

For a long time in the past, the development of my country's independently innovated original drugs lagged behind, but in recent years, with the high-quality development of the biopharmaceutical industry, especially the first inclusion of "innovative drugs" in this year's "Government Work Report", more and more drugs with independent intellectual property rights will appear in the future. This also emphasizes the urgency and necessity of preventing monopoly behaviors that abuse intellectual property rights in the pharmaceutical field.

"The pharmaceutical industry is an intellectual property-intensive industry. If an operator obtains control over other operators or is able to exert decisive influence on other operators through transactions involving pharmaceutical intellectual property rights, it may constitute an operator concentration." The "Pharmaceutical Guidelines" add that when reviewing operator concentrations, factors such as the market share, R&D and innovation capabilities of the operators involved in the concentration, and the market concentration of the relevant market should be considered.

In recent years, it has become common for innovative pharmaceutical companies to conduct BD (business development) cooperation with related companies in the industry chain, and there have been many cases of licensing in/external authorization of intellectual property rights. According to Professor Deng Yong's analysis, the "Drug Guidelines" are cautious and serious about BD cooperation with biopharmaceutical companies.

"In the considerations for relevant market definition and operator concentration review, innovation capabilities and other factors are emphasized, which shows that for the cooperation of biopharmaceutical companies, the regulatory authorities will comprehensively consider their impact on the market competition pattern, innovation and development, and consumer interests." Professor Deng Yong analyzed that on the one hand, it is recognized that legal transactions and cooperation can promote resource integration and innovation and development; on the other hand, strict review will be carried out to prevent possible monopoly and unfair competition in order to ensure a fair competition environment and innovative vitality in the market.

Among them, in the definition of relevant markets, the "Drug Guidelines" emphasizes that, depending on the circumstances of each case, when it comes to drug research and development and innovation business, the relevant geographical market may be defined as the global market.

Continue to strengthen deterrence

In the social context of the continuous strengthening of antitrust law enforcement, lawyer Ni Yixin analyzed that the focus of supervision in the pharmaceutical industry is on monopoly agreements, including horizontal monopoly agreements and vertical monopoly agreements; abuse of market dominance, implementation of unfair pricing, tying, refusal to deal and other behaviors; concentration of operators, that is, mergers and acquisitions between pharmaceutical manufacturers, which may lead to increased market concentration and thus trigger monopoly risks.

"In the pharmaceutical field, there are many types of products and they are updated rapidly, so it is difficult to define the relevant market; monopolistic behavior in the pharmaceutical field is often more hidden, and it is difficult to collect and identify evidence; the pharmaceutical industry is an innovation-intensive industry, which requires protecting the company's innovative achievements and intellectual property rights, while also preventing companies from using innovative achievements to monopolize." Lawyer Ni Yixin added.

From this point of view, antitrust supervision is not easy. In order to enhance deterrence, the Drug Guide also emphasizes that "strengthening the enforcement of antitrust supervision in the pharmaceutical field, severely punishing monopoly behaviors that seriously undermine fair competition in the market, harm consumer interests or social public interests, and hinder innovation and development in accordance with the law, and promoting the standardized and healthy development of the pharmaceutical industry."

The Drug Guidelines have made relevant provisions on "heavy penalties". "If drug operators violate the Anti-Monopoly Law and have repeatedly engaged in monopolistic behavior, artificially caused drug supply shortages, caused major losses to medical insurance funds, and endangered public health, the anti-monopoly law enforcement agency may impose heavier penalties in accordance with the law."

In addition, if drug dealers and other relevant entities or individuals violate the Anti-Monopoly Law and the circumstances are particularly serious, the impact is particularly bad, and the consequences are particularly serious, the anti-monopoly law enforcement agency of the State Council may, in accordance with relevant regulations, determine the specific amount of fines at not less than twice and not more than five times the relevant fine amount.

In the opinion of lawyer Ni Yixin, the implementation of the "Drug Guide" requires the joint efforts and cooperation of the government, enterprises and all sectors of society. First, strengthen law enforcement. Regulatory authorities should increase the intensity of investigation and punishment of monopoly in the pharmaceutical field and severely crack down on and punish illegal acts. At the same time, strengthen the construction and training of the law enforcement team to improve the level and efficiency of law enforcement.

Second, improve laws and regulations. According to the content and requirements of the Drug Guide, further improve the relevant legal and regulatory system, clarify the identification standards and punishment measures for illegal acts. At the same time, strengthen the publicity and popularization of laws and regulations, and enhance the awareness and attention of all sectors of society to anti-monopoly work.

Third, strengthen social supervision. Encourage all sectors of society to actively participate in anti-monopoly work and strengthen supervision and reporting of monopoly behavior in the pharmaceutical field. At the same time, strengthen the construction and management of self-regulatory organizations such as industry associations, and guide enterprises to operate in accordance with the law.

Fourth, improve corporate compliance awareness. Strengthen antitrust training and publicity and education for enterprises to improve their compliance awareness and risk prevention and control capabilities. Encourage enterprises to establish and improve internal compliance management systems and processes and regulate their own business operations.