China Advances Draft Rule to Tackle Unfair Competition in Pharma Industry

A New Era in Pharmaceutical Regulations: Ensuring Fair Competition

China has taken a significant step towards curbing unfair competition practices in the pharmaceutical industry with the release of a new draft regulation. This move aims to promote a fair and competitive market, ensuring that patients have access to essential medications without being exploited by monopolistic practices. The draft regulation, designed by the State Administration for Market Regulation (SAMR), has been published for public consultation, marking a pivotal moment in the country's efforts to regulate the pharma sector.

Unfair Competition: A Global Issue

The pharmaceutical industry is no stranger to controversies surrounding unfair competition. High prices, abuse of market dominance, and anti-competitive agreements are just a few of the practices that have been under scrutiny globally. China, with its vast population and growing healthcare demands, is particularly sensitive to these issues. The draft regulation is a response to mounting concerns about the impact of monopolistic practices on patients and the broader healthcare system.

Key Provisions of the Draft Regulation

1. Unfair High Prices

   • The draft guidelines specifically address the issue of unfairly high prices. They stipulate that pharmaceutical companies must compare their prices with those of similar products sold by others, ensuring that they are not engaging in price gouging. This provision aims to prevent companies from exploiting their market position to charge exorbitant prices, which can be particularly detrimental to patients who rely on these medications for their health.

   - Article 22 – Unfair high price, including comparing with same or similar pharmaceutical sold by others, and different pricing in different territories.
   

2. Reverse Payment Agreements

   • Another critical aspect of the draft regulation is its stance on reverse payment agreements, also known as "pay-for-delay" agreements. These settlements involve patent holders compensating generic drug manufacturers for refraining from challenging the validity of a patent or delaying the launch of generic drugs. The SAMR has outlined factors to consider when assessing whether such settlements are anti-competitive, including whether the settlement payment significantly exceeds the cost of resolving the patent dispute and whether it effectively extends the patent holder’s monopoly.

   - Article 13 of the Draft Pharma Guidelines set out factors that the SAMR may consider when assessing whether a reverse payment agreement is anti-competitive.
   

3. Product Hopping

   • The draft guidelines also address the practice of "product hopping," where a pharmaceutical patent holder with a dominant market position makes minor modifications to an existing drug to extend its patent life while withdrawing the original version from the market. This conduct effectively prolongs its dominance and blocks entry by generic drug manufacturers. The SAMR has provided factors relevant to assessing the anti-competitive effects of product hopping, including whether the new patented drug constitutes a substantial improvement and its impact on generic entry.

   - Article 28 of the Draft Pharma Guidelines elucidate the criteria for identifying whether a pharmaceutical company might hold a dominant market position and list out common forms of abuse, including refusal to deal, tying, discriminatory treatment, and other trading restrictions.
   

4. Abuse of Collective Dominance

   • The Chinese enforcement authorities have previously found collective dominance in various cases within the pharmaceutical sector. This practice involves companies colluding to maintain or enhance their market positions, often leading to anti-competitive behavior. The SAMR has emphasized the need to monitor and prevent such collusions to ensure that no single entity or group of entities can control the market unfairly.

   - In the SPH No. 1 case, Wuhan Healthcare Pharmaceuticals and two affiliated companies (collectively “Wuhan Huihai”) were found to have engaged in abuse of collective dominance together with SPH No. 1.
   

Impact on the Pharmaceutical Industry

The release of these draft guidelines is expected to have a significant impact on the pharmaceutical industry in China. Companies will need to reassess their pricing strategies and business practices to comply with the new regulations. Here are some potential implications:

Compliance Challenges

• Price Comparisons: Companies will need to regularly compare their prices with those of similar products sold by others. This could be a complex task, particularly for companies with a wide range of products.

  - Article 22 – Unfair high price, including comparing with same or similar pharmaceutical sold by others, and different pricing in different territories.
  

• Reverse Payment Agreements: Companies involved in patent disputes will need to carefully consider whether their settlements are likely to be viewed as anti-competitive. This may involve re-evaluating settlement terms and ensuring that compensation is reasonable and not intended to delay generic entry.

  - Article 13 of the Draft Pharma Guidelines set out factors that the SAMR may consider when assessing whether a reverse payment agreement is anti-competitive.
  

• Product Hopping: Companies will need to be cautious about making minor modifications to existing drugs. Any such modifications must be substantial improvements that do not unfairly block generic entry.

  - Article 28 of the Draft Pharma Guidelines elucidate the criteria for identifying whether a pharmaceutical company might hold a dominant market position and list out common forms of abuse, including refusal to deal, tying, discriminatory treatment, and other trading restrictions.
  

Opportunities for Compliance

• Fair Pricing: By ensuring that prices are fair and competitive, companies can build trust with patients and healthcare providers, potentially leading to increased market share.

• Collaboration with SAMR: Companies that cooperate with the SAMR in implementing these regulations may avoid severe penalties and gain a reputation for compliance, which can be beneficial in the long run.

• Innovation and R&D: By focusing on significant improvements and innovations, companies can differentiate their products and avoid being caught by these guidelines, potentially leading to market leadership.

Public Consultation and Future Implementation

The draft regulation has been published for public consultation, and the SAMR is seeking feedback from stakeholders, including pharmaceutical companies, healthcare providers, and patients. This public engagement phase is crucial, as it allows for diverse perspectives and potential issues to be addressed before the final guidelines are implemented.

- The deadline to provide comments for this 30-pages document with 54 articles is 23 August 2024.

Conclusion

China's move to tackle unfair competition in the pharmaceutical industry is a significant step towards ensuring that patients have access to essential medications without being exploited. The draft regulation, with its comprehensive provisions addressing unfairly high prices, reverse payment agreements, and product hopping, aims to create a fair and competitive market. As the public consultation phase progresses, it is clear that this initiative has the potential to reshape the pharma sector in China, promoting transparency, fairness, and compliance.

By engaging with the SAMR and adhering to these guidelines, pharmaceutical companies can navigate this new regulatory landscape effectively. The ultimate goal is to provide high-quality medications at fair prices, enhancing the overall healthcare experience for Chinese citizens.

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References

• China Publishes Draft Pharma Sector Anti-Monopoly Guidelines https://www.omm.com/insights/alerts-publications/china-publishes-draft-pharma-sector-anti-monopoly-guidelines/

• China Publishes Draft Pharma Sector Anti-Monopoly Guidelines https://www.omm.com/insights/alerts-publications/china-publishes-draft-pharma-sector-anti-monopoly-guidelines/