On 9 August 2024, China’s State Administration for Market Regulation published a draft Anti-Monopoly Guide for Pharmaceuticals (“Draft Guide”), drafted based on China’s Anti-Monopoly Law, to solicit public comments until 23 August 2024. The Draft Guide is special anti-monopoly guidelines applicable to all drug varieties, including traditional Chinese medicine, chemical drugs, and biological products. It will replace the Guide of the Anti-Monopoly Committee of the State Council to Anti-monopoly in the Active Pharmaceutical Ingredients Field issued on 15 November 2021. Given the characteristics of the pharmaceutical field, the Draft Guide mainly refines the analysis ideas and identification factors of monopolistic behaviors, such as monopolistic agreements, abuse of market dominance, and concentration, in this field.
The Draft Guide is applied for drugs, which refer to substances used to prevent, treat, and diagnose human diseases, purposefully regulate human physiological functions, and have indications or functional indications, usage, and dosage. They include traditional Chinese medicine, chemical drugs, and biological products. Traditional Chinese medicine is divided into Chinese medicinal materials, Chinese herbal medicine slices, Chinese herbal medicine extracts, Chinese herbal medicine formula granules, and Chinese patent medicines. Chemical drugs include active pharmaceutical ingredients (“APIs”) and chemical preparations. Chemical preparations are directly used for the prevention, treatment, or diagnosis of human diseases; In contrast, chemical raw materials are used to produce various types of chemical preparations and are the active ingredients in chemical preparations. Biological products include preventive biological products, therapeutic biological products, and diagnostic reagents managed as biological products.
The Draft Guide refines the specific factors for defining relevant markets in the pharmaceutical field. According to it, the factors to be considered for the determination of the relevant product market for drug-related products include demand substitution factors such as the use and efficacy of the drug, therapy, product characteristics, contraindications and adverse reactions, doctor-patient drug preferences, supervision, and medical insurance policies; and supply substitution factors such as market entry, production capacity, production facility transformation, and technical barriers. For the definition of the relevant geographic market for Chinese medicine-related products, demand substitution factors also include the source of medicinal materials, medicinal material quality, brand recognition, and medication habits; and supply substitution factors also include patent protection, trade secret protection, protection of Chinese medicine varieties, and ethnic medicine culture. Considering the special role of APIs in the production of chemical preparations, a type of API is usually defined as a separate relevant product market.
Regarding the definition of the relevant geographic market for drugs, the Draft Guide points out that demand substitution or supply substitution analysis can be conducted based on factors such as the relevant qualifications for drug production and operation, regulatory standards, and drug transportation and storage. Generally, the relevant geographic market for drug production and operation tends to be defined as the domestic market in China. When it comes to drug R&D and innovation business, the relevant geographic market may be defined as the global market. When it comes to drug retail or distribution, the relevant geographic market may be defined as a certain area in China.
The identification of monopoly agreements is usually subject to the provisions of Chapter II of the Anti-Monopoly Law and the Provisions on Prohibition of Monopoly Agreements. The Draft Guide lists in detail the specific manifestations of monopoly agreements between competing drug operators in the pharmaceutical field. They include fixing or changing drug prices, limiting the production or sales volume of drugs, dividing sales markets or raw material procurement markets, restricting the purchase of new technologies, new equipment or restricting the development of new technologies and new drugs, joint boycotts, reverse payment agreements, and fixed resale prices and minimum resale prices. The reverse payment agreement is a new form of monopoly agreement in the pharmaceutical industry that was first added in the Interpretation of the Supreme People’s Court of Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct promulgated on 24 June 2024. It refers to an agreement in which the patent holder of the generic drug gives the generic drug applicant interest compensation without justifiable reasons, while the generic drug applicant makes a non-compete commitment such as not challenging the validity of the patent rights of the generic drug, delaying entry into the relevant market, or not selling the generic drug in a specific region. The Draft Guide discloses the following considerations for determining whether a reverse payment agreement constitutes a monopoly agreement or not:1. Whether the interest compensation given exceeds the cost of resolving disputes related to the generic drug patent and cannot be reasonably explained;2. If the generic drug applicant files a request for patent invalidation, the possibility that the patent rights of the generic drug will be invalidated;3. Whether the agreement substantially extends the market exclusivity time of the patent holder of the generic drug or hinders or affects the entry of generic drugs into the relevant market.
The Draft Guide points out that the agreements, such as those limiting the sale of drugs to specific areas, to specific customers, or through specific channels; agreeing to sell specific drugs exclusively within a specific period and region; or requiring or encouraging agreements that can only or mainly purchase and sell specified drugs, constitute prohibited monopoly agreements. However, the following agreements in the pharmaceutical field do not constitute monopoly agreements that violate the Anti-Monopoly Law:1. An agreement to entrust others to act as agents for drug sales business and setting sales prices or other transaction conditions related to agency business;2. According to the drug centralized procurement rules, in the drug centralized procurement project, drug operators bid and negotiate prices, and their counterparties sell drugs to terminal medical institutions within the scope of centralized procurement according to the prices;3. An agreement in which drug operators are responsible for drug sales, promotion, and other businesses and determine the sales price, and their counterparties only provide auxiliary services such as import, distribution, collection, invoicing, and technical support.
The determination of abuse of market dominance is usually subject to the provisions of Chapter III of the Anti-Monopoly Law and the Provisions on Prohibition of Abuse of Dominant Market Positions. The Draft Guide first supplements the considerations for determining that a drug operator has a dominant market position. They include the drug operator’s ownership of intellectual property rights such as patents, the control of the drug supply chain, the impact of regulatory laws and regulations, and policies, and the checks and balances of the transaction counterparty. When the object of determination is more than two drug operators, the factors considered also include the consistency of the drug operator’s behavior, market structure, transparency of the relevant market, and the degree of homogeneity of the relevant drugs. Secondly, the Draft Guide lists the manifestations and judgment considerations of common abuses of market dominance in the pharmaceutical field. It specifically points out that improperly pushing up drug sales prices through false transactions and layered price increases and delaying and interrupting existing transactions with counterparties by delaying drug supply and stopping drug production constitute abuses of market dominance. Thirdly, it proposes a new type of patent monopoly behavior in the pharmaceutical field that hinders generic drug companies from effectively competing - product hopping behavior, which refers to the drug patent holder with market dominance obtaining new drug patents by redesigning existing patented technical solutions, and take measures such as stopping sales and repurchasing to achieve the conversion of original patented drugs to new patented drugs. Factors for determining whether a product hopping behavior constitutes an abuse of market dominance or not are as follows:1. Whether the new patented drug is a non-substantial improvement;2. Whether the conversion of the original patented drug to the new patented drug hinders or affects the entry of generic drugs into the relevant market;3. When implementing the conversion of the original patented drug to the new patented drug, whether the original patent is close to the expiration date or the generic drug is planned to enter the relevant market;4. Whether the range of choices for patients and doctors will be substantially restricted;5. Whether there is a legitimate reason.
The review of concentration is usually subject to the provisions of the Anti-Monopoly Law, Provisions of the State Council on Notification Thresholds for Concentrations Between Undertakings and the Provisions on the Examination of Concentrations of Undertakings. The Draft Guide firstly clarifies that in the pharmaceutical field, a concentration that does not meet the reporting standards but may have the effect of excluding or restricting competition may be required to be reported. Secondly, it lists the common types of concentrations in the pharmaceutical field as well as the factors to be considered in judgment. For horizontal concentration, judging the concentration involving potential competitors may require the examination of unlisted drugs, including research and development drugs. Vertical concentration includes concentration between upstream API manufacturers and downstream pharmaceutical manufacturers, concentration between upstream pharmaceutical R&D service companies and downstream pharmaceutical manufacturers, and concentration between upstream pharmaceutical manufacturers and downstream pharmaceutical operating companies. For mixed concentration, concentrations between operators with adjacent or complementary relationships will be the focus of attention. The Draft Guide points out that obtaining control over other operators or being able to exert a decisive influence on them through transactions involving pharmaceutical intellectual property rights may constitute a prohibited concentration. Thirdly, the Draft Guide clarifies the specific considerations for competition analysis of concentrations in the pharmaceutical field and lists the specific types of additional restrictive conditions. Factors to be considered for the analysis of concentration include the market share of the operators involved in the concentration in the relevant market and their control over the market, the market concentration of the relevant market, the impact of the concentration of operators on market entry and technological progress, the impact on consumers and other relevant operators, and the impact on national economic development and public interests. For concentrations that are not prohibited, the following restrictive conditions can be added:1. Structural conditions for divesting tangible and intangible assets and interests;2. Behavioral conditions such as commitment not to terminate R&D projects, maintain R&D investment, license key technologies, terminate exclusive or exclusive agreements, maintain independent operation, open drug R&D platforms, share drug R&D data, ensure supply, and reduce prices;3. Comprehensive conditions combining the above structural conditions and behavioral conditions.
In conclusion, the Draft Guide systematically and comprehensively sorts out the types, manifestations, and illegal characteristics of monopoly behaviors in the pharmaceutical field. It provides clearer guidance for antitrust law enforcement agencies and operators in the pharmaceutical field to make compliance judgments or operate.
The Draft Guide is applied for drugs, which refer to substances used to prevent, treat, and diagnose human diseases, purposefully regulate human physiological functions, and have indications or functional indications, usage, and dosage. They include traditional Chinese medicine, chemical drugs, and biological products. Traditional Chinese medicine is divided into Chinese medicinal materials, Chinese herbal medicine slices, Chinese herbal medicine extracts, Chinese herbal medicine formula granules, and Chinese patent medicines. Chemical drugs include active pharmaceutical ingredients (“APIs”) and chemical preparations. Chemical preparations are directly used for the prevention, treatment, or diagnosis of human diseases; In contrast, chemical raw materials are used to produce various types of chemical preparations and are the active ingredients in chemical preparations. Biological products include preventive biological products, therapeutic biological products, and diagnostic reagents managed as biological products.
The Draft Guide refines the specific factors for defining relevant markets in the pharmaceutical field. According to it, the factors to be considered for the determination of the relevant product market for drug-related products include demand substitution factors such as the use and efficacy of the drug, therapy, product characteristics, contraindications and adverse reactions, doctor-patient drug preferences, supervision, and medical insurance policies; and supply substitution factors such as market entry, production capacity, production facility transformation, and technical barriers. For the definition of the relevant geographic market for Chinese medicine-related products, demand substitution factors also include the source of medicinal materials, medicinal material quality, brand recognition, and medication habits; and supply substitution factors also include patent protection, trade secret protection, protection of Chinese medicine varieties, and ethnic medicine culture. Considering the special role of APIs in the production of chemical preparations, a type of API is usually defined as a separate relevant product market.
Regarding the definition of the relevant geographic market for drugs, the Draft Guide points out that demand substitution or supply substitution analysis can be conducted based on factors such as the relevant qualifications for drug production and operation, regulatory standards, and drug transportation and storage. Generally, the relevant geographic market for drug production and operation tends to be defined as the domestic market in China. When it comes to drug R&D and innovation business, the relevant geographic market may be defined as the global market. When it comes to drug retail or distribution, the relevant geographic market may be defined as a certain area in China.
The identification of monopoly agreements is usually subject to the provisions of Chapter II of the Anti-Monopoly Law and the Provisions on Prohibition of Monopoly Agreements. The Draft Guide lists in detail the specific manifestations of monopoly agreements between competing drug operators in the pharmaceutical field. They include fixing or changing drug prices, limiting the production or sales volume of drugs, dividing sales markets or raw material procurement markets, restricting the purchase of new technologies, new equipment or restricting the development of new technologies and new drugs, joint boycotts, reverse payment agreements, and fixed resale prices and minimum resale prices. The reverse payment agreement is a new form of monopoly agreement in the pharmaceutical industry that was first added in the Interpretation of the Supreme People’s Court of Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct promulgated on 24 June 2024. It refers to an agreement in which the patent holder of the generic drug gives the generic drug applicant interest compensation without justifiable reasons, while the generic drug applicant makes a non-compete commitment such as not challenging the validity of the patent rights of the generic drug, delaying entry into the relevant market, or not selling the generic drug in a specific region. The Draft Guide discloses the following considerations for determining whether a reverse payment agreement constitutes a monopoly agreement or not:1. Whether the interest compensation given exceeds the cost of resolving disputes related to the generic drug patent and cannot be reasonably explained;2. If the generic drug applicant files a request for patent invalidation, the possibility that the patent rights of the generic drug will be invalidated;3. Whether the agreement substantially extends the market exclusivity time of the patent holder of the generic drug or hinders or affects the entry of generic drugs into the relevant market.
The Draft Guide points out that the agreements, such as those limiting the sale of drugs to specific areas, to specific customers, or through specific channels; agreeing to sell specific drugs exclusively within a specific period and region; or requiring or encouraging agreements that can only or mainly purchase and sell specified drugs, constitute prohibited monopoly agreements. However, the following agreements in the pharmaceutical field do not constitute monopoly agreements that violate the Anti-Monopoly Law:1. An agreement to entrust others to act as agents for drug sales business and setting sales prices or other transaction conditions related to agency business;2. According to the drug centralized procurement rules, in the drug centralized procurement project, drug operators bid and negotiate prices, and their counterparties sell drugs to terminal medical institutions within the scope of centralized procurement according to the prices;3. An agreement in which drug operators are responsible for drug sales, promotion, and other businesses and determine the sales price, and their counterparties only provide auxiliary services such as import, distribution, collection, invoicing, and technical support.
The determination of abuse of market dominance is usually subject to the provisions of Chapter III of the Anti-Monopoly Law and the Provisions on Prohibition of Abuse of Dominant Market Positions. The Draft Guide first supplements the considerations for determining that a drug operator has a dominant market position. They include the drug operator’s ownership of intellectual property rights such as patents, the control of the drug supply chain, the impact of regulatory laws and regulations, and policies, and the checks and balances of the transaction counterparty. When the object of determination is more than two drug operators, the factors considered also include the consistency of the drug operator’s behavior, market structure, transparency of the relevant market, and the degree of homogeneity of the relevant drugs. Secondly, the Draft Guide lists the manifestations and judgment considerations of common abuses of market dominance in the pharmaceutical field. It specifically points out that improperly pushing up drug sales prices through false transactions and layered price increases and delaying and interrupting existing transactions with counterparties by delaying drug supply and stopping drug production constitute abuses of market dominance. Thirdly, it proposes a new type of patent monopoly behavior in the pharmaceutical field that hinders generic drug companies from effectively competing - product hopping behavior, which refers to the drug patent holder with market dominance obtaining new drug patents by redesigning existing patented technical solutions, and take measures such as stopping sales and repurchasing to achieve the conversion of original patented drugs to new patented drugs. Factors for determining whether a product hopping behavior constitutes an abuse of market dominance or not are as follows:1. Whether the new patented drug is a non-substantial improvement;2. Whether the conversion of the original patented drug to the new patented drug hinders or affects the entry of generic drugs into the relevant market;3. When implementing the conversion of the original patented drug to the new patented drug, whether the original patent is close to the expiration date or the generic drug is planned to enter the relevant market;4. Whether the range of choices for patients and doctors will be substantially restricted;5. Whether there is a legitimate reason.
The review of concentration is usually subject to the provisions of the Anti-Monopoly Law, Provisions of the State Council on Notification Thresholds for Concentrations Between Undertakings and the Provisions on the Examination of Concentrations of Undertakings. The Draft Guide firstly clarifies that in the pharmaceutical field, a concentration that does not meet the reporting standards but may have the effect of excluding or restricting competition may be required to be reported. Secondly, it lists the common types of concentrations in the pharmaceutical field as well as the factors to be considered in judgment. For horizontal concentration, judging the concentration involving potential competitors may require the examination of unlisted drugs, including research and development drugs. Vertical concentration includes concentration between upstream API manufacturers and downstream pharmaceutical manufacturers, concentration between upstream pharmaceutical R&D service companies and downstream pharmaceutical manufacturers, and concentration between upstream pharmaceutical manufacturers and downstream pharmaceutical operating companies. For mixed concentration, concentrations between operators with adjacent or complementary relationships will be the focus of attention. The Draft Guide points out that obtaining control over other operators or being able to exert a decisive influence on them through transactions involving pharmaceutical intellectual property rights may constitute a prohibited concentration. Thirdly, the Draft Guide clarifies the specific considerations for competition analysis of concentrations in the pharmaceutical field and lists the specific types of additional restrictive conditions. Factors to be considered for the analysis of concentration include the market share of the operators involved in the concentration in the relevant market and their control over the market, the market concentration of the relevant market, the impact of the concentration of operators on market entry and technological progress, the impact on consumers and other relevant operators, and the impact on national economic development and public interests. For concentrations that are not prohibited, the following restrictive conditions can be added:1. Structural conditions for divesting tangible and intangible assets and interests;2. Behavioral conditions such as commitment not to terminate R&D projects, maintain R&D investment, license key technologies, terminate exclusive or exclusive agreements, maintain independent operation, open drug R&D platforms, share drug R&D data, ensure supply, and reduce prices;3. Comprehensive conditions combining the above structural conditions and behavioral conditions.
In conclusion, the Draft Guide systematically and comprehensively sorts out the types, manifestations, and illegal characteristics of monopoly behaviors in the pharmaceutical field. It provides clearer guidance for antitrust law enforcement agencies and operators in the pharmaceutical field to make compliance judgments or operate.