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Focus on Regulation

The life sciences industry under the antitrust spotlight in China: two practical points

The simple fact is that the Chinese antitrust regulators are determined to up their enforcement activities in the life sciences industry. Almost immediately after drug pricing was liberalised in 2015, an antitrust enforcement decision was announced against a government entity, a local health commission, for breaching a number of provisions in the Anti-Monopoly Law (AML). The pace has not let up since then. More cases have since made headlines, including abuse of dominance cases and cartel cases. Last month, draft guidelines were published on pricing conduct by companies for drugs in shortage and API manufacturers. And just a few weeks ago, the spotlight turned to medical device manufacturers. There has now been an official announcement from the regulators that local antitrust agencies will further investigate into the bundling of medical devices as a form of commercial bribery.

As it is in any jurisdiction there is no joy in operating day-to-day with the cloud of a potential investigation looming over the business.  How can companies operating in the life sciences space in China be prepared? Two practical points:

First, know who does what. The AML targets three types of conduct: restrictive agreements, abuse of dominance and anti-competitive mergers. In addition to this, the AML also prohibits so-called “administrative monopolies,” a term used to describe government conduct with anti-competitive effects. The Anti-Monopoly Enforcement Authority oversees the enforcement of China’s antitrust laws. The actual enforcement, however, is carried out by three separate agencies:

  • The National Development and Reform Commission (NDRC) is the regulator responsible for enforcing price-related breaches of the AML. The NDRC has been very active in the life sciences space and last month published its decisions against two local companies for infringing the AML by engaging in excessive pricing and the refusal to supply APIs.
  • The State Administration for Industry and Commerce (SAIC) is the enforcer responsible for non-price related breaches of the AML. The SAIC has previously imposed a fine on a Chinese pharmaceutical company for abusing its dominant position by refusing to deal.
  • The Ministry of Commerce (MOFCOM) reviews and approves mergers. In recent years, several pharmaceutical companies were sanctioned for not notifying their transactions to MOFCOM for prior approval. Fines were imposed on these companies.

Second, know what to expect in the event of an inspection. They are broadly similar to US antitrust or European Commission dawn raids in that the inspectors from the Chinese antitrust agencies have the power to seize electronic and hardcopy evidence. Likewise, obstructing an inspection can attract penalties and inspections can last several days. And as with a number of other jurisdictions, unannounced inspections in China are also becoming increasingly common.