China Unveils New Anti-Monopoly Guidelines for the Pharmaceutical Sector

Highlights of the Guidelines include: 

Reverse Payment Agreements. For the first time, the Guidelines provide specific administrative enforcement guidance on "reverse payment agreements," where brand-name pharmaceutical suppliers without valid justification pay or provide indirect benefits to generic drug manufacturers for not challenging the validity of their patents, delaying market entry, or promising not to sell within certain territories. The Guidelines provide that reverse payment agreements may be deemed anticompetitive and outline factors to consider in assessing the potential anticompetitive effects of such agreements. 

The approach under the Guidelines is largely consistent with the Chinese Supreme People's Court's 2022 ruling in AstraZeneca v. Jiangsu Aosaikang Pharma and 2024 Judicial Interpretation on Civil Antitrust Disputes, signaling increased scrutiny on such reverse payment agreements by both the Chinese antitrust regulator and Chinese courts. 

Resale Price Maintenance ("RPM"). RPM in the health care industry has long been an enforcement target for SAMR. The Guidelines clarify that financial incentives and penalties may be considered as indirect measures to implement RPM. Moreover, the Guidelines clarify that auditing sales records or monitoring resale prices through a third party or algorithm can also be seen as indirect measures to implement RPM.

At the same time, the Guidelines carve out exceptions for certain restrictions common in the pharmaceutical sector. For example, the Guidelines recognize the "agency exception," which applies where a distributor does not set the selling price or take any risks associated with the sale, and thus acts more as a sale agent rather than as a reseller. The Guidelines similarly exempt situations in which distributors handle only logistics, such as delivery and payment after pharmaceutical manufacturers directly negotiate and set the commercial terms including price. 

Joint R&D and Innovation Exemptions. The Guidelines recognize the potential benefits of joint R&D and lay out a series of factors to be considered in assessing whether to grant an exemption, including the relationship of the parties to the agreement, the parties' control over the relevant market, any potential restriction on competition, and whether the agreement is necessary for the completion of the R&D. When assessing potential benefits to consumers, SAMR considers the effectiveness and safety of the drugs and whether the agreement will shorten the time to market, lower patient costs, or is made in response to a public health crisis.

Unfairly High Prices. The Guidelines refine the criteria for finding excessive pricing in pharmaceutical context, including practices such as "layering up" prices through false transactions or markups, reflecting experience in recent enforcement cases. This indicates China's growing commitment to tackling high pricing and lowering patient costs in the health care sector.

When assessing whether the prices are "unfairly high," SAMR will look to prices of the same or comparable competitor drugs, prices of the company's products in other regions, prices of the company's products in different time periods, and cost. 

Product Hopping. The Guidelines introduce the concept of "product hopping," where companies modify an existing patented drug to extend its patent life. Although there are no relevant enforcement cases in China yet, the Guidelines suggest that such practices could be anticompetitive—especially if the new product offers little improvement over the original product or prevents generic entry.

Conspiracy to Monopolize the Market. The Guidelines provide that companies across different levels of the pharmaceutical supply chain could face scrutiny if they collaborate to monopolize the market and share the resulting profits. In addition to the traditional theory of collective dominance or horizontal collusion among competitors, this article leaves wide discretion for SAMR to tackle other anticompetitive practices by multiple actors involving complicated arrangements that do not clearly fall into one of the categories of abuse of dominance and where direct collusion is difficult to establish. 

Merger Review. The Guidelines introduce important clarifications for pharmaceutical merger reviews, such as indicating that intellectual property transactions in the pharmaceutical sector may trigger merger reviews and proposing innovative behavioral remedies, such as requiring the licensing of key IP, granting open access to R&D platforms, sharing R&D data, guaranteeing supply, or lowering prices.