On August 9, 2024, China’s State Administration for Market Regulation (SAMR) released a draft of the Anti-Monopoly Guidelines for the Pharmaceutical Sector (hereinafter referred to as the “AMGP”) for public comment. The AMGP is intended to supersede the Anti-Monopoly Guidelines for the Active Pharmaceutical Ingredient (API) Sector (hereinafter referred to as the “API Guidelines”) enacted in 2021, which focuses on the regulation of monopolistic behaviors in the API sector of chemical drugs. Compared to API Guidelines, the AMGP expands anti-monopoly regime to the entire pharmaceutical sector, including traditional Chinese medicine, chemical drugs, and biological products.

The AMGP outlines the fundamental principles of antitrust enforcement in the pharmaceutical sector, refines the analysis and criteria for identifying monopolistic behavior, and provides clearer and more specific guidance for pharmaceutical businesses. Among other things, the AMGP introduces antitrust regulations on reverse payment agreements and product hopping practices, and specifies the conditions for applying exemption defense for joint research and development agreements.

Reviews of Reverse Payment Agreements. A reverse payment agreement is an arrangement between a branded drug manufacturer, typically the patent holder, and a generic drug manufacturer, where the branded drug manufacturer provides financial compensation or other benefits to the generic drug manufacturer. In return, the generic drug manufacturer agrees not to challenge the patent’s validity, delay the market entry of its generic drug, or refrain from selling the generic drug in certain regions. Article 13 of the AMGP outlines the factors the regulatory authority would consider when determining whether a reverse payment agreement constitutes a monopolistic agreement under the Anti-Monopoly Law, including:

• Whether the compensation provided by the patent holder of the branded drug to the generic drug applicant significantly exceeds, without reasonable justification, the costs associated with resolving the patent dispute;
• The likelihood that the patent would be invalidated if the generic applicant challenges its validity;
• Whether the agreement substantially extends the patent holder’s market exclusivity or impedes the entry of generic drug into relevant market; and
• Other factors that may exclude or restrict competition in the relevant market.

Reviews of Product Hopping. Product hopping in the pharmaceutical industry occurs when a branded drug manufacturer redesigns existing patented products to secure new patents and then transitions patients to the new drugs by discontinuing the sale of or buying back the old patented products. The AMGP provides that if product hopping obstructs effective competition from generic drug manufacturers, it may constitute an abuse of market dominance under the Anti-Monopoly Law. Article 28 of the AMGP specifies several factors for the regulatory Authority to evaluate when analyzing whether product hopping behavior constitutes an abuse of market dominance, including:

• Whether the new patented drug represents a non-substantial improvement, such as merely changing the drug’s dosage form, combining two or more drugs into a new drug, without significantly enhancing the drug’s use, efficacy, or safety.
• Whether the transition from the original patented drug to the new patented drug hinders or impacts the entry of generic drugs into the relevant market;
• Whether the transition from the original patented drug to the new patented drug occurs when the original patent is close to expiration or the generic drug is already scheduled for market entry;
• Whether the range of choices available to patients and physicians is substantially restricted by the transition; and
• Whether there are legitimate reasons for the transition.

Clarification on Exemption Defense for Joint Research & Development Agreements. In instances where a joint research and development agreement may be deemed monopolistic, pharmaceutical companies can seek exemption for such agreement under the Anti-Monopoly Law, on the grounds that such agreement “improves technology and researches and develops new products.” A key factor in determining if such agreement qualifies for the aforesaid exemption is whether the research yields benefits for consumers. Article 19 of the AMGP lists several potential forms of these benefits, including:

• Expansion of drug varieties;
• Enhancement of drug safety, efficacy, and accessibility;
• Reduction in the time required for drug market entry;
• Decrease in consumers’ medication costs; and
• Assurance of effective drug supply during public health emergencies.

We will continue to monitor the progress of the AMGP, and will provide prompt updates when available.