China’s top pricing-related anti-trust regulator, the National Development and Reform Commission (“NDRC”), has launched a new round of anti-trust investigations into pharmaceutical companies. A major US pharmaceutical company has been summoned for inquiry and more foreign and domestic companies are to follow. The investigation is described as "large-scale and systematic"; the aim is to collect evidence to see whether these companies have violated regulations regarding competition. The investigation may not only focus on strengthening competition enforcement in the pharmaceutical sector, but may also increase the pressure in the ongoing drug price negotiations.
Aside from its role as the regulator of price-related competition issues, the NDRC used to be the main body in China to determine the price of a large percentage of drugs, including patented drugs, mainly produced by multinational pharmaceutical companies. An NDRC-initiated price-probe would usually be followed by a cut in drug prices, for example, in 2013, the NDRC launched a wide-ranging examination into the cost of drugs at 60 domestic and international pharmaceutical companies, resulting in a price cut of certain brands of drugs by more than 20%.
From the middle of last year, the NDRC gave up most of its powers in drug price determination; instead, the price of patented and exclusively manufactured drugs will be decided by price negotiations between companies and the National Health and Family Planning Commission of the People’s Republic of China (the “NHFPC”). Already, three companies, including two multinational companies, have agreed to decrease the price of certain innovative drugs by 50%, and we predict most products of multinational companies will face this negotiation process in coming years.
However, the involvement of the NHFPC does not mean that the NDRC has lost its influence in drug pricing, and it seems likely that this new round of anti-trust investigations will increase the pressure in the ongoing price negotiations.
In the circumstances, it is becoming increasingly important for pharmaceutical companies to make sure their pricing strategy complies with the competition regulation and to establish effective competition compliance programs.