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Pharmaceutical regulatory law

Regulatory framework and authorities

Which legislation sets out the regulatory framework for the marketing, authorisation and pricing of pharmaceutical products, including generic drugs? Which bodies are entrusted with enforcing these rules?

The basic legislation and regulations specific to pharmaceutical products are set out in the following:

  • the General Health Law;
  • the Regulations on Health Inputs;
  • the Regulations on Advertising;
  • the Regulations on Clinical Research;
  • the Federal Consumer Protection Law;
  • diverse Mexican Official Standards; and
  • the Pharmacopeia.

The above regulatory framework is enforced by:

  • the Ministry of Health;
  • the Federal Commission for the Protection against Sanitary Risks (COFEPRIS);
  • the Ministry of Economy at the federal level; and
  • the Federal Consumer Agency.

Pricing

Are drug prices subject to regulatory control?

Yes, although to a limited extent and only for certain products. Since February 2008, a former administration (under Felipe Calderón) created a government agency called the Coordinating Commission for the Negotiation of Prices of Medicines and Supplies for Health, which has the main target of negotiating the prices of medicines and related supplies.

The products that fall under this scope are those that fall under the Basic Table for the first level of medical care and in the Supplies Catalogue for the second and third levels, which, in other words, are those that are currently under the protection of a patent or considered to be from a single source.

However, this Commission does not have the authority to actually impose final prices, but rather has the faculty to negotiate the price a specific product will be sold to end-users or negotiate any variation of the price with producers. Therefore, producers must justify pricing activities through a specific procedure before the Commission and, as long as such products are under the protection of a patent or are considered to be from a single source, regulations will continue to apply.

Distribution

Is there specific legislation on the distribution of pharmaceutical products?

The General Health Law and the Regulations on Health Inputs are the main legal statutes setting forth provisions aimed at providing for adequate sanitary control of products, services and facilities relating to pharmaceutical products. These provisions include aspects such as those general principles for the access of products and services, the requirements and restrictions for the proper handling, distribution and retail of products depending on their category (eg, over-the-counter drugs (OTCs), prescription medicines, controlled substances) through the appropriate channels and also with respect to the requirements that need to be complied with by facilities involved in the marketing and distribution of pharmaceutical products.

Ancillary statutes such as the Regulations on Advertising, Mexican Official Standards and the Pharmacopeia set forth additional and specific requirements concerning the advertising and labelling of pharmaceutical products, good manufacturing practices and technical specifications concerning the activities and facilities involving the distribution of the products.

Intersection with competition law

Which aspects of this legislation are most directly relevant to the application of competition law to the pharmaceutical sector?

Self-regulated pricing control

As part of a government programme to modernise the pharmaceutical industry known as PROMIF, in 1996 the National Pharmaceutical Industry Chamber (Canifarma) and the Ministry of the Economy entered into a collaboration agreement for prices, which was amended in 2004. The agreement is mainly aimed at patented products, and sets forth a self-regulated pricing mechanism. This mechanism provides for private laboratories to determine a maximum price for sale to the public. Laboratories voluntarily adhere to this programme.

Retail price is registered with the Ministry of the Economy. This programme is based on the authority under the General Health Law for the Ministry of the Economy to set maximum prices on pharmaceutical products to the public.

Regulatory control of pharmaceuticals

The manufacturing, importation, exportation and marketing of pharmaceuticals in Mexico (either patented or generic) require a health registration issued by COFEPRIS. In the particular case of patented pharmaceuticals, the applicant must provide evidence that it is the title holder or licensee of the active ingredient’s patent. Both the patent and the licence, as the case may be, need to be registered with the Mexican Industrial Property Institute.

In addition, the owner of a product’s health registration is restrained from holding two registrations from pharmaceuticals that hold the same active ingredient, pharmaceutical form or formulation, unless those products are dedicated to the market of generic pharmaceuticals.

Competition legislation and regulation

Legislation

Which legislation sets out competition law?

As a result of the recent amendments to article 28 of the Mexican Constitution (published 11 June 2013), the competition legislation has been completely overhauled. Two new autonomous constitutional enforcement agencies have been created:

  • the Telecommunications Federal Institute, in charge of regulating, promoting and supervising the telecommunications, radio and TV industries, and acting as a competition enforcer in these sectors; and
  • the Federal Economic Competition Commission (COFECE), the competition enforcement agency for any other sector or industry, including pharmaceuticals.

These new authorities took office on 10 September 2013, after the senate’s ratification of most of the new commissioners.

As a result of the constitutional amendment, a new Federal Law of Economic Competition (the Competition Law) was enacted (in force as of 7 July 2014) along with its Regulatory Dispositions (in force as of November 2014).

Competition authorities

Which authorities investigate and decide on pharmaceutical mergers and the anticompetitive nature of conduct or agreements in the pharmaceutical sector?

Given the aforementioned constitutional amendment, COFECE, as a constitutionally autonomous body, is the only local agency in charge of enforcing the competition legislation and policy regarding the pharmaceutical sector. In addition, COFECE works closely with the authorities mentioned in question 1.

Remedies

What remedies can competition authorities impose for anticompetitive conduct or agreements by pharmaceutical companies?

Based on the statutory framework, COFECE can:

  • impose significant fines, which will depend on several factors, such as the specific conduct, whether it is a second offence, intention to harm, duration of the practice and harm to the market;
  • order up to a five-year disqualification sanction against pharmaceutical companies’ executives, board members or employees, depending on the specific type of anticompetitive conduct;
  • order the correction or suppression of a practice or concentration;
  • impose conditions or behavioural or structural remedies in the event of concentrations, including divestments;
  • order divestments in the case of second offenders; and
  • use regulatory authorities in the event of barriers to competition or access to essential facilities or inputs.

Private actions and remedies

Can private parties obtain competition-related remedies if they suffer harm from anticompetitive conduct or agreements by pharmaceutical companies? What form would such remedies typically take and how can they be obtained?

Private parties may seek damages and lost profits through civil judicial actions (individual damage claims or class actions). However, private actions can only be initiated once a resolution is issued by COFECE declaring the commission of a conduct contrary to the law, and such a resolution becomes res judicata.

However, according to local statutory framework, only direct and immediate damages and lost profits may be awarded under Mexican law.

To our knowledge, thus far, no damages have been awarded to competition civil plaintiffs, although in a case related to the pharmaceutical industry, the first damage action has been triggered by the Mexican Social Security Institute and is still ongoing.

Sector inquiries

May the antitrust authority conduct sector-wide inquiries? If so, have such inquiries ever been conducted into the pharmaceutical sector and, if so, what was the main outcome?

COFECE may conduct sector-wide inquiries. There have been recent inquiries into the financial and agro-industrial sectors. A similar inquiry into the pharmaceutical industry is expected, as it has been publicly announced by COFECE. These inquiries review the general aspects of the industry, including supply, manufacturing, distribution, government procurement and retail. In addition, COFECE recently conducted an investigation into the off-patent pharmaceutical products segment, which resulted in the publication of a sector study that identified several competition concerns and barriers.

NGO involvement

To what extent do non-government groups play a role in the application of competition rules to the pharmaceutical sector?

The main non-governmental groups that participate in the pharmaceutical sector are Canifarma and the National Association of Pharmacies of Mexico. These organisations gather members of the industry to represent them in common issues arising within the sector, including antitrust concerns.

Review of mergers

Sector-specific considerations

Are the sector-specific features of the pharmaceutical industry taken into account when mergers between two pharmaceutical companies are being reviewed?

COFECE analyses each merger considering the specific features of the industry involved. One of the most important issues that is considered when analysing mergers in the pharmaceutical industry is that of pipeline products. Normally, future products are not considered when reviewing other industries; however, they have been considered when reviewing mergers of pharmaceutical companies.

Investment in research and development in the pharmaceutical industry has also been subject to discussion by COFECE, which considers investment a significant barrier to entry for new participants.

Market definition

How are product and geographic markets typically defined in the pharmaceutical sector?

The product market for human pharmaceuticals has been divided into three main sectors: active substances, future products and pharmaceutical specialties.

Within the area of these main sectors, the markets are defined on the classification provided by the anatomical therapeutic chemical classification level 3 (ATC3) used by the World Health Organization. Notwithstanding the foregoing, COFECE does not consider this classification to be a definitive product market definition, but a good starting point. The authority analyses whether the products included in each relevant ATC3 class are in fact substitutes, and if other products classified under different classes may compete with the products in question, considering, among other elements, whether they treat the same diseases, the different circumstances for their use and the prices of the products. In addition, COFECE has found that OTC products and prescription products are not close substitutes, considering differences in regulation and prices (Case CNT-045-2014, Bayer/Merck).

The geographic market has generally been defined as the Mexican territory.

Addressing competition concerns

Is it possible to invoke before the authorities the strengthening of the local or regional research and development activities or efficiency-based arguments to address antitrust concerns?

The law allows for the parties to invoke efficiency gains to address antitrust concerns. However, depending only on efficiencies is a hard proposition, as the parties would need to prove, ex ante, that those efficiencies would actually benefit consumers and counter any anticompetitive effects.

Horizontal mergers

Under which circumstances will a horizontal merger of companies currently active in the same product and geographical market be considered problematic?

The first step of the analysis is based on the calculation of the Herfindahl-Hirschman Index (HHI). A combined market share exceeding the high 30s will normally exceed the HHI index and would be subject to thorough scrutiny. Other elements such as barriers to entry, efficiency gains and the presence and power of competitors are considered in the analysis.

Product overlap

When is an overlap with respect to products that are being developed likely to be problematic? How is potential competition assessed?

The analysis with respect to pipeline products is made in relation to the products already marketed by the parties in the same ATC3 class. The analysis is similar to that explained in question 12 - mainly based on the market shares of the parties and the existence and presence of actual and potential competitors.

Remedies

Which remedies will typically be required to resolve any issues that have been identified?

The typical remedy would be the licensing or transfer of specific products (CNT-017-2010, Novartis/Nestlé). It is common for the Mexican regulator to review remedies imposed in other jurisdictions and review whether the effects of those remedies also address concerns in Mexico, without the need to impose a specific Mexico remedy. In addition, on a more recent case, COFECE conditioned its clearance to an obligation from the acquiring party not to buy certain specific products considering that such acquisition will increment the acquirer’s market power as a result of its strong product-portfolio presence in certain specific markets (CNT-086-2016, Sanofi/Boehringer).

Patents and licences

Would the acquisition of one or more patents or licences be subject to merger reporting requirements? If so, when would that be the case?

The acquisition of a patent would be considered a concentration under the Competition Law, and would be subject to reporting requirements if any of the following thresholds is met:

  • the transaction involves an act or series of acts, regardless of the place of execution, amounting to the equivalent of 18 million times the unit of measure (for 2018, one unit of measure is equivalent to 80.6 Mexican pesos) or more;
  • the transaction involves an act or series of acts with an accumulation of at least 35 per cent of the assets or capital stock of an economic agent, whose assets in Mexico or annual sales generated in Mexico involve more than the equivalent of 18 million times the unit of measure; or
  • the transaction involves an act or series of acts with an accumulation in Mexico of assets or capital stock higher than 8.4 million times the unit of measure, and the transaction involves the participation of two or more economic agents with assets in Mexico or annual sales originated in Mexico, jointly or separately, of 48 million times the unit of measure.

Licensing of intellectual property rights may be deemed concentrations. Patent licensing involves the granting of the right for a licensee to use or exploit the patent for a specific period of time in a particular territory. Personal rights under Mexican law (such as a patent licence) are considered movable goods (or assets, if defined from an economic standpoint). The authorities consider as a concentration, among other things, the acquisition of control (without making reference to whether this control is temporary) of assets. Similarly, if one makes a strict interpretation of the definition of a concentration, a long-term supply agreement may be considered as one if, as a result thereof, one of the parties acquires control of the other. However, it would not be easy to make such an argument, and as far as we know, no filing has been made of a supply agreement as a concentration. This needs to be reviewed on a case-by-case basis.

Anticompetitive agreements

Assessment framework

What is the general framework for assessing whether an agreement or practice can be considered anticompetitive?

The Competition Law distinguishes between two types of monopolistic practices (including agreements), classifying them as absolute or relative. Absolute monopolistic practices are best known as horizontal practices or cartels, because they take place among direct competitors.

In a limitative and exhaustive manner, the Competition Law defines absolute monopolistic practices as those agreements (tacit or explicit), covenants, arrangements or combinations among competitors whose object or effect is to fix or manipulate prices, restrict output, segment markets, rig bids and exchange information with any of the foregoing objects or effects. As in many other jurisdictions, these practices are sanctioned under a per se rule so the enforcer only has to prove their existence in order to sanction them.

The Competition Law also prohibits relative monopolistic practices, which in general occur among economic agents in different levels of the distribution chain, such as between a manufacturer and a distributor. These practices are also best known as vertical restraints or abuse of dominance conducts.

The law acknowledges that these types of practices may have both competitive and anticompetitive effects, depending on their application. Therefore, the Competition Law provides for different criteria to analyse whether these practices should be considered monopolistic, and thus prohibited. In this regard, the following elements must be assessed and determined:

  • the relevant market (both product and geography);
  • whether the economic agents in question have substantial power (individually or jointly);
  • whether there are any exclusionary effects; and
  • efficiency gains resulting from the conduct that may have a favourable effect on the competition process.

Assuming that the economic agent or agents in question have individual or joint substantial power in the relevant market (or relevant markets), the authority must determine whether the particular conduct falls within any of the specific conducts provided in the Competition Law as relative monopolistic practices and whether efficiency gains could counter potential anticompetitive effects. These practices are listed in question 27.

Technology licensing agreements

To what extent are technology licensing agreements considered anticompetitive?

Technology licensing, as such, is not considered as an absolute or relative monopolistic practice. Anticompetitive concerns may be raised depending on the specifics of the agreements, the parties involved and the structure of the market. See questions 18 and 27.

Co-promotion and co-marketing agreements

To what extent are co-promotion and co-marketing agreements considered anticompetitive?

Since these agreements normally involve promotion and marketing activities only, COFECE has raised no anticompetitive concerns, although it has reviewed references to these types of agreements under merger control cases.

Other agreements

What other forms of agreement with a competitor are likely to be an issue? Can these issues be resolved by appropriate confidentiality provisions?

See question 18. Also, exchanges of information between competitors shall be carefully reviewed on a case-by-case basis. Any exchange of information, whether directly or through third parties, that has the effects set forth in question 18, is prohibited and subject to significant fines and, potentially, criminal liability.

Issues with vertical agreements

Which aspects of vertical agreements are most likely to raise antitrust concerns?

As further discussed in questions 18 and 27, for vertical agreements to cause concerns, the economic agents in question shall have substantial power in the relevant market. Of these practices, the ones most likely to cause concern are related to exclusivities, price discrimination and loyalty rebates.

Patent dispute settlements

To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?

In Mexico, there have been no cases investigating patent settlements to delay the entry of generic products. However, these could be seen as market segmentation agreements between competitors. See question 18.

Joint communications and lobbying

To what extent can joint communications or lobbying actions be anticompetitive?

Joint communications or lobbying should not impose, in essence, a competition concern. The competition statutory framework does not sanction, per se, any activity conducted on a joint basis between competitors, nor within the scope of actions of a trade association. However, it would be highly relevant to plainly understand which specific conducts, objectives and results will be achieved by the joint actions as conducts performed within trade associations have been highly scrutinised by COFECE. Therefore, outlining the purpose and effects of the conducts and analysing them on a case-by-case scenario is always recommended when two or more competitors are involved in a joint activity.

Public communications

To what extent may public communications constitute an infringement?

This would depend on the content of the communication. This means that if the content of the communication includes information, statements or declarations by two or more competitors that could constitute a hint of violation to the Competition Law, and even if it is issued by a trade association in representation of its members, COFECE has the authority to investigate the involved parties. In fact, in a recent case in the poultry industry, COFECE severely sanctioned several producers and the federal trade association for communicating, through a publicity cartel, a recommended price for consumers to acquire chicken at specific sales-spots.

Exchange of information

Are anticompetitive exchanges of information more likely to occur in the pharmaceutical sector given the increased transparency imposed by measures such as disclosure of relationships with HCPs, clinical trials, etc?

To avoid antitrust scrutiny, companies shall take every measure to avoid exchanges of sensitive information among competitors, including confidentiality agreements, providing only the information required to comply with the set goals and avoid direct contact with competitors as much as possible. There are no specific exemptions to the pharmaceutical industry on exchange of information among competitors. Likewise, COFECE has expressed certain concerns about discussions and contacts within trade associations and chambers, so companies should always participate carefully in these types of gatherings.

Anticompetitive unilateral conduct

Abuse of dominance

In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?

COFECE must determine if the conduct in question has, as purpose or effect, the wrongful displacement of other agents from the market, the substantial prevention of their access or the establishment of exclusive advantages to the detriment of any third parties in the following cases:

  • exclusivities, including imposition on a party not to manufacture or distribute goods or render services for a specific period of time;
  • resale price maintenance;
  • tying arrangements or sales;
  • prohibition from using or selling products of third parties;
  • a refusal to deal;
  • boycotts;
  • predatory pricing;
  • discounts or incentives with the requirement not to use, acquire, sell, market or supply goods or services of third parties;
  • cross-subsidies;
  • discriminatory pricing;
  • access to essential facilities; and
  • any action by one or several agents to increase the cost or obstruct the productive process or reduce the demand faced by competitors.

See question 18 for a detailed analysis.

De minimis thresholds

Is there any de minimis threshold for a conduct to be found abusive?

No, there is not. When an economic agent is found to have substantial market power (either individually or jointly) and evidence of anticompetitive behaviour is proven, COFECE has the authority to impose sanctions despite the background of the conduct, unless efficiency gains are proven (which are not related to factors such as size of market, number of customers or tenders concerned by given conduct or duration of the conduct).

Establishing dominance

When is a party likely to be considered dominant or jointly dominant?

There is no set rule. COFECE must analyse, in each case and for each market:

  • market shares;
  • the structure of the market;
  • whether competitors have the force to counter dominant conducts;
  • barriers to entry; and
  • access to financing, among other elements.

Can a patent holder be dominant simply on account of the patent that it holds?

No, COFECE has not defined markets so narrowly. The authority must consider the existence of a substitute or potential substitutes.

Patent grant and enforcement

When would life-cycle management strategies expose a patent owner to antitrust liability?

The potential liability will depend on the specific strategy, the efficiencies that may be generated with respect to that strategy and whether the patent holders are deemed to have substantial power in the market.

There is more flexibility during the introductory stages of a product. In fact, introducing a product into the market is considered an example of the efficiency gains recognised by the Competition Law.

To what extent can an application for the grant or enforcement of a patent expose the patent owner to liability for an antitrust violation?

Not applicable.

Communications

Can communications or recommendations aimed at the public or HCPs trigger antitrust liability?

As in question 25, this would depend on the content of the communication. If the content of such communication or recommendation is in the sense of committing a conduct following or signalling third parties, or other conducts that could constitute a hint of a potential violation, COFECE has the full authority to investigate them, their background, effectiveness, purpose and results, which could eventually result in antitrust liability.

Authorised generics

May a patent holder market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?

They can do so for the term of the patent (which has a 20-year maximum).

Restrictions on off-label use

Can actions taken by a patent holder to limit off-label use trigger antitrust liability?

Not necessarily, but this would depend on the actions implemented by the patent holder. For instance, methods such as off-label reimbursement, from a competition perspective, might seem pro-competitive when they intent to reduce prices on a unilateral basis but could also be considered anticompetitive if coordination of procedures is achieved. This would depend on a case-by-case analysis based on the specific actions taken.

Pricing

When does pricing conduct raise antitrust risks? Can high prices be abusive?

Pricing conduct raises antitrust risks whenever it results from coordination (of any kind) with actual or potential competitors. Pricing conduct will only be subject to scrutiny by the competition enforcer if such conduct is influenced, affected or results from coordination with competitors. Likewise, local competition framework does not sanction, nor restrict, any conduct related to ‘high prices’ or ‘abusive prices’ when they result from unilateral pricing conduct.

In addition to collusion, the only potential conduct (sanctioned as a relative monopolistic practice) related to pricing activities would be the imposition of different prices to third parties that are situated in the same commercial conditions, whereby one is discriminated against the other. Yet, this conduct would only be sanctioned if the economic agent, who is involved in such conduct, has substantial market power.

Nonetheless, other pieces of legislation, such as the Federal Law for Protection of the Consumer or the Federal Criminal Code might sanction ‘high prices’ or ‘abusive prices’, depending on the situation behind such pricing conduct.

Sector-specific issues

To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?

There is no specific exemption on the application of antitrust law for the pharmaceutical industry.

Has national enforcement activity in relation to life-cycle management and settlement agreements with generics increased following the EU Sector Inquiry?

Not applicable.

Update and trends

Current trends and developments

Are there in your jurisdiction any emerging trends or hot topics regarding antitrust regulation and enforcement in the pharmaceutical sector?

The pharmaceutical industry in Mexico is one of the most reviewed and investigated industries by the local competition enforcer. There are currently more than five ongoing investigations related to the pharmaceutical industry. Likewise, from investigations resulting from conduct committed within the local pharmaceutical industry, COFECE was able to file the first criminal request for action before the Attorney General for potential collusion; the Supreme Court of Justice has determined the constitutionality of using indirect evidence to prove anticompetitive behaviour; and the first civil action against four pharmaceutical laboratories is currently being resolved before the judiciary, setting the first precedent for future actions of a similar nature.