China Cracks Down on Monopolies in Active Pharmaceutical Ingredient Industry

by Grace Wang Nov 26, 2021

On Nov. 18, China issued the Anti-Monopoly Guidance for Active Pharmaceutical Ingredients (hereafter referred to as API Anti-Monopoly Guidance or Guidance), clarifying regulations against monopoly agreements, abuse of market power, and concentration of undertakings that limits or excludes competition.1

The API Anti-Monopoly Guidance, published by the State Council's Anti-Monopoly Committee, marks China's first detailed guidance for enforcing the Anti-Monopoly Law in the pharmaceutical industry.

This article is meant to introduce the Guidance's application scope, interpret its highlight anti-monopoly regulations, and analyze its influence on China's pharma industry.

API Anti-Monopoly Guidance's Application Scope

The Guidance applies to

  1. APIs: the active ingredients which serve as effective components in finished drug products, including chemical drug products' active ingredients and traditional Chinese medicines' raw materials. and

  2. chemical raw materials and pharmaceutical intermediates used for producing APIs and pharmaceutical excipients in the upstream supply chain .

Highlights of API Anti-Monopoly Guidance

1. Supplying Only to Particular Regions and Clients Could Constitute Monopolies

According to the Guidance, API suppliers will constitute monopolistic behaviors if they limit their dealers to only supply to particular distribution regions, API distributors, or finished drug product makers.

Such exclusive supply could sabotage the market order by creating price discrimination. Only a few API distributors and finished drug product manufacturers can get APIs with favorable prices. Meanwhile, numerous competitors will be forced to accept higher prices or even denied access to the APIs.

Therefore, API suppliers need to avoid price discrimination when setting prices for different distribution regions. Nor should they divide distribution territories with the purpose to limit or set the resale price of the dealers.

2. To Measure Market Power: Add Up Market Shares of the API Controller and the Controlled Suppliers

If there is evidence that an API supplier actually controls other suppliers, the controller's and the controlled suppliers' market share should be added up to see if the API supplier has a dominant market position. The add-up rule is a noteworthy factor for market power measurement.

Other factors are the API supplier's own market share, production capacity, financial and technical capabilities, etc.

3. In Concentration of Undertakings, Even Small API Suppliers Could Be Open to Anti-Monopoly Investigation

According to the Anti-Monopoly Law, suppliers can only carry out a concentration of undertakings after reporting it to the State Council's anti-monopoly enforcement agency.

The Guidance specifies that small-sized suppliers, whose annual turnover is lower than the threshold of reporting, should report if it engages in concentration of undertakings that may exclude or limit competition.

The Guidance also encourages small suppliers to communicate with the anti-monopoly enforcement agency before concentrating undertakings.

Why encourage small-sized API suppliers particularly? Because of the features of the API industry—the industry has multiple sub-sectors and each sub-sector is a market, where even a small API supplier can be a formidable power.

For instance, Nanjing Ningwei Medicines, a small-sized pharma company, was recently fined for more than 6.58 million yuan by Shanghai Market Regulation Administration for monopolistic behaviors. 2

Ningwei was granted the exclusive distribution right by Shanghai New Hualian Pharmaceutical Co., Ltd, the only de facto manufacturer of pralidoxime chloride in China.

Pralidoxime chloride is an irreplaceable API for producing Pralidoxime Chloride Injection, a significant drug in China's national strategic reserve list. The other three licensed Chinese manufacturers of pralidoxime chloride are not producing the API, and no foreign pralidoxime chloride is approved by China yet.

Thus, Nanjing Ningwei Medicines is a dominant pralidoxime chloride distributor with a dominant manufacturer. The distributor sold pralidoxime chloride at an unfairly high price and with unreasonable restrictions, and finally received an administrative penalty.

API Anti-Monopoly Guidance's Message to Pharma Industry

1. China to rein in its control on API monopolies.

API monopolies only benefits a few parties, but they can trigger a series of vicious results:

  • Other API suppliers get squeezed out of the market

  • drug manufacturers suffer from soaring prices of APIs

  • patients cannot afford expensive drug products with pricey APIs.

Monopolies certainly go against China's policy trend—carrying out volume-based drug procurements and improving the health insurance system to make drugs affordable to patients. Hence, China has been making efforts to crack down on monopolies.

With the detailed Guidance, China's anti-monopoly campaign is expected to proceed more efficiently.

2. Business environment to be more vigorous

With more monopolies taken down, more API suppliers can come into the market, offering more choices to finished drug product manufacturers. Healthy competition between API suppliers can also prevent API prices from rushing too high.

Contact BaiPharm for China DMF Filing

As a pharmaceutical consulting service provider based in China, BaiPharm is experienced in filing DMFs for APIs. Read about China DMF filing process and fees and contact BaiPharm if you need hands-on guidance.

Grace Wang
ChemLinked Regulatory Analyst
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