China’s NDRC faces challenges in scrutiny of pharma pay-for-delay agreements

13 July 2015. By MLex Staff.

China’s National Development and Reform Commission, or NDRC, will face challenges in its move to tighten scrutiny of the so-called pay-for-delay agreements in the country’s pharmaceutical sector, antitrust lawyers said.

The comments come after Zhang Handong, the head of the NDRC’s Price Supervision and Antimonopoly Bureau, said the regulator will pay attention to abuse of intellectual property rights in the industry, including pay-for-delay agreements, and ramp up antitrust scrutiny in the pharmaceutical raw materials market.

Pay-for-delay agreements are a form of patent dispute settlement in which a generic manufacturer acknowledges the patent of the originator pharmaceutical company, and agrees to refrain from marketing its generic product for a certain period. In return, the generic company receives a payment from the originator.

Such arrangements offer incentives for generics companies to delay entry of cheaper alternatives to the market.

Lawyers said it isn’t realistic for the regulator to target pay-for-delay agreements at the moment, because such arrangements aren’t as popular in China as in foreign countries.

“There are too many generics companies in China and it doesn’t make much sense [for one international company] to negotiate such terms with every individual generics company,” a Beijing-based antitrust lawyer said.

Speaking at a United Nations conference on July 8, Zhang cited as examples pay-for-delay agreements when he said the regulator is closely monitoring practices relating to abuse of intellectual property rights in the pharma industry, according to a transcript of his speech released by Beijing-based Dacheng Law Offices.

“The US and EU have penalized practices of pay-for-delay agreements and the NDRC is closely watching the issue,” Zhang said.

Also, the official said the regulator has urged its local branches to launch a half-year crackdown on monopolistic agreements, abuse of market dominance, price fraud and bidding up of prices in the industry. In addition, the agency is monitoring situations where there are relatively frequent and drastic price changes, and where drug price differences are big among different regions, among products of the same categories, and between the Chinese market and international markets.

Legal practitioners, however, warned of market players’ reaction to an enforcement campaign that may affect the whole industry chain.

“For regulating abuse of intellectual property rights, the regulator has to consider the possible backlash from the whole industry, because it isn’t an issue unique to an individual company,” another Beijing-based antitrust lawyer said.

At a May 28 seminar in Shanghai, a senior antitrust expert said it will need further research to conclude whether pay-for-delay agreements have anti-competitive effects in China.

“China’s situation is quite different from that in overseas countries, and such differences should be taken into account as we look for solutions to these issues,” Huang Yong, senior antitrust adviser to the State Council’s Antimonopoly Commission, told the seminar.

“There are few pharmaceutical companies in China that are undertaking innovation of branded drugs [originators]. Most of them are generics companies,” Huang said.

Legal practitioners also said it is hard for the NDRC to launch antitrust probes into behavior relating to abuse of market dominance, such as unfairly high pricing.

“Complicated economic analysis and legal reasoning are involved in these investigations, which is challenging for the regulator,” an antitrust lawyer said.

-Analysis by Olivia Wang

	Eliot Gao