Normally, remedies can be imposed in merger controls as well as for abuse of dominance and monopoly agreements prohibited by the AML.
In the context of merger controls, as of 16 January 2018, out of 35 conditionally cleared transactions and two forbidden transactions, six relate to the pharmaceutical and medical device industry:
- the acquisition of Wyeth by Pfizer;
- the acquisition of Alcon by Novartis;
- the acquisition of Gambro by Baxter;
- the acquisition of Life Technology by Thermo Fisher Scientific;
- the acquisition of St Jude by Abbott; and
- the merger of Bard and Becton Dickinson.
Structural remedies were used in the Pfizer/Wyeth case, where Pfizer was required to divest from the swine MH vaccine business under the brands of Respisure and Respisure One in China. Behavioural remedies were applied in the Novartis/Alcon case, such as the commitment of the termination of sales regarding certain pharmaceutical products and the termination of the distribution agreement regarding certain lens-care products. Both structural and behavioural remedies were imposed in the Baxter/Gambro case, where Baxter was required to divest its global continual renal replacement therapy business, including all tangible and intangible assets necessary for the viability and competitiveness of the divested assets, and completely terminate its original equipment manufacturing (OEM) production agreement with Nipro regarding haemodialysis within the territory of China by 31 March 2016.
Similarly, both structural and behavioural remedies were applied in the Thermo Fisher/Life Technology case where Thermo Fisher was required to:
- divest its global cell-culture businesses, including the tangible and intangible assets necessary for the divested business’s viability, marketability and competitiveness;
- sell its 51 per cent stake in Lanzhou National HyClone Bio-engineering in China;
- divest its gene-modulation business, including the tangible and intangible assets necessary for the divested business’s viability, marketability and competitiveness;
- offer a 1 per cent reduction in the catalogue prices of SDS-PAGE protein standard products and SSP reagent kits, in the Chinese market, every year for the next 10 years, and pledge to not reduce the discounts offered to Chinese distributors; and
- in the following 10 years, provide SSP reagent kits and SDS-PAGE protein standard products to third parties by way of OEM agreement, or grant third-party perpetual and non-exclusive technology licences as relating to those two products, whichever is chosen by the third party.
In the Abbott/St Jude case, structural remedies were applied, such as the divesture of the small hole vessel closure device business to Terumo, provision of transitional service and finishing the divesture within 20 days of closing the Abbott/St Jude transaction.
In the Becton Dickinson/Bard case, structural remedies were applied (ie, the divesture of the global product line and the R&D product line of the core needle biopsy devices business of Becton) within three months of the date of the announcement to buyers.
Besides the above, Shanghai Fosun Pharmaceutical and Dade Holding Co, Ltd were fined 200,000 yuan and 150,000 yuan, respectively, for their failure to submit a merger filing prior to Fosun’s acquisition of a 35 per cent stake in Suzhou Erye Pharmaceutical and Dade’s acquisition of a 50 per cent stake in Jilin Sichang Pharmaceutical Company. In 2017, Meinian Onehealth was fined 300,000 yuan for the failure to submit a merger filing prior to Meinian Onehealth and its affiliates’ acquisition of Ciming Health Checkup; and Canon was fined 300,000 yuan for the failure to submit a merger filing prior to its acquisition of Toshiba Medical Systems.
In addition, the NDRC and SAIC have conducted several investigations on pharmaceutical companies for abuse of dominance and engaging in monopoly agreements. Remedies were imposed in some of the penalty decisions. For example, in November 2011, the NDRC announced its decision to fine two private pharmaceutical companies nearly 7 million yuan for violating the AML by abuse of dominant position. The penalised companies are both pharmaceutical distribution companies that sell a key ingredient for a drug that cures hypertension. According to the NDRC, the pharmaceutical distribution companies entered into exclusive sales agreements with the only two manufacturers of the ingredient in June 2011 and thereby gained full control of the domestic supply of the key ingredient. Both of them then raised the sales price of the ingredient significantly and required the downstream medicine manufacturers to raise their prices as well. As a result, the downstream medicine manufacturers could not afford the excessively high cost of raw material and were forced to suspend production, causing a shortage of supply of the downstream pharmaceutical product in the market. Upon receipt of complaints from these medicine manufacturers, the NDRC initiated investigations and imposed fines on the companies. In addition, the NDRC also ordered the companies to terminate their exclusive sales agreements with the ingredient producers.
On 15 August 2017, the NDRC announced its decision to fine two drug makers 443,900 yuan for abuse of dominance in relation to isoniazid APIs. The NDRC found that the two companies, Zhejiang Second Pharma and Tianjin Handewei Pharmaceutical, held a dominant market position in the relevant market of Chinese domestic medical-use isoniazid APIs as their combined share exceeded two-thirds in 2013 and neither has fallen below one-tenth since 2016. The two companies abused their dominant position to sell isoniazid APIs at excessive prices. They also engaged in unjustifiable refusal to trade by individually entering into an exclusive general distribution contract with Weifang Longshunhe and supplying isoniazid APIs to Longshunhe and companies designated by it only. Therefore, the NDRC imposed fines on the two companies and ordered them to discontinue the anticompetitive practices.
On 22 December 2015, the Chongqing municipal branch of the SAIC fined Chongqing Qingyang Pharmaceuticals 439,300 yuan, or 3 per cent of its 2013 revenue, for abuse of market dominance. The investigation found that Qingyang Pharmaceuticals had stopped supplying allopurinol ingredients to its distributors and other manufacturers of allopurinol for half a year in order to raise the prices of the ingredients and increase its share of the allopurinol market.
On 28 January 2016, the NDRC stated that it had fined five domestic pharmaceutical companies almost 4 million yuan for reaching and implementing monopoly agreements on the sales of allopurinol ingredients. The five companies, Chongqing Qingyang Pharmaceutical and its distributor Chongqing Datong, the Place Pharmaceutical Jiangsu, and Shanghai SINE Pharmaceutical and its distributor Shangqiu Huajie, held four meetings on the distribution of allopurinol in the period between April 2014 and September 2015 and reached monopoly agreements on:
- fixing and raising the price of allopurinol;
- dividing markets for sales of allopurinol; and
- reaching an agreement on bidding in different areas.
The NDRC requested that the companies terminate their illegal behaviour immediately.
On 22 July 2016, the NDRC published its decisions to fine three domestic pharmaceutical companies 2,603,823 yuan in total for reaching and implementing monopoly agreements on the sales of estazolam APIs and tablets. The three companies, Huazhong Pharmaceutical, Shandong Xinyi Pharmaceutical and Changzhou Siyao Pharmacy, reached monopoly agreements on:
- entering into and implementing monopoly agreements to jointly boycott transactions of estazolam APIs; and
- entering into and implementing monopoly agreements to fix or change prices of estazolam tablets.
The NDRC requested that the companies terminate their illegal behaviour immediately.
On 7 December 2016, the NDRC announced its decision to fine Medtronic (Shanghai) Management 118.5 million yuan for engaging in and implementing a resale price maintenance (RPM) arrangement for medical equipment supplies. Medtronic restricted the minimum RPM, minimum bid prices of distributors and minimum RPM for hospitals.
On 29 December 2016, the Shanghai Price Bureau fined Smith & Nephew (a British medical equipment company) 742,148 yuan for engaging in RPM. Smith & Nephew and its distributors entered into and implemented an RPM agreement for over-the-counter CICA-CARE silicone gel sheets for scar treatment in the Chinese market between 2014 and 2015, and had been asking online pharmacies to sell its products at or above certain price floors since 2014.
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