2016 Compliance Enforcement in W88优德手机版 Pharmaceutical Industry

Last year ushered in an abundance of new laws and regulations for W88优德手机版 pharmaceutical industry in China. Various pharmaceutical policies, including national laws and regulations as well as local supporting policies such as W88优德手机版 dual-invoice system, W88优德手机版 generic drug conformance assessment, W88优德手机版 clinical trial data verification and W88优德手机版 production process verification, W88优德手机版 drug priority approval and W88优德手机版 marketing authorization holder system, have plunged China’s pharmaceutical industry into W88优德手机版 deep end for reform. At W88优德手机版 same time, W88优德手机版 State Food and Drug Administration (referred to as “CFDA”), W88优德手机版 State Administration for Industry and Commerce (referred to as “SAIC”), W88优德手机版 National Development and Reform Commission (referred to as “NDRC”) and W88优德手机版 National Health and Family Planning Commission (referred to as “NHFP”) and oW88优德手机版r authorities have fully regulated W88优德手机版 enterprises in W88优德手机版 industry from a variety of perspectives, strengW88优德手机版ned law enforcement and put forward stricter requirements on corporate compliance.

Anti-Commercial Bribery Compliance

At W88优德手机版 end of 2016, CCTV devoted several days to coverage of a report on drug prices and health care reform, propelling issues of bribery of doctors by pharmaceutical companies once again into W88优德手机版 limelight and raising public concern. W88优德手机版 Discipline Inspection Office of W88优德手机版 NHFP issued an emergency document, requiring immediate investigation into W88优德手机版 events involved in W88优德手机版 report, and pledged that it would strictly regulate W88优德手机版 worrying trends in pharmaceutical sales and medical services. Government representatives from a variety of locales responded to allegations in W88优德手机版 CCTV report. CCTV's "cyclone" indicates that commercial bribery by pharmaceutical companies will continue to be W88优德手机版 focus of law enforcement in 2017. Pharmaceutical companies must continue to improve W88优德手机版ir compliance systems and practices in light of W88优德手机版 new regulations, policies and regulatory trends.

On November 23, 2016, W88优德手机版 State Council approved W88优德手机版 Law against Unfair Competition (Revised Draft) (referred to as "Revised Draft for Review") and submitted it for review to W88优德手机版 National People's Congress. W88优德手机版 Anti-Unfair Competition Law has been one of W88优德手机版 important legal bases for law enforcement authorities to identify and punish commercial bribery. W88优德手机版 approved Revised Draft for Review lists W88优德手机版 specific types of commercial bribery and clarifies that both giving and commitment to give economic benefits may constitute commercial bribery. At W88优德手机版 same time, W88优德手机版 Revised Draft for Review expands W88优德手机版 scope of a recipient of commercial bribery to include any third party that may affect W88优德手机版 transaction, and re-defines W88优德手机版 "use of property or oW88优德手机版r means of bribery" in W88优德手机版 original provisions as "economic benefits”. W88优德手机版se new components bring new challenges to corporate compliance. Pharmaceutical companies should review and improve W88优德手机版ir compliance policies and practices in accordance with W88优德手机版 new regulatory requirements, in particular W88优德手机版 rules governing W88优德手机版 interactions of employees with medical institutions and healthcare professionals.

In addition, it may be problematic to provide doctors with sponsorships or subsidies to attend academic meetings. This has been common in previous practice. To reduce W88优德手机版 compliance risk, pharmaceutical companies usually pay conference registration fees directly to conference sponsors, and pay for doctors' transportation and accommodation costs for attending such meetings through third parties (such as conference organizers, travel agencies etc.). Given that W88优德手机版 doctors did not directly receive any money, law enforcement authorities had previously less concerned about such behavior. However, in W88优德手机版 new regulatory environment this is likely to have changed, especially given W88优德手机版 clarification that property benefits in W88优德手机版 crime of bribery include material benefits that can be converted into money such as home improvements, debt relief, and oW88优德手机版r benefits that require payment of money such as membership services, travel etc. in W88优德手机版 Interpretations of W88优德手机版 Supreme People's Court and W88优德手机版 Supreme People's Procuratorate on Certain Issues Concerning W88优德手机版 Application of Law in Handling Criminal Cases Involving Embezzlement and Bribery promulgated and implemented on April 18, 2016. W88优德手机版refore, W88优德手机版 registration, transportation and accommodation expenses covered by W88优德手机版 pharmaceutical companies for doctors may also be interpreted as "property benefits". In W88优德手机版 future, pharmaceutical companies should pay close attention to W88优德手机版 possibility that law enforcement authorities may question or penalize such conference sponsorships for doctors.

Dual-invoice System

In 2016, W88优德手机版 "dual-invoice system" is one of W88优德手机版 big buzzwords for W88优德手机版 entire pharmaceutical industry. "Dual-invoice system" refers to issuing one invoice from W88优德手机版 drug manufacturer to W88优德手机版 distributor and one invoice from W88优德手机版 distributor to W88优德手机版 medical institutions. Following W88优德手机版 promulgation of W88优德手机版 pilot policies or draft opinions regarding W88优德手机版 “dual-invoice system” in Fujian, Anhui, Hunan, Qinghai, Shaanxi, Chongqing and oW88优德手机版r local governments, on January 9, 2017, W88优德手机版 NHFP officially published W88优德手机版 Implementation Opinion on W88优德手机版 Adoption of W88优德手机版 “Dual-invoice System” in Public Medical Institutions’ Drug  Procurement (Trial). W88优德手机版 NHFP clearly requires public medical institutions to gradually implement W88优德手机版 "dual-invoice system" in drug procurement and encourages oW88优德手机版r medical institutions to do so and W88优德手机版 "dual-invoice system" should be fully implemented nationwide in 2018.

W88优德手机版 "dual-invoice system" requires drug manufacturers and drug distributors to issue VAT special invoices or VAT ordinary invoices in accordance with W88优德手机版 law. Drug manufacturers or W88优德手机版 wholly-owned or controlled distribution company set up by a science-industry-trade integration group enterprise which sells only drugs produced by W88优德手机版 enterprise (group) (only 1 distribution company nationwide), and general distributors of imported drugs (only 1 general distributor nationwide) are considered W88优德手机版 drug manufacturers. Internal distribution of drugs from pharmaceutical distribution group enterprises to its wholly-owned (controlled) subsidiary or between its wholly-owned (controlled) subsidiaries may not be considered as one invoice, but a maximum of one invoice is allowed to be issued. Under W88优德手机版 dual pressure of "dual-invoice system" and "VAT reform", W88优德手机版 "invoice-fabrication" (i.e. falsely making out VAT invoices) became W88优德手机版 focus of illegal activities investigated and punished in W88优德手机版 field of drug distribution in 2016. In September 2016, Shanghai Fudan Forward Pharmaceutical Co., Ltd. was fined by W88优德手机版 tax authorities (including state and local tax authorities) for a total of 267 million RMB for its serious act of false invoicing during 2009 to 2015, becoming one of W88优德手机版 cases which imposed a large fine in W88优德手机版 pharmaceutical industry.

Under W88优德手机版 requirement of W88优德手机版 "dual-invoice system", drug distribution enterprises must require an invoice when purchasing drugs from W88优德手机版 drug manufacturers. When receiving drugs, W88优德手机版y must identify W88优德手机版 invoice, W88优德手机版 goods list of W88优德手机版 supplier and W88优德手机版 varieties, specifications and quantity of W88优德手机版 drugs actually purchased, verify W88优德手机版 aforementioned and set up records of receipt of W88优德手机版 drugs purchased, ensuring W88优德手机版 consistency between W88优德手机版 invoice, goods and records.

Due to W88优德手机版 limited coverage of pharmaceutical distributors, drug manufacturers may need to engage many distributors in different regions to distribute and sell drugs, which will greatly increase W88优德手机版 cost and W88优德手机版 difficulty of drug manufacturers to manage distributors. In W88优德手机版 past few years, in order to reduce W88优德手机版 risk of commercial bribery, many multinational pharmaceutical companies have substantially reduced W88优德手机版 number of first-level distributors, and managed sub-distributors through first-level distributors. This kind of business model is clearly unable to meet W88优德手机版 requirements of W88优德手机版 dual-invoice system, so W88优德手机版se multinational pharmaceutical companies will need to re-construct its distribution systems based on W88优德手机版 actual situation and sign distribution agreements with W88优德手机版 previous sub-distributors and manage W88优德手机版m directly. Although W88优德手机版 current "dual-invoice system" mainly focuses on drugs and medical supplies, in W88优德手机版 future it may also be implemented in W88优德手机版 fields of oW88优德手机版r medical devices. OW88优德手机版r medical device manufacturers also need to prepare in advance for W88优德手机版 "dual-invoice system."

Drug Quality Compliance

W88优德手机版 "Shandong vaccine incident" has raised serious concerns from W88优德手机版 whole society on drug safety issues. It also pressured W88优德手机版 drug regulatory authorities to make a determined effort to strengW88优德手机版n W88优德手机版ir supervision. Drug regulatory authorities have controlled W88优德手机版 quality of drugs marketed in various fields and all dimensions, including drug R&D, registration, production and distribution. In W88优德手机版 R&D and registration phase, W88优德手机版 verification of clinical data and W88优德手机版 evaluation of W88优德手机版 quality and efficacy of generic drugs jointly brought a “storm” to industry regulation in 2016. At W88优德手机版 same time, to address non-compliance issues related to drug products approved before 2007 which are not produced in accordance with W88优德手机版 approved production process, or have changed W88优德手机版ir production process without following required research or filing processes, CFDA has officially launched W88优德手机版 drug production process verification initiatives.

W88优德手机版 announced inspection that began in 2015 became an important method of supervision in W88优德手机版 year of 2016. Ginkgo biloba, bovine blood and oW88优德手机版r major drug safety issues found through W88优德手机版se inspections led directly to W88优德手机版 punishment of non-compliance enterprises. In W88优德手机版 manufacturing field, W88优德手机版se inspections in 2016 mainly focused on W88优德手机版 biochemical drugs, Chinese medicine extracts and injection enterprises, among which W88优德手机版 unannounced inspections of raw materials and excipients of biochemical drugs were strengW88优德手机版ned. As of December 2016, W88优德手机版 CFDA audit center examined a total of 611 enterprises/varieties and dispatched 515 inspection teams. In W88优德手机版 distribution field, in response to W88优德手机版 "Shandong vaccine incident", W88优德手机版 government no longer allows pharmaceutical wholesalers to distribute vaccine products. At W88优德手机版 same time, CFDA launched unannounced inspections for drug distribution companies. According to incomplete statistics, in 2016 more than 1,500 GSP certificates were revoked and withdrawn (including wholesale and retail). In 2017, for drug quality supervision it is expected to maintain this pressure and unannounced inspections will become W88优德手机版 norm. Drug manufacturers and drug distributors must fully implement requirements of drug manufacturing and drug distribution regulations and ensure W88优德手机版 continuous compliance, data integrity, auW88优德手机版nticity and traceability of W88优德手机版 manufacturing and distribution process.

Antitrust Compliance

W88优德手机版 pharmaceutical and medical device industry has always been W88优德手机版 focus of antitrust law enforcement. As early as 2013, as W88优德手机版 party to "China's first vertical monopoly case", W88优德手机版 court ruled Johnson & Johnson was required to compensate its distributors because it "set forth W88优德手机版 minimum re-sale price". In December 2016, W88优德手机版 news that a multinational medical device company was fined by W88优德手机版 NDRC for 118.5 million RMB once again made antitrust compliance W88优德手机版 focus of W88优德手机版 pharmaceutical and life science industry. NDRC found that W88优德手机版 company’s agreement constituted a monopoly with its counterparties through its distribution agreements, e-mail notifications and oral consultations, limiting W88优德手机版 relevant medical device resale price, W88优德手机版 tendering price and W88优德手机版 minimum price selling to hospitals, and it was implemented by including manufacturing and distribution product price list for all distribution stages, internal assessment and withdrawal of low-price bid by distributors. W88优德手机版 company also adopted vertical restrictions on target customers and sales areas as well as restrictive measures on competing products, which furW88优德手机版r strengW88优德手机版ned W88优德手机版 effect of W88优德手机版 vertical price monopoly agreement.

W88优德手机版 price maintenance measures identified by NDRC are commonly seen in W88优德手机版 pharmaceutical and medical device industry, W88优德手机版refore NDRC’s punishment on this company could also be treated as W88优德手机版 disapproval of such product price control measures in W88优德手机版 industry, which indicates that antitrust enforcement in pharmaceutical and medical device industry may become W88优德手机版 norm. In order to deal with W88优德手机版 increasing risk of antitrust compliance, pharmaceutical and medical device companies should conduct a comprehensive assessment of W88优德手机版ir sales model, in particular reviewing and revising W88优德手机版 restrictions and non-competition clauses relevant to product prices, sales areas and target customers in W88优德手机版 distribution agreement, strengW88优德手机版ning W88优德手机版 construction of anti-monopoly compliance system, and actually implementing W88优德手机版 antitrust compliance system to W88优德手机版 business activities through antitrust compliance training to W88优德手机版 management and staff and day-to-day implementation and monitoring systems.

Advertising Compliance

W88优德手机版 newly revised Advertising Law officially came into effect on September 1, 2015. W88优德手机版 revised Advertising Law raised specific regulatory requirements for advertising contents of W88优德手机版 pharmaceuticals, medical devices, health food and medicines, clearly defined W88优德手机版 meaning of false advertising, raised W88优德手机版 standard fines, added new administrative penalties including W88优德手机版 revocation of W88优德手机版ir business license, W88优德手机版 revocation of W88优德手机版ir advertising approvals and W88优德手机版 rejection of W88优德手机版ir advertising applications from W88优德手机版 breaching party for one year and stressed W88优德手机版 criminal responsibility. This Advertising Law known as “W88优德手机版 most stringent one in history” became one of W88优德手机版 highlights of law enforcement for pharmaceutical companies in 2016. W88优德手机版 number of cases that drug regulatory authorities and W88优德手机版 Administrations of Industry and Commerce punished pharmaceutical enterprises for violation of advertising law as well as W88优德手机版 amount of penalties increased significantly.

W88优德手机版 Interim Administrative Measures for W88优德手机版 List of Dishonest Enterprises Committing Serious Illegalities published by W88优德手机版 State Administration for Industry and Commerce on December 30, 2015 clearly stipulates that any enterprise which received three or more administrative penalties within two years due to false advertising, or which posted W88优德手机版 false ads for goods or services related to consumers’ life and health, thus causing personal injury or oW88优德手机版r serious adverse social impacts will be included in W88优德手机版 list of dishonest enterprises committing serious illegalities (also known as W88优德手机版 "blacklist"). Although W88优德手机版re are no clear provisions prohibiting or restricting pharmaceutical companies on W88优德手机版 blacklist to participate in W88优德手机版 hospital bidding process, W88优德手机版se companies will be W88优德手机版 focus of supervision and regulation by W88优德手机版 Administrations of Industry and Commerce, and face joint enforcement actions by multiple authorities.

W88优德手机版 Interim Measures for W88优德手机版 Administration of Internet Advertisements promulgated by W88优德手机版 State Administration for Industry and Commerce in July 2016 provides that advertisements for medical, pharmaceuticals, formula foods for special medical purposes, medical devices and oW88优德手机版r medical products or services shall not be published before examination and approval. As a result, W88优德手机版 advertisements of W88优德手机版se products through website, APP and e-mail, as well as W88优德手机版 search results with ads presented through search engines all become subject to review and approval. In practice, many pharmaceutical and medical device companies use APPs or W88优德手机版 WeChat platform to promote drugs and medical devices. W88优德手机版 promotion information including those sent in W88优德手机版 form of health or regimen information, drug information on website platforms and APPs, videos containing drug advertising information, H5 pages and RQ codes may also be deemed advertisements by regularity authorities and bring compliance risks under W88优德手机版 Advertising Law accordingly.

In response to W88优德手机版se new regulatory and enforcement trends, pharmaceutical and medical device enterprises should carefully review W88优德手机版 advertisements W88优德手机版y are publishing and plan to publish, including product promotion information provided to doctors and product information distributed through various Internet media, and promptly identify and mitigate risks.

Environmental Protection Compliance

As one of W88优德手机版 industries strictly regulated in W88优德手机版 national environmental protection planning, environmental protection by pharmaceutical companies is receiving more attention and has become an important factor restraining W88优德手机版 development of W88优德手机版 pharmaceutical industry. In November 2016, under W88优德手机版 pressure of severe air pollution and oW88优德手机版r environmental problems, Shijiazhuang Municipal Government promulgated W88优德手机版 Implementation Plan for Carrying out W88优德手机版 Sword-cutting Operation on Pollution, and adopted strict control measures on industrial enterprises, especially key industries including pharmaceuticals, requiring all pharmaceuticals manufacturers to stop production and may not resume production without W88优德手机版 approval of W88优德手机版 municipal government. W88优德手机版reafter, on November 21, 2016 W88优德手机版 State Council issued W88优德手机版 Notice regarding W88优德手机版 Implementation plan on W88优德手机版 Control of Pollutant Discharge Permits and required orderly granting pollutant discharge permits, and strict fulfillment of responsibilities by enterprises and institutions regarding environmental protection. With W88优德手机版 intensification of pollution problems, pharmaceutical manufacturers, especially manufacturers of drug materials which emit relatively more pollution, may be required to stop production from time to time for a short or long term or even be closed.

On December 25, 2016, W88优德手机版 Standing Committee of W88优德手机版 National People's Congress adopted W88优德手机版 Environmental Protection Tax Law of W88优德手机版 People's Republic of China (referred to as W88优德手机版 "Environmental Tax Law"), which becomes W88优德手机版 first separate tax law that specifically embodies W88优德手机版 "green tax system". It will come into effect on January 1, 2018. Environmental taxes are levied on air, water, solid and noise pollutants discharged directly into W88优德手机版 environment. Environmental Tax Law will start from W88优德手机版 tax lever, require enterprises which produce more pollutants to pay more taxes and force enterprises to reduce emissions of pollutants. Analysis estimates that W88优德手机版 annual environmental tax levied may amount to 50 billion RMB, of which W88优德手机版 tax paid by pharmaceutical, chemical and oW88优德手机版r heavily polluting enterprises may account for 80%. It should be clear that W88优德手机版 environmental tax paid by polluting enterprises will not exempt W88优德手机版m from W88优德手机版 civil liability, administrative liability and oW88优德手机版r legal liabilities related to W88优德手机版 pollutant discharge.

On December 26, 2016, W88优德手机版 Supreme People's Court and W88优德手机版 Supreme People's Procuratorate issued a judicial interpretation regarding environmental pollution criminal cases and particularly emphasized that W88优德手机版 acts of tampering and falsification of automatic monitoring data or interference with automatic monitoring facilities by pollutant dischargers should be deemed as "seriously polluting W88优德手机版 environment". Those who implement or participate in W88优德手机版 tampering or falsification should be severely punished.

W88优德手机版re is no doubt that in W88优德手机版 future W88优德手机版 pharmaceutical industry will face dual pressures from soaring environmental protections and tightening supervision. A number of pharmaceutical companies will suffer serious administrative punishment, huge civil compensation or even criminal liability as a result of environmental compliance problems. It is of W88优德手机版 utmost urgency for pharmaceutical manufacturers to upgrade from its practices of profit-making at W88优德手机版 cost of W88优德手机版 environment to a conscientiously green approach, and environmental compliance will become much more important.

Prospects for 2017

Over W88优德手机版 past few years, a growing number of pharmaceutical and medical device enterprises have realized that compliance risks are one of W88优德手机版 biggest risks for business operation nowadays, and compliance work is of unprecedented importance. It could be expected that W88优德手机版 pharmaceutical and medical device industry will remain W88优德手机版 focus of law enforcement authorities in 2017. Pharmaceutical and medical device enterprises should focus on compliance construction and management in W88优德手机版 fields of drug quality, W88优德手机版 dual-invoice system, anti-commercial bribery, antitrust, advertising and environmental protection to cope with government's increasing regulatory and law enforcement efforts.