China Government Questions 60 Firms Over Drug Prices

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The National Development and Reform Commission (NDRC) (the PRC government regulator responsible for price setting) announced in early July an investigation against 60 pharmaceutical companies for their drug pricing information.

Who are the confirmed targets during this round of the investigation?

NDRC is targeting 33 companies on ex-factory prices issues and 27 companies - including a few multinational companies (MNCs) - on manufacturing costs issues.

Will there be additional targets in the near future?

It is possible that NDRC may include other companies in the near future, particularly in view of (a) the NDRC’s recent emphasis on tightening drug pricing regulations, and (b) the scope and intensity of the current investigation.

For example, unlike previous investigations that were conducted by merely asking targeted companies to fill out survey forms, NDRC will now put together an investigation team to conduct site visits and field surveys to the targeted companies from July to October 2013 to verify the information disclosed in the survey forms. We understand that the reason the NDRC is conducting sites visit and field surveys this time is because a number of targeted companies failed to submit any information or provided insufficient information in the previous round of investigations in 2012. In fact, we note that some of the targeted companies in the current round of investigations are those who failed to provide satisfactory pricing information in 2012. We believe the NDRC is neither pleased with the response rate nor the information voluntarily disclosed by the targeted companies in 2012 and therefore have decided to step-up the investigation.

In addition, the current target list contains a number of foreign-invested joint ventures, which indicates NDRC’s intention to shift the focus to MNCs’ pricing strategies and practices in China.

Is a dawn raid possible and/or likely?

An onsite investigation without any prior notice is rare in light of NDRC’s working practices. In general, NDRC would allow the targeted companies at least a few days to prepare the requested documents. However, targeted companies may not have enough time to gather and prepare the requested information within the timeline imposed by the NDRC. It is also possible that the NDRC will conduct certain aspects of an investigation without prior notice, such as checking books or accounts.