Publication Of The "Casebook On Antimonopoly Law For Industrial Structural Reform To Ensure Stable Supply Of Generic Drugs"

1. Publication of the "Casebook on Antimonopoly Law for Industrial Structural Reform to Ensure Stable Supply of Generic Drugs"

On February 17, 2025, the Ministry of Health, Labour and Welfare ("MHLW") and the Japan Fair Trade Commission ("JFTC") published the Casebook on Antimonopoly Law for Industrial Structural Reform to Ensure Stable Supply of Generic Drugs ("Casebook"). The Casebook has been prepared to enhance transparency in the application and enforcement of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade ("Antimonopoly Law") and to provide predictability regarding Antimonopoly Law issues that may arise in the process of industrial structural reform aimed at resolving supply instability of generic drugs. The Casebook is published as reference material for generic drug manufacturers, providing specific examples of practices that do not violate the Antimonopoly Law in areas such as corporate mergers, information exchange, product integration, joint production, contract manufacturing, joint procurement, joint distribution, and other inter-company collaborations and cooperation. Additionally, it outlines the fundamental principles of the Antimonopoly Law. Since the basic principles of the Antimonopoly Law apply to all companies, theCasebook serves as an important reference not only for generic drug manufacturers, but also for the entire pharmaceutical industry, as it reflects the perspectives of both the MHLW and the JFTC. In the following sections, we will introduce some key concepts presented in theCasebook, focusing on those that may be applicable to the pharmaceutical industry in general.

1.1 Corporate Mergers

Prior review by the JFTC is required for corporate mergers that meet certain criteria (such as domestic sales revenue), and if such a corporate merger is deemed to substantially restrains competition in a specific transaction market, the merger may be prohibited.

When assessing whether competition is restricted, the first step is to define the "market", which involves identifying the relevant products and geographic scope based on substitutability from the perspective of the users. In the Casebook, key points for defining the market in the context of prescription pharmaceuticals (particularly regarding the scope of products included in the same market) are outlined as follows.

• The product market is determined based on pharmaceuticals that serve the same function and have the same effects from the perspective of demand-side entities such as medical institutions, regardless of whether the drug is a brand-name drug or a generic drug.
• The ATC (Anatomical Therapeutic Chemical) classification system, which is commonly used for categorizing pharmaceuticals, often serves as a basis for market definition. Specifically, pharmaceuticals classified under the same Level 3 category in the ATC system generally share common characteristics in terms of target organ, therapeutic effect, mechanism of action, and use. As a result, the product market is often defined based on ATC Level 3 classification.

Once the market is delineated, it is determined whether or not the transaction will result in a substantial restriction of competition within the scope of the market.¹ In accordance with the general approach of the Guidelines for Business Combinations, the existence of a restriction of competition is determined by comprehensively considering various factors such as the competitive situation between the parties, supply capacity, entry pressure, and competitive pressure from consumers, in addition to market share. In the Casebook, the following points are listed as the main points to consider in determining whether there is a restriction of competition in the generic drug industry.

• In general, the market share situation, including brand-name drugs, is a factor to be considered.
• Generic drug manufacturers and distributors are under price pressure from consumers, and since users can switch from their current generic drug manufacturer and distributor to another generic drug manufacturer and distributor, competitive pressure from users on generic drug manufacturers and distributors is usually considered high.
• Even if a business combination results in one company gaining a majority of the market share, the business combination will not result in restrictions on competition prohibited under the Antimonopoly Law if there are several strong competitors other than the companies concerned or if competitive pressure is recognized because of the ease of entry by new competitors, or if the increased market share resulting from the business combination is relatively small and has a small impact on competition.

1.2 Information Exchange

Article 3 of the Antimonopoly Act prohibits "unreasonable restraint of trade" defined as "business activities, by which any enterprise, by contract, agreement or any other means irrespective of its name, in concert with other enterprises, mutually restrict or conduct their business activities in such a manner as to fix, maintain or increase prices, or to limit production, technology, products, facilities or counterparties, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade" (Article 3, paragraph 6 of the Antimonopoly Act). If, through the exchange of information, agreements are formed among business operators regarding prices, quantities, customers and sales channels, facilities, etc., and business operators substantially restrict competition in the market by mutually restraining their business activities, this prohibition of "unfair restriction of trade" is violated.

On the other hand, even the exchange of information on key competitive factors, such as production volumes and manufacturing costs, is not considered problematic from perspective of the Antimonopoly Law, provided that (i) the information exchanged is reasonably necessary for the consideration and implementation of a legitimate joint initiative and (ii) appropriate safeguards are put in place to prevent any reciprocal restriction of business activities. Such safeguards may include strictly limiting access to the information to relevant parties involved in the initiative and prohibiting its use for any purpose beyond the intended scope.

If it is impossible to take information blocking measures due to personnel or other circumstances, it is recommended that consultation with the JFTC be utilized.

1.3 Joint procurement, joint delivery, outsourced manufacturing

The Casebook provides examples of conduct that do not raise concerns under the Antimonopoly Law with respect to joint procurement, joint delivery, and outsourced manufacturing. In each of these examples, among other factors, it is explicitly stated that (i) the scope of information exchange is limited to what is reasonably necessary and (ii) appropriate information blocking measures are taken. Furthermore, each case also specifies that the sales activities are conducted independently by each company.

1.4 Joint Research and Development

Regarding joint research and development, it is indicated that, as long as information exchange is limited to what is reasonably necessary and no restrictions or exchanges of information occur concerning manufacturing and sales activities based on the research outcomes or research and development activities conducted independently by each company, there are no concerns under the Antimonopoly Law.

Although the Casebook follows the principles previously outlined by the JFTC, it is instructive in that it focuses on activities in the pharmaceutical industry. In conjunction with the publication of the Casebook, the MHLW has established a consultation desk for Antimonopoly Law-related inquiries arising from structural reforms in the generic drug industry.² This consultation desk accepts questions regarding the Casebook as well as inquiries and consultations concerning collaboration and cooperation among companies within the generic pharmaceutical industry.

2. Submission to the Diet of a bill to amend the Medical Care Act, etc.

On February 14, 2025, a bill to amend the Medical Care Act and related laws was approved by the Cabinet and submitted to the National Diet. This amendment is designed to address changes in medical needs due to an aging population and anticipated population decline by implementing (i) a review of the regional healthcare vision, (ii) comprehensive measures to rectify the uneven distribution of physicians, and (iii) necessary measures to promote medical digital transformation (DX) as a foundational component. Notably, as part of (i) the review of the regional healthcare vision, the amendment defines online medical consultations within the Medical Care Act and establishes procedural regulations and facility requirements, a development that warrants particular attention.

Regarding online medical consultations, there has been an ongoing issue concerning their compatibility with Article 20 of the Medical Practitioners' Act, which prohibits medical treatment without prior examination. In response, the MHLW published guidelines in March 2018³, setting forth minimum requirements for compliance with online medical consultations and clarifying that consultations conducted in accordance with these guidelines would not violate Article 20 of the Medical Practitioners' Act. Furthermore, following the advent of COVID-19, the scope of medical services that could be provided via online consultations was expanded. However, these measures had been implemented solely through administrative notifications providing interpretations of existing laws. With this legislative amendment, the regulation of online medical consultations will, for the first time, be explicitly codified into law.

Specifically, the amended Medical Care Act will define online medical consultations as "a medical examination conducted by a physician or dentist using an electronically connected information processing system, which enables bidirectional transmission of video and audio, allowing the physician or dentist and the patient, who is located remotely, to mutually confirm each other's condition while communicating." Additionally, physicians, hospitals, and other medical institutions that provide online medical consultations as a business will be defined as "Online Medical Consultation Facilities", and operators of such facilities will be required to submit a notification to the governor of the relevant prefecture. Furthermore, the Ministerial Ordinance of the MHLW will establish standards for the appropriate implementation of online medical consultations, including facility requirements, personnel qualifications, and operational frameworks.

Since the detailed regulations regarding online medical consultations are delegated to the MHLW's Ministerial Ordinance, it is necessary to closely monitor future legislative developments, including the specific content of such ordinance.

Regarding (iii) the promotion of medical DX, amendments to the Act on Promotion of Comprehensive Securing of Regional Healthcare and Long-term Care and other related laws will introduce the following measures: (a) facilitating the sharing of necessary electronic medical record (EMR) information among healthcare institutions; (b) enabling the submission of infectious disease reports through an EMR information-sharing service; (c) enhancing the secondary use of medical information by allowing the use and provision of pseudonymized medical and long-term care data held by the MHLW. These measures are expected to impact medical institutions and research activities, depending on their specific implementation details. Therefore, further information of the regulatory framework is expected.

Footnotes

1 Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination ("The Guidelines for Business Combinations") set forth the JFTC's approach to conducting business combination reviews, as well as the safe harbor criteria (standards for transactions that are generally not considered to substantially restrict competition in a given market). The analysis here is based on the premise that the safe harbor criteria are not met.

2 Those who wish to consult with the MHLW should fill out the prescribed "Consultation Request Form" and send it to generic-dokkinsoudan@mhlw.go.jp.

3 Guidelines for the Appropriate Implementation of Online Medical Treatment (Ministry of Health, Labour and Welfare, March 2023 (partially revised in March 2023)).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.