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Han Kun's 12th Edition 2015 Newsletter provides legal updates and analysis on: illegal pharmaceutical and medical device advertising under the new advertising law, a large wave of income tax incentives coming, and pros and cons of drug price renegotiation. To read the entire newsletter, click here.

1. Legal Analysis of Illegal Pharmaceutical and Medical Device Advertising under the New Advertising Law

The pharmaceutical, medical device, and food (including health food) industries have always been particularly prone to illegal advertising. Since September 1st, 2015 when the new Advertising Law formally entered into force, the food and drug administrations and administrations for industry and commerce (“FDA” and “AIC,” respectively) have made greater efforts in the fight against illegal pharmaceutical and medical device advertising. As indicated by the disclosed monitoring information regarding illegal pharmaceutical and medical device advertising, some noteworthy changes have emerged with respect to the illegal advertising activity in the pharmaceutical and health fields, and there also exist some general and common problems.

The new Advertising Law adds many new provisions regarding pharmaceuticals and medical devices, and certain provisions have been updated ranging from the scope of pharmaceuticals for which advertising is prohibited, notices in advertisements, forms of advertising, endorsements, protection of minors, and penalty rules, including in detail the following: Read more.

2. The Tax Man Cometh: A Large Wave of Income Tax Incentives is Coming - Not Only the 70% Deduction for Corporate Partners of Limited Partnerships

In the process of constructing and developing a multi-level capital market, market participants have always been looking forward to more stable and transparent tax rules. Along with improvements to the capital market-related tax regime, we are also looking forward to more systematic and well-reasoned income tax incentives which may be the icing on the cake of an increasingly liberal investment environment.

Near the end of this year, the Ministry of Finance (“MOF”) and State Administration of Taxation (“SAT”) released a series of tax incentive policies which extend nationally the four tax incentives that have been implemented in the National Innovation Demonstration Zone (“NIDZ”). Read more.

3. Pros and Cons of Drug Price Renegotiation

The issue of second-round drug price negotiations following centralized procurement (“Price Renegotiation”) was bound to be controversial from the start.

From its opponents’ point of view, Price Renegotiation has no merit: it reduces the credibility of provincial bid invitations, violates the Law of the People’s Republic of China on Tenders and Bids (“Bidding Law”), breeds corruption and unhealthy practices within medical institutions, adds to sales costs and expenses, and reduces profit margins for drug manufacturers, gives rise to inconsistent regional purchase prices, creates disorderly market competition, and results in a decreased quality of drugs.

Supporters of Price Renegotiation believe that its advantages far outweigh any drawbacks: it helps to widely decrease drug prices, restores balance to the bargaining power between hospitals and pharmaceutical companies, brings transparency to drug purchase discounts offered to medical institutions, reduces the opportunity for doctors to collect kickbacks, efficiently solves the chronic problem of commercial bribery, lightens financial burdens of local governments, and promotes the reform of centralized drug procurement (“Centralized Procurement”). Read more.