The China Food and Drug Administration ("CFDA") Cracks Down on Illicit Distribution of Pharmaceuticals on Internet

Pharmaceutical companies disseminating information regarding their products or distributing pharmaceuticals on the Internet without meeting applicable criteria and qualifications may bear the brunt of inspection by competent authorities.

On 20 August 2013, a campaign against illicit distribution of pharmaceuticals and pharmaceutical information on the Internet was instituted by five Ministries in China, i.e. the China Food and Drug Administration ("CFDA"), the State Internet Information Office, the Ministry of Industry and Information Technology ("MIIT") , the Ministry of Public Security as well as the State Administration for Industry and Commerce.

1. Targets

The inspections target pharmaceutical companies (including manufacturers, distributors and other related pharmaceutical related services companies) which disseminate pharmaceutical information by means of the Internet or which sell pharmaceuticals on the Internet.

Although the relevant circular does not explicitly specify whether medical devices are about to be subject to this campaign, in practice medical devices companies (including manufacturers, distributors and other related medical devices services companies) which disseminate medical device information by means of the Internet will also be subject to this circular (see point 3 below).

2. Sanctions

The relevant circular provides for the following sanctions:

(1) If a company, which has already obtained the qualification certificate for disseminating pharmaceutical information or the qualification certificate for selling pharmaceuticals on the Internet, disseminates any false information or carries on any illicit selling activities whatsoever, the FDA may order the cessation of such activities and request remedial action. If the company refuses to remedy its wrongdoings or, in the event of a serious case, the FDA shall be entitled to revoke the qualification certificate and to further request the local counterpart of MIIT to close down the wrongdoer's website;

(2) If a company engages in pharmaceutical distribution on the Internet without obtaining the qualification certificate for selling pharmaceuticals on the Internet, the following measures will be applied:

a. If the website, by means of which these distribution activities take place, has not been registered with the local counterpart of MIIT, the website will be closed down and the concerned Internet service provider will be held liable; and

b. If the website in question has been registered with local counterpart of MIIT, remedial action shall be required. Otherwise, the website will be closed down by the local counterpart of MIIT.

(3) If any illicit activity of drug distribution is detected on the Internet, criminal measures will be taken.

3. Related regulations

(1) Pharmaceutical regulations

According to the pertinent PRC laws, pharmaceutical companies (including manufacturers, distributors and other related pharmaceutical related services companies) which intend to disseminate pharmaceutical information on the Internet must be qualified for doing so and must obtain the requisite qualification certificate for disseminating pharmaceutical information on the Internet. Pharmaceutical companies (including pharmaceutical manufacturers and distributors) selling pharmaceuticals on the Internet must obtain a qualification certificate for selling pharmaceuticals on the Internet.

In the absence of such qualification certificates, the FDA is entitled to order the cessation of such illicit activities and to pass the case to the local counterpart of MIIT, which will impose sanctions according to the following rules.

(2) Internet compliance regulations

After obtaining the above qualification certificate from the FDA, a company must proceed to complete its Internet Content Provider ("ICP") registration with the local counterpart of MIIT.

Any default in such an ICP registration will also trigger either a penalty equaling 300% to 500% of the illicit gains or, in the absence of such gains, a fine of up to RMB 1 million by the local counterpart of MIIT. In serious cases, the concerned website will be closed down.

The above regulations also apply to medical devices though this is not clearly indicated in the title of the regulations.

4. Practice and advice

In reality, not all pharmaceutical related companies, particularly small and medium-sized ones, are fully aware of their obligations as to compliance with these regulations. It is thought to be even less likely for medical devices companies to be aware of such compliance requirements taking into account the fact that the heading of these regulations refers only to "drugs".

Consequently, these regulations are overlooked more often than not by in-house counsel and managers of companies.

Applying the same logic, the campaign will also target medical devices companies though it is not clearly stipulated in its formal title.

We strongly advise pharmaceutical companies, who are disseminating pharmaceutical information or selling pharmaceuticals on the Internet, to immediately check whether they have duly obtained the relevant qualification certificates and also accomplished the ICP registrations referred to above. If the answer is affirmative, companies should additionally check whether their eligibility extends to the actual drugs concerning which the companies are to disseminate information, or which are to be sold by them on the Internet. Medical device companies should also take the precautionary step of checking their qualification certificates and eligibility even though medical device companies do not appear to be the priority target of the campaign.

Our advice to companies who are in violation of the above regulations by reason of not being appropriately qualified for the activities they are undertaking, is for them to have all relevant information immediately removed from their websites. For those companies, who are appropriately qualified but who have disseminated information not fully in compliance with the regulations, we suggest they have their non-compliant information modified straightaway in an effort to ensure that their dissemination of pharmaceuticals information is fully in line with the scope of their authorisation.

In addition, we also recommend the following:

1) pharmaceutical distributors should check whether their respective business scopes cover "Internet-based distribution of pharmaceuticals". If not, they must apply for an extension of their business scope in the first instance. However, to extend business scope to trading activities is difficult due to the local practice of the FDA which is usually reluctant to grant trading licences to pharmaceutical companies. This may be even more difficult due to the revised requirement of GSP which took effect on 1 June 2013. Careful study and discussion in advance with local FDA is therefore required. In the case of rejection, Internet sale activities should be carried out through a third party which has obtained the relevant qualification certificate;

2) other companies intending to disseminate pharmaceutical information should likewise have their respective business scopes extended to cover the activity such as "provision of pharmaceutical information (excluding medical diagnostics)";

3) medical devices companies should also adopt a similar approach and it should be much easier for medical device companies than for pharmaceutical companies in this regard as there is no practical obstacle to extending the business scope to include trading;

4) even if the information to be disseminated on the Internet meets the requirements for pharmaceutical advertising, it may still be necessary to obtain a relevant approval from the FDA for pharmaceutical advertising and this should additionally be checked.