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Understanding China’s recent healthcare reforms

China's ongoing healthcare reform has shaken up the country's pharmaceutical market. Examples are manifold and include compliance campaigns with unannounced inspections; the launch of the two-invoice system in order to tackle pricing issues; and higher thresholds for granting marketing authorizations by the China Food and Drug Administration.

Bird&Bird, an international law firm and a DCBF member, has written an overview for Danish-Chinese Business Forum members. The article is divided by topic, and you can dive in wherever a headline captures your attention.

China is currently the second largest pharmaceutical market in the world, but the government is aware that it is behind other countries on innovation as the domestic pharmaceutical industry heavily relies on the manufacturing of generic drugs.

There has been some discussion as to whether the new rules benefit brand-name original drugs owned by foreign pharmaceutical companies at the expense of the local pharmaceuticals industry. What is certain is that the proposed reforms provide opportunities for innovators, because the proposed reforms will protect innovators’ rights in order to grow the industry. Therefore, there is increasing demand for advanced know-how and management from experienced operators overseas.


Implementation of Patent Linkage and Data Exclusivity

In May 2017, the CFDA (China Food and Drug Administration) issued four consultation draft policy documents which set out key reforms to the regulatory process for drugs and medical devices (Circular 52 to 55 of 2017). In particular, Circular 55, entitled Relevant Policies on Protecting Innovator Interests to Encourage Drug and Medical Device Innovation, sets out the specific details on the much-anticipated patent linkage system, data exclusivity, and the establishment of the Orange Book type catalogue for drugs marketed in China. Highlights include:

Establishing a catalogue for marketed drugs:
Approved drugs shall be recorded into the Catalogue for Marketed Drugs in China, listing the key information of the drug, such as the drug name, drug type, API, dosage form, specifications, market approval holder, patent rights and trial data exclusivity period, etc.

Exploring the establishment of drug patent linkage system:
When an applicant submits a drug registration application, it shall stipulate the relevant patents, including ownership status. The applicant is required to notify the relevant drug patent holder within a specified period. This is to protect the interests of patent holders, lower the risk of generic drug patent infringement, and encourage the development of generic drugs.

Enhancing and implementing a drug trial data protection system:
Upon filing a drug registration application, applicants are required to simultaneously submit an application for trial data protection. Data exclusivity on undisclosed trial data and other data will be extended to innovative/improved orphan drugs and paediatric drugs, innovative biological products, and for the first domestic generic drugs which successfully challenge patents. The period of data protection varies from 1.5 years to 10 years calculated from the date of market authorization. During the data protection term, no market authorization shall be granted on an application for the same drug, except where the data is acquired by the applicant or with the consent of the originator of the data.


Improved Registration Procedure for Imported Drugs

The CFDA has introduced certain changes to the registration procedure of imported drugs in order to reduce the registration period and encourage the introduction of innovative drugs by multinational pharmaceutical companies. The changes made to the registration procedure are set out in the Decision on Adjustment of Imported Drug Registration Management issued by the CFDA on 10 October 2017.

To carry out Phase I multi-regional clinical trials (known as "MRCT") in China, the previous requirements that the trial drug (except for preventive biological products) has to be registered outside China, or has entered Phase II or Phase III clinical trial, has been abolished. In addition, for clinical trial and market authorization applications for imported chemical new drugs and imported therapeutic biological products, the previous requirement that such product had to have obtained market authorization in the overseas manufacturing countries or other regions has also been abolished.


Draft Drug Administration Law and Administrative Measures for Drug Registration

On 23 October 2017, CFDA published the Draft Amendment of the Drug Administration Law and Draft Administrative Measures for Drug Registration for public consultation.

The two drafts indicate the government's priority for the reform of the new drugs authorization regime, especially for original drugs, in order to enhance innovation in the life sciences. In the past, the license for new drugs had to be attached to the manufacturing license. Most of the Chinese manufacturers were reluctant to invest in R&D for new drugs, preferring to rely on the production of generic drugs. Also, launching a new drug in China is not attractive for foreign pharmaceutical companies because the authorization procedures were 5-7 years longer than in Europe or the US. Therefore, only 30% of the overseas-original drugs in demand have been launched in China. This situation has led to a shortage of fully authorized innovative drugs in China.

To satisfy the urgent demand for new drugs, draft laws will encourage the innovation of new drugs with the following measures:

Marketing Authorization Holder ("MAH") schemes.
MAH schemes can facilitate drug innovation and reduce manufacturing overcapacity. The scheme basically permits the separation of the manufacturing license holder from the marketing authorization holder. In the future, R&D institutions with limited manufacturing investment capacity can also hold the drug license. The MAH can manufacture the drugs if it is holding the manufacturing license, or may entrust another entity for manufacturing. With regard to the legal responsibilities to the quality of the drug, the MAH shall be fully responsible for pre-clinical trial research, clinical trial, manufacturing operations and side effects. Therefore, the party responsible for pricing, labelling, advertising, bribery matters and damages caused by the drugs will be changed from the manufacturer to the MAH. MAH from overseas shall appoint a legal entity registered in China to undertake above responsibilities and bear the joint liability on quality assurance, risk control and compensation.

Clinical trials
Another measure to streamline governmental application procedures is the shortening of clinical trial applications which shall now be processed within 60 days. Furthermore, the approval shall be deemed granted if no notice is issued within the 60 days period.

Clinical trials may be carried out by third party institutions with the required capabilities. Such institutions are subject to a record procedure with CFDA instead of the previously required approval.

Good Manufacturing Practice and Good Supply Practice
The certification for every five years of Good Manufacturing Practice ("GMP") and Good Supply Practice ("GSP") require heavy investment by manufacturers and/or distributors. The requirements for GMP and GSP have been overlapping. To simplify the administrative procedures and shift the monitoring focus from one-time prior approval to continuous post-administration of product quality, the mandatory certification of GMP and GSP is removed by Article 67 of the Draft Amendment of the Drug Administration Law but the penalties in relation to drug safety have been enhanced. Additionally, it is worth noting that even though GMP and GSP certifications have been cancelled in practice, they will still remain as the industry minimum standard to follow voluntarily for quality assurance.

The recent regulatory changes give a clear signal that the government is serious about the development of this market segment, and the reduced red tape is clearly welcome – also for new players coming to China. With more R&D moving to China, the protection of intellectual property rights for pharmaceutical products is again becoming an issue to carefully consider.