Four years after the initiation of an extensive regulatory reform to accelerate new drug approvals, the Chinese legislature finally passed the new Drug Administration Law (DAL) on August 26, 2019, which will become effective as of December 1, 2019.
The new DAL codifies many of reform initiatives implemented by the Chinese government since 2015 and reflects the National Medical Products Administration’s (NMPA) shift in regulatory philosophy. The NMPA historically had been rigid in pre-approval supervision. The new paradigm will adopt a risk-based approach and focus on compliance through the product life cycle. It shows the NMPA’s determination to align with the international practices and respond to public health demands. This article discusses some of the DAL highlights that would be relevant to R&D-based biopharmaceutical companies that would like to bring innovative drugs to China.
Rolling out the Market Authorization Holder (MAH) system
To stimulate innovation. To this date, China only permits drug manufacturers to obtain regulatory approvals. This stringent requirement was perceived as an obstacle to innovation. R&D-based companies must commit to a substantial investment in manufacturing facilities in order to commercialize their assets. To create a more supportive regulatory framework for innovation, China rolled out an MAH pilot program since 2015. With the implementation of the new DAL, the MAH system will be rolled out nationwide since this December. The MAH system allows R&D entities to hold regulatory approvals and commercialize pharmaceutical products by completely outsourcing to contract manufacturing organizations (CMOs). Both local and foreign biopharmaceutical companies are allowed to leverage the regulatory flexibility of the MAH system to acquire or divest assets.
To reinforce product life cycle administration. The new DAL holds the MAHs ultimately responsible for pre-approval and post-approval compliance obligations. MAHs are also responsible for the activities of their vendors such as contract research organizations (CROs), contract sales organizations (CSOs) and CMOs. MAHs should establish appropriate quality assurance and pharmacovigilance systems to ensure post-market drug safety and quality. For foreign MAHs, the new DAL requires them to appoint a legal agent in China, which will be expected to perform regulatory obligations and be held jointly liable for failure to perform such obligations.
The new DAL as well as the latest draft amendment to the Drug Registration Rules (Draft DRR)1 are both silent on whether the MAH system will provide more flexibility in structuring cross-border transactions. The current DAL adopts a bifurcated approach for regulatory approvals. Regulatory approvals for drugs manufactured outside of China would be issued to the foreign legal manufacturers, while regulatory approvals for drugs manufactured in China would be issued to the actual manufacturers in China. This could prevent foreign biopharmaceutical companies from transferring their import drug licenses to domestic companies. Under the new DAL, the import drug pathway and the domestic drug pathway could be merged into a single marketing authorization pathway. Subject to the NMPA’s approval, marketing authorizations can be transferred from foreign companies to Chinese companies (and vice versa) without relocating the manufacturing facilities. In addition, foreign MAHs could be allowed to add a manufacturing facility in China to their import drug license and restructure their supply chains. We hope the NMPA will clarify the future approval pathway and provide further guidance on whether legacy regulatory approvals could be converted into marketing authorizations under the new DAL.
Improving accessibility for drugs with clinical values
Accelerated market access. The new DAL encourages the development of innovative drugs with clinical value and has provided various pathways to expedite the approval timeline. Under the Draft DRR, these opportunities include:
a. Priority review for:
(I) innovative drugs that treat serious life-threatening diseases with no effective cures or have obvious clinical advantages compared to the standard of care (i.e. breakthrough therapies),
(II) drugs addressing critical and unmet clinical needs, provided that existing study data can demonstrate their efficacy and predict their clinical values (i.e. conditional approval),
(III) orphan drugs,
(IV) pediatric drugs, and
(V) other types of drugs that could justify a priority review;
b. Compassionate use of an investigational drug where this drug:
(I) is intended for treating life-threatening diseases with no effective cure; and
(II) shows probable benefits in early studies; and
c. Special review for drugs in urgent need.
Under the new DAL, investigational new drug (IND) applicants only need to wait for 60 working days before initiating the study, unless the IND applications were rejected by the Centre for Drug Evaluation (CDE) or a deficiency notice were issued during the 60-day period. The Draft DRR further reduces the New Drug Application (NDA) review timeline for priority review applications from 150 working days to 120 working days, and the NDA review timeline for orphan drugs to 60 working days.
Deterring misconduct by rigorous enforcement and serious penalties
Frequent inspections. Under the current DAL, pharmaceutical manufacturers and distributors (including retailers) must be certified every five years for good manufacturing practice (GMP) and good storage practice (GSP) compliance. The new DAL replaces the static certification system with a dynamic inspection system. In recent years, the NMPA has been increasing its on-site inspections and for-cause inspections for GxP compliance through the product life cycles. The regulator plans to expand its inspection force and build a professional team of inspectors in order to more effectively supervise the operations of pharmaceutical companies as well as their suppliers, both at home and abroad.
Increasing penalties. The new DAL significantly increases penalties for all kinds of illegal actions and introduces a dual penalty system, subjecting both companies and individual responsible persons to sanctions. Failure to comply with the statutory obligations under the new DAL will result in more serious penalties. For example, executives and responsible staff of a company in serious cases would be subject to 10-year to lifetime debarment and fines up to 300 percent of their income during the period when their employer violates the DAL. Moreover, the new DAL imposes punitive damages (up to 10 times of product value or three times of damages) on entities or persons who knowingly manufacture or sell counterfeit drugs.2
The new DAL’s emphasis on innovation and compliance will hopefully introduce a new norm of competition in the Chinese pharmaceutical industry. The shortened time to market will benefit R&D-based companies and incentivize generic manufacturers to transform. Frequent inspections and serious consequences for non-compliance will force companies to elevate quality control standards and more diligently perform their duties through the entire product life cycle. Pharmaceutical companies should carefully review their current business models, timely identify and close gaps in their operations and explore new growth strategies under the new DAL.
- The National Medical Products Administration (NMPA) published the latest draft amendment to the Drug Registration Rules on October 15, 2019.
- Notably, the DAL revises the definition of counterfeit drugs as the drugs that are contaminated, contain no or incorrect active ingredients, or have the right active ingredients but at the wrong dose.