China’s pharmaceutical market is the second largest national pharmaceutical market in the world and is projected to grow from USD122.6 billion in 2017 to USD145 billion to USD175 billion by 2022, according to healthcare information company IQVIA. This growth is driven by strong fundamental demand for therapeutic treatments on one hand, and by multiple transformative changes to the drug regulatory framework on the other hand.

The Chinese government’s Healthy China 2030 policy places public health at the heart of its decision-making. In October 2017, the General Committee and the General Office of the State Council jointly released their Opinions on Deepening the Reform of Review and Approval System for Drugs and Medical Devices to Encourage Innovation (“Opinions"), with the aim to promote innovation in the life sciences industry.

In March 2018, the 13th National People's Congress approved the institutional reform, which marks the eighth large-scale government restructuring since China implemented the reform and opening-up policy in the late 1970s.

Particularly in the life sciences industry, three departments will become primarily responsible for regulating the life sciences and healthcare space: the National Medical Products Administration, the National Health Commission, and the State Medical Insurance Administration.

  National Medical Products Administration  

Following the State Council’s restructuring in March 2018, the former China Food and Drug Administration (CFDA) was reorganised into the newly formed National Medical Product Administration (NMPA).

The new NMPA will maintain its own branches at the provincial level, while divisions at the lower municipal and county levels will cease operation and their post-approval enforcement duties will be undertaken by the consolidated SMRA branches. This reorganisation and consolidation are expected to allow the NMPA to operate more efficiently and consistently.

As part of the institutional reform, China has established a new full-ministerial-level government agency: the State Administration for Market Regulation (SAMR), which becomes the most powerful regulatory authority with the authority to oversee market order supervision and management, drug and food safety, product quality, fair competition and commercial bribery, and intellectual property protection matters in general. The SAMR will replace the State Council in overseeing the newly reorganised NMPA.

The NMPA is responsible for creating and supervising the implementation of policies, plans and standards governing the quality and safety of drugs, cosmetics and medical devices. The NMPA also oversees the standards setting, registration and quality management of drugs, cosmetics and medical devices, as well as post-market inspection and risk management, and the registration of licensed pharmacists.

As compared to its predecessor, the NMPA will no longer regulate food, refining its focus to medical devices and drug oversight. This move appears to acknowledge that the regulation of drugs and medical devices requires a highly specialised and dedicated government agency, and to encourage the regulators to utilise resources and address regulatory reviews more effectively.

  National Health Commission  

As part of the State Council’s restructuring, the National Health Commission (NHC) was established to replace the former National Health and Family Planning Commission, which regulated both family planning and the healthcare system, including hospitals, healthcare professionals and the disease control centre. This move aims to promote the initiatives set forth in Healthy China 2030 and strengthen the work of offering comprehensive lifecycle health services to the Chinese people.

The NHC is established as a constitutive department of the State Council, and will take over the responsibilities of the former NHFPC and some other former governmental authorities. As announced on its official website, the NHC will mainly be responsible for formulating national public health policies, co-ordinating and advancing the reform of the medical and healthcare systems, organising the national essential drug system, supervising and administering public health, medical services and health emergencies, managing family planning and its services, formulating policies and measures to address the problems associated with the aging population, integrating medical and old-age care, etc. It will also supervise the work of the State Administration of Traditional Chinese Medicine.

The establishment of the NHC reflects a change of concept in the country’s health-related work. It is supposed to shift the focus in the healthcare field from illness treatment to improving overall health conditions, through enhancing disease prevention and health education.

  State Medical Insurance Administration  

The State Medical Insurance Administration (SMIA) is also founded directly under the State Council. It will be responsible mainly for formulating policies, plans and standards on healthcare systems in terms of medical insurance, maternity insurance and medical assistance, and ensuring their implementation. It will also supervise and administer related medical insurance funds, improve a platform for cross-region medical services and expense settlement, and organise related parties to fix and adjust prices for drugs and medical services.

The above regulatory powers come from a comprehensive integration of those previously assumed by several other departments – eg, the Ministry of Human Resources and Social Security in regard to basic medical insurance and maternity insurance for urban employees and urban residents, the former National Health and Family Planning Commission in regard to new rural co-operative medical insurance, the National Development and Reform Commission in regard to the pricing of drugs and medical services, and the Ministry of Civil Affairs in regard to medical assistance.

Such integration unifies the three major types of medical insurance (ie, urban employee basic medical insurance, urban resident basic medical insurance and new rural co-operative medical insurance), enables the centralised and co-ordinated use of healthcare funds, and forms a super purchasing party for healthcare services and products.

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China has implemented a series of regulatory changes through a comprehensive regulatory reform starting in August 2015, with the main focus on streamlining the review and approval process for clinical trials. Most notably, the NMPA instituted a new policy in 2018 that changed the clinical trial authorisation (CTA) review and approval process to an implied approval scheme with a 60-working day waiting period.

As first proposed in the Opinions, before accepting applications for clinical trials of drugs and medical devices, the review agency should communicate with the applicant and provide comments and suggestions. If the competent food and drug administration does not give any negative opinions or raise any questions or challenges within a prescribed time period, it shall be deemed as having approved such application, and the applicant may carry out the clinical trial in accordance with the submitted clinical trial protocol.

On July 27, 2018, the NMPA released the Notice on Adjusting the Review and Approval Procedurals for Clinical Trials of Drugs (“Adjustment Notice"), to implement a 60-working day timeline for the implied approval of CTAs, which allows the applicants to presume approval and commence clinical trials if they do not receive any objection or query from the NMPA within 60 working days of the date their respective CTA submission is accepted for further review.

Specifically, pursuant to the Adjustment Notice, an applicant shall file an application for the first-time clinical trials for a new drug and other application materials in accordance with relevant requirements. The Center for Drug Evaluation (CDE) shall complete the formality examination of the application materials within five days of receiving them. Where application materials satisfy the relevant formality requirements, or where such requirements are satisfied after certain materials are corrected or additional materials are provided, the CDE shall issue the notice of acceptance. The applicant may carry out clinical trials in accordance with the submitted clinical trial protocol if no objection or query from the CDE is received within 60 working days of the acceptance and the payment of fees.

A big increase in the number of examiners at the CDE – from 100 in 2015 to more than 600 in 2018 – has contributed to the implementation of the implied approval scheme at the operational level and significantly reduced the application backlog from an average of 4.49 years in 2015 to just 53 days in 2018.

In the past, China only approved drugs and medical devices that had been tested on participants in China, and foreign applicants could start testing in China only after they had demonstrated the safety of their drugs and medical devices with tests conducted overseas. This meant that Chinese people gained access to innovative new drugs or medical devices years after they had been approved overseas.

The Opinions propose that certain qualified clinical trial data obtained from foreign centres may be used to support drug and medical device applications in China, which provides a promising prospect for drug and medical device manufacturers to avoid duplicating clinical studies in China and to accelerate their approval timelines in China.

  Overseas clinical trial data of medical devices  

In January 2018, the former CDFA announced the implementation of the Technical Guidelines for the Acceptance of the Overseas Clinical Trial Data of Medical Devices (“Medical Devices Guidelines"). The Medical Devices Guidelines explain the principles, acceptance criteria, technical requirements and considerations for accepting overseas clinical trial data in support of marketing approval for medical devices.

Pursuant to the Medical Devices Guidelines, any overseas clinical trial data must comply with three basic principles as follows:

• principle of ethics: the overseas clinical trial must follow the ethics rules stipulated by the Declaration of Helsinki;

• principle of legitimacy: the overseas clinical trial must be conducted in accordance with Good Clinical Practices, and the medical device applicant and clinical trial institutions must subject themselves to the competent regulatory authorities’ inspections; and

• principle of scientific study: the overseas clinical trial data must be authentic, scientific, reliable and traceable, and the applicant must provide complete trial data without any selection.

   

Overseas clinical trial data submitted by the applicant shall include at least the ethics committee’s opinions, the clinical trial protocol, and the clinical trial report, which includes the analysis of the complete clinical trial data and the conclusions. If the review agency finds any overseas clinical trial data to be inadequate under the applicable technical requirements, the applicant may need to conduct a supplementary trial, which may be conducted in or outside China following the relevant technical requirements.

In addition, the Medical Devices Guidelines further specify three special considerations to be considered in the technical review process concerning whether, and to what extent, overseas clinical trial data can support the marketing approval of a medical device application, including:

• differences in technical review requirements – a clinical trial conducted overseas may meet the technical review standards in the country of origin, but not necessarily all the technical requirements in China;

• differences in trial subjects – the applicant shall confirm that the clinical data can be extrapolated using Chinese subjects, but internal and external differences in subjects may influence the results of clinical trials; and

• differences in clinical conditions – variations in trial conditions include medical environment, medical facilities, diagnosis and treatment concepts, etc.

Where such differences may have clinical significance, the applicant may conduct a supplementary trial in China to address the relevant differences. Such data can then be used to validate the safety and efficacy of the medical device under ‘normal’ Chinese conditions, and may be submitted in conjunction with overseas clinical study data to support the registration application.

  Overseas clinical trial data of drugs  

Following the issuance of the Medical Device Guidelines in January, the NMPA issued the Technical Guidelines for the Acceptance of the Overseas Clinical Trial Data of Drugs (“Drugs Guidelines") on July 10, 2018. The Drugs Guidelines apply to overseas clinical data submitted by applicants for both new drugs and generic drugs. Structured similarly to the Medical Device Guidelines, the Drugs Guidelines set forth the basic principles and requirements on the acceptance of overseas clinical trial data, and specify different levels of acceptance based on the quality of the data itself and different circumstances.

As stipulated under the Drugs Guidelines, overseas clinical data of drugs shall be submitted based on the basic principles of authenticity, completeness, accuracy and traceability. By “completeness", the Drugs Guidelines emphasise that clinical trial data of the proposed drug shall be provided in full in order to qualify, rather than provided selectively. During the application for drug registration, both the domestic and the overseas clinical trial data shall be submitted in accordance with the Administrative Measures for Drug Registration, and shall be compiled into a complete data package. In specific, such data package shall contain biopharmaceutical, clinical pharmacology, efficacy and safety data.

The Drugs Guidelines categorise the acceptance of overseas clinical trial data into three levels: (1) fully accepted, (2) partially accepted, and (3) not accepted. Specifically, overseas clinical trial data can be “fully accepted" if it is authentic and reliable and complies with ICH GCP standards and the examination requirements for drug registration, and if it is equipped with clinical research data supporting the relevant effectiveness and safety evaluation of target indications, and without any ethnic-sensitive factors that may affect the effectiveness and safety.

Overseas clinical trial data will be “partially accepted" if there are ethnically sensitive factors that may affect the efficacy and safety of the drugs, although they are authentic, reliable, in line with ICH GCP standards and Chinese drug approval standards and equipped with clinical research data supporting the relevant effectiveness and safety evaluation of target indications. If such data is highly questionable in terms of its authenticity, completeness, accuracy and traceability, it will not be accepted.

Regarding registration applications for drugs treating significant illnesses, rare diseases, pediatrics, and for which there is a lack of effective treatment methods, after evaluating the data for clinical trials carried out outside of China and obtaining a "partially accepted" recognition, it is acceptable to use conditional clinical trial data to collect further validity and safety data for post-acceptance evaluation.

After China’s entry into WTO, to comply with the TRIPs Agreement’s requirement of data protection for drugs, the authorities codified data exclusivity protection for drugs containing new chemical entities in the Implementing Regulations of the Drug Administration Law and later Administrative Measures for Drug Registration. The requirement in the two administrative regulations is basically the same – namely, those who have already obtained a permit to manufacture or sell drugs containing new chemical entities may apply for a six-year data exclusivity approval as long as their clinical trial data and other data have not been disclosed to the public and are generated by themselves. However, although there were many discussions and voices for the implementation going around, data exclusivity protection has not been put into practice at the operational level.

In April 2018, the CFDA promulgated a draft of Implementing Measures for the Protection of Trial Data of Drugs (for Interim Implementation) (“Data Protection Measures") for public comments. The Data Protection Measures prevent other drug manufacturers from relying on earlier trial data to receive marketing approval without permission from the owner of the earlier trial data, and specify the duration and scope of data protection for specialised drugs and the other requirements for drugs to obtain the protection. Although it has not yet come into effect, the Data Protection Measures are the most detailed and extensive rule regarding data exclusivity in China so far.

The Data Protection Measures limit the types of protectable data to pre-clinical and clinical trial data that is related to drug efficacy, and explicitly excludes drug safety-related data from the scope of protection. Also, such data should meet the following requirements to obtain exclusivity protection:

• it should be submitted for the purpose of obtaining marketing approval of a drug;

• it has not been disclosed to the public prior to application for market approval; and

• it has been independently obtained by the applicant without using any other’s clinical data or any published research results.

According to the Data Protection Measures, the applicant may apply for data exclusivity protection at the time it files an application for market approval. Contrary to the previous data exclusivity protection, which applies to drugs with new chemical entities, the draft Data Protection Measures extend data protection to innovative drugs, innovative biological products for curative uses, orphan drugs, pediatric drugs, and generic drugs manufactured by a pharmaceutical company that successfully invalidated relevant patents of original drugs.

In particular, innovative drugs that are approved to enter the domestic market will be entitled to enjoy a data protection period of six years, doubled to 12 years for innovative biological products for curative uses, which is comparable to that of the United States and exceeds the ten-year protection period in the European Union. In addition, for orphan drugs or pediatric drugs, a data protection period of six years will be granted from the date when the relevant indication is first approved in China. However, the Data Protection Measures remain silent on the protection period for drugs that successfully challenge patents.

The exclusivity protection may be reduced or revoked under any of the following circumstances:

• when a drug application uses data from an international multi-centre clinical trial in China and the drug application filed in China is later than those outside of China, the exclusivity period is one to five years, depending on the delay, and if the delay is more than six years, there is no data exclusivity;

• if the drug application uses data from clinical trials conducted outside of China without involving any Chinese patients, the data exclusivity period is 25% of the foregoing;

• if the drug application is supplemented with clinical trial data in China, the data exclusivity period is 50% of the foregoing; and

• ​if a company fails to launch an approved drug into the market within one year of obtaining regulatory approval, the data exclusivity will be revoked.

On November 14, 2018, the Central Comprehensively Deepening Reforms Commission (CCDRC) announced the Pilot State-Organised Centralised Drug Procurement Programme, specifying the general course of “organisation by state, procurement in group and operation through platform." Then the Joint Procurement Office (the newly formed health insurance agency comprising the representatives from 11 pilot cities) released the 4+7 City Centralised Drug Procurement Manual (the “Procurement Manual") on November 15, 2018.

Previously, the drug bidding usually only determined the price, but did not guarantee the purchase quantity. Centralised procurement or “volume-based procurement" means that the quantity of procurement should be specified during the bidding process or price negotiation of centralised drug procurement so as to enable pharmaceutical companies to provide fee quotes for a specific number of drugs.

The Joint Procurement Office has listed 31 drugs for procurement in the pilot centralised procurement programme across all public hospitals in 11 cities – the four directly managed municipalities of Beijing, Shanghai, Chongqing and Tianjin, and seven key cities in other provinces: Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu and Xi’an – which together represent around 30% of the Chinese drug market. The Joint Procurement Office will participate in the centralised procurement on behalf of these 11 cities.

According to the Procurement Manual, the centralised procurement programme is proposed with the following two primary purposes:

• First, to cut drug prices. The guaranteed procurement volume could provide pharmaceutical companies with a clear commitment and expectation of drug selling, which can enable them to arrange for manufacture and sales, and better control their budget, thus allowing for lower pricing.

• Second, to reduce the grey area in the course of drug procurement. The current centralised procurement system of drugs does not specify the required amount during the bidding process. Winning a bid does not guarantee volume sales. Therefore, pharmaceutical companies still need to devote further efforts and resources to the selling process. By contrast, implementing the volume-based procurement process means that parties can execute a purchase and sale agreement immediately after winning the bidding, thereby unifying the bidding and procurement into a single process.

The pilot centralised procurement programme is expected to have a dramatic impact on the pharmaceutical market. Under the programme, winning bids means securing a sizable chunk of the Chinese pharmaceutical market, but the drastic price cuts needed to win these bids put profits under threat. However, once a pharmaceutical loses the bid, it will lose its market share quickly, which will greatly affect its sales volume.

The practical effect of the “4+7 procurement programme" remains to be observed and evaluated. It is unclear whether and when this programme will be rolled out nationwide, and how many generic drugs will eventually be covered.

With the reorganised regulatory authorities following the institutional reform to be in place gradually, and relevant newly promulgated regulations to take effect or be reduced to actual implementation in success, the far-reaching impact of the above-mentioned transformative changes can be anticipated for China’s life sciences industry in the next few years. These trends and developments will present great development opportunities for both domestic and multinational companies operating in the country.