On September 8, the National Development and Reform Commission and the Ministry of Commerce issued the "Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Edition)" ("Foreign Investment Access Negative List"), which will come into effect on November 1, 2024. On the same day, the Ministry of Commerce, the National Health Commission, and the National Medical Products Administration jointly issued the "Notice on Carrying Out Pilot Work for Expanding Opening-up in the Medical Field" ("CGT Opening Notice"), allowing foreign-invested enterprises to engage in human stem cell, gene diagnosis, and treatment technology development and application in the free trade zones of Beijing, Shanghai, Guangzhou, and Hainan Free Trade Port. While this policy dividend undoubtedly brings new opportunities for multinational pharmaceutical companies, it also comes with many challenges. Drawing on our extensive experience providing compliance consulting to multinational companies across aspects of CGT, from market entry and IITs to registered clinical trials, manufacturing, product registration, and customs clearance, this article will focus on the risks that multinational companies may face in investing in Cell and Gene Therapy (CGT) technology, including issues related to human genetic resource management, clinical trial compliance, intellectual property protection, and data security. In addition, we will explore the complexities of dismantling existing VIE structures, as well as key points to consider when conducting investigator-initiated trials (IIT) and product registration.

I. Briefing of the “CGT Opening Notice”

The “CGT Opening Notice” proposes to carry out the following two pilot projects to expand opening-up in the medical field:

(I) Biotechnology Field

Starting from September 7, 2024, foreign-invested enterprises are allowed to engage in human stem cell, gene diagnosis, and treatment technology development and application for product registration, marketing, and production in the free trade zones of Beijing, Shanghai, Guangdong, and Hainan Free Trade Port. All registered, marketed, and approved products can be used nationwide.

(II) Wholly Foreign-Owned Hospital Sector

It is proposed to allow the establishment of wholly foreign-owned hospitals (excluding traditional Chinese medicine and the acquisition of public hospitals) in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and the entire Hainan Island.

II. Key Considerations for Multinational Pharmaceutical Companies Investing in CGT

Although the Chinese government has relaxed restrictions on foreign investment in the biotechnology field, multinational companies still face the following challenges when conducting research, development and application of human stem cells, gene diagnosis, and treatment technologies in China:

1、Human Genetic Resource Management

Multinational companies may encounter challenges in managing human genetic resources when conducting gene therapy clinical trials in China. Particularly in complex scenarios where relevant human genetic resources are shared with Chinese partners and some samples may need to be sent to overseas research centers for analysis, how can companies ensure compliance with the strict regulations of the "Regulations of the People's Republic of China on the Management of Human Genetic Resources"? Companies need to establish a comprehensive internal audit mechanism to ensure that every step of operation complies with Chinese regulations. At the same time, there is also an issue that needs to be carefully considered: how to obtain timely approval from relevant departments for the export of human genetic resources while ensuring research progress.

2、Clinical Trials

Balancing the regulatory requirements of China and other countries is a major challenge when conducting international multi-center clinical trials for CGT. Multinational companies may find that CGT product trial protocols designed according to FDA or EMA standards may not directly meet the requirements of China's NMPA. This involves not only trial design but also differences in handling CGT-specific aspects such as cell preparation, gene editing, quality control, and long-term follow-up. For example, China may have special regulations on cell source management, gene editing safety assessment, treatment efficacy evaluation standards, and long-term adverse reaction monitoring mechanisms. How to ensure that all participating Chinese medical institutions strictly comply with the special GCP requirements for CGT products while ensuring the consistency and comparability of transnational data is an issue that multinational companies need to consider deeply. In addition, due to the uniqueness of CGT products, how to uniformly define product characteristics and quality standards under different regulatory systems is also a challenge that needs to be carefully addressed.

3、Intellectual Property Protection

Intellectual property protection faces unique challenges when conducting CGT research and development in China. How can multinational companies clearly define the ownership and usage rights of key technologies such as gene editing tools, cell processing methods, and vector designs when cooperating with Chinese research institutions or companies to develop new CGT technologies? How to balance information sharing and core CGT technology protection during technical exchanges, especially when involving sensitive information such as gene sequences and cell culture formulas? Moreover, due to the rapid iteration of technology in the CGT field, China's patent application process and time requirements may affect the timeliness of technology protection. Companies need to formulate CGT patent strategies adapted to the Chinese environment to ensure that key inventions in gene editing and cell therapy methods can be protected in China in a timely manner. At the same time, given the complexity of patent definition in the CGT field, how to effectively protect CGT-related patent rights under the Chinese legal framework when facing potential intellectual property infringement is also an important consideration. Especially for sensitive technological areas such as human embryo gene editing, how to find a balance between ethical considerations and intellectual property protection is an issue that multinational companies need to consider carefully.

4、Data Security and Personal Information Protection

Human genome data and cell information involved in CGT research and treatment processes are considered sensitive personal information, and their management must strictly comply with the requirements of the "Data Security Law" and the "Personal Information Protection Law". How can multinational companies effectively utilize this data for transnational research and product development while ensuring patient privacy? Chinese law has special provisions for the management of human genetic resource information. How can multinational companies meet China's data localization requirements while ensuring global CGT data analysis capabilities? Furthermore, how to complete the necessary security assessments and filing procedures when conducting cross-border data transfers related to CGT, especially data involving cutting-edge fields such as gene editing and stem cell therapy? When CGT data security incidents occur, how to report and handle them in a timely manner according to Chinese regulatory requirements while maximizing the protection of patients' genetic privacy? These are important issues that multinational companies in the CGT field need to consider and prepare for in advance.

III. Key Points in Dismantling VIE Structures

The relaxation of foreign investment access restrictions in the CGT industry provides opportunities for companies originally operating through VIE structures to directly enter the Chinese market. However, dismantling VIE structures is not easy, and companies need to pay attention to the following key aspects:

First, the complexity of asset restructuring cannot be ignored. Companies need to formulate meticulous restructuring plans to ensure a smooth transition of assets and businesses under the original VIE structure. Second, the tax impact needs to be comprehensively assessed, including potential tax costs and risks, and corresponding tax planning strategies should be formulated accordingly.

Regulatory approval is another key challenge. Companies should communicate with relevant departments in advance to understand approval requirements and processes, and prepare for obtaining approval for structural adjustments. At the same time, balancing the interests of various shareholders (especially domestic and foreign shareholders) is crucial in this process and requires thorough communication to seek consensus. In addition, companies need to pay attention to compliance risks, financing impacts, personnel and business transitions, and intellectual property protection issues. Given the special nature of the CGT industry, ensuring compliant operations and maintaining core technological advantages are particularly important.

To address these challenges, CGT companies should adopt comprehensive strategies when dismantling VIE structures: formulate detailed restructuring plans, engage professional advisors, maintain good communication with regulatory authorities, and conduct thorough risk assessments and management.

IV. Key Points for Investigator-Initiated CGT Clinical Research

The "CGT Opening Notice" allows foreign-invested enterprises to engage in human stem cell, gene diagnosis, and treatment technology development and application for the purpose of "product registration, marketing, and production". For foreign companies that only provide financial support for investigator-initiated CGT clinical trials (IIT), they still need to carefully address potential compliance challenges. Foreign companies need to focus on how to define their funding activities and clearly delineate responsibilities and authorities in funding agreements. At the same time, companies need to establish effective mechanisms to ensure that funded research projects strictly comply with Chinese regulations on human genetic resource management, personal information protection, and data security.

Another key issue is how to avoid improperly influencing the independence of research while providing financial support. This involves managing conflicts of interest, especially in terms of publishing research results and potential intellectual property allocation. Foreign companies need to clearly stipulate relevant restrictions in funding agreements to ensure that the objectivity and scientific nature of the research are not affected by the source of funding.

Furthermore, considering the sensitivity of CGT research, foreign companies need to pay special attention to ensuring that researchers obtain effective informed consent from subjects, especially when involving cutting-edge technologies such as gene editing and stem cell therapy, without directly participating in the research.

To effectively address these challenges, foreign companies should establish dedicated compliance review mechanisms, develop detailed funding guidelines, and maintain good communication with Chinese regulatory authorities. Regular compliance training and audits are also essential to ensure that company employees fully understand China's special regulatory environment and can adjust funding strategies in a timely manner to adapt to policy changes.

V. Key Points for CGT Product Registration

Against the backdrop of favorable policy openings, the registration process for CGT products still faces a series of unique challenges. Firstly, although policy openings provide opportunities for foreign companies to enter the Chinese CGT market, product registration classification issues still exist. The existing registration classification system may have difficulty accurately positioning some innovative products, which requires regulatory authorities to consider establishing more flexible and inclusive classification standards while opening up policies. Secondly, in the review process, the complexity of CGT products may lead to extended review cycles. Although policy openings bring opportunities for more companies, how to improve efficiency while ensuring review quality and avoid innovative products losing market opportunities due to review delays is a question worth serious consideration. In addition, open policies may bring more opportunities for international multi-center clinical trials, but how to design trial protocols that meet both international standards and China's special requirements, and how to handle ethical issues in cross-cultural contexts?

Facing these challenges, companies need to actively communicate with regulatory authorities, deeply understand the special needs of the Chinese market, and fully consider these factors in the product development process. At the same time, it is recommended that regulatory authorities continue to improve relevant policies to ensure the safety and effectiveness of CGT products while encouraging innovation.

Based on our past experience providing services in areas such as business compliance, corporate structuring, clinical and regulatory matters, and intellectual property protection for the CGT industry, we recommend that CGT companies seek high-quality legal services promptly to address compliance challenges. We firmly believe that through the combined efforts of the government, enterprises, and professional organizations like law firms, these challenges will ultimately become drivers of progress, paving the way for the development of China's CGT industry.