On December 30, 2025, the National Medical Products Administration (NMPA) issued the Announcement on Strengthening the Supervision and Administration of Contract Drug Manufacturing (Announcement No. 134 of 2025, hereinafter referred to as “Announcement No. 134”), effective immediately. Notably, this announcement underwent two rounds of public consultation prior to its final release. Several provisions that drew significant debate during the consultation period—such as the requirement for contract manufacturers (CMOs) to evaluate marketing authorization holders (MAHs), and the dual sample retention and stability testing obligations—were nonetheless retained in the final text, signaling the regulator’s firm commitment to enhanced risk control and accountability. The announcement mandates that both parties to contract manufacturing arrangements complete compliance rectification within one year; failure to do so may result in suspension of contract manufacturing activities, reduction of manufacturing scope, or even revocation of manufacturing licenses.

For multinational pharmaceutical companies (MNCs) and Chinese biotech companies active in the China market, the implications of Announcement No. 134 extend well beyond manufacturing compliance. Whether an MNC is licensing in products from a Chinese biotech or a Chinese company is licensing out to an overseas partner, contract manufacturing is often a critical component of deal execution. Announcement No. 134’s comprehensive regulatory framework for contract manufacturing is fundamentally reshaping the allocation of responsibilities and interests among transaction parties—from the scope of due diligence, to deal structuring, to contractual terms. This article examines the key changes most relevant to pharmaceutical licensing (BD) transactions and analyzes their practical implications.

1. Reverse Due Diligence by CMOs and Expanded Diligence in License Transactions

In traditional industry practice, due diligence in contract manufacturing has been a one-way street: the MAH, as the delegating party, assesses the CMO’s manufacturing qualifications, quality systems, and production capacity before selecting a suitable partner and executing agreements. CMOs, as the contracted party, typically do not impose qualification requirements on MAHs—so long as the MAH holds legitimate authorization status and can pay the manufacturing fees, the engagement proceeds. In license-in transactions, MNCs have often treated contract manufacturing as a post-closing operational matter, with limited attention during the diligence and negotiation phases.

Announcement No. 134 fundamentally changes this dynamic. Article 3 explicitly requires contract manufacturing enterprises to conduct a “comprehensive evaluation” of the MAH’s qualifications, quality management capabilities, product risk factors, and technology transfer feasibility before accepting a commission. Only after the evaluation confirms compliance may the parties execute manufacturing and quality agreements. The announcement further requires CMOs to “prioritize cooperation with MAHs that possess independent R&D management capabilities and command the key process technologies for the products to be manufactured”. This “reverse evaluation” requirement was highly controversial during consultation but was ultimately retained, reflecting the regulator’s judgment that CMOs should not passively accept orders but should proactively screen qualified MAHs to mitigate quality risks at the source.

For license-in transactions, this means MNCs evaluating potential in-licensed products must simultaneously consider a previously overlooked question: if the commercialization strategy contemplates an MAH+CMO model for local manufacturing, does the MNC itself have the capability to pass a CMO’s reverse evaluation? This may pose a material obstacle for MNCs that have not yet established robust quality management systems in China, or those newly entering a therapeutic area through a license-in. We recommend that MNCs prepare standardized “MAH qualification packages” during the transaction negotiation phase and specify in framework agreements with CMOs the confidentiality obligations and permissible uses of evaluation information.

For license-out transactions, where a Chinese company commits to assist an overseas partner in establishing MAH status in China, the transaction documents should expressly inform the partner of the reverse evaluation requirement. If the partner cannot pass the evaluation in the near term, a phased approach may be considered: the Chinese company continues as MAH during a transition period, with registration transfer occurring only after the partner develops adequate compliance capabilities. Such arrangements will impact deal pricing and risk allocation.

2. Technology Transfer Accountability and License Agreement Design

In prior licensing practice, technology transfer provisions typically focused on the handover from licensor to licensee—what materials, in what format, by what deadlines. As for how the licensee subsequently transfers technology to a CMO, or who coordinates between CROs and CMOs, these were often viewed as operational matters for the licensee to resolve independently, with license agreements seldom containing detailed provisions. Even when technology transfer encountered difficulties, parties typically had considerable flexibility: extending run-in periods, adjusting process parameters, or switching CMOs.

Announcement No. 134 narrows this flexibility. Article 4 explicitly requires that “MAHs shall coordinate with third parties engaged in R&D and contract manufacturing enterprises to strengthen cooperation and jointly complete technology transfer”. More critically, the announcement stipulates that if technology transfer cannot be properly completed and “risks cannot be effectively controlled, the cooperation shall be terminated”. “Termination” is no longer merely a commercial option but a regulatory mandate. This means the consequences of technology transfer failure have become rigid—when parties must abandon cooperation after substantial resource investment due to technology transfer issues, how to allocate prior investment losses becomes a matter that must be addressed upfront.

For license-in transactions, technology transfer feasibility should be evaluated during due diligence rather than deferred to post-closing. We recommend that license agreements clearly specify: the licensor’s cooperation obligations and boundaries in technology transfer (providing documentation only, or on-site guidance? supporting one CMO, or obligated to support a switch?); responsibility allocation upon technology transfer failure (can paid milestones be recovered?); and whether the licensor is obligated to assist in switching CMOs. For products with complex processes, establishing an independent “technology transfer feasibility study period” with subsequent milestone payments triggered only after successful pilot-scale validation can reduce commercial risk for both parties.

For license-out transactions, Chinese companies as technology sources should specify in transaction documents the timing, content checklist, and format requirements for technical documentation handover, and define their specific role in coordinating CMO technology transfer to avoid future disputes from ambiguous responsibilities.

3. Independent Testing Requirements for MAHs and Deal Structure Adjustments

In traditional contract manufacturing practice, stability testing has typically been handled by CMOs. CMOs have ready laboratories and testing teams, and MAHs simply specify in quality agreements that they receive stability data. This arrangement has been particularly favorable for asset-light MAHs: no need to build laboratories, no need to assemble testing teams—“leave professional matters to professionals”. Many MNCs entering the China market through license-in transactions operate local entities primarily focused on commercial teams without laboratory facilities, relying on CMOs for stability testing as standard practice.

Article 11 of Announcement No. 134 explicitly provides that for batches with major deviations and the first three batches following major changes, both contracting parties “must” conduct sample retention and ongoing stability testing. Notably, the two earlier consultation drafts had stipulated that MAHs could not delegate stability testing to the CMO manufacturing the drug, but this restriction was removed from the final text. Nevertheless, the requirement that “both parties must conduct” testing still means that MAHs cannot fully rely on CMOs and must possess the capability to independently obtain and manage stability data. The announcement provides exceptions for enterprises within the same group operating under unified quality management systems and for arrangements using information technology for electronic data exchange (allowing one party to conduct sample retention and stability testing on behalf of both), but most contract manufacturing arrangements will still need to satisfy the requirement for both parties to conduct their own sample retention and testing.

For license-in transactions, MNCs must assess during due diligence: do they have the capability to independently conduct sample retention and stability testing? How long and at what cost would it take to develop this capability? If capability cannot be established in the near term, deal structures may need adjustment—for example, the licensor continues as MAH and handles contract manufacturing during a transition period, with registration transfer occurring only after the MNC develops testing capability; alternatively, the license agreement may specify the licensor’s obligation to assist the MNC in engaging third-party testing organizations. For license-out transactions, Chinese companies should fully disclose this requirement to overseas partners and assess the realistic feasibility of the partner independently fulfilling MAH obligations in China; where capability is insufficient, deal structures may need adjustment, with the Chinese company continuing as MAH while the partner participates in the market through distribution or profit-sharing arrangements.

4. Quality Information Sharing Mechanisms and Ongoing Obligations in License Agreements

In prior practice, quality information communication in contract manufacturing relied primarily on framework provisions in quality agreements, with actual communication frequency, content, and methods often handled through informal “understandings” between parties. In licensing transactions, the flow of quality information between licensor and licensee, and between licensee and CMO, typically fell under separate agreement frameworks with no unified coordination mechanism.

Article 7 of Announcement No. 134 introduces a new requirement for both parties to establish quality information communication procedures and develop a “communication information checklist” covering at minimum deviations, changes, OOS/OOT results, pharmacovigilance, and regulatory inspection status, with specified personnel, responsibilities, methods, and timeframes. This requirement did not appear in earlier consultation drafts and represents new content in the final announcement. The regulatory intent is to more closely integrate the quality management systems of both contracting parties to prevent risk information from being delayed or omitted.

In licensing transactions, quality information sharing involves coordination across multiple legal relationships. Communication checklists between MAHs and CMOs address information flow only at the contract manufacturing level; but if a product is licensed in, the MNC as MAH also needs to establish information-sharing mechanisms with the licensor (originator) to ensure process information from the development phase reaches the manufacturing end. We recommend that license agreements explicitly address: the licensor’s ongoing cooperation obligations regarding quality information sharing (particularly any changes to processes or formulations); notification procedures for major quality events; and bilateral pharmacovigilance information sharing arrangements. In license-out scenarios where the licensor retains China rights while the overseas partner establishes separate contract manufacturing arrangements, the same product may have two parallel supply chains, making it essential to clearly define the scope and confidentiality boundaries of quality information sharing to prevent information confusion or leakage.

5. Shared Line Manufacturing Disclosure and Trade Secret Protection

In traditional CMO engagements, shared line manufacturing is the norm—the same production line may manufacture products for multiple MAHs. MAHs have typically focused on cross-contamination risk control, while CMOs had no obligation to disclose “what other products are on the same line”, and MAHs rarely inquired proactively. Even when competitor products shared the same line, information boundaries between parties remained relatively clear.

Article 8 of Announcement No. 134 changes this dynamic. The announcement requires CMOs to notify “all MAHs of shared line products” of risk assessment conclusions and control measures when shared line manufacturing conditions change (such as adding new products or process changes). While the announcement specifies that “commercial information that should be protected by law may be excluded”, what constitutes commercial information and how to separate it from risk assessment conclusions leaves room for interpretation. For innovative drug companies, pipeline composition itself constitutes sensitive intelligence, and competitors could potentially infer information from indirect disclosures in shared line notifications.

CMO selection thus becomes an issue requiring upfront consideration in licensing transactions. For license-in deals, MNCs should understand the existing shared line product composition during CMO selection and assess whether any directly competing products exist. We recommend that quality agreements specify de-identification protocols for shared line notifications, or dedicated production lines for highly sensitive innovative products. For license-out transactions involving multi-territory licensing, where different partners may all select the same CMO for manufacturing in China, licensors should coordinate manufacturing arrangements among parties in transaction documents to prevent information leakage disputes arising from shared line notifications.

6. Contract Manufacturing Licensing Process Changes and Commercialization Timeline Planning

In prior practice, the contract manufacturing licensing process was commonly referred to as a “two-step” process: the MAH applies for a Category B license, while the CMO completes Category C license change registration. The entire process was relatively straightforward with reasonably predictable timelines. When setting commercialization timelines in licensing transactions, contract manufacturing licensing was typically viewed as a standardized process with relatively limited time allocation.

Announcement No. 134 converts this to a “three-step” process: first, the CMO applies to its provincial-level drug administration for a Contract Manufacturing Opinion Letter; second, the MAH must apply to its provincial-level drug administration for a Category B license within the Opinion Letter’s 12-month validity period; finally, the CMO completes Category C license change registration within 60 working days after the MAH obtains its B license. Where both contracting parties are in the same province, a simplified process applies and no Opinion Letter is required. The additional Opinion Letter step lengthens the approval chain, potentially extending the entire process from CMO Opinion Letter application to final licensing completion to over one year.

For license-in transactions, MNCs evaluating commercialization timelines for in-licensed products must fully account for the contract manufacturing licensing cycle. We recommend establishing “obtaining contract manufacturing license” as an explicit milestone node with realistic expectations for market launch timing. If an MNC has an affiliate in the target CMO’s province with MAH qualifications, it may consider using that entity as MAH to apply the same-province simplified process and shorten the approval cycle. For license-out transactions, Chinese companies should fully explain the time costs of the licensing process to overseas partners to prevent unrealistic expectations regarding China launch timing, and may include provisions in transaction documents specifying that the Chinese company continues to handle production supply during the licensing period, with transition to the partner’s contract manufacturing arrangements only after licensing completion.

7. Compliance Review of Legacy Licensing Transactions and Agreement Amendments

Announcement No. 134 provides a one-year rectification period. For licensing transactions already executed and in performance, existing transaction documents may require review and updating if they involve contract manufacturing arrangements.

We recommend that MNCs review contract manufacturing arrangements in existing license-in projects, focusing on: whether quality information communication checklists comply with the new requirements; whether sample retention and stability testing responsibility allocations need adjustment; and whether contract manufacturing agreements and quality agreements require amendments. Additionally, communication with licensors may be needed regarding supplemental provisions at the license agreement level—such as ongoing cooperation obligations for quality information sharing and technical support. Chinese companies’ license-out projects involving overseas partners’ contract manufacturing arrangements in China similarly require assessment of rectification responsibility allocation and, where necessary, negotiation of supplemental agreements clarifying each party’s obligations.

8. Conclusion

Announcement No. 134 is driving two structural changes. First, the threshold for MAH status is rising—companies must possess independent quality control capabilities, be able to pass CMO reverse evaluations, and assume technology transfer coordination responsibilities; the viability of “pure asset-light” models is declining. Second, contract manufacturing relationships are transitioning from “transactional” to “strategic”—requirements for mutual evaluation, technology transfer coordination, and quality information sharing mean deeper mutual embedding and higher switching costs; CMO selection is no longer a simple vendor decision but one requiring strategic consideration during deal negotiations.

For companies currently conducting or preparing to launch licensing transactions, we recommend re-examining deal structures regarding MAH status allocation, contract manufacturing arrangements, and technology transfer responsibility allocation. The one-year rectification period under Announcement No. 134 represents both compliance pressure and a window for reassessment and adjustment. Accurately understanding the shifting landscape of interests under the new regulations and optimizing deal structures and contractual terms accordingly will help companies achieve sustainable business development while meeting regulatory requirements.