Highlights of China’s 2019 Drug Administration Law

Laura LU, Hanshuo ZHOU

Comparing to the current Drug Administration Law, which was promulgated in 1984, revised and amended in 2001, 2013 and 2015 respectively, the New Drug Law has adopted a set of more sophisticated administrative rules and various new systems such as marketing authorization holders (“MAH”) and advance compensation to victims of defective drugs, and made significant reforms, such as abolishing GMP/GSP certifications and enhancing drug traceability as well as post-marketing supervision and management. 

The New Drug Law has also embedded new rules to simplify approval procedures and accelerate new drugs listing in China, e.g., “deemed consent” rule in clinical trial application, accelerated path for pediatric drugs, conditional approval for drugs urgently needed in clinical settings, and bundling review of pharmaceutical ingredients, excipients, packaging materials, containers, production process, labels and insert sheets simultaneously with the new drug application. 

With respect to drug importation, the New Drug Law has adopted a more flexible approach, providing that healthcare institutions may import small volume of drugs in urgently needed clinical settings; punishment for unauthorized importation of overseas listed drugs yet approved in China in small volume may be mitigated or exempted.

Moreover, the New Drug Law has made a breakthrough change to online sale of prescription drugs by lifting the prohibition.

Lastly, the New Drug Law has substantially enhanced monetary fines, license revocation, and personal liabilities in the event of violation, which is in line with the Vaccine Administration Law promulgated in June 2019, aiming to strengthen deterrent effect.  

In this article, we will highlight six major changes adopted by the New Drug Law and their potential impacts on pharmaceutical companies, to offer a glimpse of the regulatory trend. 

1.Formally Launching MAH System

Since 2016, the pilot program of MAH system (“Pilot Program”) has been implemented in 10 cities on an experimental basis. The New Drug Law has officially adopted MAH system in mainland China, acclaiming the end of “drug registration/manufacturer bundling” system which has been in place for over three decades. Chapter III of the New Drug Law is specifically designated to address the MAH system. In a nutshell, the system may be summarized as follows:

(1) Who can be an MAH?

• An MAH refers to the enterprise or R&D institute which has obtained the drug registration certificate. Different from the Pilot Program, which allows individuals to be an MAH, the New Drug Law has limited MAH to legal entities. According to published data from the State Council, during the past three-year pilot period, 1118 applicants applied to MAH licenses, with only one individual applicant, who nevertheless withdrew the application eventually. Apparently, the New Drug Law has reflected such reality.

• If the MAH is an overseas entity, it shall designate a domestic company in mainland China to discharge MAH’s duties. The designated domestic company and the MAH shall be held jointly and severally liable. In practice, foreign companies usually establish a wholly owned subsidiary in China to be its designated representative.  

(2) What can an MAH do with the marketing authorization?

• An MAH may manufacture the registered drug or authorize a third party to manufacture the drug (except for certain blood products and narcotic drugs).

• An MAH may sell the registered drug or authorize a third party to distribute and sell the drug. If the MAH intends to engage in retail pharmacies, it shall obtain a drug supply license （药品经营许可证）.

• An MAH may transfer the drug marketing authorization permit with prior approval.

(3) What are the responsibilities of an MAH?

• An MAH shall be responsible for the quality and safety of the registered drug through its full life cycle, covering non-clinical studies, clinical trials, manufacturing and sales, post-marketing researches, adverse reactions monitoring, and drug recall;

• An MAH shall inspect ex-factory drugs before releasing into market;

• An MAH shall adopt a drug traceability system;

• An MAH shall conduct post-marketing evaluation of the safety, effectiveness and quality of the drug on a regular basis; and

• An MAH shall submit yearly reports to a provincial branch of National Medical Products Administration (“NMPA”) with respect to manufacturing and sales of the drug, post-marketing research, risk management etc.

(4) What are the liabilities of an MAH in the event of drug defect?

• In the event of any damage or personal injury caused by defective drugs, the victim may initiate a claim against the MAH, the manufacturer, the sales company, or the healthcare institution in question. The party that receives the claim shall advance the compensation to the victim.

• In practice, it is critical for an MAH to select qualified CMO and set out clear responsibilities in the manufacturing authorization contract with the CMO. Indemnification clauses are often the focus of heated negotiations.

The strict responsibilities of MAH imposed by the New Drug Law are intended to safeguard the quality of drugs and protect patients’ interests.  However, such a high threshold may also scare off small companies or R&D institutes with limited financial and human resources from becoming an MAH.

It is worth noting that certain currently effective provisions concerning transfer of drug manufacturing permit, contracted manufacturing, and commercialization of contracted manufacturing drugs are in conflict with the MAH system under the New Drug Law. In order to implement the MAH system, amendments to various existing regulations are necessary, including but not limited to Provisions for Drug Registration（《药品注册管理办法》）, Provisions for Drug Technology Transfer Registration (《药品技术转让注册管理办法》), Provisions for Contracted Manufacturing of Drugs（《药品委托生产监督管理规定》）. 

2.New Drug R&D and Clinical Trials

It is expressly provided in the law that the government supports drug innovation orientated by clinical value and with special efficacy. It is encouraged to study on drugs with new treatment mechanism, for life-threatening diseases or orphan diseases, or with multi-targeted systemic intervention function for human body. In particular, the government will adopt effective measures to encourage R&D and innovation on pediatric drugs, which will be reviewed and approved with priority. 

To speed up the approval procedure of clinical trials, the New Drug Law has confirmed the “deemed consent” rule, i.e., a clinical trial application shall be deemed as approved in the event the competent authority fails to notify the applicant of its decision within 60 working days upon submission. Bioequivalence trials shall be filed with NMPA. 

The “deemed consent” rule was firstly introduced in the Opinions on Deepening the Reform of Review and Approval System and Inspiring Innovation of Drugs and Medical Devices promulgated by the Central Committee of the Communist Party of China and the General Office of the State Council in 2017, and then officially adopted by NMPA in the Announcement on Changes to Drug Clinical Trial Review and Approval Procedures in 2018. With the promulgation of the New Drug Law, it becomes a basic rule of the clinical trial approval procedures, constituting a remarkable achievement in simplifying and accelerating administrative approval process. 

In the same spirit, the New Drug Law provides that clinical trial institutes shall submit a record filing with competent agencies, replacing the requirement of being certified under current regulations. The filing requirement has been adopted for medical devices clinical trial institutes since November 2017. The Provisions for Drug Clinical Trial Institutes (Draft) issued by former SFDA in October 2017 for public comments contained the same requirement, yet has not been passed. Detailed rules in this regard are to be jointly issued by NMPA and National Health Commission (“NHC”).

In response to public concerns on ethics in drug research, the New Drug Law expressly provides that drug clinical trials shall comply with ethics rules and clinical trial proposals shall be reviewed and approved by ethics committees. The New Drug Law further stresses on patients’ right to information and protection on patients’ legal interests.

Moreover, the New Drug Law has formally adopted “sympathy treatment”, i.e., drugs under clinical trial intended for life-threatening diseases that are currently without effective treatment, may be used for patients with such disease in the clinical trial institution. This is a breakthrough change in clinical treatment. In December 2017, NMPA issued “Provisions for Extended Use of Clinical Trial Drugs with Sympathy (Draft)” for public comments (《拓展性同情使用临床试验用药物管理办法》征求意见稿)，which however has not been adopted yet. The pass of the New Drug Law may put the draft into spotlight once again. We expect more detailed rules on “sympathy treatment” to be issued.

3.Reforms on Drug Approval Procedures

• Process Optimization. The New Drug Law requires NMPA to optimize drug review and approval process, enhance communications between the review and approval committee and applicants, and establish expert consultations system etc., with an aim to improve efficiency.

• Bundling Review and Approval. The New Drug Law newly adopts a bundling review and approval system for drug registration, i.e., when the agency reviews drug application, drug ingredients, excipients, packing materials, and containers shall be reviewed simultaneously, and drug quality standards, production process, labels and insert sheets shall also be examined at the same time. 

• Review and Approval with Priority. Drugs of clinical urgency, pediatric drugs, and new drugs that can prevent or cure major infectious diseases or orphan diseases, shall be reviewed and approved with priority.  

• Conditional Approval. Drugs intended for severe life-threatening diseases yet without effective treatment, or urgently needed for public health, may be approved with conditions, provided that the efficacy is supported by clinical trial data.

4.GMP/GSP Certification Abolished

The New Drug Law has abolished the requirement to obtain GMP/GSP certification from the NMPA before a pharmaceutical company engages into operation. Instead, pharmaceutical companies are required to maintain good manufacturing/supply practice to ensure the compliance with legal requirements throughout the course of business. Such change stresses on companies’ self-compliance on an on-going basis, and at same time requires agencies to exercise active supervision. It is expected that more unannounced inspections will be carried out by agencies on a regular basis.

5.Chain Pharmacies and Online Sale of Drugs

Given the safety issue of drug distribution and sales, online pharmacy has been heatedly debated among legislators during three reads by the SCNPC. Eventually, the New Drug Law sends a positive signal regarding online sale of prescription drugs, by adopting a negative list which contains vaccines, blood products, narcotic drugs, and radiopharmaceutical, without including prescription drugs.  

This breakthrough change lifts the prohibition on online sale of prescription drugs, with further legislation and guidance to follow for the implementation. Based on remarks made by officials from the SCNPC and NMPA on the online sale of prescription drugs during the press conference for the promulgation of the New Drug Law, we understand online sales of prescription drugs are expected to observe the following rules:

• Basically, the rules and standards applicable to offline sales will be applicable to online sales as well, and only licensed offline pharmaceutical companies may apply to sell drugs online;

• Online pharmaceutical companies will be subject to additional requirements, such as connectivity of the IT system with that of healthcare institutions, in order to ensure the authenticity of prescriptions;

• Drug logistics shall comply with good supply practice on pharmaceutical products.

The lift of prohibition on online sale of prescription drugs is certainly great news to major e-commerce players and chain pharmacies in the market. While we applaud for such a breakthrough change, there are still many questions to be answered. For instance, will an MAH with drug supply license be allowed to sell registered drugs online directly to patients? Will only chain pharmacies be qualified to sell directly to patients online? What type of IT system shall be installed by online pharmacies and healthcare institutions? How to ensure the safe usage of prescription drug sold online? How to safeguard patients’ personal data and privacy? We look forward to the issuance of detailed rules by NMPA and NHC. 

While the future of online sale is still murky, the government’s intention to encourage chain retail pharmacies is set out clearly in the law. The headquarters of chain retail pharmacies shall adopt uniform quality control system, and be responsible for the operation of its subsidiaries.

6.Severer Penalties on Violation

The New Drug Law has substantially strengthened monetary fines, qualification revocation and individual liabilities in response to wide criticism on the lack of deterrence under current laws. 

In relation to monetary fines and debarment, the new law provides that entities which commit serious violation, e.g., producing counterfeit drugs, manufacturing without license, will be subject to a fine 15 to 30 times of the value of drugs in question, compared to 2 to 5 times under the current law; in a severe case, the relevant manufacturing license and/or supply license shall be revoked, and such entity shall be barred from making new applications for 10 years; when the MAH is an overseas company, importation of drugs from the company shall be barred for 10 years.

Further, legal representatives, persons in charge, persons directly responsible for such serious violation are subject to a fine 30% to 300% of the income, a life-time prohibition from engaging in pharmaceutical business, and 5-15 days detention by the public security authorities. 

The new law also introduces punitive civil compensation.  In case of manufacturing or selling counterfeit drugs, the victim or his/her close relatives are entitled to claim an indemnification of losses, plus a punitive compensation amounted to 10 times of the drug price or 3 times of the losses.

Moreover, the New Drug Law strengthens punishment on commercial bribery. Under the Anti-Unfair-Competition Law, provision of rebates between two parties of a transaction may not constitute commercial bribery. Given the particularity of the healthcare industry, the New Drug Law expressly provides that a pharmaceutical company or healthcare institution gives or receives rebates or other improper interests, shall be subject to a monetary fine amounting from RMB 300,000 to RMB 3,000,000; in a severe case, revocation of its license. 

In the event that an MAH or a pharmaceutical manufacturer or supplier bribes government officials, its legal representative, persons in charge, and responsible persons shall be subject to life-time prohibition from engaging in pharmaceutical business. The New Drug Law further enhances punishment on the receiving party in case of bribery, providing that individuals of pharmaceutical companies who receive bribery in the course of drug procurement/sales shall be prohibited from pharmaceutical business for 5 years, individuals of healthcare institutions who receive bribery from pharmaceutical companies shall be subject to punishment by NHC or his/her employer, and revocation of professional license.

Conclusions

The New Drug Law has set the foundation of a more sophisticated pharmaceutical administration system, the implementation of which requires amendments and revisions of various existing laws and regulations, and promulgation of new ones. In the near future, we expect to witness the issuance of more detailed rules and provisions by NMPA and other competent authorities. We will keep our clients updated on the latest legislation and business practices in life science and healthcare industry.

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Jingtian & Gongcheng’s Life Science and Healthcare Team has extensive legal and industrial experience in the field. Our lawyers have been focused on international and pharmaceutical legal practices over a dozen of years, with working experiences at international law firms and top-tier multinational healthcare companies, and many of them are qualified both in China and abroad.

We have advised clients on mergers and acquisitions, technology licensing, contracted manufacturing, co-promotion, business conduct and compliance, and daily operational issues related to pharmaceutical and medical devices companies. For more information, please contact Ms. Hanshuo ZHOU (zhou.hanshuo@jingtian.com phone: 0086-21-2613 6241, mobile: 0086-18616860012).

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