By Huang Jianwen King & Wood Mallesons’ Commercial & Regulatory group

In order to deepen the reform in the field of drugs, the China Food and Drug Administration (“CFDA”) issued the Drugs Administration Law (Draft for Consultation) (“Draft”) on 23 October 2017. The Draft incorporates and reflects material contents in the reform of drugs field in recent years, including fully implementing the Marketing Authorization Holder (“MAH”) system, cancelling certificates of Good Manufacturing Practice (“GMP”) and Good Supply Practice (“GSP”), carrying out records management for clinical trial institution and emphasizing legal liabilities on relevant entities in drug research and trial.

Implementing the MAH system

The system of MAH is an internationally accepted practice for drug marketing and approval. The Draft summarizes experiences from experimental MAH units and fully implements the system of MAH. This will promote significant enthusiasm for new drugs research & develop and innovation and facilitate the rapid and healthy development of the pharmaceutical industry in China.

1. Marketing Authorization Holder

Article 5 of the Draft expressly states that the State will implement the system of MAH. In the system of MAH, applicants who acquire a drug approval number are considered an MAH. MAHs can manufacture and supply drugs by themselves or authorize eligible drug manufacturing and supply enterprises to manufacture and supply such drugs.

Article 31 of the Draft provides that “applicants who acquire drug approval number are MAH,” but it does not clearly state the scope of subject for being an applicant. According to the Pilot Scheme for the System of MAH issued in 2016, applicants include all eligible drugs research & development institutions and research personals in the pilot administrative districts. However, Article 4 of the recently issued Measures for the Administration of Drug Registration (revised version) (“Revised Registration Measures”) provides that applicants only refer to institutions. Article 4 of the Revised Registration Measures reflects that the drug supervision authority is more inclined to allow institutions with corresponding compensation ability to become applicants after considering factors such as actual situations in the pilot areas and the ability of research personals to bear legal liabilities.

It is noteworthy that Article 32 of the Draft requires that foreign MAHs should designate domestic legal entity with corresponding quality management, risk prevention and control and compensation ability, to perform obligations in managing drugs marketing and to share legal liabilities. This is consistent with the spirit embodied in Article 4 of the Revised Registration Measures,[1] which reflects the emphasizing regulation of the regulatory authority on overseas MAH.

2. Change of qualification of MAH

Whether the qualification of MAHs can be changed or transferred has been a controversial issue before the laws and regulations brought clarity to the issue. In practice, it is necessary to establish a system to change qualifications of MAH due to the actual needs for transfer, inheritance, merger & acquisition and dissolution.

Section 3 of Article 32 of the Draft provides that “the change of qualifications of MAH shall comply with the conditions prescribed in this Law and be approved by the drug regulatory authority of the State Council.” Article 32 clarifies that the qualifications of MAH to be transferred subject to legal requirements and regulatory approval, which is excellent news for MAHs. It is in line with international practice as well and will promote the research & development and innovation of new drugs in China’s pharmaceutical industry.

3. Re-evaluation obligation of MAH

The current Drug Administration Law stipulates that the drug regulatory authority of the State Council should re-evaluate drugs that have been approved for marketing. However, Article 34 of the Draft imposes the re-evaluation obligation to MAHs. The Draft further states that if MAHs fails to fulfill the obligation of re-evaluation of drugs, the regulatory authority should order MAH to carry out re-evaluation. If necessary, the regulatory authority can directly organize re-evaluation.

Although the Draft does not directly impose a strict legal liability for MAHs failing to fulfill the re-evaluation obligation, we believe that the Draft’s requirement that MAHs should carry out drug re-evaluation, should be worthy of the attention of MAHs.

4. Legal liability of MAHs

The Draft sets a clear legal liability for MAHs. Article 94 of the Draft provides that an MAH which violates the provisions of Article 32 will be fined more than RMB 100,000. If the circumstances are serious, the MAH should be ordered to suspend production and business for rectification, up to the revocation of drug approval number. Criminal acts will warrant criminal responsibility and will be investigated according to law.

In addition to the legal liability listed in Article 94, the Draft also adds MAH in the relevant legal obligation of liability provisions (such as Article 71 on the adverse reactions reporting system, Article 72 on the acceptance of guidance from drug testing agencies; and Article 80 on the purchase of drugs from illegal enterprises, etc.). Also, the Draft changes drug manufacturing enterprises to MAH in some relevant articles,(such as a number of provisions in Chapter VII on the drug price and advertising administration, Article 90 on accepting rebates in the purchase and sale of drugs and Article 91 on receiving rebates in the purchase and sale of drugs.

It is noteworthy that the Draft changes drug manufacturing enterprises to MAHs. Although it is reasonable to a certain extent, it remains to be seen whether such changes can cover all subjects that are to be regulated by the law. For example, when the manufacturing enterprise is only authorized to produce, then this enterprise is neither a MAH nor is it a drug supply enterprise or medical institution, and therefore it is not covered by the aforementioned articles. It is therefore possible for authorized enterprises to evade relevant legal liabilities. The feasibility of replacing drug manufacturing enterprises by MAHs in the above-mentioned articles is worthy of discussion.

Cancelling certificates of GMP and GSP and shifting emphasis from issuing certification to regulation

Article 10 of the Draft cancelled the requirement that drug manufacturing enterprises should acquire the certificate of GMP. However, although this amendment cancelled the requirement for drug manufacturing enterprises to acquire GMP certificate, it does not intend to loosen the regulation on drug manufacturing management. After the reform, drug manufacturing enterprises need to conform to previous requirements for GMP certificates, while they also need to establish sound quality management system to ensure the continued compliance of manufacturing processes. In the past, some enterprises lowered their standards on drug manufacturing quality management after acquiring GMP certifications. However, after the reform, requirements for ensuring the continued compliance of manufacturing processes will substantially decrease situations where manufacturing enterprises feel like “one finished, all is finished” after acquiring GMP certificates.

In addition, Article 16 of the Draft cancelled the requirement that drug supply enterprise should acquire the certificate of GSP, while it only provides that “drug supply enterprises should conform to the GSP when supply drugs.”

The cancellation of GMP and GSP certificates reflects the shift of regulatory thinking from drug regulatory authority, from an emphasis on certification to one of regulation. With respect to legal liability, the simplification of administrative approval will reduce administrative procedures and save administrative resources. Regulatory authority will not bear legal liability on “issuing certificates of qualification to enterprises that meet the requirements of the GMP and the GSP, and conducting inspections on the enterprises that have already obtained certificates.” However, legal liabilities of drug manufacturing enterprises and drug supply enterprises never mitigate even the administrative approval has been simplified according to Section One of Article 79 of the Draft. In short, although the Draft cancelled the certificates of GMP and GSP, it actually raises a higher and more stringent demand on manufacturing and supply management of drug enterprises.

Clinical trial institutions implement record management

Article 29 of the Draft requires that new drug development first receives approval from the ethics committee and then submit application of clinical trial of new drug to Drug Supervision and Administration Department of the State Council. Furthermore, clinical trial of new drug must be carried out in eligible clinical trial institutions, and clinical trial institutions must implement record management.

Currently in China, clinical trial institutions are in short supply. Therefore, the affirmation process of clinical trial institutions cannot meet the requirement of innovation and development of medical industry. The reform requires that clinical trial institutions implement record management, which will be an effective way to ease off resource shortage of clinical trial institutions and encourage more medical institutions to participate in clinical trial activities.

With respect to legal liability, if clinical trial institutions do not conform to the Article 29 of the Draft on record management, they will be ordered to correct their behavior, served a warning and fined less than RMB 100,000.

Implementing relevant clinical regulations with respect to conformance assessment and bioequivalence

Article 29 of the Draft provides that developing a drug that is equivalent to the original post-market drug with respect to drug safety, quality and efficacy, developers shall conform to the stipulations issued by Drug Supervision and Administration Department of the State Council, and carry out pharmacy, pharmacology, and toxicology researches; if developers need to carry out bioequivalence test, they shall file a record with Drug Supervision and Administration Department of the State Council. Implementing records management in bioequivalent tests can be an effective way to lower the cost of conformance assessments.

With respect to legal liability, Article 79 of the Draft provides that (developers) carrying out bioequivalence tests do not conform to Article 29 of the Draft (filing a record), they will be ordered to correct, served a warning and concurrently fined less than RMB 100,000.

Emphasizing legal liabilities of the parties involved in drug research and trial

Article 79 clarifies legal liabilities of the parties involved in drug research and trial. It provides specific liabilities for drug non-clinical safety evaluation research institutions and drug clinical trial institutions. More importantly, it adds the liabilities for CRO for not conforming to Good Clinical Practice.

Drug research and clinical trials are important scientific methods to verify drug safety and efficacy. CRO, as a participant of drug clinical trials, significantly impacts the quality of clinical trial. Adding legal liabilities for CROs in the Draft will, in the long run, benefit sustainable and healthy development of CRO industry in China.

Legal liabilities of directly responsible persons and persons in charge

Articles 95 and 96 state the legal liabilities of persons involved in material or data fraud, or other illegal behaviors. This includes persons directly responsible and persons in charge of nonclinical drug safety evaluation institutions, drug clinical trial institutions, CROs, Marketing Authorization Holders, drug manufacturing enterprises, drug supply enterprises and medical institutions.

Safety is a life and death matter in the pharmaceutical industry. The Draft reinforces administration and rectification of illegal acts, promotes the combination of civil, administrative and criminal liabilities, sets clear red lines for administrative staff and responsible officer of relevant enterprises and creates deterrent power of law and determination to promote sound development of the medical industry.

Other modified content in the Draft

1.Establishing professional drug inspector system

Article 64 of the Draft stipulates that China will establish a professional drug inspector system. At present, supervision tasks in the pharmaceutical industry have increased several times in recent years but there are an insufficient number of supervisors. We believe that with establishing and perfecting the training, administration, salary and promotion system of professional drug inspector, it will attract increasing numbers of people with ability to participate in this system.

2.Raw material, adjuvant material and drug will be examined and approved together

Article 31 of the Draft provides that raw materials and adjuvant materials of the manufacturing drug are to be examined and approved together by Drug Supervision and Administration Department of the State Council. The reform will promote industry standards, improve undesirable phenomenon and benefit leading enterprises with good quality and technological advantage.

At the moment of continuous innovation of drugs regulatory system, reform in drugs administration has drawn much attention. The Draft has proposed many constructive reform measures on the basis of state policies and practices. The reform measures proposed by the Draft revolve closely around the Opinions. We expect that the future revisions of the Drug Administration Law will certainly promote the sustained and healthy development of China’s pharmaceutical industry.

Chinese version: 《药品管理法》修正案草案深度解析

[1] Measures for the Administration of Drug Registration (revised version), article 4, Section 3: Overseas applicants should be legal foreign drug manufactures and should designate domestic legal entity with corresponding quality management, risk prevention and control and compensation ability to manage registration matters.