by Huang Jianwen  King & Wood Mallesons

The newly revised Drug Administration Law (“New Law”) will come into effective on December 1, 2019.  Compared with the current Drug Administration Law, significant changes with respect to the framework and the specific content have been made in the New Law.  In response to the major issues in the current pharmaceutical industry, the New Law adopts several new systems, which are becoming more in line with international standards. For instance, the New Law establishes the drug marketing authorization holder system, the drug traceability system, the first accountability system, the innovation of evaluation and approval system, the unified quality management system for drug retail franchise operation and regulations of online drug sales etc.  Furthermore, the New Law cancels the Good Supplying Practice (“GSP”) and Good Manufacturing Practice (“GMP”) certifications and adopts stricter legal liabilities.  In addition, the New Law stipulates that entities or individuals importing a small amount of drugs without an importation certificate may be exempted from punishment.

The New Law marks a profound change in the pharmaceutical industry.  The new systems bring new challenges; the pharmaceutical enterprises need to pay close attention to the implementation rules of the New Law as they will be successively issued by the legislator in order to understand and implement the those rules.  In addition, pharmaceutical enterprises will need to adjust their practical operations regarding process and management, based on the requirements of the relevant laws and regulations.

Drug Marketing Authorization Holder System

Chapter III of the New Law is solely concerned with the drug marketing authorization holder system.  Currently, the Pilot Plan on Drug Marketing Authorization Holder System (《药品上市许可持有人制度试点方案》, the “Pilot Plan”) is the main regulation regulating the drug marketing authorization holder system.  The Pilot Plan was implemented in ten provinces (municipalities) including Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Sichuan.  After the expiration of the three year pilot period, the Pilot Plan was extended for a further year in several places.  The Pilot Plan will end everywhere by November 2019.  After the implementation of the New Law, the drug marketing authorization holder system will be fully implemented nationally.  Under the New Law, a drug marketing authorization holder is legally responsible for the safety, effectiveness, and quality controllability of drugs that are either in the process of research and development, manufacture, trading or use.

New Law Extinguishes GSP and GMP Certifications and Strengthens the Post-event Supervision.

The New Law extinguishes the current requirement that drug administration authorities shall assess drug manufacture enterprises and drug trading enterprises, and issue assessment certificates.  Instead, the New Law requires that drug manufacturing enterprises and drug trading enterprises establish and improve the quality management systems of manufacture and trade of drugs, and ensure that the process of manufacturing and trading of drugs always meets all legal requirements.

The cancellation of GMP and GSP certifications will not result in the deregulation of the quality management of the manufacture and trade of drugs; rather, the New Law establishes a higher requirement for enterprises.  Since GMP and GSP certifications themselves are entry licenses, these certifications will likely lead some enterprises to attach great importance to the certifications themselves rather than on quality management.  After the New Law extinguishes the requirement for GMP and GSP certifications, a stricter form of supervision is implemented.  Drug manufacture enterprises and drug trading enterprises shall continually meet the requirements of the GMP and GSP, and ensure the full process of manufacture and trading of drugs is in full compliance with the laws and regulations.  This regulatory change will be a huge challenge for any pharmaceutical enterprises with GMP and/or GSP certification(s) that are no longer able to continuously meet the requirements for certification after obtaining their certification(s).

The Innovation of Evaluation and Approval System

The New Law simplifies and improves several evaluation and approval systems: (1) applying default license to the application for drug clinical trials; (2) establishing and improving the communication mechanisms and expert consultation mechanisms between drug registration applicants and evaluation and approval authorities; (3) applying filing systems for bioequivalence testing and clinical trials institutions; (4) establishing associated evaluation and approval systems – chemical raw materials, relevant auxiliary materials, packaging materials and containers that directly contact drugs shall be reviewed and approved together, and quality standards, manufacturing processes, labels and instructions shall also be approved along with the foresaid approval; (5) applying priority approval to pediatric drugs and new drugs for urgent clinical needs, prevention and treatment of major communicable diseases and rare diseases; and (6) applying conditional approval to drugs targeting diseases that are life-threatening and without effective treatments, or to drugs which are urgently needed for public health.

Relevant Regulations on Imported Drugs

In principle, the New Law prohibits producing and importing drugs without approvals.  Nevertheless, there are three exceptions to this which are stipulated in the New Law: (1) if any entity or individual imports a small amount of drugs that have been legally marketed in other countries, and the foresaid circumstances of any such unlawful act are minor, then such entity or individual may be given a mitigated punishment or exempted from punishment; (2) medical institutions importing a small amount of drugs for urgent clinical needs shall obtain approvals from national drug administration authorities or the relevant authorized Provincial People’s Government, and such drugs shall be used in designated medical institutions for specific medical purposes; and (3) individuals importing a small amount of drugs for personal use from other countries and/or regions shall be regulated according to relevant laws and regulations.

Drug Traceability System

The New Law adds that any drug marketing authorization holder, drug manufacture enterprise, drug trading enterprise or medical institution shall establish and implement a drug traceability system, provide drug traceability information and ensure traceability of the drug.

Currently, NMPA (National Medical Products Administration) has issued a series of relevant regulations, such as the Guiding Opinions on the Building of Information-based Drug Traceability Systems (《关于药品信息化追溯体系建设的指导意见》), the Guiding Principles on the Building of Information-based Drug Traceability Systems (《药品信息化追溯体系建设导则》), the Code Requirements of Drug Traceability Code (《药品追溯码编码要求》), the Basic Technical Requirement for Drug Traceability Systems (《药品追溯系统基本技术要求》), the Data Collection of Vaccine Traceability (《疫苗追溯基本数据集》) and the Basic Technical Requirement for Exchange of Vaccine Traceability Data (《疫苗追溯数据交换基本技术要求》).  Since the Drug Traceability System is stipulated in the New Law, pharmaceutical enterprises shall pay close attention to all relevant regulations and adjust their drug traceability systems accordingly.

First Accountability System

The first accountability system means that anyone who suffers from drug quality issues may file a compensation claim against either the drug marketing authorization holder, the drug manufacture enterprise, the drug trading enterprise or the medical institution.  After the receipt of the compensation claim from the sufferer, the above-mentioned entities shall compensate to the claimant directly.  Any entity that does compensate a claimant may be able at law to recover from actual responsible entities.

According to the first accountability system, a claimant can choose which entity to claim against.  The first accountability system increases the protection for claimants and is designed to protect the legal rights of claimants.

The Unified Quality Management System for Drug Franchise Business

Compared with individual pharmacies, franchise businesses have the advantages of greater scale, unified management regarding quality, service, logistics, etc., as well as a strong capability to control drug quality and safety. Therefore, the New Law is clearly encouraging PRC drug retailers to adopt a franchise “chain store” style structure.

However, as of the late start in the drug franchise business industry and the insufficient government administrative management ability thereof, the management capability of different drug retail franchise enterprises varies, and some drug retail franchise stores are not actually being managed uniformly. In order to promote the unified management of the drug retail franchise enterprise, the New Law clearly requires the headquarters of drug retail franchise enterprise to establish a unified quality management system, and fulfill its management responsibility of its retail stores’ business operation.

Currently, the specific requirements for establishing a unified quality management system for drug retail franchise enterprises are mainly formulated by provincial drug administrative authorities. Hence, drug retail franchise enterprise needs to pay close attention to the specific management measures formulated by provincial drug administrative authorities, and establish and improve its unified quality management system accordingly.

Online Drug Sale

For online drug sales, the New Law clearly stipulates that specially administrated drugs, such as vaccines, blood products, narcotic drugs, psychotropic drugs, poisonous drugs with medical uses, radioactive drugs, etc., shall not be sold online.  Nevertheless, the New Law does not explicitly state that the online prescription drug sale is prohibited, leaving room for the further development of other relevant laws and regulations.

At present, apart from the Interim Regulations on the Approval of Internet Drug Trading Services (《互联网药品交易服务审批暂行规定》) (the “Interim Regulation”), mainland China has not issued any other law and regulation regarding online drug sales.  However, as the certification of the Internet Drug Trading Service Institution (《互联网药品信息服务资格证书》) is not required in practice before conducting any internet drug trading service, the different local drug administration authorities may have different understanding in the implementation of the Interim Regulation.  As such, by the issuance of the Measures of Supervision and Administration of the Online Drug Sale (《药品网络销售监督管理办法》) and other relevant laws and regulations, the specific requirements of the online drug sale may be further clarified.

Legal Liability is Obviously Aggravated

The New Law has significantly increased the administrative penalties for violations thereof. The highlights are as below: (1) the integrated use of multiple types of penalties, including confiscation, fines, production/operation shut down for rectification, license revocation, license application not acceptable for a certain period of time, and prohibition of employment; (2) the large increase of the fine amount; (3) the implementation of a “double penalty system” for certain serious violations (both entity and individual would be punished); and (4) the proposal of punitive damages.

The importance of the New Law revision is self-evident, and it plays important guiding role for market regulation for the next three to five years. With the issuance of the New Law, the September theme of KWM Academy is “Pharmaceuticals and Healthcare”. We will further publish a series of articles regarding the recent hot topics, such as the marketing authorization holder system, online drug sale, clinical trials and more.