Implications on the Draft Amendment to the Drug Administration Law and the Draft Healthcare Law in the Pharmaceutical industry in China

Draft DAL

The Draft DAL focuses on four key areas of reform in streamlining the current regulatory regime and in tackling the public safety concerns posed by the recent vaccine scandal: (1) strengthening the whole regulatory process; (2) implementing an enhanced system of marketing authorisation ("MA") holders; (3) establishing a drug safety credit system, a drug safety information system and a clinical trial ("CT") recordal system; and (4) enhancing the penalties.

Strengthening the whole regulatory process

The Draft DAL holds the MA holder, the legal representative of the manufacturer or the main responsible person for the quality control and manufacturing operation fully responsible for any safety issues caused by the drugs. Secondly, it enhances the policy on the review of the suppliers, ex-factory inspection and approval of MA of active pharmaceutical ingredients ("API") to strictly control the procurement, production and listing of APIs.

Moreover, the Draft DAL clarifies the requirements of traceability of drugs to safeguard the public from safety and quality control issues. The MA holder, manufacturer and medical institution of a drug will be required to implement a strict traceability system to ensure that the data in the whole process is true, accurate, complete and traceable.

There are provisions specifically prescribed for vaccines safety. For instance, traceability information should be collected and preserved by digital means during the development, manufacturing, distribution and vaccination process, and a system of compulsory insurance for liabilities arisen from vaccines will be implemented the MA holders of which will be required to insure in accordance with the relevant regulations.

Implementing an enhanced system of MA holders

The Draft DAL extends the MA holders of relevant drug approval documents from drug manufacturers to R&D institutions and personnel of drugs. It fully implements an enhanced system of MA holders by clarifying that the MA holders are responsible for the safety and efficacy of drugs, and for the whole process of research, manufacturing, operation and use of drugs.

To further strengthen the system of MA holders, there are new provisions in the Draft DAL that require MA holders to conduct re-evaluation on the safety and efficacy of marketed drugs, to develop risk management plans, and to regularly report production, sales, post-MA R&D and risk control activities of marketed drugs to the regulatory authorities.

An MA holder may manufacture and distribute, or may commission a qualified enterprise to manufacture and distribute the drug in accordance with the Draft DAL. However, the Draft DAL prohibits the production of vaccines, blood products, narcotic drugs, psychotropic drugs and medical use toxic drugs by such a contract manufacturer instructed by the MA holders, except where the regulatory authorities grant an approval on a case by case basis.

This suggests that the Chinese authorities not only commit to enhance the regulatory regime of MA holders, but also demonstrate the flexibility to consider the demand of contract manufacturing of relevant innovative drug products.

Establishing a drug safety credit system, a drug safety information system and a CT recordal system

The Draft DAL establishes a new drug safety credit system for MA holders, manufacturers, operating entities and medical institutions, which will record the issuance of MAs, inspection results by the regulatory authorities and illegal behaviours found to be regularly updated for the public scrutiny. The frequency of inspection by the regulatory authorities will increase for those with poor credit record.

A unified publication system for drug safety information will also be implemented to announce safety conditions, safety risk warnings, major drug safety incidents and information in respect of investigation and handling of drug safety.

An important point to note is that the Draft DAL optimises the existing system for CT approval by switching to a new CT recordal system. The regulatory authorities will have to decide whether to approve an application for CT of a new drug within 60 working days from the date of application and notify the applicant accordingly. If no such notification is provided within the time limit, the application for CT is deemed to be approved. This will greatly speed up the application process for CT in order to provide timely supply of innovative drugs to the market in China.

To ease the burden on manufacturers/distributors of drugs, the certification requirements of Good Manufacturing Practice ("GMP") and Good Supply Practice ("GSP") are no longer in the Draft DAL. The relevant requirements of GMP and GSP will separately be set out as conditions in obtaining a drug manufacturing/business licence, whilst these will remain as the industry minimum standard to follow for quality assurance.

Enhancing the penalties

The Draft DAL comprehensively enhances the measures of administrative punishment for illegal acts in respect of drug manufacturing, operation and administration in China. For unauthorised manufacturing or operation of drugs, the level of fine will be increased from the existing 2-5 times the value of the drug products to 5-30 times. The Draft DAL also has new provisions to suspend the manufacturing or operation of counterfeit or substandard drugs.

If there is any act of manufacturing or selling of counterfeit/substandard drugs, or violating quality management regulations, the legal representative or principal responsible person, the direct responsible person in charge, and other direct responsible personnel will be punished by confiscation of their income and imposing heavy fines, and if held to be criminally liable, by 10 years to life imprisonment depending on the gravity of the offence.

It is expected that the enhanced penalties will incentivise relevant stakeholders in maintaining high standard in drug manufacturing and operation in respect of safety and quality control in order to prevent potential adverse incidents comparable to the recent vaccine scandal in China.

Draft Healthcare Law

The Draft Healthcare Law covers a wide range of topics of interest to the general medical and healthcare industries and professionals in China, such as the establishment of basic medical, hygienic and healthcare services, regulations of medical/healthcare personnel, healthcare promotion and the administration/management of healthcare activities in China.

Specifically, the Draft Healthcare Law has provisions in respect of the guarantee of drug supply and healthcare information in China. It implements a number of new systems in addition to those in the Draft DAL, such as (1) an essential drug system, (2) a drug review and approval system based on clinical needs, (3) a drug pricing monitoring system, and (4) an information system for national health.

Essential Drug System

An essential drug system will be implemented in China in order to select appropriate quantities of essential drugs to meet the needs for disease prevention and treatment. Under such a system, a list of essential drugs will be published, which will be dynamically adjusted according to the clinical needs, changes in drug standards, and new drugs marketing conditions. Essential drugs will be included in the basic medical insurance drugs list. The Draft Healthcare Law aims to improve the supply of essential drugs, strengthens the quality and safety supervision of essential drugs, and ensures that essential drugs are available fairly and used reasonably in China.

Drug Review and Approval System based on Clinical Needs

The Draft Healthcare Law establishes and improves the drug review and approval system based on clinical needs, and supports the R&D and production of drugs such as urgently needed drugs, children's specialist drugs, rare disease drugs, and major disease prevention and control drugs to meet the needs of disease prevention and control drugs. Similar to the Draft DAL, it also strengthens the management of drugs and establishes a traceability system for the whole supply chain of drugs. This echoes with the regulatory authorities' commitment to ensure the quality and safety of drugs in China.

Drug Pricing Monitoring System

A drug pricing monitoring system will be established in order to conduct special investigations on cost and price of drugs, to strengthen supervision and inspection of drug prices, to investigate and handle unfair competition practices such as price monopoly and fraud, malicious price reduction, etc., and to maintain the order of drug prices. The Draft Healthcare Law strengthens the supervision and management of the centralized purchasing of drugs by the State. Moreover, it requires that bidders participating in drug purchasing bids shall not bid at a price lower than the costs, otherwise a fine of 0.5-1.0% of the amount of the winning bid may be imposed and the qualification for participating in drug purchasing bids shall be revoked for two to five years.

Information System for National Health

The Draft Healthcare Law promotes the development of an information system for national health and big data applications in healthcare. It aims to accelerate the construction of medical and hygiene information infrastructure and to formulate technical standards for the collection, storage, analysis and application of healthcare big data. It also uses information system and big data to promote rational allocation and sharing of quality medical and hygiene resources. It is required that personal data privacy related to the health of citizens will be protected and the safety of personal health information will be guaranteed. Under the Draft Healthcare Law, no organizations or individuals may acquire, use or disclose a citizen's personal health information except as required by laws and regulations or with the consent of the person.

Conclusion

The Chinese authorities are aware that China is behind other countries on drug and healthcare innovation. The proposed reforms under the Draft DAL and the Draft Healthcare Law not only demonstrate the authorities' commitment to rectify the negative effects posed by the recent vaccine safety scandal, they also provide opportunities for innovators and foreign investors to contribute their know-how and management experience for the development of new drugs or for the establishment of many of the new systems proposed in order to strengthen the pharmaceutical and healthcare industry in China. Foreign life sciences companies should keep abreast with the development of these new reforms as they increasingly move into China for R&D and manufacturing of their pharmaceutical and healthcare products, the regulatory and intellectual property issues of which will require careful manoeuver.