Life Sciences & Healthcare Newsletter: Hong Kong & China update - August 2019

3. Market Authorization Holder ("MAH") System

Under the current DAL, only a drug manufacturer can obtain drug market authorization approval from the NMPA. In November 2015, China's State Council launched a 3-year pilot project to implement an enhanced MAH system in 10 provinces/municipalities including Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong etc. Under this pilot project, the scope of MAH was extended from drug manufacturers to include R&D institutes and individual researchers, the MAH can commission a qualified manufacturer or distributor for production/sales of the drugs and shall be responsible for the safety and efficacy of the drugs. All these measures had been adopted in the First Draft DAL Amendments.

In October 2018, the State Council released a report[i] on implementation of the pilot project, under which they found that the market launch time of a drug can be reduced by 22 months on average if a MAH uses contract manufacturing, as it saves the time of a MAH (normally a drug R&D institute) for registration of a drug production company, building production facilities and obtaining GMP certification. The pilot project has also incentivized MA application of new drugs: 734 MA applications for new drugs were filed in 2017 with a YoY growth rate of 31.5%, of which 334 were innovative new drug applications (YoY growth rate 24.2%) and 90 applications were innovative biological products (YoY growth rate 109.3%). The report also revealed some issues, for example the MAH's responsibility at different stages of the drug life-cycle management process required further clarification; The pilot project has only been implemented for 3 years, but quite a portion of the MA applications received by the local drug administration involved in the pilot project require a longer time for granting the MA approval. Accordingly, the NPC decided to extend the implementation of the pilot project for one more year to further evaluate the MAH system.

Against the above backdrop, the Second Draft DAL Amendments further propose the following:

1. It further clarifies that the MAH shall be responsible for the non-clinical research, clinical trial, production and sales, post-market research, adverse reaction monitoring, reporting and handling of drugs, specifically:

- It requires MAH to establish drug quality assurance system and have drug quality personnel to be independently responsible for drug quality control (Article 27);

- It also requires MAH to sign quality assurance agreements with their contract manufacturers, distributors for drug production, sales, storage and transportation etc. MAH shall also conduct regular review of the quality control system of their contract manufacturers/distributors to provide assurance of continued capability of quality management (Articles 26, 27, 30 and 31);

- It imposes an obligation on the MAH to implement drug product post-market risk management plan, which requires the MAH to conduct post-market research and adverse reaction monitoring (Articles 72 and 74).

2. It allows MAH to transfer their MA approval documents to a third party upon NMPA's permission, provided that the transferee has the capability of performing the obligations of a MAH, including the obligations of drug safety assurance, quality control, risk management and compensation liabilities (Article 36). This appears to be China's measure to optimize the structure of the pharmaceutical industry. In the pilot project, there have been attempts to encourage subsidiaries of sizable pharmaceutical group to transfer their MA approvals to their parent company, in that way the parent company can properly allocate resources based on the production capacity of their subsidiaries and be responsible for quality of the products marketed by their subsidiaries[ii].