China Adopts Modern Drug Legislation

31 October 2019

The Chinese healthcare system is currently undergoing significant changes. With the most extensive amendments in the past decade, the Drug Administration Act of the People's Republic of China (DAL) will enter into force on December 1st, 2019. The most important conceptual change is the nationwide introduction of the marketing license holder (MAH) system. This brings Chinese drug legislation closer to the standards of the USA, the European Union and Japan.

Introduction of the MAH System

The system prevailing in China, until now, required that the MAH for a drug always had to be held by the production authorization holder (PAH) of that drug. One consequence of the PAH system was that pharmaceutical and biotech research and development companies, which were not also manufacturers, did not have direct access to the Chinese market. With the rapid development of the Chinese pharmaceutical market, the existing regulatory system can no longer meet the requirements of the sector.

In 2015, the Chinese Government launched a MAH system pilot program in ten provinces. With effect from December 1st, 2019, the MAH system is to be introduced nationwide and fully implemented at all levels in the Chinese regulatory system and the pharmaceutical administration. The MAH system will then completely replace the previous PAH system. With the introduction of the MAH system, China is orienting itself towards the regulatory concepts known in the United States, European Union, and Japan.

Under the new MAH system provided by the amended DAL, the MAH and the PAH can be the same or different entities. Thus, a MAH is permitted to manufacture or sell pharmaceuticals, either on its own or through a manufacturer or distributor. Scientific research personnel and pharmaceutical research and development institutions in China can apply for a MAH qualification and, thus, obtain the required pharmaceutical marketing license.

It is important to mention that further decrees on the regulation of therapeutic products are likely to be revised with the entry into force of the DAL. The National Medical Products Administration (NMPA) is also expected to continuously adapt the law in such a way as to promote the development of the medical service outsourcing industry in the Chinese market. Not only foreign pharmaceutical companies, but also Contract Research Organizations (CRO), Contract Manufacturing Organizations (CMO), and Contract Sales Organizations (CSO) could benefit greatly from the new regulation.

Practical Implications for Foreign MAHs

Generally, the new MAH system will enable pharmaceutical research and development institutions to act as MAH and thus benefit directly from their research and development results without being dependent on an external PAH acting as MAH to the authorities. For imported products, the foreign company to which an import drug license (IDL) is issued can act as the MAH, which in fact may not be the actual manufacturer but the MAH in its home country. However, the foreign MAH for imported drugs is obliged to appoint a local agent in China. By means of a contractual arrangement, the local agent is to be bound by the obligations which the foreign MAH has to meet in order to fulfil the requirements of the DAL. Under the new law, the local agent assumes joint and several liability with the foreign MAH.

In line with US and EU practice, the amended DAL requires the MAH to assume responsibility for the efficacy, safety and quality of its products throughout the product life cycle. GxP standards must be met.

The DAL also contains a catalogue of administrative measures and sanctions to be imposed in the event of non-compliance with its requirements. Sanctions can be imposed not only on the offending corporations, but also on their representatives. However, the DAL remains unclear on the question of the conditions under which not only the company but also its representatives can be sanctioned. It also remains unclear to what extent a MAH can contractually transfer the responsibility and liability for obligations from the DAL to the local agent.

In order to effectively minimize legal risks, it is essential for foreign MAHs to implement and maintain the requirements of the amended DAL for organizational measures, quality requirements (GxP) and pharmacovigilance. To this end, foreign MAHs must enter into contractual agreements with their Chinese local agents and the manufacturers involved. These contractual regulations must contain a clear assignment of duties and standard operating procedures (SOPs) for their sustainable implementation and maintenance.

Author: Stefan Kohler