Looking into the Amended Drug Administration Law of China

1. Codification of Reform Actions

The Amended Law codifies a number of reform actions and policies that have been implemented or contemplated by the Chinese government, including the MAH system, the 60-working-day silent approval for clinical trials, the extended use of investigational drugs to nonstudy subjects and priority review and conditional approval for innovative drugs, orphan drugs or drugs with urgent medical demands. It will provide a legal basis for the regulatory agencies, particularly the National Medical Products Administration (NMPA), to develop more regulations to support these reform actions. 

2. The MAH System

With endorsement by the Amended Law, the MAH system will be implemented nationwide, presumably after completion of the current pilot program in selected regions of China. The MAH system allows separation of the product license holders from the actual manufacturers, except for certain high-risk products such as vaccines. The MAH approval will become transferrable subject to approval of the NMPA. 

The MAH system will provide more flexibility for companies to arrange their research, development and manufacturing activities in China, and the transferability of the MAH will offer an alternative venue for local business development activities, especially for acquisition of local products.  

Further, the Amended Law creates a new concept under the MAH system with the intention to further regulate foreign companies importing drugs to China. A foreign MAH will be required to engage a local agent to perform its responsibilities under the Amended Law, with joint liability. While the fundamental consideration for creating this concept is to allow regulatory agencies to hold foreign MAHs accountable when things go wrong, it remains to be seen how the scope of such joint liability will be defined, especially when the local agents are not in the distribution chain of the relevant products. 

3. Abolishment of GCP, GSP and GMP Certification

The Amended Law abolishes the certification requirements for good clinical practice (GCP), good supply practice (GSP) and good manufacturing practice (GMP), and as a result, clinical institutions, drug distributors and drug manufacturers will no longer be subject to compulsory certification. We may see more GSP and GMP inspections by the national and local NMPA of drug distributors and manufacturers to ensure their ongoing compliance, but it is not entirely clear how clinical trial institutions will ensure their self-compliance with GCP requirements and whether the NMPA would conduct inspections of these institutions at the same level of depth.  

4.  Online Sales of Prescription Drugs

The Amended Law lifts the current restrictions on online sales of prescription drugs. Except for vaccines, blood products and other high-risk drugs under special control, prescription drugs may be sold online by MAHs, drug distributors and third-party e-commerce portals.

We believe the NMPA will soon develop implementing regulations for such online sales, and it remains to be seen whether the existing GSP requirements need to be further revised or clarified to ensure quality control on the last-mile delivery of prescription drugs to individual consumers.

5.  Revisions to the Definitions of Counterfeit Drugs and Inferior Drugs

With over 10 years of research and debate, the Amended Law revises the definitions of counterfeit drugs and inferior drugs and removes the concepts of “deemed counterfeit drugs” and “deemed inferior drugs.” A counterfeit drug is now defined in a more narrow manner to include (i) a drug that contains ingredients not in compliance with the national drug standards, (ii) a nondrug passing off for a drug or one drug passing off for another drug, (iii) a deteriorated drug or (iv) a drug labeled with unapproved indications. In contrast, the definition of an inferior drug is expanded to include (i) drugs with incompliant quantity of ingredients, (ii) drugs with incompliant shelf life or batch number, (iii) drugs with unauthorized expedients or (iv) drugs that are otherwise not in compliance with applicable national standards. 

In addition, a few new concepts are created to address those circumstances that used to be dealt with under the counterfeit drugs or inferior drugs regimes. Those new concepts include, for example, “unapproved drugs” and “drugs with unapproved or incompliant labels.” For companies with legitimate operations, a deviation from the existing legitimate product approval will not necessarily make the underlying product a counterfeit drug, which may help reduce companies’ risk exposure, especially to criminal laws as well as to reputational damage. 

Though manufacturing or selling unapproved drugs may be subject to significant penalties, the Amended Law allows for the importation of certain unapproved drugs that have been legally marketed in another country under limited circumstances, which requires further definition and clarification.    

6.  Increased Penalties

The Amended Law significantly increases the level of administrative penalties, especially monetary penalties, for various violations. For example, manufacturing and selling counterfeit drugs, inferior drugs or unapproved drugs and/or making unauthorized changes to the product manufacturing process may give rise to a monetary penalty between 15 to 30 times the product’s value. Notably, for penalties that are calculated based on product values, the Amended Law provides a baseline of RMB100,000.   

In addition, various data integrity violations, failure to timely conduct product recalls, failure to timely report adverse events, violation of GCP, GSP and GMP, bribery in the course of purchasing and selling, etc.¹ will also be subject to increased penalties. 

The Amended Law explicitly imposes personal liability on individuals responsible for some corporate violations. Relevant individuals to be held personally liable include legal representatives and other personnel that are considered directly responsible.  Their liability includes, apart from monetary penalties, a debarment for five years, ten years or even permanently. 

¹ Sidley will circulate a separate newsletter to discuss this issue in more detail.