China Boosts Regulatory Framework for Local Pharmaceutical Manufacturing

In recent years, China has introduced significant changes to its Drug Administration Law and corresponding legislation, including the nationwide Market Authorization Holder (MAH) system. These reforms aim to boost foreign investment, streamline drug approvals and registration, and improve market access. However, challenges around cross-border manufacturing, intellectual property (IP), and regulatory compliance persist, impacting both local and international companies.

In December 2019, China officially implemented a nationwide drug MAH.[1] This is a big step in China’s recent regulatory framework reforms for the pharmaceutical manufacturing industry.

The amended Drug Administration Law makes it possible for pharmaceutical companies, especially small or medium-sized companies that may not be able to finance compliance with rules of building their own pharmaceutical manufacturing facilities, to partner with local manufacturers or contract manufacturing organizations (CMOs) to manufacture their products so as to gain a quicker access to the market.

Following the development in legislation, pharmaceutical companies have been exploring more options for product manufacturing. In particular, a rapid increase of cross-border license deals in past years has sparked more discussion on how foreign companies may leverage the local manufacturing capacity in China to reduce costs and enhance supply chain resilience.

Regulatory Barrier for Cross-Border Manufacturing

The existing Chinese law does not expressly restrict a pharmaceutical company’s choice of location for product manufacturing, which means cross-border manufacturing is legally feasible in theory.

As a matter of practice, however, pharmaceutical manufacturing is limited to two separate routes depending on where the MAH is incorporated (i.e., whether it is a foreign or Chinese entity). Based on consultation with the National Medical Products Administration (NMPA), there has been no approval for cross-border manufacturing. This means that for a domestic MAH, it can only manufacture pharmaceutical products inside China, while for a foreign MAH, it can only manufacture pharmaceutical products outside China and then import the products into China for selling.

An exception was made in June 2022, when NMPA, along with the other authorities, issued a regulation permitting Hong Kong and Macao drug MAHs to entrust qualified CMOs located in the nine mainland cities of China’s Greater Bay Area,[2] which is welcomed by pharmaceutical companies in Hong Kong and Macao. Such arrangements so far have not yet been expanded to other foreign MAHs.

Under the current regulatory regime, foreign pharmaceutical companies have two options for manufacturing and selling products in China:

• Firstly, the company itself holds the market authorization, registered as the MAH for drugs imported and distributed in China and responsible for the safety and efficacy of the licensed products throughout the product life cycle.
• Secondly, companies wary of being exposed to various legal and compliance risks associated with being the MAH or that want to use the manufacturing capacity in China may have a local Chinese entity hold the market authorization, register as the MAH, and manufacture the products either in house or through contracting CMOs in China. Such a local entity is normally a subsidiary, affiliate, or third-party partner (such as a licensee) of the foreign company.

Local Manufacturing of Imported Drugs

In July 2023, the State Council released a new set of opinions on boosting foreign direct investment in China.[3] Among these, it emphasized the support of foreign investment in the life science sector, encouraging foreign-invested enterprises to carry out clinical trials of overseas marketed cell and gene therapy drugs. Additionally, it sought to optimize the application procedures for marketing registration applications for drugs that have been manufactured and marketed overseas and transferred to domestic manufacturing and commercialization.

Following the directive of the State Counsel, on April 19, 2023, NMPA issued the Announcement on Matters Relating to Optimizing the Application for Registration of the Marketing of a Domestically Marketed Foreign Produced Pharmaceutical the Production of Which is to Switch to Mainland China (NMPA No. 49 Regulation),[4] highlighting principle guidance for local manufacturing of drugs that have been approved in China as “imported drugs.” Shortly after it was issued, the Center of Drug Evaluation of NMPA (CDE) published a series of specific rules, clarifying corresponding documentation requirements applicable to application for local manufacturing of different types of imported drugs (collectively, Document Requirements).[5]

We summarize the three key points of the NMPA No. 49 Regulation and the corresponding Documents Requirements below.

Domestic Applicant

NMPA No. 49 Regulation reiterates NMPA’s early regulation that if the drug has been approved in the China market (i.e., registered as “imported drugs”), the application for drug marketing authorization application must be submitted by a “domestic applicant” in accordance with requirements and procedures.[6] This means that the domestic applicant, instead of its foreign counterpart, will be the MAH and be responsible for the product’s safety, efficacy, and life cycle quality control.

The Document Requirements further clarify that for chemical drugs, the locally manufactured drug will be approved following the path of registration of “generic drugs.” Therefore, the approval received by the domestic applicant should not replace the original registration certificate for its counterpart that is imported into China.

Consistency of Manufacturing Process

The applicants may submit the application documents previously filed for Biologics License Applications (BLAs) or New Drug Applications (NDAs) of the imported counterpart, along with new research materials for local manufacturing as supplemental support for the application. NMPA No. 49 Regulation does not dive into details in this regard but leaves specific application requirements and interpretation to CDE.

According to the Document Requirements, CDE’s review focuses on the consistency of manufacturing process, prescription composition, raw materials control, and packaging materials, even in the event of a change in the manufacturing facility. If there is any difference from what was previously filed for BLA or NDA of the imported counterpart, the applicant needs to submit supplementary research to support its new application. The Document Requirements also provide that, if the domestic applicant belongs to the same group of the foreign MAH of the imported counterpart, and both are governed by the same quality control system, the application documents can be simplified.

Priority Review and Approval Process for Originator Drugs

NMPA No. 49 Regulation provides that applications for local manufacturing of originator chemical drugs and biologics, priority review and approval by NMPA will be available.[7] This supplements the existing list of scenarios that an application may enjoy the priority review and approval in China.[8] As a result, the timeline of the review and approval procedure will be shortened to up to 130 days, as compared to 200 days in normal cases.

On May 28, 2024, CDE published its decision to apply the prioritized review and approval procedure Zevtera (ceftobiprole medocaril sodium) per application of Shenzhen China Resources Gosun Pharmaceutical Co. Ltd. (CR Gosun), making reference to this new regulation as the legal basis, underlines the government’s support to innovative drugs.

Looking Forward

NMPA No. 49 Regulation does not change the basis regulatory framework for drug manufacturing and provides a new option for foreign companies to commercialize drugs in China market without breaking the existing regime.

Despite the Chinese government’s efforts to promote local manufacturing, several challenges remain. For instance, IP rights (IPR) protection during the technology transfer is one of the top concerns of foreign MAHs.

There are other specific issues to be addressed, such as regulatory compliance of the transfer of market authorization, balance between economic feasibility and quality assurance of local manufacturing, and the market entry of the locally manufactured products. This includes navigating not only legislation at central level but also different local policies in practice, such as policies for originator drugs and generic drugs in public procurement in some provinces in China.