On 26 August 2019, the Chinese legislature, the National People’s Congress (NPC), passed the new Drug Administration Law (DAL), which came into effect on 1 December 2019 and represents one of the most important milestones for the Chinese healthcare industry. This is only the second systematic and structural major revision of the DAL since its promulgation in 1984; previously, only partial revisions were made in 2001, 2013 and 2015. Drafted, revised and passed after nearly two years of extensive review and deliberation, the DAL introduces new policies while also codifying many of the reforms that had been unveiled since 2016.


Key Highlights and Takeaways

Implementation of the Marketing Authorization Holder (MAH) system

Under the old system, only drug manufacturers could receive regulatory approvals for their products, which meant that innovators had to invest in costly manufacturing facilities in order to commercialize their assets. China introduced a MAH pilot program in * provinces in 2015, which allowed companies to outsource their manufacturing to contract manufacturing organizations (CMOs) for the first time (with the exception of ‘high-risk’ products like vaccines).

While highly positive for innovative drug development, the new system introduces new complications to the system, such as requiring foreign MAHs to engage local agents to execute their relevant responsibilities.


60-workday deadline for the National Medical Products Administration (NMPA) for the approval of clinical trial application, among other policies accelerating regulatory timelines for innovative products

If the company fails to hear back from the NMPA within 60 working days, the clinical trial is approved by default. This policy has already been implemented by the NMPA since mid-2018.


Online prescription drug sales legalized

Prescription drugs – 80 percent of the Chinese market – can now be sold online by MAHs, drug distributors and third-party eCommerce portals, once again with the exception of ‘high-risk’ products like vaccines and blood products.


Changes to the definition of ‘counterfeit’ drugs

Previously unapproved drugs were lumped together with counterfeit drugs under the ‘counterfeit’ label but now these two concepts are separate, which reduces criminal and commercial risks for legitimate drug manufacturers with products not yet approved in China.


Increased penalties

Administrative penalties for violations of the DAL, especially pecuniary penalties, have been increased significantly. In addition, the DAL also explicitly imposes personal liability on individuals (e.g. legal representatives) responsible for certain corporate violations.

With the new DAL, China seems to have committed itself to aligning with international norms and systems, focusing on the twin tenets of innovation and affordability and ultimately demonstrating that the government is truly serious about healthcare reforms.


Not in the DAL: the 4+7 policy, vol 2

In 2018, Chinese regulators launched a pilot generics drug procurement program in 11 key cities in a bid to slash public drug expenditures. Managed under the newly-established Joint Procurement Office (JPO), the program became known as the ‘4+7’ policy. It started by inviting bids for 31 drugs, with the lowest price winning the entire tender amount. Taken together, the ‘4+7’ cites and provinces represent around a third of the overall Chinese market. From the government’s perspective, the pilot was wildly successful, with the bidding war ultimately driving down the prices for 25 drugs by an average of 52 percent. Foreign companies suffered heavy losses as only two – AstraZeneca and BMS – won tenders.

In September 2019, the pilot was expanded to an additional 25 provinces and regions, this time with a focus on Tier 2 and 3 cities – with some changes. With only one company winning each tender and supply the drug to up to a third of the entire Chinese market, industry stakeholders voiced concerns over supply security. As a result, in this round, up to three companies could win the tender for each drug. This time, seven multinationals won tenders: Sandoz, Sanofi, AstraZeneca, BMS, MSD, Eli Lilly – and new entrant, Dr. Reddy. The average price reduction was 25 percent – from the ‘4+7’ prices.]