A note from author David Deere: To foster a global and innovative pharmaceutical industry and reduce the disproportional healthcare costs attributable to drugs, the Chinese government has formally targeted the industry for economic development. To facilitate these objectives, a series of major policy changes have been directed, affecting virtually every aspect of the sector, and are now being implemented by the responsible government ministries. The cumulative result of these policy reforms will require all domestic and multinational pharmaceutical companies operating in China to significantly alter their overall business strategies. This blog post touches on key policy reforms that have been undertaken by China since mid-2015.
When Western countries were deep in the shadows of the Dark Ages, China led the world with a well-developed pharmacopeia of traditional medicinal products to treat a variety of illnesses. While many of these might prove questionable under current scientific scrutiny, anyone familiar with the origin of modern statins and the 1,000-year-old tradition of Red Yeast Rice knows these traditional Chinese medicines contain many pharmaceutically active agents.
After some “dark ages” of its own, China has emerged with what is arguably the most phenomenal economic development story in world history. There is one notable exception: China’s pharmaceutical industry, which has lagged far behind the West.
Part of the reason is the Chinese healthcare community’s reliance on traditional medicines. However, the relegation of western medicine to China’s industrial chemical sector, which tends to view pharmaceuticals as simply small molecule chemical manufacturing and not the highly-regulated environment Western countries have established for pharmaceutical, is largely to blame.
With this industrial and largely unregulated and unfettered origin, China’s pharmaceutical sector has mushroomed to more than 4,500 manufacturing companies focused on traditional medicine or small molecule chemical synthesis of older drugs. These products are typically sold at very low margins to a highly fragmented system of 12,000 distributors throughout 23 provinces and 11 municipal, autonomous or special administrative regions, each with its own governing jurisdiction and oversight.
Structurally and regulatorily, the Chinese pharmaceutical sector represents almost a polar-opposite of the Western, US FDA and EU EMA, a highly regimented and centralized industry. It’s understandable why China’s pharmaceutical sector has failed to achieve the level of modernity other sectors have achieved.
China has a long tradition of organization and execution; just look at its decorative arts. The hodgepodge of its pharmaceutical industry ran counter to its national economic development vision. In late 2015, it came under the scrutiny, intentions, and actions of China’s State Council, the chief administrative body. A transformation was at hand.
Fundamental Reform Driven by Access, Innovation and Quality
While a key objective of the Chinese government’s 12th Five Year Plan (2011-2015) was the establishment of a higher value-added, research-based economy with the pharmaceutical sector targeted for emphasis, it was the regulatory changes mandated by the State Council in the second and third quarters of 2015 that began to provide the legal foundation for China’s modern pharmaceutical industry.
The State Council initiated three fundamental changes that began the transformation of the Chinese drug industry:
- The Fast Track/Priority, “Green Channel,” Drug Approval Pathway was expanded to include innovative foreign drugs, which undergo simultaneous clinical development in China and/or are manufactured in China. This move served to focus the limited drug review resources of the Chinese FDA (CFDA) on the most important drugs.
- The Marketing Authorization Holder Pilot program was established to help foster Chinese innovation. Under the rules of the MA program, research-based companies and organizations can, for the first time, use contract manufacturing organizations (CMOs) to manufacture products for clinical trials and commercially supply after the company is granted CFDA authorization to market the product in China.
- No more grace period for compliance with cGMP standards. The grace period for pharmaceutical companies to fully comply with international good manufacturing practices (cGMP) ended and the CFDA commenced enforcement.
During 2016, the CFDA focused on developing guidelines for implementing these major policy reforms. They quadrupled the number of employees/reviewers, including the addition of foreign-experienced, senior regulators to assist in training.
The CFDA took enforcement actions on the more than 20,000 filed and backlogged applications, predominately from domestic generic companies, that had accumulated due to under-staffing and premature filing on the part of sponsor companies. All too often, these companies filed before and/or in lieu of mandated, documented data obtained through the employment of good practices.
These actions effectively cut China’s backlog of applications in half and spurred the voluntary withdrawal of 80 percent of filed drug marketing authorization applications. Equally important, the CFDA’s actions also served as a shot across the bow to domestic drug companies, reinforcing the seriousness China has placed on the reform objectives.
Concurrently, a variety of government bodies began to develop pilot programs with the aim of standardizing and centrally governing the way that drugs are promoted, distributed, purchased, and priced. Many of these efforts were formalized on February 9, 2017, when the State Council announced Circular 13 – Opinions Concerning Further Reforms of the Policies Governing Drug Production, Circulation and Usage, which provides an integrated policy directive reflective of the government’s absolute intent to mandate:
- The manufacture and use of high-quality domestic generics (bioequivalent/biosimilar);
- Promote innovative new drugs;
- Rationalize drug distribution;
- Optimize drug prices/purchasing;
- Eliminate any commercial incentivization associated with drug selection and use; and
- Transparency and enforcement.
By Western standards, the scope of the new policy directive is breathtaking. Once guidelines are established and implemented by the multiple ministries involved, the new directive will necessitate significant operational changes to the business models of pharmaceutical companies in China.
Clinical Trial Reform: Becoming the Asian Regional Center of Drug Development
While the pace and scope of these reforms far exceed anything in modern Chinese pharmaceutical history, the most recent CFDA proposals concerning clinical trial reforms and their international reporting in trade and business media outlets have reached a crescendo. This illustrates the full extent and impact of China’s intent on establishing a globally competitive pharmaceutical industry.
China is not finished. On March 17, 2017, the CFDA proposed a series of mandates that will regulatorily address the State Council’s qualification directives for Fast Track expansion and allow China to participate in simultaneous global clinical development of innovative drugs as well as expedite regulatory review and approval.
Specifically, the CFDA has proposed for industry comment by April 20, 2017, the following:
- Eliminate the current requirement that foreign investigational drugs must be in Phase II or later before conducting clinical trials in China;
- Recognize foreign investigational drugs documentation for purpose of allowing Phase I clinical trials in China as part of international multi-center trials, using US-IND/EU-CTA approvals in lieu of applying for a CTA with the CFDA;
- Allow importation of small molecule/biologic active pharmaceutical/biologic ingredients before foreign approval as a drug, something that is currently required;
- Allow a foreign drug sponsor to submit a regulatory application for a marketing authorization with the CFDA for a drug based on the results of international multi-center clinical trials (IMCT) that includes sites in China that underwent simultaneous clinical development. (Acceptance of IMCT data as basis of Chinese approval; i.e. no longer requires separate Chinese trials.);
- Allow foreign drug sponsors to apply for a marketing authorization with the CFDA and obtain approval BEFORE foreign approval. Currently, a foreign drug must be approved, usually in US/EU home market, before the CFDA grants approval.
These changes, once implemented and properly executed by multinational drug companies (MNCs), could reduce the time for innovative foreign drug approval in China by years. For drugs with high clinical need, the CFDA has indicated a 10-month approval cycle, comparable with the US-FDA’s expedited drug approval pathways (~300 days).
The changes allow simultaneous clinical drug development as an alternative accelerated drug regulatory approval pathway to many current strategies employed by MNCs today.
Some in the world have finally noticed the implications of China’s actions. The day before the CFDA announced its latest proposal, Britain’s leading global business publication, The Economist, published an article chronicling China’s emerging pharmaceutical sector, alluding to what a reformed industry might offer in the way of breakthrough medications in the very near future.
Clinical Trial Reform: Enforcement
On April 10, 2017, the CFDA released a revised proposal reflecting industry recommended changes to a proposal released last fall, which suggested actions to ensure data integrity associated with conducting, reporting, and documenting clinical trials in China. The original proposal created a firestorm of controversy within the industry, disrupted some clinical trial sites, and cast an ominous shadow on the ability to plan and execute clinical trials in China.
The March 10 proposal incorporates suggested changes, including providing avenues for third-party independent expert review of certain types of violations that might be inadvertent. Conveniently, the proposal coincides with a judicial interpretation by China’s Supreme Court appearing to facilitate avenues for criminal prosecution of egregious violators. Thus, the proposal has teeth and should help with the problem of data integrity that CFDA Director Bi had referenced as a “cancer” during a 2015 press conference. Specifically, the proposal states:
- If a trial sponsor is found to have used fabricated data in their regulatory filing, the CFDA will refuse to accept similar applications for three years and refuse all manufacturing authorization applications for one year. Applications from that sponsor that already have been filed will be rejected as well.
- For clinical trial sites, Chinese hospitals which are authorized to conduct trials, reporting fraudulent data could result in being barred from conducting new trials and all marketing authorization applications will be denied until corrective action is taken, reviewed, and approved by an independent panel of experts.
- CRO or principal investigators responsible for conducting clinical trials which are found to involve fraudulent data reporting could face public denouncement and barring from future clinical trials. In addition, recent judicial finding by the Supreme Court suggests that such fraudulent representation could warrant criminal adjudication and punishment.
The timing of this proposal just three weeks after proposed regulatory changes facilitating Chinese participation in global clinical trials is hardly coincidental! Nor is the same-day timing of a Wall Street Journal article “Your Cancer Drugs May Soon Be Discovered in China.” The article chronicles the biologic drug manufacturing revolution (a market growth rate three times that of the US and EU) and large investments into China’s start-up biotech sector . The article shines light on what others have missed: global pharmaceutical makers are joining with local Chinese.
Multinational Pharmaceutical Companies: China’s Well-Timed Opening
Despite China being the second largest pharmaceutical market, destined to become the largest within a decade, only two global pharmaceutical companies have 10 percent of their corporate revenue attributable to Chinese sales. Part of the reason for this disproportion in sales is due to the previously moribund drug regulatory pathway, a highly fragmented and complicated commercialization model and an understandable hesitancy associated with operating in an opaque legal system.
In recognition of these hurdles and propelled by a formal national objective to achieve a world class pharmaceutical industry, China has re-written its drug regulatory laws and is cleaning up the commercialization environment to emulate the professional, value-based model of the West.
As the imminent US biosimilar tsunami erodes profitability and government/payor pricing actions restrict the total price elasticity of products that has dominated the U.S. marketplace and fueled the global industry, China is perfectly positioned to accommodate the current product and late stage, specialty-oriented, portfolios of the global research-based industry.
The multilevel mosaic created by China’s well-choreographed, transformative changes to its pharmaceutical industry over the last 20 months is now decipherable—and, one would hope, actionable—for astute multinational pharmaceutical companies. One can only hope.
David Deere is PaizaBio’s chief commercial officer and also consults with multinational pharmaceutical companies seeking a deeper, practical understanding of China’s rapidly changing pharmaceutical landscape and how best to enter this lucrative market. If you would like to start a conversation with Mr. Deere, we invite you to contact PaizaBio.