In 1978, if anyone had been told that within 40 years Maoist-oriented China would be rapidly gaining on the United States as having the largest economy in the world, you would have been labelled delusional, if not totally deranged.
However, a combination of enlightened leadership, China’s embrace of the west, and the determination to
learn and adopt as quickly as possible, all propelled by the ZHIXIANG (ambition) of the Chinese people, led to a 30-fold increase in absolute per capita GDP and 500 million people lifted out of poverty. China has achieved an economic transformation never even remotely matched in world history. And, with 500 million more awaiting their entry into a middle-class life, they’re not closed to being finished.
China is intent on regaining their historical prominence as a world leader in pharmaceuticals. To this end, they are adopting all global standards required to facilitate domestic innovation, clinical research and manufacturing. Beginning with the State Council’s 12th Five-Year National Plan and accelerated in the 13th Five-Year Plan (2016-2020), the Chinese government has undertaken extensive market and regulatory reforms in its pharmaceutical sector, and is now in the process of implementing the numerous changes announced since mid-2015.
It is always difficult to accommodate rapid and fundamental change in anything; that is antithetical to human nature. However, for a regulated and complex industrial sector like pharmaceuticals, whose products are of the most critical and personal in nature, it can be completely disruptive. The modern Chinese pharmaceutical sector, whose origin is the commodity-oriented chemical industry, is no exception.
So just what are these industry-disruptive changes?
As I previously reported, on February 9, 2017, the Chinese government’s senior administrative body, the State Council, announced Circular 13 – Opinions Concerning Further Reforms of the Policies Governing Drug Production, Circulation and Usage.
China’s new policy directives reflect the government’s absolute intent to mandate the manufacture and use of high-quality domestic generics, promote innovative new drugs, rationalize drug distribution, optimize drug prices/purchasing, and eliminate any commercial incentivization associated with drug selection and use; while enhancing enforcement and providing transparency.
Likewise, on March 17, the Chinese FDA (CFDA) announced proposed guidelines that will dramatically alter the way clinical trials are conducted in China while simultaneously incentivizing western multinational drug company’s (MNC) inclusion of China, as the Asian regional center, into global clinical development of innovative drugs.
Then on May 11-12, the CFDA continued to issue proposed changes to clinical trials as well as enhancements to intellectual property protection and “exceptional” routes to market approvals. Here is a run down:
- To expand clinical trials sites beyond the large public Tier III hospitals, private sites will now be allowed to participate and new sites will not have to obtain CFDA approval but simply register.
- Once an Investigational New Drug/Clinical Trial Application (IND/CTA) has been filed with the CFDA, the agency has 60 days to review and reject/ask additional questions. Otherwise, the applicant can begin trials.
- Foreign companies and research institutions will be allowed to conduct Phase I trials in China and Chinese clinical investigators will be encouraged to participate in novel drug clinical trials.
- Chinese protocols of multi-center trials will not be required to obtain individual site review, only concurrence with lead investigator/reviewer.
Intellectual Property Protection
- Patent linkage system: The CFDA will require all drug approval filings to be correlated with valid patents. This is analogous to the U.S. system, including a Chinese version of the FDA’s Orange Book and a mechanism for patent holders to challenge infringing development. The aim is for Hatch Waxman-style transparency and certainty for both innovators and generic drug developers.
- Extended data exclusivity: A flat six-year data exclusivity protection period for novel drug developers was introduced in China in 2002, but the draft measures add 10-year data exclusivity periods for orphan and pediatric drugs, as well as innovative therapeutic biological A 1.5-year exclusivity period for first-mover generics has also been proposed.
Drug Market Approval (exceptions)
- Introduction of conditional market approvals for drugs addressing high clinical needs indications based on early clinical trial evidence of efficacy; e.g. surrogate/biomarkers. Orphan drugs approved in overseas markets may be granted market approvals without any Chinese clinical data, with the proviso that supplementary studies are then carried out in China within a set time limit.
- Inclusion into Fast Track Drug Approval Pathway for compulsory license applications: the CFDA will extend priority review status to those applicants who have successfully petitioned the State Intellectual Property Office (SIPO) for a compulsory license under existing legal provisions.
Taken together, these proposed guidelines represent the next step toward implementation by responsible government agencies/ministries. The rapid-fire succession of these announcements created a “building toward a crescendo effect” that caused a belated epiphany among Chinese pharmaceutical executives that, perhaps, the government was “really serious” about the panoply of industry reforms they have been issuing!
Both China’s actions and its zhixiang have caught the attention of major Western business media outlets, which have published a series of stories on the changes within China’s emerging pharmaceutical sector. Foreign drug multinationals thus far have also looked favorably on the regulatory changes as they eliminate many of the critical issues and obstacles in the Chinese market.
Earlier in June, following the conclusion of the annual ChinaBio® Partnering conference, the major English-speaking gathering of Western and Chinese pharmaceutical executives, founder/chairman Greg Scott referred to the CFDA reforms as a “Sea change, which is happening more quickly than people expected and predicted.”
He went on say the extensive reforms are still being digested by companies in China to determine the impact on their current business models. One thing is clear: the purpose of the reforms is to bring drugs to Chinese patients much faster than in the past.
The CFDA has moved on other fronts critical to the global pharmaceutical industry. In mid-May, it was reported that the CFDA announced it had applied to become a member of the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (ICH). In a suspiciously opportune coincidence, an ICH expert group meeting in Montreal, Canada, informally voted to make China an ICH member, hours after the international ChinaBio conference concluded. This is significant for two reasons. First, China must now adhere to strict globally recognized standards of good practices governing pharmaceuticals, including manufacturing (cGMP), clinical research (cGCP), stability, etc. Second, ICH membership amounts to international recognition of the CFDA’s regulatory level and capabilities, and will give Chinese regulators a voice within global pharmaceutical regulatory decision making.
CFDA policy implementation continues to trickle down
On June 5, the CFDA announced a first of its kind “strategic relationship” with a provincial CFDA office. The CFDA’s Center for Drug Evaluation (CDE) will assist the provincial office with staff exchanges, education, and technical oversight to insure that the local CFDA properly implements national-level drug review system reforms. The CDE will also locally support the formulation and revision of certain technical guidelines to the new national standards.
Immediately following this announcement, Shanghai municipality’s Health and Family Planning Commission (HFPC) released a host of regulations covering medical institutions, medical practices, pharmaceutical representatives and the rational prescribing of drugs (versus based on monetary value), drug contracting and procurement, all with the aim of eradicating corruption, clamping down on kick-backs, and creating transparency within the city’s health system.
These municipal-level implementation reflect stated goals of the State Council’s February Circular 13, specifically:
The Chinese government’s intent is to break the stranglehold that western pharmaceutical companies have maintained on hospital sales of older, branded pharmaceuticals and replace them with domestically produced, high-quality generics, and value-added, truly innovative drugs, and thereby address the single largest healthcare cost driver in the institutional setting.
For Chinese drug makers, compliance is key
China has initiated what would be a quarter of a century worth of regulatory reforms in the United States in less than two years. They are intent on rapid implementation to accelerate the transition from a commodity, chemical-level quality, generic product-based industry, to achieving a world standard essential for real innovation and global participation.
To establish a global pharmaceutical industry on par with the United States and the European Union, everyone operating in the Chinese pharmaceutical industry must comply and do so willingly and expediently. It is prudent for all companies to understand the gravity the Chinese government has placed on proper and timely compliance and review enforcement provisions. They also must recognize there are likely more reforms forthcoming.
Given the high stakes, senior management of each company should transition straight from “denial phase” to “acceptance phase,” and modify all operational activities to be compliant. They also must work with the CFDA and any other applicable government oversight ministries to ensure successful implementation.
There is no question these changes will disrupt operational and business models. Compliance may prove economically unfeasible for many, forcing discontinuation.
Multinational Quid Pro Quo
In recognition that much of this transition involves highly specialized human capital and technical processes,
China understands that they have much to gain working and learning with major multinational pharmaceutical companies. For this reason, the Fast Track/Priority Review/Green Channel Drug Approval pathway for innovative drugs is the cornerstone of the State Council’s proposed changes.
While exceptionally innovative drugs for high medical value indications will always garner accelerated CFDA review, the most objective way for foreign innovative drugs to qualify for the new Fast Track Approval Pathway is for drugs to be manufactured in China, or drugs which undergo simultaneous clinical development in China via global multi-centered clinical trials involving US/EU regions starting in Phase I
In other words, China will grant Fast Track review to foreign applicants, but they want to learn from the companies. Quid pro quo!
China is the second largest drug market in value behind the United States, but is poised to become the largest within a decade and will remain the largest.
Despite this undeniable truth, you can count on one hand the number of top 25 largest pharmaceutical companies in the world that have 10 percent of their corporate sales attributable to China or those with significant clinical research capabilities in China.
China seeks to become the Asian regional center for clinical development for all major drug companies and participate in unison with US/EU in all multi-centered drug research and development projects. They have changed all domestic regulatory impediments in order to accomplish this objective expeditiously.
Currently, fewer than 25 percent of drugs available to western patients are available to Chinese patients, including access to many of the highly efficacious biologic blockbusters. All of China’s regulatory reforms, along with a quadrupling of CFDA reviewers over the past 18 months, are specifically designed to ensure that this filing gap is eliminated.
To make up for a lost decade, China is in the midst of a biologic drug revolution with monthly announcements of major biomanufacturing capabilities planned/coming on line as well as daily announcements involving licensing and drug development alliances and acquisitions.
When one reviews the strategic drivers facing the global pharmaceutical industry; i.e. budget/formulary restrictions in the EU, a belated but robust rapidly approaching U.S. biosimilar tsunami, along with inevitable pricing actions by the US government, China’s prodigious pharmaceutical market opportunity presents what could become a safe harbor from the current but eclipsing U.S. price-based global profit model employed by MNCs.
As for the Chinese ambition and enthusiasm for their pharmaceutical industry’s future, perhaps no better vote of confidence was illustrated when WuXi PharmaTech, formerly a Wall Street-listed company, spun-off their biologics division, WuXi Biologics. It listed in Hong Kong in its first week with a +37% rise first day from a premarket price valuation of US$2B.
While the pharmaceutical industry is arguably the most complex, ridged, and inflexible sector in the world and requires strategic, long-term commitment, based on China’s modern track record and its ZHIXIANG, I would not bet against them!