Five Key Reforms Addressing Pain Points in China's Pharmaceutical Innovation Under the New Drug Review and Approval Framework

In April, news related to new drugs repeatedly dominated the headlines: the nine-valent HPV vaccine was approved for market launch just eight days after its registration application was submitted; independently obtained clinical trial data will be granted a protection period of up to 12 years; and imported anticancer drugs will be subject to zero tariffs. Behind these hot topics lies the strong domestic demand for high-quality new drugs.

Since the launch of a new round of reforms to the drug and medical device review and approval system, pharmaceutical innovation has received unprecedented attention. In the Opinions on Deepening the Reform of the Drug and Medical Device Review and Approval System released in October 2017, “encouraging innovation” was prioritized above all else. So, among the series of measures implemented following the reform of the review and approval system, which ones have truly addressed the critical pain points in drug innovation? Recently, VCBeat (WeChat ID: vcbeat) has identified the following five representative measures, collectively referred to as the “Pain-Point Measures.”

In March 2015, the State Council issued the “Opinions on Reforming the Review and Approval System for Drugs and Medical Devices” (hereinafter referred to as the “Reform Opinions”), proposing to “carry outPilot Program for the Marketing Authorization Holder (MAH) System”. In November of the same year, the 17th Session of the Standing Committee of the National People’s Congress authorized the State Council to launch a pilot program for the Marketing Authorization Holder (MAH) system, with a pilot period of three years. In June 2016, the State Council promulgated the Pilot Program for the Marketing Authorization Holder System, announcing that the pilot work for the MAH system would be advanced in ten provinces and municipalities directly under the Central Government, including Beijing, Shanghai, Jiangsu, Shandong, and Sichuan.

Marketing Authorization Holder (MAH) System for Drugsrefers to a system in which entities such as pharmaceutical R&D institutions, researchers, and pharmaceutical manufacturing enterprises that possess drug-related technologies submit applications for marketing authorization, obtain approval documents for drug marketing authorization, and assume primary responsibility for drug quality throughout its entire lifecycle.Under this system, the marketing authorization holder and the manufacturing license holder may be the same entity or two separate entities.

Prior to this, under the Drug Administration Law and the Measures for the Administration of Drug Registration, drug registration approval was subject to a “bundled” management system linking marketing authorization with manufacturing licensure. Specifically, only pharmaceutical manufacturers could serve as applicants and rights holders for drug registration, and drug approval numbers were issued exclusively to pharmaceutical enterprises holding a Drug Manufacturing License.

Currently, the “numerous, small, and fragmented” landscape of pharmaceutical enterprises in China stems from the “bundled” management of marketing authorization and manufacturing licenses: unwilling to transfer their independent intellectual property rights to other manufacturers, pharmaceutical companies have had to build their own production facilities to bring their proprietary drugs to market, resulting in a fragmented situation where each factory produces only one category of drug. The core of the Marketing Authorization Holder (MAH) system lies in the separation of drug approval numbers from manufacturing licenses, which directly addressesWeakness of Mismatch Between Production Capacity and Innovation Capability in Pharmaceutical Companies。

The Marketing Authorization Holder (MAH) system has undoubtedly stimulated the enthusiasm of independent research institutions for drug research and development (R&D) and innovation. Currently, independent research institutions in China mainly consist of scientific research institutes and Contract Research Organizations (CROs), with a greater focus on drug efficacy and safety. For example, Zai Lab, a well-known domestic CRO, once licensed an anti-tumor drug to the international pharmaceutical giant AstraZeneca (UK) for $100 million. AstraZeneca subsequently manufactured it globally, achieving total sales exceeding $10 billion. Following the implementation of the MAH system in Shanghai, Zai Lab has had four drugs included in the pilot program. One of these, a prescription drug for autoimmune diseases, has been contracted out to the German company Boehringer Ingelheim for production. It is expected that the company will be able to independently operate and market this product within two years.

In October 2017, the State Council issued the “Opinions on Deepening the Reform of the Review and Approval System to Encourage Innovation in Drugs and Medical Devices” (hereinafter referred to as the “Opinions on Deepening Reform”), which proposed that “the qualification accreditation of clinical trial institutions shall be subject to record-filing management. Institutions with the conditions for conducting clinical trials may, after registering and filing with the designated website of the food and drug regulatory authorities, accept commissions from drug and medical device registration applicants to conduct clinical trials... Social capital is encouraged to invest in establishing clinical trial institutions.”

Previously, in accordance with the “Measures for the Qualification Accreditation of Drug Clinical Trial Institutions,” medical institutions were required to apply for accreditation as clinical trial sites, undergoing procedures such as preliminary review, formal examination, and on-site inspection. This process presented a high barrier to entry. Data show that China has more than 10,000 medical institutions at the secondary level or above, including over 2,000 at the tertiary level or above; however, only slightly more than 600 have obtained accreditation as clinical trial institutions, among which merely over 100 are qualified to conduct Phase I clinical trials. Clinical trials constitute the most time-consuming and costly phase of new drug development, often determining the success or failure of a new drug. The shortage of accredited clinical trial institutions has undoubtedly become another major bottleneck in new drug development. The implementation of the “filing system for the qualification accreditation of clinical trial institutions” directly addresses this pain point.

Hong Minghuang, Director of the Clinical Research Department and the National Drug Clinical Trial Institution at Sun Yat-sen University Cancer Center, stated that following the shift from accreditation to a filing-based system for clinical trial institutions, those with strong clinical trial capabilities, excellent service orientation, high research standards, and efficient ethical review processes will stand out, leading to significant differentiation among institutions. “Differentiation will also occur across specialties within the same institution and among investigators within the same specialty. Clinical trials will gradually become more refined and specialized, with the emergence of third-party ethics committees and trial sites, thereby progressively building brand recognition.”

Furthermore, the implementation of the “filing system” will attract greater social participation in clinical trials, thereby increasing the number of clinical trial institutions and alleviating the pressure on existing ones. In fact, public hospitals and private hospitals, as well as tertiary Grade-A hospitals and other categories of hospitals, can participate in drug development on an equal footing, which also facilitates the rapid growth of qualified Contract Research Organizations (CROs). Currently, there are numerous experienced CROs in China that can help new clinical institutions enhance their professional technical capabilities, organizational management skills, and ethical review capacities through capital investment or equity partnerships. By leveraging projects as a linking mechanism, these new institutions will be able to undertake high-level clinical trial projects.

The “Reform Opinions” proposed addressing the backlog of drug registrations and encouraging the development of innovative new drugs. In 2016, the former China Food and Drug Administration (CFDA) issued the “Opinions on Resolving the Backlog of Drug Registration Applications and Implementing Priority Review and Approval,” which statedPriority review and approval shall be implemented for new drugs with clinical value and generic drugs in urgent clinical need., thereby establishing a new model for priority review of drug registration in China.

“Priority Review” is regarded as an upgraded version of “Special Approval,” which has been in effect for 11 years. The concept of “Special Review” was first introduced in the Provisions for Drug Registration in 2007. In 2009, the Administrative Provisions on Special Approval for New Drug Registration were issued, further specifying the scope and procedures of “Special Review.” Compared with “Special Approval,” “Priority Review” expands the scope to include improved new drugs. Both mechanisms adopt a “queue-jumping” approach to shorten the time required for drug review and approval. Zhang Mao, Commissioner of the China Food and Drug Administration, stated: “We will gradually reduce the review and approval timeline for new drug marketing applications from 7–8 years to 2–3 years.”

A severe backlog in drug registration applications has createdThe Pain Point of Excessively Long Wait Times for New Drug Market Launch,“Fast-tracking” can effectively accelerate the market launch of new drugs. For example, the third-generation targeted therapy for lung cancer, osimertinib (brand name “Tagrisso”), was launched ahead of schedule. Originally planned for release in 2019, Tagrisso received approval on March 24, 2017, less than two months after the company formally submitted its marketing application.

According to the "2017 Annual Drug Review Report" released by the former China Food and Drug Administration, the number of registration applications awaiting review decreased from a peak of nearly 22,000 in September 2015 to 4,000. The average time for reviewing and approving generic drug consistency evaluation applications was approximately 70 working days, which is only half of the statutory timeframe. The average time for the first round of review and approval of new drug clinical trial applications was about 120 working days, equivalent to 1.09 times the statutory timeframe, thereby basically achieving review and approval within the legally mandated timelines.

The Reform Opinions propose “encouraging domestic clinical trial institutions to participate in international multi-center clinical trials, and trial data that meet the requirements may be used in registration applications.”

More than two years later, the Opinions on Deepening Reform proposed to “accept overseas clinical trial data. Clinical trial data obtained from multi-center trials conducted overseas may be used to support registration applications in China, provided they meet the relevant requirements for drug and medical device registration in China...”

Prior to this, the Measures for the Administration of Drug Registration explicitly stipulated that drugs applying for marketing authorization in China must either have already been marketed overseas or have completed Phase I and Phase II clinical trials. This requirement inevitably caused new drugs to launch in the Chinese market at a disadvantage compared to their overseas launches. In practice, the delay often exceeded merely a slight lag, extending to a two- to three-year gap in market entry.

The risks associated with new drug development are substantial. Behind every drug that enters clinical trials, there may be more than 5,000 failed compounds, representing a research and development (R&D) timeline spanning over a decade. The cost of developing new drugs is also exceedingly high. Statistics show that the average R&D cost per new drug rose from approximately $140 million in 1975 to around $1.2 billion in 2009, and by 2012, the global average had climbed to $1.5–2 billion. However, the period of market exclusivity for new drugs is relatively short. Patent protection is the sole mechanism for securing market exclusivity, yet patent terms typically do not exceed 20 years. After deducting the time consumed by regulatory approval processes, the actual window for market exclusivity is only 13–14 years. With just 13 years to recoup billions of dollars in investment and achieve profitability, every minute becomes critically important.

Therefore, the 2- to 3-year delay in the market launch of new drugs domestically compared to overseas markets is undoubtedly a major pain point for Chinese pharmaceutical companies participating in international innovation. Internationalization has become the mainstream model for new drug R&D among domestic pharmaceutical firms. A large number of pharmaceutical companies, including Hengrui Medicine, a leading healthcare company listed on the A-share market, have made significant explorations in innovative drug development and internationalization. Thus, the challenges associated with international innovation have also become bottlenecks in new drug creation. The policy of “accepting overseas clinical trial data” directly addresses this critical issue.

Dr. Zheng Weiyi, Chairman of Nanjing Yingnuo Pharmaceutical Technology Co., Ltd., stated, “Domestic companies can collaborate with small and medium-sized overseas R&D enterprises to conduct international multi-center clinical trials, thereby achieving benefit-sharing in relation to relevant sales agency rights. Furthermore, for drugs that are not domestically developed but are urgently needed in clinical practice, large local pharmaceutical companies can leverage their strengths in capabilities and distribution channels to partner with overseas pharmaceutical firms, unlocking significant potential. In the future, only truly high-quality innovative drugs will have the opportunity to gain recognition in the international market. This presents a critical test of the R&D and innovation capabilities of Chinese pharmaceutical companies. Over the next decade, China’s pharmaceutical industry is poised to undergo transformative changes.”

Rather than a single institution, the drug patent linkage system is better described as a systemic framework. First established in the United States, it comprises the Abbreviated New Drug Application (ANDA), the drug patent linkage system, patent term extension for pharmaceuticals, the Bolar exemption, and data exclusivity.

In July 2016, the restriction in the Draft Revision of the Measures for the Administration of Drug Registration that required generic drug manufacturers to file registration applications within two years prior to patent expiration was removed, thereby achieving effective alignment with the Bolar exemption clause under the Patent Law. In 2017, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued the Opinions on Deepening the Reform of the Review and Approval System to Encourage Innovation in Drugs and Medical Devices, which proposed for the first time the establishment of a drug patent linkage system. This framework incorporated the Listed Drugs Catalog, the drug patent term extension system, the protection system for drug trial data, and measures to promote generic drug production. In April 2018, the National Medical Products Administration (NMPA) solicited public comments on the Interim Measures for the Protection of Drug Trial Data, explicitly providing a maximum protection period of 12 years for independently generated trial data. The framework for the drug patent linkage system gradually took shape, addressing the pain point of an immature domestic intellectual property protection environment that had previously deterred pharmaceutical companies from engaging in innovation due to risk aversion.

In China’s drug registration administration, emphasis has consistently been placed on the protection of patent rights. The Measures for the Administration of Drug Registration, promulgated in 2007, explicitly stipulated that “applicants shall provide an explanation of patents and their ownership status in China for the drugs they apply to register, or for the formulations, processes, uses, etc., employed; where third parties hold patents in China, applicants shall submit a declaration of non-infringement of such third-party patents. The drug regulatory authorities shall publish the explanations or declarations submitted by applicants on the administrative agency’s website.” This provision is akin to the “Orange Book” system within the U.S. pharmaceutical patent linkage framework. Although the Measures have undergone several revisions since then, this clause has remained unchanged. Nevertheless, the “Orange Book” system alone has proven insufficient, and cases of patent infringement involving generic drugs continue to occur. For instance, disputes such as Sanofi v. Jiangsu Hengrui Medicine and Eli Lilly v. Changzhou Huasheng Pharmaceutical over infringement of invention patent rights have resulted in significant losses for both parties involved.

The drug patent linkage system can “filter” generic drugs by containing potential patent disputes within the stage of generic drug marketing applications, thereby purifying the market. This encourages innovative drug manufacturers to invest in new drug development and reduces the risk of post-launch patent infringement litigation for generic drug manufacturers. In fact, many major international generic drug companies have undergone a transformation from producing generic drugs to developing first-to-file generics, and ultimately to innovating new drugs, such as Israel’s Teva Pharmaceutical Industries Ltd., the U.S.’s Mylan N.V., and India’s Ranbaxy Laboratories Limited. Currently, a number of domestic Chinese pharmaceutical companies possess the capability to develop first-to-file generic drugs, including Jiangsu Hansoh Pharmaceutical, Jiangsu Hengrui Medicine, and Chia Tai Tianqing Pharmaceutical Group. The risk they face is that other generic drug manufacturers may “free-ride” after a successful patent challenge. The establishment of a drug patent linkage system will eliminate this risk.

From the perspective of target stakeholders, the “pain-point measures” address critical bottlenecks in pharmaceutical innovation from multiple angles, including mismatches between new drug production capacity and innovative capabilities, shortages of clinical trial institutions, prolonged wait times for new drug market approval, delays between domestic and international market launches, and intellectual property threats. These pain points are distributed across the entire lifecycle of new drugs, from research and development through market launch to profitability.

From the content, based on the above analysis, we believe that the “pain-point measures” are sufficiently targeted. For example, to address the mismatch between new drug production capacity and innovation capability, the linkage between marketing authorization and manufacturing licenses is decoupled; to tackle the shortage of clinical trial institutions, market access barriers are relaxed; to reduce the excessively long waiting time for new drug approvals, a “fast-track channel” is established; and to narrow the gap between domestic and overseas new drug launch timelines, concurrent clinical trials are conducted both domestically and internationally.

Currently, certain measures have already yielded significant results. For instance, following the implementation of the priority review and approval system, osimertinib was launched two years ahead of schedule, while the market entry of the nine-valent HPV vaccine set a new record. Other measures, however, require time to take effect; establishing the drug patent linkage system is a gradual process, and it also takes time for generic drug manufacturers to transition from producing generics to developing first-to-market generics, and ultimately to innovating new drugs. Nevertheless, we believe that in due course, these “pain-point” measures are poised to become effective solutions to these critical challenges.