Shanghai's Pilot MAH System Cuts Drug Development Costs by One-Third, Facilitating Biotech Innovation

By International Financial News

Recently, Shanghai has piloted the Marketing Authorization Holder (MAH) system. What is this system? Simply put, it allows drug R&D institutions and researchers to act as applicants for drug registration and submit applications for drug marketing approval.

“In China, the two major stages of drug registration and production have long been ‘bundled’ together, meaning that researchers without their own manufacturing facilities cannot independently apply for marketing approval of their drugs,” Chen Li, General Manager of Hua Medicine Technology (Shanghai) Co., Ltd., told reporters. He noted that domestic pharmaceutical research institutions face two choices after completing Phase II clinical trials: either establish their own manufacturing plants or sell their early-stage R&D projects—often referred to as “promising candidates”—to other parties.

Nowadays, Shanghai is piloting the Marketing Authorization Holder (MAH) system for drugs, so that R&D stages no longer need to passively “sell green shoots,” and some drug production will be outsourced. Once this system is rolled out nationwide, China’s drug marketing authorization may truly enter the “outsourcing” era.

A new policy for industrial R&D naturally centers on interests, risks, and the industry landscape. Interviews revealed that while the sector welcomes the new policy with high expectations, stakeholders expressed concerns about risk management challenges arising from the separation of R&D and production processes. Regarding the pharmaceutical R&D and production landscape, Shanghai Pharmaceutical Strategic Development Research Institute offered a more measured perspective: “For a considerable period to come, comprehensive pharmaceutical companies with integrated capabilities in R&D, manufacturing, and marketing will continue to dominate.”

In China, both laypeople and industry insiders are somewhat unfamiliar with the Marketing Authorization Holder (MAH) system for pharmaceuticals.

“Marketing Authorization Holder (MAH) refers to the entity that may apply for marketing approval of a drug and, after the drug is marketed and used in clinical practice, bears corresponding legal responsibilities for its quality, safety, and efficacy,” Chen Li told reporters.

The Marketing Authorization Holder (MAH) system is an internationally recognized regulatory framework. In an interview, Yu Yi, a partner at Zhenglue Consulting, pointed out that the MAH system is a common practice in pharmaceutical regulation in developed countries and regions such as Europe, the United States, and Japan.

The Shanghai Pharmaceutical Strategic Development Research Institute holds that “the advantage of the Marketing Authorization Holder (MAH) system lies in clarifying the responsible entity, reducing redundant resource allocation, and encouraging the research and development of innovative new drugs. Essentially, it separates the marketing approval from the manufacturing approval, representing a separation between drug ownership and production rights.”

“For a long time, China’s pharmaceutical industry was dominated by generic drugs, a model centered on manufacturers. Therefore, in terms of regulatory management, the application for drug marketing approval was tied to both the Manufacturing License and the Drug Registration Certificate,” Chen Li told reporters. This “bundling” approach was an effective management strategy in an era characterized by shortages of medicines and limited capacity for new drug development, as “generic drugs could be brought to market simply by ensuring production compliance with technical requirements.”

However, over the past few years, China has achieved breakthroughs in pharmaceutical innovation capabilities. A number of biotechnology companies and university research laboratories centered on innovative drug development have grown rapidly, leading to an urgent industry-wide demand for the introduction of the Marketing Authorization Holder (MAH) system.

In November 2015, the Standing Committee of the National People’s Congress authorized the State Council to conduct pilot programs for the Marketing Authorization Holder (MAH) system for drugs in selected regions, with ten provinces and municipalities—including Beijing, Shanghai, Hebei, and Shandong—becoming the first batch of pilot areas.

In early August 2016, the Shanghai Municipal Food and Drug Administration announced the implementation of its pilot program, formally separating drug marketing authorization from manufacturing licensing. Currently, more than ten companies have begun preliminary preparations and are actively applying to participate in the pilot, with Hua Medicine being one of them.

Some industry insiders believe that this reform has bridged the “last mile” of pharmaceutical innovation. So, just how much momentum does this change provide to the pharmaceutical R&D process?

“Undoubtedly, the R&D sector will be the first to benefit, as changes in the revenue mechanism will greatly unleash the potential of Shanghai’s pharmaceutical R&D capabilities.” Guo Fanli believes that platform-based enterprises within the industry will seize the greatest opportunities, integrating capital, R&D, production, media, and other elements on a broader scale to participate in value creation.

Chen Li believes that “while most innovative drug companies possess strong capabilities in clinical research, they often lack sufficient talent in industrial-scale production, particularly in technical and quality management roles. Outsourcing manufacturing to specialized companies can completely eliminate upfront costs.”

Guo Fanli predicts that “a large number of pharmaceutical sci-tech innovation enterprises will emerge in the short term, boosting and strengthening the regional competitiveness of areas including Shanghai’s ‘Zhangjiang Pharma Valley.’”

With the advent of the Marketing Authorization Holder (MAH) system, what impacts or adjustments will it bring to pharmaceutical manufacturers?

Guo Fanli, Research Director at China Investment Consultant, told reporters that the separation of marketing authorization and manufacturing licenses can facilitate efficient division of labor and collaboration between drug R&D and production, thereby curbing low-level redundant construction by pharmaceutical companies at the source. “On the production side, this provides ample room for contract manufacturing organizations (CMOs), particularly for small pharmaceutical firms lacking robust R&D capabilities.”

Yu Yi believes that “this system can further promote the development of contract manufacturing organizations (CMOs) in the pharmaceutical industry, effectively integrate excess production capacity, and enable more refined industry specialization, thereby reducing the overall cost of bringing drugs to market.”

According to Chen Li, “it can save enterprises one-third of their development costs.”

“In the short term, more capital and talent will flow into R&D (particularly among startups) and pharmaceutical manufacturing. Market specialization will become more refined, and market participants will grow more diverse. After a period of competition and development, we expect greater consolidation among industry players, fostering strategic alliances between leading pharmaceutical companies and promoting a more orderly industry,” said Yu Yi.

Guo Fanli pointed out that for pharmaceutical companies in Shanghai, a wave of outdated production capacity will be eliminated, excess capacity will be consolidated, and industry reshuffling will be accelerated, enabling talented professionals with strong capabilities to join large-scale, robust manufacturing enterprises.

According to Chen Kaixian, a member of the National Committee of the Chinese People’s Political Consultative Conference and an academician of the Chinese Academy of Sciences, risk management should become the key focus in the continued advancement of the pilot program for the Marketing Authorization Holder (MAH) system.

Because the pilot program for the Marketing Authorization Holder (MAH) system for drugs in China currently covers 10 provinces and municipalities, representing a broad scope, “risk management should become an important component of the pilot work.”

According to Chen Li, “After a new drug completes Phase II clinical trials, it remains uncertain whether it will become an effective medication approved for market launch.”

Yu Yi believes that risks associated with listed pharmaceutical companies may increase in the short term. “China currently lacks the credit systems and spirit of contract adherence found in Western developed countries, yet such policies require constraints backed by legal frameworks and moral standards.”

Guo Fanli concurred, stating, “Under the new management model, R&D enterprises are responsible solely for drug safety, while manufacturing enterprises are responsible solely for production safety. However, in actual regulatory practice, it remains challenging to accurately determine at which stage a drug quality issue arises. The specific liabilities borne by different entities require further clarification, and the state will undoubtedly introduce targeted policies addressing specific stages in the future.”

The Shanghai Pharmaceutical Strategic Development Research Institute pointed out that supporting insurance is crucial to address the quality risks potentially arising from the Marketing Authorization Holder (MAH) system, which aligns with international best practices. “Therefore, related insurance businesses are expected to experience rapid growth.”

It is reported that Shanghai is actively promoting the pilot program for relevant insurance services.

Chen Li told reporters that, to mobilize the enthusiasm of all parties, Shanghai has introduced relevant incentive policies and established a compensation mechanism for pilot commercial insurance. In particular, enterprises in Shanghai’s Zhangjiang Park and Pudong New Area are eligible for government subsidies. “Currently, marketing authorization holders (MAHs) registered in the Zhangjiang High-Tech Park are required to purchase commercial insurance to guarantee quality in the production process. This ensures that, in the event of medical or quality incidents after product launch, any resulting losses can be compensated through insurance claims.”

New Policy Pilot: Industry Expectations Run High—Can These Tailwinds Materialize in the Current Market Environment?

In its response to reporters’ inquiries, the Shanghai Pharmaceuticals Strategic Development Research Institute pointed out that although the current system has broken new ground, its impact on the industry’s R&D landscape will be limited in the short term. “For a considerable period, comprehensive pharmaceutical companies with integrated capabilities in R&D, manufacturing, and marketing will continue to dominate.”

“The primary reason is that R&D institutions or individuals lacking government affairs and marketing capabilities, even if they obtain drug marketing authorization and resolve production issues, will still find it difficult to independently establish market presence at the terminal level and thereby generate profits,” analyzed the Shanghai Pharmaceutical Strategic Development Research Institute. Therefore, the implementation of the Marketing Authorization Holder (MAH) system has only promoted specialization in the R&D and production stages. To achieve a restructuring of the industrial chain encompassing R&D, production, and marketing, it is also necessary to align with the development pace of third-party marketing services.