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Regulatory Framework

The "Law of the PRC on the Administration of Pharmaceuticals" was promulgated on 20 September 1984 by the Executive Committee of the National People's Congress and amended on 28 February 2001. The amendments came into effect on 1 December 2001. It sets out the basic legal framework for the administration of the production and sale of pharmaceuticals in the PRC and covers areas including the manufacture, distribution, packaging, pricing and advertising of pharmaceutical products in the PRC. The "Implementation Rules on the Administration of Pharmaceuticals" was promulgated on 4 August 2002, and came into effect subsequently on 15 September 2002 to set out the detailed implementation rules with respect to the administration of pharmaceuticals in the PRC.

The then State Drug Administration ("SDA") was established in 1998 to assume the supervisory and administrative functions previously carried out by the Ministry of Health, the State Administration Bureau for Pharmaceuticals and the State Administration Bureau for Traditional Chinese Medicine. Pursuant to the "Notice of the State Council regarding the Government Organisations", the State Food and Drug Administration ("SFDA") was established in March 2003 on the basis of the then SDA to continue the duties of the then SDA in respect of pharmaceutical matters as well as to coordinate and supervise the safety management of food products, health products and cosmetics in the PRC.

The primary responsibilities of the SFDA include:

  1. formulating and supervising the implementation of regulations and policies concerning drug administration;
  2. promulgating standards for pharmaceutical products and medical appliances;
  3. categorisation of drugs and medical appliances for the purposes of regulation;
  4. registering and approving new drugs, generic drugs, imported drugs and Chinese medicines;
  5. granting production approvals for the production of pharmaceutical products and medical appliances; and
  6. approving enterprises' engagement in the manufacture and distribution of pharmaceutical products.

Restrictions on Foreign Ownership of Pharmaceutical Wholesale and Retail Businesses in the PRC

Pursuant to the Administration Rules on Foreign Investment in Commercial Industrypromulgated on 16 April 2004 and effective from 1 June 2004, foreign investors are not permitted to engage in the business of wholesale or retail sales of medicines prior to 11 December 2004. With effect from that date, it is expected that foreign enterprises will be permitted to establish or invest in wholly foreign-owned enterprises or joint ventures which engage in wholesale or retail sales of pharmaceuticals in commercial areas of the PRC, subject to the implementation of relevant regulations.

In relation to retail sales, following the expected relaxation of restrictions in December 2004, there will remain certain restrictions on the number and size of retail pharmacy outlets which a foreign investor may establish. For pharmacy chains of more than 30 outlets, selling a variety of brands' pharmaceutical products sourced from different suppliers, the foreign investors' shareholding will not be permitted to exceed 49%.

 

Permits and Licences for Pharmaceutical Manufacturing Enterprises

Before any pharmaceutical manufacturing enterprise can commence and continue the production of medicines in the PRC, it must obtain a Pharmaceutical Manufacturing Permit issued by the relevant provincial SFDA authority where the pharmaceutical manufacturing enterprise is located. The grant of such permit is subject to an inspection of the pharmaceutical manufacturing enterprise's production premises and facilities, hygiene environment, quality assurance systems, personnel and equipment. The Pharmaceutical Manufacturing Permit is valid for a period of five years. Pharmaceutical manufacturing enterprises should apply for renewal of their Pharmaceutical Manufacturing Permits not later than six months prior to the date of expiration subject to reassessment by the relevant authority.

After the Pharmaceutical Manufacturing Permit has been obtained, the pharmaceutical manufacturing company also has to obtain a business licence from the relevant administrative bureau of industry and commerce to commence its business.

In addition to obtaining a Pharmaceutical Manufacturing Permit, for the production of any medicine, pharmaceutical manufacturing enterprises also have to obtain a specific approval for the production of such medicine from the SFDA (a "production approval") before commencing production. Please refer to the paragraph headed "Approval and registration of medicines" below for details of the requirements for obtaining relevant production approvals.

 

Good Manufacturing Practice

Good Manufacturing Practice ("GMP") standards were laid down by the then SDA to regulate the manufacture of medicines in the PRC. The revised GMP standards (1998 revised edition), which were passed by the then SDA and came into effect on 1 August 1999, require pharmaceutical manufacturing enterprises in the PRC to implement strict controls on the production of medicines in respect of, among others, staff qualifications, production premises and facilities, equipment, raw materials, hygiene environment, production management, quality control and dealing with customer complaints, in order to obtain GMP certification to carry out the production of medicines in the PRC. As indicated in the "Notice on the Implementation of Good Manufacturing Practice" issued on 24 August 1999, the then SDA commenced the gradual implementation of the certification work for GMP compliance and required pharmaceutical manufacturing enterprises producing powder for injection (including freeze dried powder for injection) products and large volume injection products to comply with GMP standards and pass GMP inspection by the end of 2000, while pharmaceutical manufacturing enterprises producing small volume injection products were required to comply with such standards and pass GMP inspection by the end of 2002. As further announced in the "Notice on the Acceleration of the Supervision and Implementation of Good Manufacturing Practice" (GMP) issued on 12 October 2001, the then SDA accelerated the implementation of compliance with GMP standards and required all pharmaceutical manufacturing enterprises to comply with GMP standards by 30 June 2004 and obtain GMP certification.

Pharmaceutical manufacturing enterprises which fail to obtain GMP certification for their specific product forms by the deadlines stipulated in the notices of the then SDA cannot continue to carry out production of medicines in the PRC.

The GMP certificate is valid for five years, except in the case of a newly established pharmaceutical manufacturing enterprise, the GMP certification of which is only valid for one year. Pharmaceutical manufacturing enterprises should apply for renewal of their GMP certificates not later than six months (and in the case of a newly established pharmaceutical manufacturing enterprise, three months) prior to the date of expiration subject to reassessment by the relevant authority.

 

Permits and Licences for Pharmaceutical Distribution Enterprises

Before any pharmaceutical distribution enterprise, including any wholesaler or retailer, can carry out the distribution of medicines in the PRC, it must obtain a Pharmaceutical Distribution Permit issued by the relevant provincial or designated municipal or county level SFDA where the pharmaceutical distribution enterprise is located. The grant of such permit is subject to an inspection of the pharmaceutical distribution enterprise's premises and facilities, warehouse, hygiene environment, quality control systems, personnel and equipment. The Pharmaceutical Distribution Permit is valid for five years. Pharmaceutical distribution enterprises should apply for renewal of their Pharmaceutical Distribution Permit not later than six months prior to the date of expiration subject to reassessment by the relevant authority.

In addition to obtaining a Pharmaceutical Distribution Permit, the pharmaceutical distribution enterprise also has to obtain a business licence from the relevant administrative bureau of industry and commerce to commence its business.

 

Good Supply Practice

Good Supply Practice ("GSP") standards were laid down by the then SDA to regulate pharmaceutical wholesale and retail enterprises to ensure the quality of distribution of medicines in the PRC. The current applicable GSP standards, which were passed by the then SDA and came into effect on 1 July 2000, require wholesale and retail enterprises of medicine products in the PRC to implement strict controls on the distribution of medicine products in respect of, among others, staff qualifications, distribution premises, warehouse, inspection equipment and facilities, management and quality control, in order to obtain GSP certification to carry out business in the PRC. As indicated in the "Notice on the Implementation of the Certification of Good Supply Practice" (GSP) issued on 19 February 2002, the then SDA began accepting applications for GSP certification on 1 March 2002 and in accordance with the "Notice on the Acceleration of GSP Certification Steps and Advancing the Supervision and Implementation Work of GSP" issued on 15 October 2001, the then SDA required all pharmaceutical wholesale and retail enterprises to comply with GSP standards by 31 December 2004 and obtain GSP certification.

The pharmaceutical distribution qualifications of pharmaceutical distribution enterprises which fail to obtain GSP certification by the deadlines stipulated in the above mentioned notice of the then SDA may be cancelled.

The GSP certificate is valid for five years, except in the case of a newly established pharmaceutical distribution enterprise, the GSP certification of which is only valid for one year. Pharmaceutical distribution enterprises should apply for renewal of their GSP certificates not later than three months prior to the date of expiration subject to reassessment by the relevant authority.

 

Approval and Registration of Medicines

The "Measures on Registration Administration of Medicines (Trial Implementation)" were promulgated on 30 October 2002 by the then SDA and became effective on 1 December 2002. They override certain previous regulations and rules relating to the administration of medicines including, among others, the "Measures on the Approval of New Medicines"the "Regulations on the New Medicines Protection and Technology Transfer"the "Measures on the Approval of Imitation Medicines" and the "Measures on the Administration of Imported Medicines" and were promulgated to secure the safety, effectiveness and quality control of medicines in the PRC. Pursuant to the new regulations, medicine registration refers to the process of systematic assessment of the safety, effectiveness and quality control of medicines and approval of the related pharmaceutical clinical research, manufacture or import of medicines, and it is stipulated that the then SDA took charge of medicine registration in the PRC. The SFDA has taken up the role of the SDA in respect of medicine registration in the PRC since its establishment.

A medicine must be registered in accordance with the requirements of the "Measures on Registration Administration of Medicines (Trial Implementation)" before it can be manufactured locally in the PRC or imported from overseas for sale in the PRC. Applications for registration of medicines should be made through the relevant provincial level drug administration authorities to the SFDA, while applications relating to imported medicines should be made to the SFDA directly. Applications for registration of medicines are categorised as follows:

 

1. Application for the Registration of New Medicines

Application for the registration of new medicines refers to application for registration of those medicines which have not previously been marketed in the PRC.

The registration of new medicines requires the support of clinical research. To commence clinical research on the subject new medicine, the pharmaceutical enterprise which makes the application for registration should first obtain approval to conduct clinical research from the SFDA. In this connection, the applicant should submit, among other things, relevant pre-clinical study information to the provincial level drug administration authority. Upon receipt of the application, the provincial level drug administration authority will review the applicant's submission and conduct site visits to collect drug samples for examination by the drug examination laboratory appointed by the State. Afterwards, both the provincial level drug administration authority and the drug examination laboratory appointed by the State will report their investigation results to the SFDA. The SFDA will then organise an expert team made up of pharmaceutical and other specialists to conduct technical assessment of the subject new medicine to consider whether approval for clinical research should be granted to the applicant.

After obtaining approval for clinical research and successfully completing clinical research, the applicant may apply for approval to manufacture the subject new medicine by submitting, among other things, relevant clinical research information and raw material samples to the provincial level drug administration authority and the drug examination laboratory appointed by the State as appropriate. The provincial level drug administration authority will then review the applicant's submission and conduct site visits to the applicant's production workshop, which must comply with GMP standards. Three consecutive production batches of drug samples will be collected from the applicant's production workshop for examination by the drug examination laboratory appointed by the State. After their investigation and assessment of the application, the provincial level drug administration authority and the examination laboratory appointed by the State will report to the SFDA, which will conduct a final assessment of the application to consider approving the registration of the subject new medicine. If the SFDA is satisfied with its final assessment of the application, the applicant will be granted a Certificate of New Medicineas well as a production approval provided that the applicant possesses the Pharmaceutical Manufacturing Permit and complies with the relevant production requirements.

To protect public health in the PRC, the SFDA may set a monitoring period of not more than five years to continue monitoring the safety of the new medicine after granting approval of its production, during which the relevant pharmaceutical manufacturing enterprise must regularly review the production technologies employed and the quality, stability, curative effects and unfavorable side-effects of the new medicine and report to the provincial level drug administration authority annually. During such monitoring period, the SFDA will not accept applications for Certificates of New Medicine for the same medicine by other pharmaceutical enterprises and will not approve the production or import of the new medicine by other pharmaceutical enterprises.

 

2. Application for the Registration of Medicines with National Standards

Application for registration of medicines with national standards refers to application for the registration of those medicines for which the PRC Government has already set standards in respect of the technical requirements as to their quality and examination method.

Normally, no clinical research is required for applications for the registration of medicines with national standards other than those in orally-taken solid forms. To apply for approval to manufacture a medicine with national standards, the applicant should submit, among other things, relevant information and drug samples prepared in accordance with the relevant national standards to the provincial level drug administration authority. The provincial level drug administration authority will then review the applicant's submission and conduct site visits to the applicant's production workshop. Three consecutive production batches of drug samples will be collected from the applicant's production workshop for examination by the drug examination laboratory appointed by the State. After their investigation and assessment of the application, the provincial level drug administration authority and the examination laboratory appointed by the State will report to the SFDA, which will conduct a final assessment of the application to consider approving the registration of the medicine. If the SFDA is satisfied with its final assessment of the application, the applicant will be granted a production approval.

 

3. Application for the Registration of Imported Medicines

Application for the registration of imported medicines produced by foreign manufacturers is allowed only if such medicines have already been approved to be sold in the manufacturer's home country, unless the relevant medicine is considered by the SFDA to be safe, effective and under high clinical demand. Imported medicines must also comply with the relevant requirements of the GMP standards adopted by the manufacturer's home country as well as those required in the PRC.

The registration of imported medicines requires the support of clinical research and the applicant should apply for approval from the SFDA to conduct clinical research for the medicine which it proposes to import. After the completion of clinical research on the subject medicine, application may be made for approval to import the subject medicine by submitting, among other things, relevant clinical research information and drug samples to the SFDA. The drug examination laboratory appointed by the State will examine the drug samples and report the results to the SFDA. The SFDA will then conduct a final assessment of the application to consider approving the registration of the subject medicine proposed to be imported. If the SFDA is satisfied with its final assessment of the application, the applicant will be granted a Certificate of Registration of Imported Medicineor a Certificate of Registration of Pharmaceutical Product where the applicant is a pharmaceutical manufacturer in Hong Kong, Macau or Taiwan.

 

4. Supplemental Application

Where changes or modifications are proposed to a registered medicine in respect of, among other things, its drug standard, curative effects or production technology, the pharmaceutical enterprise which is the applicant or holder of the relevant registration certificate for such medicine should apply to the provincial level drug administration authority.

 

Protection of Chinese Medicines

The "Provisions on the Protection of Chinese Medicines" was promulgated by the State Council on 14 October 1992 and came into effect on 1 January 1993. It establishes a protection system in the PRC for certain varieties of Chinese medicine with stable quality and exact curative effect. The provisions establish two levels of protection for Chinese medicines. A manufacturer of a Chinese medicine meeting stipulated criteria may apply to the relevant authorities for recognition of the relevant medicine as a State Protected Chinese Medicine. The application will be assessed by the relevant authorities based on, among others, the proposed use and curative effects of the medicine. Once a Chinese medicine is recognised as a Chinese medicine with second level protection and granted certification as a State Protected Chinese Medicineit will be protected for a period of at least seven years. The applicable protection period for first level protected Chinese medicines is ten years, twenty years or thirty years depending on the particular medicine variety. The protection period can be extended after its expiration subject to the approval of the SFDA. The protection period applicable to first level protected Chinese medicines may be repeatedly renewed for a period to be determined by the SFDA, each such renewal period in any event not exceeding the original protection period. However, the second level protection period may only be extended once, for a further period of 7 years. During the applicable protection period, only pharmaceutical manufacturers which have obtained the relevant certification as a State Protected Chinese Medicine are entitled to produce such protected Chinese medicine. However, manufacturers who were producing the relevant medicine at the time the medicine was recognised as a State Protected Chinese Medicine and who have not themselves obtained State Protected Chinese Medicine certification for that product, may, within 6 months from the date of announcement of recognition of such medicine as a State Protected Chinese Medicine, apply for relevant certification for their product. Such application will be assessed for their product's compliance with applicable requirements and, if successful, the manufacturer will be issued with State Protected Chinese Medicine certification for the product and will be permitted to continue to manufacture the product. If such manufacturer's application is unsuccessful, their production approval for the relevant product will be cancelled and they may no longer continue to produce the protected medicine. In the event that the supply of such Chinese medicine is insufficient to meet the demand for clinical use, the SFDA has the right to approve the production of such Chinese medicine by other manufacturers on payment by such manufacturers of a license fee to the manufacturer which has obtained certification for the relevant medicine as a State Protected Chinese Medicine.

 

Prescription Medicines and Over-the-Counter Medicines

In order to promote safety, efficacy and convenience in the use of medicines, the then SDA published "Trial Administrative Measures regarding the Classification of Prescription Medicines and Over-the-Counter Medicines" in June 1999, which were implemented with effect from 1 January 2000. These administrative measures divide medicines according to medicine type, specification, the relevant disease or ailment which they are designed to treat, dosage and method of administration. Over-the-counter medicines are further subdivided into type A and type B and administered by the State separately. Prescription medicines must be dispensed, purchased and taken under the prescription by practising doctors or assistant doctors. Over-the-counter medicines can be dispensed, purchased and taken by users without the need for a doctor's prescription. The SFDA is responsible for the selection, approval, publication, and revision of the State Non-Prescription Medicine Catalogue issued by the SFDA.

Manufacturers of prescription and OTC medicines are required to obtain a Pharmaceutical Manufacturing Permit and to obtain production approvals for the relevant medicines. Distributors and wholesalers of prescription medicines and OTC medicines and retail outlets selling prescription medicines and type A OTC medicines are required to obtain a Pharmaceutical Distribution Permit. Retail outlets selling type B OTC medicines ("Type B outlets") require approval from their provincial level SFDA or designated bureau. Type B outlets are required to have professionally trained and suitably qualified staff before engaging in the sale of type B OTC medicines.

 

Price Control

Certain medicine products sold in the PRC, primarily including those medicine products included in the Insurance Catalogue and those drugs whose production or trading will constitute monopolies, are subject to price control by the PRC Government. The maximum prices of such medicine products are published by the State and provincial price administration authorities from time to time. The prices of other medicine products not subject to price control by the PRC Government are determined freely at the discretion of the respective pharmaceutical enterprises, subject, in certain cases, to notification to the provincial pricing authorities.

The upper limit of the prices of those medicine products subject to price control are set by the relevant price administration authorities to entitle a reasonable profit margin to pharmaceutical enterprises, after taking into account, among other things, the type and quality of the products, their production costs, the prices of substitute products and the extent of the manufacturer's compliance with the GMP standards. Pharmaceutical enterprises can adjust the actual selling prices of the medicine products at their discretion provided that such selling prices do not exceed the upper limit set by the price administration authorities. Manufacturers of medicine products which are outstanding in terms of curative effectiveness, safety and cost may apply to relevant Governmental authorities for approval to increase the price of its product above the ceiling set by PRC pricing authorities.

 

Centralised Tendering System for Drug Purchases by Medical Organisations

According to the "Notice on Issuing Certain Regulations on the Trial Implementation of Centralised Tender Purchase of Drugs by Medical Organisations" promulgated on 7 July 2000 and the "Notice on Further Improvement on the Implementation ofCentralised Tender Purchase of Drugs by Medical Organisations" promulgated on 23 July 2001, non-profitable medical organisations established by county or higher level government in the PRC are required to implement collective tender processes for the purchase of drugs. In principle, medical organisations are required to join together to organise tenders to purchase drugs in bulk volume. The bids are to be assessed by a committee formed by pharmaceutical experts who are recognised by the relevant authorities, with reference to, most importantly, drug quality, as well as other criteria including price, service and quality of the drug manufacturers. For the same type of drugs, two to three products under different brands may be selected. Any reduction in drug purchase price by medical organisations as a result of competitive bidding by suppliers under the tender system is intended to bring about a corresponding reduction in the retail price for the benefit of patients. As indicated in the "Notice on Further Improvement on the Implementation of Centralised Tender Purchase of Drugs by Medical Organisations", it is intended that the implementation of such tender purchase system should be extended gradually and should cover, among other drugs, those consumed in large volume and commonly employed for clinical uses. At present, the Directors understand that the extent of implementation of such tender purchase system varies between different regions of the PRC.

 

Insurance Catalogue

Pursuant to the "Decision of the State Council on the Establishment of the State Basic Medical Insurance System for Urban Employees" and the "Implementation Measures for the Administration of the Scope of Medical Insurance Coverage for Pharmaceuticals for Urban Employees"the Ministry of Labour and Social Security in the PRC established the Insurance Catalogue. The Insurance Catalogue is divided into two parts, Part A and Part B. The medicines to be included in Part A of the Insurance Catalogue are determined by the PRC Government for general application and local authorities may not adjust the content of that Part. Although the medicines to be included in Part B of the Insurance Catalogue are determined by the PRC Government authorities in the first instance, provincial level authorities may make limited changes to the medicines included in that Part, resulting in some regional variations in medicines included in the Insurance Catalogue in effect in the relevant region. Patients purchasing medicines included in Part A of the Insurance Catalogue are entitled to reimbursement of the costs of such medicines from the social medical fund in accordance with relevant regulations of the PRC. Patients purchasing medicines included in Part B of the Insurance Catalogue applicable in the relevant area are required to pay a predetermined proportion of the costs of such medicines, before payment from the social medical fund in accordance with relevant regulations of the PRC. The products admitted to the Insurance Catalogue are selected by the PRC Government authorities based on factors including treatment requirements, frequency of use, effectiveness and price. The content of the Insurance Catalogue is subject to change by the Ministry of Labour and Social Security of the PRC, though new medicines may be added to the Insurance Catalogue by provincial level authorities as part of their limited quota to change medicines in Part B of the Insurance Catalogue within the relevant province or municipal city. Products included in the Insurance Catalogue are subject to price control by the PRC Government. Please refer to the paragraph headed "Price control" of this section for details of such price controls.

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