As the pace of economic growth and population aging accelerates, the health-conscious public are increasing the demand for new products in the pharmaceutical industry. However, the drug manufacturers in China are mainly generic companies, with very few having the ability to innovate. According to the latest statistics from China Pharmaceutical Enterprises Association, among over 3,000 drug manufacturers in China, 99% of them are generic drug producers.
Since the “2020 Innovative Country” became a national strategic objective, the pharmaceutical industry in China is expecting transformation from “generic” to “innovative”. Recent years have witnessed the formulation of many new policies to encourage innovation and to promote industrial upgrading and improve the environment for drug research and development. 2019 stands out as a year of transformation and upgrading of the pharmaceutical industry and continuous optimisation of the policy environment.
Significant Policy Developments
Full Implementation of Centralised Drug Procurement of Drugs with Target Quantity
After the formulation of the Pilot Programme for Conducting Centralised Drug Procurement and the Paper on Centralised Drug Procurement in 4+7 Cities in late 2018, the centralised drug procurement scheme has been piloted in 11 major cities, including Beijing, Shanghai, Tianjin, Chongqing, Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu and Xi’an. On 25 September 2019, the National Health Security Administration and other central government departments jointly issued the Implementing Opinion on Expanding the Pilot Programme for Conducting Centralised Procurement (the “Implementing Opinion”), which raised the centralised drug procurement scheme to national level.
Under the scheme of centralised drug procurement with target quantity, public medical institutions will negotiate with pharmaceutical companies and promise a fixed aggregate purchase amount for certain medicines at the bidding stage in order to get a lower price. This is different from the existing drug procurement system, where public medical institutions make no minimum purchase commitments at bidding and thus can re-negotiate the price with the bid-winner at a later stage. Under the new system, the bid-winner can immediately sign the procurement agreement, which can eliminate the grey areas found in multiple layers of the procurement process in the past, resulting in a decrease in drug prices.
In-depth Promotion of Consistency Evaluation of the Quality and Efficacy of Generic Drugs
With the promulgation of the Opinions of the General Office of the State Council on Conducting the Consistency Evaluation of the Quality and Efficacy of Generic Drugs, as well as the full implementation of consistency evaluation of generic drugs and self-inspection of the drug manufacturing process, a number of high-quality generic drugs with quality and efficiency consistent with that of the “originators’ drugs” have received marketing approval upon examination.
After the implementation of the Implementing Opinion in 2019, only generic drugs that have passed the consistency evaluation may participate in the centralised procurement and those that fail to pass the consistency evaluation will be eliminated from the market. The pharmaceutical market will form a new pattern where innovative drugs are given equal weight with high-quality generic drugs, while low-end generic companies will be forced out of the market.
Update of the National Reimbursement Drug List
On 20 August 2019, the 2019 version of the National Reimbursement Drug List was formulated. This is the first time China has comprehensively adjusted the National Reimbursement Drug List since the establishment of the National Medical Security Administration. The 2019 National Reimbursement Drug List covers a total number of 2,709 drugs; compared with the total number of 2,645 in 2017, the new version of the list included 218 drugs and excluded 154 drugs.
Regarding the specific drugs included and excluded, the 2019 National Reimbursement Drug List attaches more importance to the clinical value of drugs, and drugs with more definite efficacy and safety and good cost-effectiveness have priority to enter the National Reimbursement Drug List. In addition, more innovative drugs are listed in the National Reimbursement Drug List or the to-be-negotiated list. In the future, the List will be regularly updated and the amendment cycle will be gradually shortened, to normalise the dynamic adjustment of the List.
Amendment to the Drug Administration Law
On 26 August 2019, the 12th Session of the Standing Committee of the 13th National People’s Congress of the People’s Republic of China formally promulgated the newly revised PRC Drug Administration Law, which came into effect as of 1 December 2019. This is the second systematic significant amendment to the PRC Drug Administration Law since it was first promulgated in 1984. The new Drug Administration Law formally stipulates a series of new systems such as prioritised review and approval, conditional marketing approval, etc, providing accelerated review and approval procedures for drugs with obvious clinical efficacy or of urgent need.
After the pilot implementation of four years, the Drug Marketing Authorisation Holder System (MAH System) is also formally stipulated under the new Drug Administration Law. The MAH System expands the scope of MA-holders to drug research institutions, breaking the limitation that only drug manufacturers could hold the marketing authorisations in the past. The MAH System also benefits the licensing, transfer, sales and circulation of post-approval drugs, which is a positive incentive for drug innovation.
Difficulties and Challenges
As healthcare reform keeps increasing, the pharmaceutical industry will encounter in-depth structural changes. However, there is still a long way to go to realise the transformation of the whole industry from “generic” to “innovative”.
First, with the implementation of the consistency evaluation and the centralised procurement scheme, superior generic drug manufacturers can win the short race by “reducing the price in exchange for the sales volume”. However, as generic drugs passing the consistency evaluation are not unique, continuous price-reduction is obviously not a long-term business plan for pharmaceutical companies. The only way to establish market advantage is to develop innovative drugs with market exclusivity. Research and development of new drugs requires large investment and time, however, which inevitably will increase the manufacturing cost and lead to a decrease in the short-term profit margin.
Second, the regulatory supervision is much stricter than it has ever been. The new Drug Administration Law, the Regulations for the Supervision and Administration of Customised Medical Devices, and the Vaccine Administration Law, combined specified and enhanced regulatory measures in areas including pharmacovigilance, supervision and inspection, credit management and emergency response, and substantially increased the level of punishment against illegal acts. Under such circumstances of strict supervision and harsh punishment, the companies will face more compliance risks, and thus should strengthen standardised management, increase investment on compliance, and establish a reliable risk-control system.
Lastly, the return of investment in research and development of innovative drugs has always been heavily reliant on market exclusivity and intellectual property protection. During the course of transforming from “generic” to “innovative”, companies will have to establish complete research and development systems and intellectual property portfolios. In addition to accumulating intellectual property, companies should also evade existing barriers set by competitors, preventing or effectively handling patent challenges from competitors, and respond to rapid changes in the market in a timely manner.
Achievements and Expectations
As the world enters the third decade of the 21st century, new breakthroughs in industry upgrading and drug innovation are expected. In terms of industry policy, the consistency evaluation and centralised procurement schemes have optimised stock varieties and manufacturers, and reduced low-end supplies in the pharmaceutical industry. The promotion of the prioritised drug review and approval process and the MAH System will be beneficial for encouraging the research and development of new drugs.
Going forward, work at the system-building level will continue, such as further enhancement to the drug-consistency evaluation system. At present, the consistency-evaluation system of oral solid formulations has been established. With in-depth pharmacokinetic studies on injections and other formulations, the consistency evaluation system of other formulations will also gradually be established. Patent linkage, patent-term restoration, data exclusivity and other systems are expected to be introduced in China, making reference to foreign experience.
With the rapid development of gene sequencing, targeting drugs, efficacy prediction and other technologies, precision medicine will become the direction of medical development in the future. In the near future, gene detection and analysis services will lead to major developments in the area of precision medicine. Targeted drugs will be the focus of drug research and development for a long time, and the technology will hopefully extend from single target to multiple targets and from the area of tumours to other diseases.
The development of artificial intelligence and the internet will drive the development of life science in an intellectualised and digital direction. On 28 August 2019, the National Development and Reform Commission and other departments jointly issued the Action Outline for Promoting High-quality Development of the Health Industry, putting forward the concept of “Internet + Healthcare”. In the future, an information-sharing platform supported by big data and data analysis driven by cloud computing will speed up the information exchange between discrete industrial chains. The AI-assisted diagnosis and treatment system and the Internet of Things and online sales platform supported by 5G technology will improve the service of medical institutions. 5G technology and AI will further drive new development and upgrading of the whole industry.