Investors in the pharmaceutical sector might want to have another look at some of their investments in the wake of a change to Chinese laws, particularly those betting heavily on new Chinese business.
International drug companies operating in China have already felt the sting of tighter regulation enforcement after aggressive investigations pursued allegations of bribery and corruption that resulted in substantial penalties.
Now, however, they are facing changes in the regulations themselves. An extra layer has been added to the drug approval process, specifically for international companies, and that means delays of perhaps as long as two years for approvals to come through for drugs to be marketed in China. That’s something that could take a toll on their bottom lines.
China has required that clinical trials take place in China, on Chinese patients, before it would grant approval for a drug to go to market within the country. So that the approval process would be streamlined, international pharmaceutical companies have long included China in their international drug trials, using multicenter regional trials that can include other Asian countries, such as Korea or Japan. But a local trial that is conducted as part of a multicenter regional trial is not regarded in the same light by China’s Food and Drug Administration (CFDA) as a local trial conducted by a China-based company.
In the past, companies had to obtain permission to conduct those international multicenter trials from the CFDA. Then, once trials were completed, the trial data had to be submitted for review, including patient data from all the countries and regions in which trials were performed, not just data for China. After acceptance, permission to sell the drugs in China would be granted.
Now, however, that final step has been split into two. International companies are no longer granted approval once the data are approved. Instead, they must now apply separately for “clinical trial approval” because of the international trial, even though it contains a Chinese component (rather than a local trial that is conducted exclusively within China, as it would be for a Chinese company), and then apply for permission to sell the drugs once the approval is granted.
Companies looking to test drugs in a regional trial have had to submit a waiver to be exempted from the “local trial” requirement, which in the past has been done at the same time as filing the application for approval of the new drug. Now, however, that waiver must be filed after the multicenter trials are completed, but before the company can apply for the new drug to be approved.
Bayer AG has already acknowledged the cost of the delay, pointing out in reports that it had originally expected approval to sell a new drug, which it did not name, in October of 2013. However, with the new layer of approvals, it no longer knows when marketing approval may be granted and said that while the drug’s trip to market could be late in 2015, it could be delayed to as late as 2016.
That will not only affect the date when the drug finally becomes available in China, but also has repercussions for the patent lives of drugs that now must wait perhaps twice as long for approval on the Chinese market.
Drugs aren’t the only things coming in for extended approval processes. On June 1, imported Class III medical devices—those of the highest risk, such as artificial joints and other devices used within the body—became subject to requirements for local trials within China. Previously, data from foreign trials could be accepted for review at the discretion of the CFDA, but that is no longer the case. The additional trial requirement is expected to add to both cost and delay in the approval process.
According to a McKinsey & Co. estimate, the top 15 international pharmaceutical companies have sales of $16 billion per year in China. That means the change has the potential to have a large effect on companies’ bottom lines.
“[S]ome of these investment plans are worth hundreds of millions of euros, and that’s why this has caused a big reaction from our member companies,” said Joseph Cho, managing director of industry group R&D-Based Pharmaceutical Association Committee (RDPAC), in published reports. “It is hard to understand from an international perspective that a practice implemented for 12 years was suddenly changed, without notice or a transition period.”
RDPAC indicated that at least 34 applications from foreign international pharmaceutical companies have already been or will be subject to the new regulatory delays, which could add as much as two years to the final approval process.
A McKinsey survey conducted in 2013 indicated that foreign drugs take six years longer to be approved in China than in developed markets. As a result, the additional delay presented by the change in the approval process could be costly not just for companies involved, but for patients as well.
The approval process by China’s FDA is acknowledged by the agency itself as slow. In fact, it says that most of the applications before it are looking for approvals for generic drugs. Many others reflect changes in dosages or packaging modifications for existing medications, rather than new medications, according to CFDA’s Center for Drug Evaluation. Earlier in the year, Yin Li, deputy head of the CFDA, said at the annual Beijing conference of medical information that the agency intended to begin outsourcing some of its approvals to speed up the process, with the commission of third-party organizations to take on some of those responsibilities.
One factor to be considered is that multinational pharmaceutical companies that partner with local pharmaceutical companies within China might find a smoother, and possibly faster, road to approvals.
China may itself be building in delays in order to support its domestic pharma sector, since domestic companies are not subject to that added step of an extra administrative layer within the approval process. If international companies license Chinese companies to conduct research and trials, and thus escape the additional delay, the domestic Chinese companies get a boost and the drugs come to market more quickly—both powerful incentives for international companies to find local partners within China.