China Lowers Barriers to Entry for Foreign Pharmaceuticals, Medical Devices

By Steven Elsinga

China’s anti-trust crackdown on foreign pharmaceutical companies has left many foreign investors in the healthcare industry shocked. The Chinese government has had no qualms about openly stating that it prefers hospitals to purchase from domestic producers. That said, China’s homegrown manufacturers of medical devices and medicine still lack the sophistication to produce many of the more advanced health care products the country needs. Amid rising living standards and an aging population, China’s healthcare needs are set to rise sharply in the coming years.

While the government may not like it, it does recognize that the country in part relies on foreign companies to meet its demand for quality healthcare products. Therefore, the Chinese government recently released a number of measures to encourage foreign investment in the healthcare sector.

No repeat clinical trials for imported medical devices

On May 19, 2015 the State Food and Drug Administration – China’s equivalent of the US FDA – released a document titled the Technical Guidelines for the Clinical Evaluation of Medical Devices. This document removes the need for certain imported medical devices to have a clinical trial in China if they have already had one abroad. 

Previously, all imported medical devices that were categorized as Class II or Class III had to undergo a clinical trial in China before they could be used and sold in China.

If importers of medical devices want to skip the clinical trial in China, they need to at least submit the foreign clinical trial protocol and report, the opinion of the ethics committee, and documents demonstrating the clinical performance of the medical device, as well as its effectiveness and safety for use with people of different ethnicity. 

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However, there is an exception for those Class III medical devices that are listed by the State Council as having a higher risk to the human body. These eight types of devices still need a separate clinical trial in China, and include cardiac pacemakers, implantable blood pumps, intravascular stents, implantable artificial organs and other implantable devices.

Easier set-up for pharmaceuticals companies

In April 2015, China amended its Drug Administration Law, introducing two major changes.

The first is a simplification of the company set-up procedure for pharmaceutical companies. Prior to the amendment, investors that wanted to manufacture or distribute pharmaceuticals needed to have a Drug Manufacturing License or a Drug Distribution License before applying for a business license. Now, investors may apply for these after the company has been set up, significantly speeding up the incorporation process.

More importantly, the amendment removes the price controls that the Chinese government had in place for medicines. As of the year 2000, medicines that were listed on the government’s Medical Insurance Catalog, and those medicines on which there was a monopoly, had their prices fixed or guided by the government. About 23 percent of the medicines on the Chinese market had government fixed or guided prices. The price of other medicines was left to market forces. While these price restrictions are now fully removed, companies still need to abide by China’s anti-trust laws. Companies abusing their dominant market position are still punishable under Chinese law.

Advertising medicines and medical devices

While recent moves have made it easier for foreign investors to introduce new medical products to the Chinese market, the Chinese government has at the same time placed restraints on advertising healthcare products. The final text of the revised Advertising Law was released by the National People’s Congress, China main legislative body, in late April 2015. The law will come into force in September 2015.

The 2015 Advertising Law has special stipulations about advertising for medicine and medical devices. For one, advertising for anesthetics, psychotropic drugs, toxic and radioactive drugs for medical use is not allowed, nor is advertisement for drugs, treatment plans and medical devices to combat drug addiction. Advertising for prescription drugs other than those mentioned previously is only allowed in professional medical journals.

The content for medical advertisements is regulated as well. Any advertisement for drugs, medical treatment or medical devices may not contain the following:

• Assertions or assurances regarding safety and efficacy
• Information relating to recovery rates or efficiency
• Comparison with other medical products
• Endorsements by famous spokespeople

Advertisements for medical devices that are recommended for private use need a disclaimer warning the user to first carefully read the instructions, and only use the item under guidance of medical personnel.

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Drug advertisements may not provide information that is inconsistent with the instructions approved by the State Council, and needs to clearly state contraindications and adverse effects. Prescription drugs must have a disclaimer stating that the medicine may only be used under the guidance of a medical professional. Over-the-counter drugs must indicate that the medicine should only be used as instructed by the pharmacist.

Health foods may not be advertised as having medical benefits, and cannot claim that eating these foods prevents disease, is necessary to maintain good health, or equals medical treatment. Advertisements must clearly state that the health food is not a substitute for medicine. Media companies such as TV channels, radio shows or websites may not advertise medicines, medical devices or health foods under the guise of giving health and lifestyle information.

Conclusion

While the healthcare industry has seen increased scrutiny from the Chinese government in recent years, this should not discourage foreign investors from capitalizing on China’s maturing health care sector. As ever-increasing numbers of Chinese can afford modern health care, demand for medical products will continue to surge. The healthcare industry in China has been growing at a rate of 20 percent year-on-year for the past several years, and shows no sign of slowing down. With some of the previous barriers to entry now removed, it has become easier and more appealing for foreign investors to seize opportunities in this industry.

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