since the rollout of the marketing authorization holder (MAH) system for the medical device industry, the processes for the innovation, research and development of medical devices have been greatly shortened in pilot areas, broadly benefiting the entire industry and also proving a boon for the large number of existing medical device manufacturers in China. It seems to be one of the sharp tools in the “supply side” reform of the medical industry, particularly the medical device industry.
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Merits & Tree Law Offices
System evolution
The pharmaceutical MAH system first saw the light of day in 2016. Subsequently, the pilot medical device MAH project was launched in Shanghai at the end of 2017, followed by its expansion to Guangdong and Tianjin in May 2018, and then to Beijing, Tianjin and Hebei at the beginning of 2019. The rollout of MAH has presented new opportunities and challenges to enterprises and governments in their work.
On 7 December 2017, the Implementing Plan for the Work Associated with the Pilot Medical Device Registrant System Project in the China (Shanghai) Pilot Free Trade Zone was issued and implemented by the Shanghai Food and Drug Administration (FDA).
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Merits & Tree Law Offices
On 9 January 2018, the central National Medical Products Administration issued the Announcement on the Launching by the Shanghai FDA of the Work Associated with the Pilot Medical Device Registrant System Project (No. 1 of 2018).
On 24 May 2018, the State Council issued a plan to intensify reform of the Guangdong, Tianjin and Fujian Pilot Free Trade Zones, expressly providing for the expansion of the reform of the medical device registrant system from Shanghai to Guangdong and Tianjin. With that, the scope of the pilot project for the “separation of licence and permits” was further expanded.
On 5 July 2018, the Shanghai FDA issued the Announcement on Expanding the Pilot Project for Reform of the Medical Device Registrant System in Shanghai to, and its Implementation Throughout, the Entire Municipality, deciding to expand the pilot project to the whole of Shanghai.
In February 2019, the State Council approved the general work plan for comprehensively promoting the pilot project for the expansion and relaxation of the service industry in Beijing, consenting to the continued rollout and promotion of the general pilot project for the expansion and relaxation of the service industry in Beijing for a period of three years from the date of the approval.
One of the proposals in the plan states as follows: “Launching a pilot medical device registrant system project, permitting medical device registrants in Beijing to commission the production of medical devices to medical device producers in the Beijing-Tianjin-Hebei region, and boosting the development of cross-regional ‘registration + production’ industry chains”.
On 7 July 2020, the State Council issued the Notice on Duly Carrying Out the Work of Replicating and Promoting the Experience of the Pilot Free Trade Zones in the Sixth Batch of Pilot Reforms. The notice points out that the pilot reform experiences of the Pilot Free Trade Zones are to be replicated and promoted on a nationwide basis. Article 36 refers to the model of commissioned production by medical device registrants: “In addition to producing products itself, a medical device registrant may commission an enterprise with the appropriate production conditions to produce its products.” The entity in charge of the model is the central National Medical Products Administration, and the scope of promotion is the entire country. There is little doubt that this will be a boon to the medical device industry.
It can be clearly seen that the implementation of the MAH system for medical devices in the past four years has gradually and steadily expanded from provinces and municipalities – such as Shanghai, Beijing, Jiangsu and Guangdong, with strong medical device research, development and production capabilities – and free trade zones to the entire country. There are no longer any obvious regulatory obstacles to the specific implementation of the medical device MAH system on a nationwide basis.
Notwithstanding the fact that the MAH system will give birth to a pharmaceutical contract manufacturing organization (CMO) market with huge potential in China, in practice, there remains – from the perspective of protecting medical device innovation, research and development – some risk points that enterprises need to specifically guard against.
(1) Intellectual property (IP). Before commissioning a contractor (i.e., a medical device manufacturer meeting the production conditions) to carry out the production of medical devices, it is of utmost importance whether the client can fully legally secure the IP rights (especially patents) for the designated medical devices. Additionally, whether there is express and highly practicable recognition of IP derived from subsequent secondary development, or joint development in the commissioned production or manufacturing agreement, is helpful to the client in anticipating risks and avoiding unnecessary title disputes.
(2) Confidentiality. Although many contract manufacturers in China have the qualifications for producing medical devices, their management and confidentiality systems often leave something to be desired, particularly in their lack of a sound governance mechanism for ensuring that core personnel duly perform their non-disclosure obligations once they leave the manufacturer. In this respect, when choosing a device manufacturer that can give one confidence, it is additionally vital to conduct thorough due diligence and an assessment of the company’s internal control mechanisms (particularly whether it has a sound confidentiality system, non-compete arrangements, etc.).
(3) Involvement in litigation. The client should also comprehensively investigate the IP (including patents and trademarks) applied for, or already secured by the contractor, and any litigation it may recently have been involved in, so as to be able to assess whether it is possible that it could in future, in the course of their business co-operation, illegally engage in “free riding”. This will also assist the client in making the most rational business decisions.
Whether the MAH system can boost the speed and quality of research and development of, and innovation in, medical devices in China in the course of its nationwide expansion is to a great extent dependent on whether clients can confidently turn over their research and development achievements to contractors for production and manufacturing. The authors recommend that, in MAH practice, the client conduct, in concert with its risk control department and external consultants, a comprehensive and rigorous investigation of a proposed contractor, and tailor-design a commissioning agreement that is consistent with its business objectives and co-operation expectations, so that the co-operation between it and the contractor can lead to a win-win situation and withstand the test of law.
Ji Fei is a partner and Xue Gang is an associate at Merits & Tree Law Offices
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