Earlier this year, China’s National Healthcare Security Administration (“NHSA”) issued the Notice on the Establishment of an Initial Price Formation Mechanism for Newly Listed Chemical Drugs to Encourage High-Quality Innovation (the “Proposal”) for comment from industry associations, but not the general public.  NHSA officials disclosed that the Proposal was introduced in response to innovators’ calls for increased policy support, particularly monetary incentives to reward the substantial investment and risk associated with drug research and development.  The primary stated objective of this Proposal is to establish a drug pricing mechanism that fosters innovation in drug research and development while ensuring equitable access to innovative medicines.

Since 2015, China has largely abandoned government price-setting and instead started to establish a system wherein drug prices can be primarily determined by the market.  However, the government can still influence drug pricing through the National Reimbursement Drug List (“NRDL”) and drug procurement process.  In practice, provincial healthcare security authorities generally have the authority to regulate online drug procurement, approve the admission of drugs for online procurement, and adjust online drug procurement prices.

While pharmaceutical companies have had some authority to set pricing strategies for innovative drugs since then, the Proposal appears aimed at facilitating the procurement process for innovative drugs and giving innovative drug companies more flexibility in determining procurement prices.  Under the Proposal, the initial pricing for chemical drugs that are for the first time being listed on a procurement platform will consider self-evaluations provided by pharmaceutical companies (described below).  Companies will be responsible for ensuring the authenticity and accuracy of the pricing materials.  Other stakeholders, such as medical institutions and industry associations, will participate in the drug pricing process by providing opinions on therapeutic value, clinical need, and procurement intentions for these products.  They will also offer recommendations on whether the economic analysis aligns with industry standards.

To guide the self-evaluation process, the NHSA has introduced a comprehensive form comprising three sections: Pharmacology, Clinical Value, and Clinical Evidence of Safety and Efficacy, along with 34 detailed items.  Each item corresponds to a score that can be totaled up to a maximum of 150 points.  The self-evaluation form takes into account various factors, including whether the drug features new mechanisms of action or targets, routes of administration, or indications.  Different levels of novelty will add different points.  For example, having new mechanisms of action or targets will add 50 points, and drugs that are new to the world will add 10 additional points.  If a drug is already approved or does not conduct clinical studies in China (i.e., bases its application solely on foreign data), the score can be adjusted downward.  Additionally, the self-evaluation considers whether the drug provides breakthrough treatment, addresses rare diseases, or is urgently needed due to shortages in clinical supply.

While drugs with low scores will be subject to more stringent regulatory measures regarding drug price formation and admission to the procurement platform, newly listed chemical drugs with high innovative value (i.e., those that obtain a high score in self-evaluation) will be entitled to:

  • Simplified Application Process: These drugs will enjoy benefits when applying for admission to procurement platforms, including submitting fewer application materials and proceeding through an expedited application review process.
  • Exemption from Detailed Pricing Component Materials: These drugs will be exempt from providing certain materials related to how they arrived at their initial market price, which allows greater discretion in setting the price on procurement platforms.
  • Early Marketing Price Application: These drugs can apply for the initial market price on procurement platforms as soon as their marketing application is accepted by the Center of Drug Evaluation under the National Medical Products Administration, which will accelerate the marketing application review process.
  • Price Stability Period: These drugs will be granted a stability period of one to five years.  During this time, their price will generally remain unaffected by government interventions, such as volume-based procurement (i.e., procurement of a specific volume for a province, provided the drug price is sufficiently low).

The Proposal has not been finalized, so it is advisable to closely monitor for developments in this area.

For further information or inquiries relating to this post, please email APACRegBlog@cov.com.

Contributors for the China & APAC Food, Drug, Device, and Cosmetics blog:

John Balzano, Julia Post, Muyun Hu, Annie Wang, Kaixin Fan, and Kexin Yang.

Kexin Yang

Kexin Yang is a Paralegal at Covington and Burling LLP.

Photo of John Balzano John Balzano

John Balzano represents companies and business associations on U.S. and China regulatory and policy matters related to food, drugs, medical devices, cosmetics, and other regulated products.

John has over a decade of experience with legal and regulatory issues related to China, particularly with…

John Balzano represents companies and business associations on U.S. and China regulatory and policy matters related to food, drugs, medical devices, cosmetics, and other regulated products.

John has over a decade of experience with legal and regulatory issues related to China, particularly with regard to products regulated by the State Administration for Market Regulation, the National Medical Products Administration (NMPA), and other agriculture, animal and healthcare (including digital health) products and services. He assists clients with developing strategies to obtain pre-market approvals for these products in China, including clinical development, understanding relevant pricing and reimbursement policies, and reviewing distribution and promotional plans.

He also advises on regulatory compliance, due diligence, and enforcement matters for China operations, including drafting and revising and integrating China and global standard operating procedures, assessing the functions of regulatory departments in China, responding to inspection results and enforcement inquiries, and implementing product recalls. John also has significant experience designing strategies to handle professional consumer litigation for food and cosmetic companies operating in China and working with local counsel.

He advises companies and industry associations on their advocacy strategies, including the notice and comment process before NMPA and other regulatory agencies.

John has particular experience in the U.S. advising on the requirements for the acquisition and transfer of biospecimens for research purposes.

Photo of Julia Post Julia Post

Julia Post advises biotechnology, pharmaceutical, medical device, and trade association clients on a variety of federal and state regulatory and compliance matters. In particular, Julia has experience in areas including biosimilars and interpretation and implementation of the Biologics Price Competition and Innovation Act…

Julia Post advises biotechnology, pharmaceutical, medical device, and trade association clients on a variety of federal and state regulatory and compliance matters. In particular, Julia has experience in areas including biosimilars and interpretation and implementation of the Biologics Price Competition and Innovation Act of 2009; human cells, tissues, and cellular and tissue-based products (HCT/Ps); market exclusivity; informed consent requirements; and pharmacy substitution practices.

Prior to joining the Food and Drug practice group, Julia was a member of the Litigation practice group where she focused on representing clients in Hatch-Waxman patent litigation.