On 8 September 2024, China’s National Development and Reform Commission and Ministry of Commerce released the updated "Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Edition)" ("Foreign Investment Access Negative List"), effective from 1 November 2024. On the same day, a collaborative notice from the Ministry of Commerce, the National Health Commission, and the National Medical Products Administration, titled "Notice on Carrying Out Pilot Work for Expanding Opening-up in the Medical Field" ("CGT Opening Notice"), was issued. This notice allows foreign-invested enterprises to engage in human stem cell, gene diagnosis, and treatment technology development and application within the free trade zones of Beijing, Shanghai, Guangzhou, and Hainan Free Trade Port.
This policy shift offers significant opportunities for multinational pharmaceutical companies but also presents a range of challenges. Drawing from extensive experience in compliance consulting for multinational firms in CGT, this article will address potential risks and hurdles, including human genetic resource management, clinical trial compliance, intellectual property protection, and data security. We will also examine the complexities involved in dismantling existing VIE structures and key considerations for investigator-initiated trials (IITs) and product registration.
I. Overview of the "CGT Opening Notice"
The "CGT Opening Notice" introduces two main pilot projects aimed at enhancing openness in the medical sector:
Biotechnology Sector: From 7 September 2024, foreign-invested enterprises can engage in human stem cell, gene diagnosis, and treatment technology development and application within free trade zones in Beijing, Shanghai, Guangdong, and Hainan. Approved products will be available nationwide.
Wholly Foreign-Owned Hospitals: The notice proposes allowing wholly foreign-owned hospitals (excluding traditional Chinese medicine and public hospital acquisitions) in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and across Hainan Island.
II. Key Considerations for Multinational Pharmaceutical Companies in CGT
While the relaxation of investment restrictions in biotechnology presents opportunities, several challenges remain:
Human Genetic Resource Management: Managing human genetic resources during gene therapy trials can be complex, especially when sharing resources with Chinese partners or sending samples abroad. Companies must ensure compliance with the "Regulations of the People's Republic of China on the Management of Human Genetic Resources" and secure timely approvals for resource exportation.
Clinical Trials: Conducting international multi-centre clinical trials poses challenges in balancing regulatory requirements between China and other countries. Protocols designed according to FDA or EMA standards may not align with NMPA requirements. Companies must address specific regulations on cell source management, gene editing safety, efficacy evaluation, and long-term monitoring. Ensuring consistency and comparability of data across borders is crucial.
Intellectual Property Protection: Protecting intellectual property in CGT research requires careful consideration of ownership and usage rights of technologies like gene editing tools. Companies must navigate the rapid evolution of technology and adapt patent strategies to China's environment while safeguarding sensitive information and balancing ethical concerns.
Data Security and Personal Information Protection: Handling sensitive human genome and cell data requires strict adherence to the "Data Security Law" and "Personal Information Protection Law". Companies need to manage data localization requirements and ensure compliance with cross-border data transfer regulations, while protecting patient privacy and responding to data security incidents.
III. Key Points in Dismantling VIE Structures
The easing of foreign investment restrictions in CGT offers a pathway for companies using VIE structures to enter the Chinese market directly. However, dismantling VIE structures involves:
Asset Restructuring: Companies must develop detailed restructuring plans to transition assets and businesses smoothly.
Tax Implications: Assess potential tax costs and risks, and create appropriate tax planning strategies.
Regulatory Approval: Engage with relevant authorities to understand approval requirements and processes. Balancing the interests of shareholders and managing compliance risks are essential.
IV. Key Points for Investigator-Initiated CGT Clinical Research
For foreign companies funding investigator-initiated CGT clinical trials (IITs), the following considerations are vital:
Funding Agreements: Define funding activities clearly and establish mechanisms to ensure compliance with Chinese regulations.
Research Independence: Manage conflicts of interest and ensure research objectivity, particularly concerning publication and intellectual property.
Informed Consent: Ensure researchers obtain effective informed consent from subjects, particularly for advanced technologies.
V. Key Points for CGT Product Registration
Despite policy improvements, CGT product registration presents challenges:
Registration Classification: Existing classification systems may not accurately capture innovative products. Flexibility in classification standards may be needed.
Review Process: Address potential delays in the review process by improving efficiency while ensuring product safety and efficacy.
Trial Protocol Design: Design protocols that meet both international and Chinese requirements and handle ethical issues in cross-cultural contexts.
Multinational companies should seek expert legal services to navigate these challenges effectively. Collaborative efforts among the government, businesses, and professional organisations will drive progress and support the growth of China's CGT industry.
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