Developing Landscape of Chinese LDT Regulation

Under the Chinese medical device regulatory regime, as filing/registration[1]  is compulsory prior to marketization, the legality of use of unregistered in vitro diagnostics reagents ("IVD") in laboratory-developed testing ("LDT")[2]  has been in a grey area for a long time. However, Article 53 of the revised Regulation for Supervision and Administration of Medical Devices ("Revised Regulation"), effective on June 1, 2021, has shed some light on Chinese authorities' relaxed attitude towards the LDT model. It prescribes that a qualified medical institution may, according to its clinical needs, develop by itself and use unregistered IVDs within its own entity under the guidance of licensed physicians if no same type IVDs are available in the Chinese market.

Despite positive messages released by the new rule, a series of detailed rules and standards are unclear yet, awaiting further clarification from the authorities and by industry practices. This article intends to highlight some key issues unaddressed as well as potential implications of the new rule which may concern med-tech companies interested in the Chinese market.

01

Key Issues Unaddressed

1.How to determine the "same type IVDs available in the China market"?

Literally, once an IVD product for an intended use has been registered with the National Medical Products Administration ("NMPA"), LDT products for the same intended use are forbidden. The rationale of such restriction is crystal. It will incentivize companies to constantly develop and register their IVD products driven by the enhanced protection for registered products. Meanwhile, the limitation is also crystal as it only focuses on the existence of registered IVD products without considering their supply or function. If the limited supply or function of a registered IVD product fails to satisfy clinical needs, it remains to be seen whether these factors will substantially influence the determination of "same type" or not.

2.How to understand "develop by itself and use unregistered IVDs in its own entity"?

The exclusive use of unregistered IVDs by the medical institution "in its own entity" may pose a challenge to the prevailing LDT model. It is a common practice that two entities affiliated to one group company, namely, Research & Development organizations (dry lab) and medical testing laboratories (wet lab), independently perform different functions of LDT business. The former is solely responsible for developing IVDs, while the latter performs tests for patients with such IVDs provided by the former. Under a separate structure as such, the requirement of "self-developed" and "in its own entity" as provided in Article 53 may be violated. Few investigations by the authorities in this regard have been observed during the past one year after the implementation of the Revised Regulation, but specific impacts of Article 53 on this business model remain to be followed up.

3.How to fulfill the requirement for "under the guidance of licensed physicians"?

It should be first noted that most Chinese medical testing laboratories providing LDT services are usually equipped with few licensed physicians, as one is sufficient for their establishment in accordance with relevant laws. In practice, a significant number of LDT companies choose to cooperate with hospitals whose licensed physicians will recommend or prescribe the tests to patients, and the hospitals will then outsource the testing work to the LDT companies who will provide feedback to the hospitals and/or patients. Under such model, the licensed physicians of the hospitals recommending or prescribing the tests are technically not in the "same entity" of the LDT companies conducting the tests. Whether this would challenge the requirement of "under the guidance of licensed physicians" is yet to be seen.

02

Potential Implications

1.Mainstream IVD model unchanged

A typical positive idea concerning Article 53 is that it may boost the development of companion diagnostic reagents ("CDx") which help to provide essential information for the safe and effective use of a corresponding drug or biological product. As CDx products generally have to go through a long process of registration, some companies may tempt to escape such a time-consuming process through the LDT model. However, it should be noted that Article 53 only exempts the registration for a very limited scope of LDT products. The principle rooted in the Chinese medical device regulatory regime that filing/registration is compulsory prior to marketization has not been substantially altered. 

2.Boost the registration of LDT products

Some LDT companies did not register their LTD products based on the believing that registration is not compulsory for such products, to which the authorities keep tacit consent. Predictably, with the implementation of the new rule, this situation may be changed. In order to win a leading edge over other competitors in the same track, LDT companies will be fostered to develop their LDT products with new strategies, specifically, assessing whether their products are of the same type as IVD products available in the market, enhancing registration capabilities, and accelerating registration process.

3.Benefit LDT companies accessing to capital market

Chinese LDT companies constantly face obstacles in their access to the capital market due to the ambiguity over the legality of LDT business. In practice, some local regulatory authorities may give green light by adding specific test items to inter-laboratory quality assessment or Laboratory Acceptance Certificates, but such efforts may be insufficient. The implementation of the new rule may serve as a persuasive factor to further justify the legality of LDT business when dealing with the authorities. 

Conclusion

Admittedly, as the new rule relaxes the restrictions on the LDT model in China, it will also entrench increasing polarization among LDT competitors. Companies, backed by outstanding capabilities in research, development, and registration as well as product portfolios targeting urgent clinical needs, are likely to override those who are weaker in these aspects. Comprehensive capability in both innovation and registration will be the new focus favored by all stakeholders in the long run, including investors and the capital market.

向下滑动阅览

Footnotes：

[1] In accordance with the PRC Regulation on the Supervision and Administration of Medical Devices (Revised in 2021), low risk Class I medical devices are subject to a filing process with applications submitted to the NMPA, and medium risk Class II and high risk Class III medical devices are subject to a registration process with applications and supporting documentation submitted to the NMPA.

[2] It should be noted as LDT (a type of in vitro diagnostic test that is designed, manufactured and used within a single laboratory) is a legal concept distinguished from FDA-cleared or approved IVD test under the law of United States, LDT and IVD are commonly to be understood to be mutually exclusive approaches. Considering the legal concept of LDT is still absent under Chinese law, for the avoidance of doubt, “IVD” in this article is a general reference of all in vitro diagnostics.

Authors

Mark Zhang

Partner

Corporate & Commercial Group

mark.zhang@cn.kwm.com

Areas of Practice: foreign investment, cross-border M&A, PE&VC, as well as general corporate matters

Mr. Zhang has in-depth study and extensive experience in healthcare and life science practice. He provides day-to-day advice for a wide range of pharmaceutical, medical device, gene and cell product company, medical institution, food, cosmetic and other healthcare companies on M&A, license-in/out, clinic trial, product registration and MAH pathway, regulatory, importation, labelling, distribution management, e-healthcare, medical data, innovative business models, compliance (anti-commercial bribery and issues regarding competition law) and daily corporate matters.

Yang Fan

Partner

Corporate & Commercial Group

yangfan3@cn.kwm.com

Areas of Practice: M&A, foreign investment, private equity and general corporate matters

Mr. Fan Yang has extensive experience in M&A, foreign investment and private equity investment, providing services of deal structuring, due diligence, transaction documents drafting and negotiation, governmental approval and closing in numerous M&A and joint venture transactions.  He also provides general cooperate legal services to a number of multinational corporations.

Li Lingbi

Counsel

Corporate & Commercial Group

lilingbi@cn.kwm.com

Areas of Practice: M&A, foreign investment, outbound investment, PE/VC investment, as well as corporate and compliance matters

Ms. Li provides legal services for a wide range of multinational and domestic pharmaceutical companies, medical device companies, CROs/CSOs, medical institutions and other healthcare and life science companies on clinical trials, technology license-in and license-out, compliance matters, MAH system, e-commerce and other legal issues regarding R&D, manufacture, distribution of pharmaceuticals/medical device.

Cui Yangyang

Associate Assistant

Corporate & Commercial Group

转载声明：好文共赏，如需转载，请直接在公众号后台或下方留言区留言获取授权。

封面图源：画作·林子豪

责任编辑：赵天园

我知道你  在看  哦