CMS, China | Medical devices: new rules and uncertainties  
 
 
   
     
Hong Kong
 
Medical devices: new rules and uncertainties

 
   
  Dear Sir or Madam,

Please find enclosed our update on the latest developments with regard to life sciences industry in China.

Kind regards,
CMS, China


The revised “Regulation on the Supervision and Administration of Medical Devices” (hereinafter referred to as the “New Regulation”) (enacted by the State Council of PRC on 7 March 2014) entered into force on 1 June 2014. The New Regulation replaces the former regulation enacted on 4 January 2000 (hereinafter referred to as the “Former Regulation”).

Although the New Regulation has lessened the requirements medical devices distributors of class I medical devices must fulfill in order to enter into the medical device industry, it has imposed further potential liability in the form of additional sanctions.  Medical device companies should check carefully that all compliance criteria have been fulfilled. It can be expected that after the New Regulation comes in to force, the food and drug authorities will be visiting medical device companies more often to inspect their operations.

Compared with the Former Regulation, the New Regulation implements several key changes, including in relation to:

1. Change in the approval for trading of medical devices and registration for medical devices
2. Non compliance sanctions
3. Third party logistics
4. Import & Export

1. Change in approval for trading of medical devices and registration for medical devices
     
  1) Class I Medical Devices Licence: from registration to filing

The New Regulation has removed the registration requirement for Class I medical devices. Instead of a Medical Device Licence registration, only a filing is required with the local FDA (“Food and Drug Administration”).

For the filing, a medical device inspection report and a clinical assessment report must be submitted to the local FDA. Under the New Regulation, a self inspection report prepared by the applicant itself can be served as the inspection report and clinical documents or data for another similar product can be treated as the clinical evaluation report.
     
  2) Trading of Class I medical devices : cancellation of filing requirement

According to the Former Regulation, in order to carry out trading activities of Class I medical device, a filing must be made with the local FDA. The New Regulation has removed this filing requirement. This implies that all trading companies may carry out Class I medical devices trading activities without a Medical Devices Trading Licence, provided that the medical devices that they purchase and resell have been previously filed with the local FDA.
     
  3)

Trading of Class II medical devices: from approval to filing

Under the Former Regulation, trading of Class II medical devices is subject to an approval by the provincial FDA. The New Regulation changes this so that only a filing is required.

To better illustrate the above changes, please refer to the following table:

  Class I Class II Class III
Former Regulation New Regulation Former Regulation New Regulation No changes in the New Regulation
 Medical devices  licence Registration Filing Registration Registration Registration
 Manufacturing  Company Filing Filing Approval Approval Approval
 Trading Company Filing No filing or Licence Approval Filing Approval
     
2. Non-compliance sanctions
     
  The current legal basis for the sanctions for non compliant activities is not the Former Regulation, but predominantly another regulation issued by the State Council, the “Special Regulation to Reinforce the Administration for Security for Food and Other Products Published by the State Council”(effective as of 26 July 2007) (hereinafter referred to as the “Special Regulation”). As the Special Regulation is also published by the State Council and its publication post dates that of the Former Regulation, in practice, the Special Regulation is often used by authorities as the basis for sanctions.

The New Regulation has taken into account this practice and therefore the sanctions provisions are similar to those in the Special Regulation. The New Regulation has also clarified some sanctions which were not clearly stipulated under the Special Regulation.  The New Regulation tends to impose more liabilities on the persons in charge of such non compliant activities.

The following table can reflect part of the sanctions modified in the New Regulation:
     
Non compliance activities Sanction under Special Regulation (Year 2007) Sanction under New Regulation (Year 2014) Comments
  1. Manufacturing medical device without Medical Device Manufacturing Licence

  2. Trading medical device without Medical Device Trading Licence

  3. Manufacturing or trading illegal medical device (including medical device without Medical Device Licence)
  • The product value is less than RMB 5,000: a fine of RMB 50,000.
  • - The product value is more than RMB 5,000 but less than RMB 10,000: a fine of RMB 100,000
  • The product value is less than RMB 10,000: a fine of from RMB 50,000 to RMB 100,000.
Raising the amount of the fine for those whose product value is less than RMB 5,000 will increase the cost for those who would like to carry out illegal activities, even if the amount is not high. The New Regulation makes the fine more reasonable for those whose product value is between RMB 5,000 to RMB 10,000.
  • The product value is more than RMB 10,000: a fine of 10 times to 20 times of product value.
  • The product value is more than RMB 10,000: a fine of 10 times to 20 times of product value
No change
N/A
  • For Item 1 and Item 2, if the situation is considered serious, the related application made by the medical device company will not be accepted for a period of 5 years.
Such provisions clarify the sanction which is not clarified in the blacklisting regulation of CFDA.
Other non compliance of legal conditions Fine of at maximum 20 times of product value, till the cancellation of licence and criminal liabilities

In addition to cancellation of licence in serious case,

  • fine of 5 times to 10 times of product value for non compliance of technical standards or quality compliance (such as product recall, sub-contracting)
  • fine of at maximum 30,000 RMB for violation of labeling requirements or transportation violation
  • fine of at maximum 20,000 RMB in violation of quality system management, internal storage and recording system, etc.
Compared with the Former Regulation which grants the FDA a discretionary power to sanction 20 times product value for all kinds of non compliance, the New Regulation clarifies the sanctions in connection with “non compliance of legal conditions”, and narrows down the scope of application where a 20 times product value sanction can be made, and further specifies the circumstances under which each type of non-compliance and their respective sanctions
     
3. Third party logistics
   
  According to the current practice, if a company intends to act as third party logistics service provider, the company shall apply for a Medical Device Third Party Qualification. This regime has been implemented as a pilot scheme to govern these kinds of services, which have become popular in China, but it has not yet been clearly legislated.

However, the New Regulation does not provide a legal basis for such regime either. We noticed that in the draft Measures on the supervision and administration of medical devices for public comments, this regime would probably be changed into the administration of medical trading licence, as CFDA considers that the third party logistics service is also one of the forms of trading activities.  This could explain why this issue is not clearly mentioned in the New Regulation.
   
4. Import and Export
   
  4.1 Import

Under the “Notice on Administration of Foreign Medical Device Label and Package published by State Food and Drug Administration” (effective as of 1 April 2013), imported medical devices shall not be distributed or used in China if no Chinese label and package signs are affixed.

Such provision has led to some confusion, especially as to the legitimacy of labeling activities in free trade zones for imported medical devices, because free trade zones are considered as Chinese territory by CFDA but as outside of Chinese territory by customs.  To affix a label in a free trade zone can reduce the costs of such additional manufacturing process abroad, but will inevitably give rise to legal uncertainty as to whether such labeling is considered as made in China or made abroad, which may lead to different regulatory requirements for medical devices. 

The New Regulation provides that foreign medical devices shall not be “imported” if no Chinese package insert and Chinese label are affixed. As the word “import” is not defined in the New Regulation, this may impliedly give a legal basis that labeling can be made in a free trade zone, as products are not imported into China when labeling is done in the free trade zone.  More explanation or practice is expected to clarify this provision.
   
  4.2 Export

CFDA issued respectively two circulars to govern the administration of exported medical devices in 2004 and 2008 where a medical device export certificate must be applied with CFDA. However, the New Regulation still does not provide any provision to support such practice.

The New Regulation also fails to provide further clarity on the administration of medical devices by Chinese companies upon the request of a foreign client (so-called OEM manufacturing).  It is uncertain whether a medical devices company which only carries out OEM manufacturing activities for exported medical devices needs to apply for a medical devices manufacturing licence.  
   
  Despite the above changes, the New Regulation does not provide for the possibility of the transfer of a medical devices licence through technology transfer, as is permitted in relation to pharmaceuticals.

Without such regime, it would be not possible to convert an imported medical devices licence into a domestic medical devices licence if a foreign investor wanted to relocate the manufacture of such medical devices to China in a relatively fast procedure. The foreign investor would have to apply for another domestic medical devices licence from scratch.  This is more cumbersome for foreign investors who wish to reduce manufacturing costs by relocating part or all of their manufacturing capacity to China, and is not favorable to encouraging technology development in medical devices areas.

The New Regulation clarifies some uncertainties in medical devices administration but also leaves quite a few uncertainties which have not yet been resolved in practice but are extremely important for foreign investors to carry out their business in China, such as OEM manufacturing, import and export, labeling, and transfer of imported medical devices to domestic ones. However, how to implement the New Regulation is still unclear, as CFDA is now revising a series of measures in connection with the New Regulation, which will be used as supportive measures to implement the New Regulation.  These include measures on the supervision and administration of manufacturing of medical devices, measures on the supervision and administration of trading of medical devices, measures related to package inserts, packaging, labeling of medical devices, measures related to the administration of registration and filing of medical devices, and others. These measures will form an integral part of the new regime to govern medical devices under the New Regulation.


In case you have questions or for further information, please contact:

         
Ulrike Glueck Nicolas Zhu      
Partner    

 

   

CMS, China

   
T +86 21 6289 6363    
E nicolas.zhu@cmslegal.cn    
         



 

This information is provided for general information purposes only and does not constitute legal or professional advice. Copyright by CMS, China.

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