The combined business revenue of China's pharmaceutical firms increased 18.7% year on year in 2021, witnessing the highest growth rate in the past five years. The companies in the life sciences sector together generated about RMB3.37 trillion in revenue in 2021.

China's life sciences sector is highly fragmented. While there are about 5,000 manufacturers in the pharmaceutical industry, most are small to medium-size companies. However, large pharmaceutical companies such as Novartis, Novo Nordisk, and AstraZeneca capture at least 8% to 10% of the pharmaceutical market in China, even in this highly fragmented market.

In 2021, there were 577 strategic M&A transactions in the domestic health care sector, 59% more than the deal volume in the sector in 2020, and the highest in the past five years. It is reported that in 2021, deal value in China overseas M&A in the health care and life sciences sector increased by 240% year-on-year, and the value increased by 64% to a record high.

Chinese companies in the pharmaceutical industry, including both start-ups and established pharmaceutical companies, have begun to accelerate innovation in the pharmaceutical sector and to pay more attention to the research and development of new drug products. These companies' product pipelines of innovative drug products show that they are switching their focus from "me-too" or "me-better" to first/best-in-class candidates.

By the end of 2021, China had the world's biggest health care security network, covering over 95% of China's population. The expanding basic health insurance is further driving the continuous growth of China's huge health care market.

In China, companies in the life sciences sector can choose from several different sources of funding. In 2021, there were 522 equity financing transactions in the health care sector in China, 53.1% more than the deal volume in this sector in 2020.

In 2021, total investment in the life sciences sector increased 26% year-on-year to USD17 billion. Early-stage investments accounted for about 40% of the total transactions in 2020 and 2021. Two of the top ten IPOs in the A-share market in 2021 were in the health care/life sciences sector. A top ten IPO in the Hong Kong IPO market was in the health care/life sciences sector.

The National Health Commission (NHC) oversees the national health care system in China. The National Healthcare Security Administration (NHSA) is the main governing body of, among other things, China's medical insurance schemes, in which employees and employer each contribute a portion of the employee's monthly salary to the employee's medical insurance account.

NHSA, together with other governmental authorities:

Pharmaceutical companies can participate in the NRDL's annual review process if their products fall within the process' scope, by submitting supporting documents and/or participating in the price negotiation process. Drugs included on the NRDL are subject to reimbursement for purchases.

The central government historically adopted a price ceiling for pharmaceutical products. However, pharmaceutical companies are now free to set prices for their pharmaceutical products (other than narcotic and Type 1 psychotropic drugs) during the NRDL's annual review process.

The government has initiated several rounds of price negotiations with manufacturers of:

Drugs are listed on the NRDL and qualified for purchase by public hospitals once the price is agreed with the drug manufacturer or marketing authorisation holder (MAH). The average percentage price reduction is over 50%.

In June 2018, the State Council launched a new round of drug pricing and procurement reform with a focus on generic drugs, which aims to:

The government has implemented volume-based procurement of drugs, open to all approved enterprises that manufacture drugs on the government procurement list. Public hospitals are encouraged to form a group procurement organisation and submit bids. The bid-winner is provided with a substantial volume guarantee.

In addition, the government has rolled out a "two-invoice system", which provides that no more than two invoices can be issued for drug products supplied by manufacturers to public hospitals. As a result, manufacturers have either reduced the tiers of their distributors or converted their distributors into contracted sales organisations.

Pharmaceutical drugs listed on the NRDL or Provincial Reimbursable Drug Lists (PRDL) are eligible for reimbursement from the Basic Medical Insurance (BMI) funds. The NRDL is divided into:

Patients can pay for drugs directly from their medical insurance accounts and may apply to local social insurance authorities for reimbursement of out-of-pocket expenses. Health care professionals are encouraged to preferentially prescribe drugs that can be fully or partially reimbursed by BMI funds.

Pharmacists are hired and paid by medical institutions or retail pharmacies. They are not separately compensated by pharmaceutical companies for their services.

Prescription drugs. The Measures for the Administration of Prescriptions issued by the former National Health and Family Planning Commission (NHFPC), effective 1 May 2007, regulate the prescription by physicians and dispensing of prescription drugs by pharmacies in hospitals.

Physicians must in principle prescribe in accordance with the approved drug indications and clinical practice guidelines issued by the NHFPC. Pharmacists must confirm the accuracy of prescriptions and fill prescriptions accordingly.

Drug-dispensing by retail pharmacies outside hospitals is mainly subject to GSP requirements. Patients buying prescription drugs at retail pharmacies must present the prescription notes issued by physicians.

OTC drugs. Consumers buying OTC drugs do not need to present any prescriptions. Retail stores selling OTC drugs are not required to staff licensed pharmacists and personnel with a high school diploma suffice.

A company must obtain a special approval from the local MPA to market pharmaceuticals online. If the company wants to operate an internet pharmacy, the company must be a pharmaceutical marketing authorisation holder or a duly licensed operator of retail pharmacies offline.

The Measures for the Supervision and Administration of Circulation of Pharmaceuticals issued in 2007 prohibits prescription drugs from being distributed online or by mail. However, the Drug Administration Law (DAL) only prohibits the online distribution of drugs subject to special administration stipulated by the state (such as vaccines, blood products, anaesthesia, and psychiatric drugs, medical-use poisons, and so on) without imposing a blanket prohibition on the online distribution of all prescription drugs.

In August 2022, the National Medical Products Administration (NMPA) published the Administrative Measures for Supervision of Online Sales of Drugs (Measures). The Measures, effective 1 December 2022, allow the online sale of prescription drugs, on condition that the online drug retailer:

The Measures also set out obligations for online drug retailers and online platform service providers, including making filings with local MPAs.

A pharmaceutical distribution permit is required for wholesalers or retailers to engage in the distribution of pharmaceutical products. The permit is valid for five years. Permit holders must apply for an extension within six months before the expiration date. Drug distributors are subject to the Good Supply Practice (GSP) requirements.

Due to the over-fragmented pharmaceutical distribution sector, it is now increasingly difficult to obtain a pharmaceutical distribution permit from provincial medical products administrations (MPA).

Wholesalers. Establishing a wholesale pharmaceutical distribution company requires the approval of the provincial MPA. A pharmaceutical distribution permit is granted on obtaining approval.

The process to obtain a pharmaceutical distribution permit for a newly established wholesaler consists of the following:

A qualified pharmaceutical wholesaler must meet the following conditions:

Retailers. Establishing a retail pharmacy store requires the approval of the local MPA. A pharmaceutical distribution permit is granted on obtaining approval.

Medical institutions. Public and private medical institutions are not required to obtain a pharmaceutical distribution permit for the distribution of drugs. Private medical institutions/clinics must establish separate areas for drug distribution.

A medical institution must meet certain conditions for the management of pharmaceutical products, including:

Wholesale distribution means the business of buying medicines and selling them to drug manufacturing enterprises, drug distributors, and medical institutions. A pharmaceutical wholesaler must meet specific conditions (see Question 5).

NMPA and local MPAs are the main supervising authorities for the distribution of medicines. NMPA oversees pharmaceutical distribution activities at the national level, while local MPAs are responsible for issuing pharmaceutical distribution permits and the daily supervision of drug distributing activities.

Under the DAL and its implementing regulations, depending on the seriousness of the violation, the penalties for violating the drug distribution rules include:

In addition, monetary fines, administrative detention, and debarment can be imposed on responsible persons liable for the distributor's misconduct. Where misconduct is a criminal offence, the distributor will also be prosecuted.

On obtaining a marketing authorisation issued by NMPA, the MAH can authorise its import agent in China to import the products. Products that are imported for the first time for sale in China, or selected biologics, must pass testing by the drug control institute at the port of entry. Other drug products can be imported after the drug control institute issues an import permit for customs clearance. To obtain an import clearance, the import agent must present the:

The Trademark Law does not expressly address the import and distribution of non-counterfeit, genuine pharmaceutical products (parallel imports).

Previous cases indicate that parallel importation can be trade mark infringement if the imported product harms the reputation of the trade mark owner because the imported products are not subject to the same inspection requirements as products made for the Chinese market and could harm public safety.

Parallel importation can also be unfair competition if the imported product damages the legal rights of the trade mark owner or other interested parties by disrupting the market (for example, through unclear product identification or advertising slander).

Under the Patent Law, a patent owner exhausts its patent rights over a product if the products are sold in the market. If an importer buys goods from the patent owner (or its licensee), it can import the goods without infringing the patent.

The advertising and promotion of pharmaceuticals, including prescription-only and OTC products, are primarily governed by the:

The State Administration for Market Regulation (SAMR) and its local branches regulate advertising and promotion.

The R&D-based Pharmaceutical Association in China (RDPAC) has issued the Code of Practice on the Promotion of Pharmaceutical Products (RDPAC Code), which member pharmaceutical companies agree to comply with as generally accepted baseline practices for drug promotion in China. A member company can file a written complaint to the RDPAC against another member for misconduct in breach of the RDPAC Code.

The Advertising Law defines advertising activities broadly, covering any channels or media where a product distributor, directly or indirectly, markets or introduces the products it distributes.

The laws do not require companies to set up internal procedures to manage and approve their advertising of pharmaceuticals.

Under the Pharmaceutical Industry Compliance Management Practices industry standard (PICMP standard), pharmaceutical companies should establish and implement an internal review and approval system for drug promotion-related activities. However, this is only an industry standard, with no legal effect.

The RDPAC Code requires its member companies to designate an employee with sufficient knowledge and appropriate qualifications, or a senior employee who can receive scientific advice from adequately qualified personnel, to be responsible for approving all promotional communications.

The content of advertising must be examined and approved by the provincial MPA before pharmaceutical advertisements are released. On receipt of an application to release a pharmaceutical advertisement, the provincial MPA must complete its review and decide whether to approve the application within ten working days. Where a pharmaceutical advertisement is approved for release, the provincial MPA will disclose to the public on its official website or by other means the:

The Advertising Law explicitly prohibits a comparison of a drug's efficacy and safety with other drugs in a pharmaceutical advert.

A drug advertisement must be examined and approved by the relevant provincial MPA before being made public. Where there is no marketing authorisation approval issued by NMPA, the advertising of unauthorised drugs or unapproved indications is unlikely to be approved for release. However, this restriction is not intended to interfere with a full and proper exchange of scientific information about unauthorised drugs or unapproved indications that is not promotional in nature, such as appropriate dissemination of investigational findings in scientific or lay communications media or at scientific conferences.

The statutory requirements for drug advertising also apply to marketing pharmaceuticals on the internet, including through social media channels. For example, online drug advertisements must also be approved by provincial MPAs before being released online. Website operators posting drug advertisements must file for content review with and obtain prior approvals from the relevant provincial MPAs.

Drug-related information to be displayed on the internet must be scientific, accurate, and comply with relevant laws and regulations. Online advertising of medicinal products is deemed to be direct-to-consumer advertising through public media. Therefore, prescription drugs cannot be advertised online.

The Interim Measures for the Administration of Internet Advertising impose some additional restrictions on internet advertising. For example:

The most common issues with pharmaceutical promotion and marketing in China are:

The administrative penalties that the enforcement authorities can impose for non-compliant advertising are specified in the Advertisement Law, the DAL, and Order 21, and include:

SAMR, together with its local branches, is primarily responsible for enforcing the advertising rules. Any entity or individual can file a written complaint to SAMR or its local branches about breaches of the advertising rules.

The content of advertising for pharmaceuticals must strictly adhere to the drug labels approved by NMPA and carry important information such as contradictions and adverse reactions.

Drug advertisements must not contain content such as:

Only OTC drugs can be advertised directly to consumers. OTC drug advertisements must state prominently "please purchase and use in accordance with the package insert or under the guidance of a pharmacist."

Prescription drugs can only be advertised in government-designated medical and pharmaceutical journals intended for health care professionals. A prescription drug advertisement must state prominently that "this advertisement is meant to be read only by medical and pharmaceutical professionals."

Certain drugs cannot be advertised, including:

The current regulatory framework for drug distribution does not permit free samples of marketed drugs to be provided to the public. However, donating pharmaceutical products to financially burdened patients under patient assistance programmes (PAPs) conducted by qualified persons is not prohibited.

Under the RDPAC Code, limited quantity samples of a pharmaceutical product can be supplied to medical institutions for the purpose of familiarisation of health care professionals with the product, but these samples must be marked as such so that they cannot be resold or otherwise misused.

Drug manufacturers and distributors are prohibited from:

In addition, both prescription drugs and OTC drugs cannot be supplied as prizes, bonuses, or gifts.

There are only a limited number of patient organisations registered as formal associations in China. China has not promulgated specific rules to regulate interactions between pharmaceutical companies and patient organisations.

As patients and/or carers represent a majority of members in the governing bodies of patient organisations, the regulations on interaction between pharmaceutical companies and patients or the general public generally apply to engagement with patient organisations (see Question 17).

The PICMP standard defines:

The statutory provisions do not provide specific guidance on what information must be included in advertising to HCPs and HCOs. In general, pharmaceutical representatives' promotional activities should be academic and not interfere with or influence the clinical use of drugs. The PICMP standard requires MAHs, when interacting with HCPs or HCOs, to focus on:

The Administrative Measures for Record-Filing of Medical Representatives (for Trial Implementation) issued by NMPA in 2020 prohibits medical representatives engaging in drug information transmission communication and feedback solicitation on behalf of MAHs from:

Restrictions on marketing practices are set out in the Anti-Unfair Competition Law (AUCL) and related regulations such as the Provisional Regulations on the Prohibition of Commercial Bribery. Serious offences can lead to criminal liability under the Criminal Law.

However, the statutory provisions do not provide specific guidance on common marketing practices. Multinational pharmaceutical companies typically refer to the RDPAC Code, which specifically provides that:

The Interim Administrative Measures for Receipt of Public Welfare Donations by Health and Family Planning Organisations sets out requirements and limitations for grants and sponsorships provided as donations to health care institutions. Donations can only be made to health care institutions and not to individual HCPs or a clinical department in a health care institution. In addition, health care institutions must not accept any donations that are either:

There is no mandatory requirement in China for pharmaceutical companies to report and make public details on payment and transfers of value made to HCPs or HCOs.

China only requires a certain degree of transparency in relation to donations. Under the Interim Administrative Measures for Receipt of Public Welfare Donations by Health and Family Planning Organisations, not-for-profit health care institutions that accept donations must disclose the following information on their websites or in other mainstream media within a specific timeframe:

These disclosure requirements are not intended to apply to for-profit HCOs.

Non-compliance with the rules on marketing to HCPs may be deemed commercial bribery and violate the:

Pharmaceutical companies may be deemed to have low credit worthiness if they commit commercial bribery, and might even be deprived of their bidding qualifications for public procurement.

Serious offences can also lead to criminal liability under the Criminal Law.

The key criteria to obtain a biopharmaceutical patent (invention) are:

The main legislation governing patents is the:

The Patent Law provides for the following types of patents:

The China National Intellectual Property Administration (CNIPA) is responsible for patent application, examination, re-examination, and invalidation.

For invention patents, CNIPA will publish the patent application after it passes preliminary examination, within 18 months of the filing or priority date (or earlier, if requested by the applicant). This is followed by a substantive examination, commenced at the applicant's request within three years of the filing or priority date.

CNIPA only conducts a preliminary examination for utility models and design patents.

China does not have a patent opposition process. A third party can submit observations to the CNIPA to challenge a patent application after it is published and before it is granted, specifying reasons why an application does not comply with the Patent Law. These observations can be considered by the examiner during the substantive examination, but the examiner is not obliged to interact or communicate with the party submitting them.

An applicant can expect to wait from two and a half years to five years to obtain an invention patent, and less than one year to obtain a utility model or design patent.

Under the Patent Law, the duration of protection from the filing date is:

A recent amendment of the Patent Law allows patent rights to be extended through a:

The Patent Law also provides a basis for patent linkage, which links generic drug applications to pharmaceutical patent protection. To benefit from this, the sponsor of a new drug must list the relevant patents in a public database created by NMPA. NMPA will set a one-time nine-month approval stay after receiving a patent dispute acceptance notification relating to a generic drug application. The first generic applicant (and any co-challenger(s)) with a Category IV certification (invalidating the relevant patent) will be granted a marketing exclusivity period of up to 12 months from the date of marketing authorisation. However, the exclusivity period will not exceed the originator's patent term.

A patent right owner can exclude others from making, using, offering to sell, selling, importing, or otherwise exploiting a granted patent covering a product or process used to make a product for a business purpose without the patentee's permission.

To determine whether there is patent infringement, China adopts an "all elements rule," meaning that all elements in a single claim must be covered by the allegedly infringing product or method. The doctrine of equivalence and estoppel are applicable in patent scope determination.

Common defences to patent infringement actions include:

The Bolar exemption and parallel import exemption are also applicable in China.

China is a party to the following key international IP treaties, among others.

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (TRIPS).

The Patent Cooperation Treaty 1970 (PCT).

The WIPO Hague Agreement Concerning the International Deposit of Industrial Designs 1925.

The WIPO Madrid Agreement Concerning the International Registration of Marks 1891.

The Paris Convention for the Protection of Industrial Property 1883

The main legislation governing trade marks is the Trademark Law and its implementation.

A trade mark must be capable of distinguishing the goods of a natural person, a legal person, or other organisation from those of others, including, but not limited to words, designs, letters, numerals, three-dimensional symbols, a combination of colours, and sounds, as well as combinations of these.

A trade mark must meet all the following conditions:

Marks that are prohibited and non-registerable include those that:

The China Trademark Office (CTMO) under the CNIPA is the authority for trade mark registration applications, examination, and re-examination.

A trade mark in China has a ten-year term starting from the day the registration is granted and can be renewed within the 12 months before its expiration. The CTMO also provides a six-month grace period for trade mark renewal.

The CNIPA had planned to reduce the trade mark registration period to seven months by the end of 2021, although this is still not the case. The trade mark registration process is as follows:

The main competition laws are the AUCL and the Anti-Monopoly Law (AML), which regulate:

The AML provides a comprehensive framework to regulate market competition in China.

To strengthen its anti-monopoly efforts, China issued the Anti-monopoly Guidelines in the Field of Active Pharmaceutical Ingredients (API) in November 2021, which specified principles to determine:

The Anti-Monopoly Bureau of SAMR was established to consolidate the anti-monopoly law enforcement functions of different governmental departments and improve anti-monopoly law enforcement.

There does not appear to be a particular key area of focus for pharmaceutical competition cases. There have been frequent cases of anti-monopoly violations in the pharmaceutical sector, for example:

A licensor should consider whether the licence will constitute a monopoly agreement under the AML if the licence could be found to restrict or eliminate competition.

The following types of agreements, among others, can risk being monopolistic behaviour:

The Provisions on Prohibition of Abuse of IP Rights to Exclude and Restrict Competition, effective 1 August 2015 and revised in 2020, and the Anti-Monopoly Guideline in the Field of IP Rights, effective 4 January 2019, provide certain safe harbours for IP-related transactions.

Licensing or transferring patents to foreign parties is regulated by the Ministry of Commerce (MOFCOM) under the Import and Export of Technology Regulations, which divide technology into the following categories:

A patent assignment must be registered at the CNIPA to be effective.

A patent or trade mark licence does not have to be recorded to be effective but recording at the CNIPA and the CTMO within a certain time limit allows the licensee to assert the licence against a third party acting in good faith.

NMPA and its local counterparts are the main regulatory agencies for pharmaceutical product safety.

NMPA through its adverse drug reaction (ADR) Monitoring Department, and local MPAs at all levels, are responsible for:

NMPA and the provincial MPA where the manufacturer is located supervise recalls by the manufacturer. This can include:

When necessary, NMPA and local MPAs can order manufacturers to recall defective products, and distributors and medical institutions to cease distribution and use of a drug. The recall notice contains basic information about the:

Failure to recall defective products can result in:

In China, medicinal product liability is governed by the Torts Liability section of the Civil Code. There are no significant differences between liability for drug products and for other products. One exception is that under Chapter 7 of the Torts Liability section, patients who suffer injury caused by defective drug products provided by health care institutions can claim against the drug MAH, drug manufacturer, or the health care institution.

A product liability claim must establish the following facts:

There are no legal requirements for the settlement of drug product liability disputes to be made public.

Drug MAHs or manufacturers are strictly liable for injury or damages caused by defective drug products.

A seller or importer of defective drug products is only liable if their fault contributed to the drug defect, or if they fail to identify the manufacturer or supplier of the defective drug.

Other parties, such as transport and warehousing service providers, may also be liable if their fault contributed to the drug defect.

If the drug is used off-label by physicians but does not have any quality issues, the physician may face liability for malpractice and be subject to administrative penalties.

It is common in China for businesses to purchase liability insurance for product liability claims.

Under the Product Quality Law, the general defences available for a product manufacturer (including a drug manufacturer) include that:

A product (including a drug) that complies with all national standards and industry standards will not be deemed defective. However, a certificate of compliance issued by the manufacturer before sale is not sufficient for proving compliance.

The claimant only needs prima facie evidence of the causal link between the defective drug product and the injury or damage.

To limit liability, the defendant must prove a lack of causation between the defective drug product and the injury or damage. This causation will not be established if the quality of the product conforms to the relevant national and industry standards. The defendant must show compliance with the relevant national and industry standards to avoid liability.

The statute of limitation for product liability claims is three years from the date the claimant knew or should have known their rights were infringed.

Claims become time-barred 20 years after the day the defective product was delivered to the first consumers, unless the term for safe use of the product has not yet expired.

When determining the claimant's knowledge of the infringement, the courts apply the standard of actual or constructive knowledge, that is, whether a reasonable person would know by using reasonable care.

Once claims are brought to trial, cases are ruled on by a panel of judges, or a panel consisting of judges and jurors. If a case follows the simple trial procedure, the trial can be heard by a single judge. Appeals must be conducted by a panel of judges.

To bring product liability claims on a collective basis, claimants in China can follow the joint action procedure, which is similar to class actions in common-law countries. However, joint actions for product liability are not common in China.

During joint actions, the parties can appoint a representative or representatives to attend the proceedings. The actions of the representative (or representatives) bind all claimants.

The Civil Code gives consumers the right to demand that manufacturers and sellers eliminate danger caused by unsafe drug products. Drug manufacturers and sellers must issue product warnings to caution consumers against defects and, in serious cases, recall their drug products from the market.

In the event of physical injury, the claimant may be entitled to compensation representing:

Under the Provisions on Issues Concerning the Application of the Law on Food and Drug-related Disputes promulgated by the People's Supreme Court, a claimant can claim ten times the purchase price of a defective drug product, even if the claimant did not suffer any injury.

Under the Civil Code, punitive damages are available when drug manufacturers or distributors fail to take effective remedial measures to stop the distribution or recall of products from the market (see Question 35).

The Chinese legal system does not distinguish indirect losses/damages or consequential losses from direct losses.